Earnings Scorecard: Plum Creek - Analyst Blog

Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) that owns one of the largest private timberlands in the U.S., reported fiscal 2010 second quarter earnings of 21 cents per share, which exceeded the Zacks Consensus Estimate by 6 cents.
 
We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
 
Earnings Report Review
 
During second quarter 2010, Plum Creek reported revenues of $258 million vis-à-vis $272 million in the year-ago quarter. Although total revenue declined year over year, the company reported better-than-expected performance across all the segments with stabilization in most timber markets and modest log price improvements. In addition, Plum Creek is gradually benefiting from its manufacturing downsizing and cost management efforts.
 
(Read our full coverage on this earnings report: Plum Creek Tops Estimates)
 
Earnings Estimate Revisions- Overview
 
Fiscal earnings estimates have dipped for Plum Creek since the earnings release, meaning that analysts were somewhat bearish about the long-term performance of the company. Let’s dig into the earnings estimate details.
 
Agreement of Estimate Revisions
 
In the last 30 days, fiscal 2010 earnings estimates were lowered by 4 analysts out of 13 covering the stock, while 1 has raised the same. For fiscal 2011, 2 out of 13 analysts covering the stock have revised their estimates downward, while none have increased it. This indicates a negative directional movement for the fiscal year earnings. Management also felt that the overall pace of recovery was slow. It further observed that demand for sawlog has decreased as repair and remodel end-use markets and residential construction markets remained near historic lows.
 
Magnitude of Estimate Revisions
 
Earnings estimates for fiscal 2010 have dipped 2 cents from $1.48 to $1.46 since the earnings announcement. For fiscal 2011, earnings estimates have decreased 2 cents from $1.61 to $1.59. This is disappointing news for the company.
 
Moving Forward
 
The long-term earnings estimate picture of Plum Creek is negative. Plum Creek’s business is affected by the slow recovery of the overall economy, which has resulted in a lesser demand for sawlog. In addition, prices for logs and manufactured wood products remain highly volatile. As such, factors beyond the direct control of the company undermine its long-term growth potential.
 
However, Plum Creek is the largest publicly-held timber REIT, and owns the largest and most geographically diversified private timberland in the U.S. This enables the company to benefit from large economies of scale and capitalize on the increasing value of timber over time to offset several negative effects of cyclical commodity pricing.
 
Currently, we maintain our Neutral rating on Plum Creek with a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1-3 months.
 
About Earnings Estimate Scorecard 
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/