Plum Creek Timber Company Inc. (PCL) has once again reported impressive results for first-quarter 2013. The company’s earnings per share reached 35 cents, comfortably surpassing the Zacks Consensus Estimate of 32 cents and well ahead of the year–ago quarter earnings of 18 cents. Net income for the quarter nearly doubled to $56 million from $29 million reported in the prior-year quarter.
The better-than-expected results at this real estate investment trust (:REIT) were driven by increasing demand for wood products stemming from a recovery in the residential construction market. The company has registered a decent performance across its segments.
Plum Creek is aiming to increase its non-real estate adjusted EBITDA by $50 million this year. In this regard, it has already reported growth of $12 million in the first quarter.
Total revenue inched up nearly 1% year over year to $340 million and exceeded the Zacks Consensus Estimate of $335 million. However, adjusted EBITDA (earnings before interest, tax, depreciation and amortization) came in at $128 million, down 7.9% year over year.
Northern Resources – This segment reported operating profit of $11 million during the quarter, which was well ahead of $6 million recorded in the year-ago period. Results reflect a rise in prices of sawlogs (15% year over year), driven by increased production at West Coast lumber mills to meet a recovering domestic demand. Pulpwood prices also registered a rise (2% from the prior-year period) attributable to solid hardwood pulpwood demand in the Northeast. Overall, harvest volumes remain nearly unchanged year over year.
Southern Resources – This segment booked an operating profit of $24 million, which surged 14.3% year over year, reflecting improved pricing for both sawlog (up 6% year over year) and pulpwood (up 14%). However, overall, harvest volumes fell around 2.3% year over year.
Real Estate – This segment generated operating profit of $45 million, up 50.0% from the prior-year quarter. Results reflect the disposition of 36,000 acres of large, non-strategic timberlands in Texas and Okla. for around $1,475 per acre. Moreover, the company vended about 5,700 acres of small, non-strategic timberlands at an average price of around $1,230 per acre and 7,600 acres of HBU/recreation lands for approximately $2,015 per acre.
Manufacturing – This segment posted an operating profit of $10 million in the quarter, which more than doubled from $4 million earned in the year-ago quarter. Results reflect increased prices of lumber, plywood, and medium density fiberboard compared to the prior-year quarter.
Balance Sheet Position
Plum Creek ended the quarter with $296 million in cash and cash equivalents compared with $356 million at the prior-quarter end. However, total long-term debt remains unchanged at $1.8 billion compared to the prior quarter-end.
Management at Plum Creek remains optimistic about an upbeat performance in 2013. For full-year 2013, the company expects earnings to range within $1.25 – $1.50 per share. For second-quarter 2013, earnings are projected to be in the range of 20 cents – 25 cents per share.
Total harvest volume is expected to be mostly unchanged in 2013 (between 17.5 and 18.0 million tons of timber compared with 17.9 million ton in 2012). During the second quarter, though the Southern harvest is projected to be similar to the first-quarter level, Northern Resources segment’s harvest levels are anticipated to fall to the lowest levels in 2013 as a result of the thawing spring weather conditions.
Full-year 2013 Real Estate segment sales is projected to range from $250 million – $300 million, while second-quarter sales are expected to come between $45 million – $50 million. Moreover, increasing product demand and continued solid pricing levels for its industrial plywood, MDF, and lumber products are expected to lead to an improvement in the earnings of the Manufacturing segment.
We are encouraged with Plum Creek’s impressive results in the reported quarter and believe that its diversified timber and land base enable it to benefit from large economies of scale.
Its deal with Drax and Vulcan Materials Company (VMC) will auger well for its top line. In addition, the upsurge in demographic trends driving housing markets and demand for real estate properties across the country provides a strong backdrop for the company to demonstrate its solid financial performance in the future.
Plum Creek currently has a Zacks Rank #1 (Strong Buy). A number of companies that are also performing well and are worth a look include Simon Property Group Inc. (SPG) and Acadia Realty Trust (AKR), both carrying a Zacks Rank #2 (Buy).
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