Plum Creek Timber Co. Inc. (PCL), a real estate investment trust (REIT) that owns one of the largest private timberlands in the U.S., 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 is gradually benefiting from its manufacturing downsizing and cost-management efforts.
By segment, the Northern Resources division reported an operating profit of $5 million during the quarter compared with an operating profit of $3 million in the previous year, primarily due to improved sawlog prices. Average sawlog prices increased by more than $10 per ton on a year-over-year basis. However, the company restricted its sawlog harvest in the Pacific Northwest region and fiscal 2010 third quarter sawlog harvest was 1,050,000 tons, which was 270,000 tons lower than the year-ago period.
In the Southern Resources segment, operating profit was $25 million compared to $21 million in the year-ago quarter as higher pulpwood prices were offset by lower sawlog harvest volume. While pulpwood prices increased $2 per ton year over year, harvest volume decreased 340,000 tons during the quarter compared to the year-earlier quarter.
Operating income in the Real Estate segment was $19 million during the quarter on revenues of $39 million, compared with $20 million in the year-earlier quarter on revenues of $73 million. Total segment revenues in the third quarter of 2009 included a $25 million land exchange with the Washington State Department of Natural Resources. The Manufacturing segment reported an operating profit of $7 million during the quarter versus an operating loss of $1 million 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 10,000 acres of recreational land for $2,335 per acre and 10,270 acres of non-strategic land for $1,025 per acre. In addition, Plum Creek sold 3,000 acres of conservation land for $1,900 per acre.
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 low as individual and family buyers remained cautious due to the challenging macroeconomic environment.
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. Plum Creek expects overall timber markets to be fairly stable during the fourth quarter, with sawlog prices improving year over year and pulpwood demand and prices remaining at historically attractive levels. We maintain our Neutral rating on the stock for the long term. The company presently has a Zacks #3 Rank, which translates into a short-term “Hold” rating.
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