Plum Creek Earnings Preview - Analyst Blog

Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., is scheduled to announce its fourth quarter and full year 2010 results after the market closes on January 31, 2011. The Zacks Consensus Estimate for the fourth quarter is 44 cents, representing a significant year-over-year increase of 132.7%. The Zacks Consensus Estimate for 2010 is $1.32, down 4.5% on a year-over-year basis.

Third Quarter 2010, a Synopsis

Plum Creek reported fiscal 2010 third quarter earnings of $32 million or 20 cents per share, compared with $19 million or 12 cents in the year-earlier quarter. The earnings exceeded the Zacks Consensus Estimate by 8 cents.

During third quarter 2010, Plum Creek reported revenues of $259 million vis-à-vis $294 million in the year-ago quarter. Total quarterly revenues were well below the Zacks Consensus Estimate of $272 million. Although total revenues declined year over year, the company reported better-than-expected performance across all the segments driven by stabilization in most timber markets and modest log price improvements. In addition, Plum Creek benefited from its manufacturing downsizing and cost-management efforts.

Plum Creek generated $105 million of operating cash flow during the quarter compared with $98 million in the year-ago quarter. At quarter-end, the company had cash and cash equivalents of $267 million and total long-term debt of $1.6 billion.

Although the third quarter results improved year over year, management felt that the overall pace of recovery was slow. It further observed that growth in real estate revenues was relatively lower as individual and family buyers remained cautious due to the challenging macroeconomic environment.

Agreement of Earnings Estimate Revisions

Earnings estimate revisions for Plum Creek have been scarce over the past month. Over the past 30 days, only 1 of the 14 analysts covering the stock has revised its earnings estimate downward for the final quarter of 2010, while none increased the same.

The earnings estimates for 2010 have been revised downward by 2 of the 14 analysts covering the stock, while none revised it positively. We believe that this is primarily due to the inherent operating risks of the company. Plum Creek's business is affected by the cyclical nature of the forest products industry. 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.

Magnitude of Earnings Estimate Revisions

Earnings estimates for the fourth quarter of 2010 have moved down marginally by a penny to 44 cents over the last 30 days. Similarly, earnings estimates for 2010 have decreased by a penny to $1.32. For full year 2010, Plum Creek expects earnings in the range of $1.28 to $1.35 per share, while fourth quarter earnings are expected to be in the range of 40 cents to 47 cents.

Moving Forward

Plum Creek is the largest publiclyheld 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.

Plum Creek's diversified timber and land base also provides excellent operational flexibility to respond to changing market conditions amid challenging macroeconomic environment. In addition, stabilization in market fundamentals driving housing markets and demand for real estate properties across the nation provides a strong economic backdrop for the company to demonstrate solid financial performance in the future.

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.

 
PLUM CREEK TMBR (PCL): Free Stock Analysis Report
 
WEYERHAEUSER CO (WY): Free Stock Analysis Report
 
Zacks Investment Research