Plum Creek Timber Company Inc.’s (PCL) fourth-quarter 2014 adjusted earnings came in at 38 cents per share, 4 cents above the Zacks Consensus Estimate. Including the after-tax gain from insurance recoveries related to the Montana MDF plant fire, the company’s earnings were 39 cents per share.
Also, earnings comfortably surpassed the prior-year quarter’s adjusted figure of 31cents per share. Results benefited from growth in operating income of the timber resources segments.
For full year 2014, Plum Creek’s adjusted earnings came in at $1.19 per share, beating the Zacks Consensus Estimate of $1.14. However, the bottom line was lower than the year-ago figure of $1.39 per share.
Total revenue for the quarter was $428 million, up 29.3% year over year. Further, it beat the Zacks Consensus Estimate of $415 million. For 2014, total revenue was $1.5 billion, up 10.1% and almost in line with the Zacks Consensus Estimate.
Segment Performance in Q4
Operating income at the company’s Northern Resources segment moved up to $10 million in the reported quarter from $8 million recorded in the year-ago period. While Northern sawlog prices increased 6%, average hardwood pulpwood prices moved up about 5% year over year. Overall harvest volumes were mostly similar.
The Southern Resources segment posted an operating income of $38 million, up from $34 million in fourth-quarter 2013. During the quarter, total harvest volume moved up 11% year over year. Further, southern sawlog prices increased 5%, whereas pulpwood prices moved up $1 per ton.
Operating income at the Real Estate segment increased 35.5% year over year to $42 million. The Manufacturing segment recorded an operating income of $14 million, up 75% year over year. The results included gains from insurance recoveries associated with MDF fire. Excluding the gain, the segment’s operating income improved 25% year over year, mainly driven by higher industrial panel prices.
Lastly, the Energy and Natural Resource segment reported an operating income of $7 million, up 40% year over year.
Liquidity
Plum Creek ended fourth-quarter 2014 with $92 million in cash and cash equivalents, up from $90 million at the end of the prior quarter and down from $433 million at 2013-end. Total long-term debt stood at $2.0 billion, down from $2.4 billion at year-end 2013.
Outlook
Plum Creek projects the residential construction activities to grow at a measured pace in 2015, leading to around 1.1 million housing starts. The company expects to harvest 19–20 million tons of timber in 2015, almost similar to that of 2014.
The company projects the Real Estate segment sales to range from $250–$300 million, with first-quarter sales of around $100–$110 million. Plum Creek expects the lumber, specialty plywood and MDF markets to remain strong in 2015. Disregarding the impact of 2014 MDF fire, earnings from the Manufacturing segment are anticipated to be similar to the comparable year-ago figure.
Further, the company estimates 2015 third-party interest expenses be around $106 million, same as that incurred in 2014. In fact, the company expects 2015 to bear a resemblance to the preceding year in many aspects. Cash flows in 2015 are likely to be similar to that of the prior year. However, the company anticipates lower earnings in 2015, as land basis is expected to be around 5% higher in this year.
Plum Creek projects 2015 net income in the range of $1.05–$1.30 per share.
Share Repurchase
During 2014, Plum Creek bought back shares worth $50 million at a discount to net asset value and will continue to consider further buyback activities.
Our Viewpoint
We are encouraged with Plum Creek’s earnings beat and believe that the company’s Southern Timberland buyout from MeadWestvaco Corp. (MWV) will favor its long-term growth. But moderate growth in the residential construction market as well as a decline in harvest volumes raise our concerns regarding this Zacks Rank #4 (Sell) stock.
We currently look forward to other REIT stocks that are scheduled to release fourth-quarter 2014 results this week. These include Duke Realty Corp. (DRE) and Simon Property Group Inc. (SPG).
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