Plum Creek Marginally Beats - Analyst Blog

Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., reported fiscal 2010 fourth quarter earnings of $59 million or 37 cents per share, compared with $28 million or 17 cents in the year-earlier quarter. Excluding charges relating to early extinguishment of debt, recurring earnings for the quarter were 45 cents per share, which marginally exceeded the Zacks Consensus Estimate by a penny.

Total revenues for the quarter were $356 million compared with $258 million in the year-ago quarter. Total quarterly revenues were in line with the Zacks Consensus Estimate. For full year 2010, Plum Creek reported earnings of $213 million or $1.31 per share, compared with $236 million or $1.44 per share in 2009. Excluding non-recurring items, earnings for full year 2010 were $1.32 per share, which were in line with the Zacks Consensus Estimate.

Total revenues for fiscal 2010 were $1.19 billion compared with $1.29 billion for 2009. Total fiscal 2010 revenues were in line with the Zacks Consensus Estimate. All the operating segments of the company performed relatively well during the year and management further expects overall operations to benefit from an improving economy in 2011.

By segment, the Northern Resources division reported an operating profit of $1 million during the quarter compared with an operating loss of $1 million in the previous year, primarily due to improved sawlog prices and lower input costs. Average sawlog prices were $6 per ton – a 12% increase on a year-over-year basis. However, the company restricted its sawlog harvest in the Pacific Northwest region and fiscal 2010 fourth quarter sawlog harvest was 920,000 tons, which was 260,000 tons lower than the year-ago period.

In the Southern Resources segment, operating profit was $28 million compared to $17 million in the year-ago quarter with improved sawlog prices and higher harvest volumes. While sawlog prices increased $1 per ton year-over-year, harvest volume increased 570,000 tons (22%) during the quarter compared to the year-earlier quarter.

Operating Income in the Real Estate segment was $73 million during the quarter on revenues of $155 million, compared with $44 million in the year-earlier quarter on revenues of $67 million. The Manufacturing segment reported an operating profit of $3 million during the quarter versus breakeven results in the previous year.

Plum Creek continued to sell large tracts of rural lands including non-strategic timberlands to raise cash. During the quarter, the company sold 115,000 acres of land, including over 69,000 acres related to the final phase of the Montana conservation sale. Plum Creek sold 16,100 acres of rural recreation lands at $2,000 per acre, 8,300 acres of conservation lands for nearly $1,000 per acre, and 21,400 acres of lower productivity, non-strategic properties at $1,050 per acre.

During the quarter, Plum Creek issued 4.7% 10-year bonds worth $575 million, and pre-paid $213 million notes scheduled to mature during the fourth quarter of 2011. The company also repaid a $250 million term credit agreement scheduled to mature in June 2012, and reduced debt under its Line of Credit with the proceeds raised from other debt offers. In addition, Plum Creek entered into a new four-year, $600 million revolving credit facility to increase its liquidity.

For full year 2010, Plum Creek generated $297 million of operating cash flow compared with $299 million in the year-ago period. At year-end 2010, the company had cash and cash equivalents of $252 million and total long-term debt of $1.6 billion, compared with cash and cash equivalents of $299 million and total long-term debt of $1.6 billion in 2009.

Management remains overtly optimistic about a strong performance in the current fiscal year. It further observed that refinancing plans during the quarter were according to its targeted plans and, consequently, the company was financially sound enough to benefit further as the overall economy continued to improve. For full year 2011, Plum Creek expects earnings in the range of $1.25 to $1.45 per share, while first quarter earnings are expected to be in the range of 20 cents to 25 cents.

We maintain our ‘Neutral' rating on Plum Creek. Plum Creek currently has a Zacks #3 Rank that translates into a short-term Hold rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a Neutral recommendation and a Zacks #3 Rank for Weyerhaeuser Co. (WY), a competitor of Plum Creek.

 
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