Plum Creek Q2 Earnings Beat, Shares Fall on Trimmed View

Zacks

Aided by revenue growth, Plum Creek Timber Company Inc.’s (PCL) second-quarter 2014 earnings of 31 cents per share came in a cent above the Zacks Consensus Estimate, and 3 cents higher than the prior-year quarter figure. Results were in line with the company’s expectations (that is, its projected range of 27–32 cents per share).

However, as a result of reduction in its full year outlook to a range of $1.05 – $1.25 per share from a previous projection of $1.30 – $1.50, the earnings beat failed to raise investors’ sentiment. Consequently, the shares were down by nearly 3% in after hours trading on the NYSE. The cut reflects lower harvest volumes, anticipated slower growth in log price as well as composition of real estate deals in the rest of the year.

Nevertheless, total revenue in the second quarter grew 17.5% year over year to $356 million, surpassing the Zacks Consensus Estimate of $353 million.

 


Segment Performance in Q2

Northern Resources – This segment reported an operating profit of $5 million during the quarter, down 37.5% year over year. Though solid sawlog demand in the West drove a 5% year over year increase in its prices, the company experienced a 1% decline in average pulpwood prices and a 5% decrease in the overall harvest volume from the prior-year quarter level.

Southern Resources – This segment posted an operating profit of $33 million, up about 43.5% year over year with the Southern timberlands acquisition as a notable contributor to harvest volume and operating income. Average sawlog prices climbed about 3%, while pulpwood prices advanced around 9% from the year-ago quarter level.

Real Estate – This segment generated operating profit of $45 million, up 50.0% year over year. In the reported quarter, the company sold around a total of 31,530 acres of recreation lands, 23,640 acres of small, non-strategic timberlands and 11,875 acres of conservation lands.

Manufacturing – This segment recorded an operating profit of $10 million, down 28.6% year over year, as a result of production suspension and temporary halt of shipments from the Montana facility, due to the Jun 10 fire at this Medium-density fiberboard (MDF.TO) firm. Lumber prices rose 8% year over year, while MDF and plywood prices remained unchanged from the prior-year quarter level.

Energy and Natural Resource – This segment booked an operating profit of $6 million, up 50.0% year over year, reflecting solid cash-on-cash returns from its acquisitions over the past year.

Liquidity

Plum Creek ended second-quarter 2014 with $107 million in cash and cash equivalents, marginally up from $104 million at the end of the prior quarter, but down from $433 million at the prior-year end. Total long-term debt stood at $2.4 billion, unchanged from the prior quarter end as well as year-end 2013.

Outlook

Plum Creek, lowering its outlook for the full year, presently expects 2014 income in the range of $1.05 – $1.25 per share, reflecting a decline from the prior range of $1.30 – $1.50. The Zacks Consensus Estimate of $1.39 per share is also well ahead of the current guidance scale.

For third-quarter 2014, earnings are projected to be within 27–32 cents per share, much below the Zacks Consensus Estimate of 46 cents.

Plum Creek expects its 2014 timber harvest to come in at the lower end of the 20–21 million tons range. The company, in anticipation of improved prices, decided to shift some harvest volume to future periods. But this harvest deferral transfers around $15 million of cash flow to the future, causing a reduction of 7 cents per share in the earnings outlook.

Our Viewpoint

Despite Plum Creek’s earnings beat, we are disappointed by its muted outlook. While we believe that the company’s Southern Timberland buyout from MeadWestvaco Corporation (MWV) will favor its long-term growth; the sluggish pace of economic recovery, decline in harvest volumes and expected slower growth in log prices raise our concern for this Zacks Rank #4 (Sell) stock.  

We currently look forward to other REIT stocks that are scheduled to release second-quarter 2014 results this week. These include Boston Properties Inc. (BXP) and Equity Residential (EQR).

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