Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., reported fiscal 2011 first quarter earnings of $38 million or 23 cents per share, compared with $87 million or 54 cents in the year-earlier quarter. The first quarter 2011 earnings marginally missed the Zacks Consensus Estimate by a penny.
Total revenues for the quarter were $275 million compared with $317 million in the year-ago quarter. Total quarterly revenues exceeded the Zacks Consensus Estimate of $266 million. The company witnessed significant fluctuations in revenue generated across its geographical regions. 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. Consequently, management was confident of meeting its earnings expectations for 2011.
By segment, the Northern Resources division reported an operating profit of $7 million during the quarter compared with $4 million in the previous year, primarily due to improved sawlog prices. Average sawlog prices were $10 per ton – a 17% increase on a year-over-year basis. However, the company restricted its sawlog harvest in the Pacific Northwest region and fiscal 2011 first quarter sawlog harvest was 170,000 tons less than that of the year-earlier quarter.
In the Southern Resources segment, operating profit was $19 million compared to $30 million in the year-ago quarter. The year-over-year decline in profit was attributable to the fact that dry weather pattern and good harvesting conditions during the quarter allowed customers to maintain high log inventories. 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, both pulpwood and sawlog prices decreased $3 per ton year-over-year, although harvest volumes remained similar to that of the prior-year levels.
Operating Income in the Real Estate segment was $38 million during the quarter on revenues of $62 million, compared with $62 million in the year-earlier quarter on revenues of $99 million. The Manufacturing segment reported an operating profit of $4 million during the quarter, which was similar to 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 2,500 acres of small, non-strategic timberlands for $1,000 per acre and 30,300 acres of large, non-strategic timberlands at an average price of approximately $1,400 per acre. The company also sold 8,000 acres of recreation lands for approximately $2,100 per acre.
During the quarter, Plum Creek generated $76 million of operating cash flow compared with $129 million in the year-ago period. At quarter-end, the company had cash and cash equivalents of $254 million and total long-term debt of $1.6 billion, compared with cash and cash equivalents of $252 million and total long-term debt of $1.6 billion in the year-earlier period.
Management remains overtly optimistic about a strong performance in the current fiscal year. For full year 2011, Plum Creek expects earnings in the range of $1.25 to $1.45 per share, while second quarter earnings are expected to be in the range of 25 cents to 30 cents.
We maintain our ‘Neutral’ rating on Plum Creek, which currently has a Zacks #4 Rank that translates into a short-term ‘Sell’ rating, indicating that the stock is expected to perform well below the overall U.S. equity market for the next 1–3 months. We also have a Neutral recommendation and a Zacks #3 Rank (short-term ‘Hold’) for Weyerhaeuser Co. (WY), a competitor of Plum Creek.
PLUM CREEK TMBR (PCL): Free Stock Analysis Report
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