Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., reported fiscal 2011 second quarter earnings of $44 million or 27 cents per share, compared with $35 million or 21 cents in the year-earlier quarter. The second quarter 2011 earnings missed the Zacks Consensus Estimate by 2 cents.
Total revenues for the quarter were $284 million compared with $258 million in the year-ago quarter. Total quarterly revenues exceeded the Zacks Consensus Estimate of $279 million. The year-over-year increase in total revenues was primarily due to a strong performance in the Real Estate segment, partially offset by weaker-than-anticipated results from timber operations. With a considerable geographic diversity, Plum Creek was able to adjust its harvest plans during the quarter to capitalize on stronger markets and protect value in the weaker ones.
By segment, the Northern Resources division reported an operating profit of $3 million during the quarter, which was similar to that in the previous year. The second quarter harvest has historically declined in the Northern Resources segment due to harsh weather conditions as fall and winter weather limits timberland accessibility. During second quarter 2011, sawlog harvest and pulpwood volumes decreased 3% and 30% respectively, compared to the year-ago period. However, average sawlog prices were $6 per ton higher and pulpwood prices were $2 per ton higher on a year-over-year basis.
In the Southern Resources segment, operating profit was $15 million compared to $24 million in the year-ago quarter. The year-over-year decline in profit was attributable to unusually dry weather pattern that temporarily increased supply. This was in stark contrast to the wet weather and poor logging conditions in the year-earlier period that resulted in temporary log shortages. Consequently, pulpwood and sawlog prices decreased $3 per ton and $4 per ton, respectively, on a year-over-year basis. Harvest volumes at 1.6 million tons remained 10% higher to that of the prior-year levels.
Operating Income in the Real Estate segment was $50 million during the quarter on revenues of $79 million, compared with $26 million in the year-earlier quarter on revenues of $43 million. The Manufacturing segment reported an operating profit of $5 million during the quarter, compared to $10 million in the year-ago quarter.
Plum Creek continued to sell large tracts of rural lands including non-strategic timberlands to raise cash. During the quarter, the company sold 2,700 acres of small, non-strategic timberlands for $1,125 per acre and 59,000 acres in Florida, Arkansas and Louisiana at an average price of approximately $1,050 per acre. The company also sold 6,300 acres of recreation lands for approximately $2,060 per acre.During third quarter 2011, Plum Creek expects to complete the acquisition of 50,000 acres of industrial timberland in northwest Georgiaand northeast Alabamafrom Forestar for $75 million.
During the reported quarter, Plum Creek generated $81 million of operating cash flow compared with $78 million in the year-ago period. At quarter-end, the company had cash and cash equivalents of $253 million and total long-term debt of $1.3 billion, compared with cash and cash equivalents of $250 million and total long-term debt of $1.6 billion in the year-earlier period.
Management observed that the business environment continued to be challenging as the pace of recovery remained slow and erratic. Furthermore, as sawlog prices in some Southern markets remained relatively unattractive, the company expects its 2011 harvest volume in the lower half of its initial guidance of 15 to 16 million tons. Plum Creek lowered its fiscal 2011 earnings expectation from the earlier range of $1.25-$1.45 per share to $1.15-$1.30, after taking into consideration its strategic decision to reduce the sawlog harvest volume vis-à-vis weak Southern sawlog prices. Third quarter earnings are expected to be in the range of 28 cents to 33 cents.
Plum Creek currently has a Zacks #2 Rank that translates into a short-term ‘Buy’ rating, indicating that the stock is expected to perform well below the overall U.S. equity market for the next 1–3 months. We have a ‘Neutral’ recommendation and a Zacks #3 Rank (short-term ‘Hold’) for Weyerhaeuser Co. (WY), a competitor of Plum Creek.
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