Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (:REIT) owning and managing timberlands in the U.S., reported earnings of $59 million or 36 cents per share in the third quarter of 2012, compared with $50 million or 31 cents in the year-earlier quarter.
The year-over-year increase in earnings was primarily due to higher demand for wood products during the reported quarter, resulting in improved performance by the timber and manufacturing businesses. The third quarter 2012 earnings were in line with the Zacks Consensus Estimate.
Total revenues for the quarter were $354 million compared with $293 million in the year-ago quarter. Total quarterly revenues exceeded the Zacks Consensus Estimate of $343 million. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the third quarter of 2012 was $146 million compared to $108 million in the year-ago period.
By segment, the Northern Resources division reported an operating profit of $5 million during the quarter compared with $7 million in the previous year, primarily due to a dip in average sawlog prices. Average pulpwood prices, however, remained relatively flat at $42 per ton. Overall harvest volume decreased approximately 40,000 tons (4%) year over year.
In the Southern Resources segment, operating profit was $23 million compared to $21 million in the year-ago quarter. The year-over-year rise in profit was attributable to higher harvest volumes due to strong demand of pulpwood, and higher sawlog and pulpwood prices (approximately $1 per ton each). Pulpwood volumes increased 318,000 tons (up 17%) from the prior-year period, while that of sawlog surged by 244,000 tons (up 19%).
Operating Income in the Real Estate segment was $54 million during the quarter on revenues of $96 million, compared with $46 million in the year-earlier quarter on revenues of $67 million. The year-over-year spike in revenues and operating income was mostly due to the sale of 100,000 acres of Wisconsin timberland for $67 million. The Manufacturing segment reported an operating profit of $9 million during the quarter, compared with $3 million in the year-ago quarter.
During the reported quarter, Plum Creek generated $148 million of operating cash flow compared with $137 million in the year-ago period. At quarter-end, the company had cash and cash equivalents of $320 million and total long-term debt of $1.6 billion.
Management remains overtly optimistic about an upbeat performance in the remainder of the year as well as in 2013. Housing starts are expected to be up 25% in 2012, and increase from 750,000 starts in the current year to 900,000 in 2013. For fourth quarter, earnings are expected to be in the range of 25 cents to 30 cents.
We maintain our Outperform rating on Plum Creek. Plum Creek currently has a Zacks #2 Rank that translates into a short-term Buy rating. However, we have a Neutral recommendation and a Zacks #1 Rank (short-term Strong Buy rating) for Weyerhaeuser Co. (WY), a competitor of Plum Creek.
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