Plum Creek (PCL) announced 4th quarter and 2012 year-end results on January 28. See the results here. Sales were $1,339 million, up 15% from 2011. Operating income was $281 million, up 2% from 2011, and net income was $203 million, up 5% from 2011. Adjusted EBITDA was $530 million, up 19% from 2011.
Cash provided by operations for 2012 was $353 million, down 6% from 2011. Total debt was $2,950 million, up 6% from 2011 year-end. Cash on hand is $356 million. Cash generation is covering Plum Creek's dividend, which was $272 million in 2012, the same as 2011. PCL's dividend is 3.5% at this time.
When it comes to timber REITs, I prefer looking at EBITDA or cash from operations rather than net income because of the large non-cash expenses for depletion associated with timber. We will use EBITDA when talking about Plum Creek's different business segments. As I have said in earlier articles, the four timber REITs, PCL, Rayonier (NYSE:RYN), Weyerhaeuser (WY), and Potlatch Corporation (NASDAQ:PCH), have quite different mixes in their business segments. In 2012, Plum Creek derived about 34% of its EBITDA from timber, 55% from real estate, 7% from wood products, and 4% from other activities.
Housing starts for 2012 were 781,000, up 30% from 2011. Still, this is only about 50% of historic norms so there is tremendous upside for Plum Creek's businesses as the housing market continues to improve. Some are predicting another 30% increase in housing starts for 2013. For 2012, only 41% of Plum Creek's businesses, timber and wood products, were tied to the housing market. The other 59% came from their real estate and other activities.
For 2012, EBITDA from Plum Creek's timber segment was up 16% from 2011. Timber generated 34% of company EBITDA. This was with a 14% higher harvest volume. Prices were up only slightly over 2011 levels. As I have said in the past, log prices have still not benefited much from the improvement in housing. This was true in 2012 but should improve in 2013 as housing starts and demand for lumber continues to climb. Export demand, particularly from China, was soft in 2012. Demand from both China and Japan is expected to improve in 2013, however, Plum Creek has only minimal exposure to the export market, only 7% of their land is in the Pacific Northwest.
Wood products EBITDA was up 61% from 2011, further underscoring the rebounding housing market. Lumber production was the same as 2011, plywood production was up 16%, and fiberboard production up 25%. Prices for lumber were up 3%, plywood 11%, and fiberboard 3% over 2011. Plum Creek's wood products segment only represents 7% of EBITDA.
Real estate generated 55% of Plum Creek's 2012 EBITDA. Plum Creek's 2012 real estate EBITDA was up 19% over 2011. Unlike Weyerhaeuser, Plum Creek's real estate business is composed mainly non-strategic timberland and conservation sales. For 2012, only 10% of the sales acres and 15% of the revenues were for HBU or development properties. Non-strategic timberland and conservation sales added up to 242,720 acres out of 268,615 acres sold in 2012. The total acres sold were close to 4% of Plum Creek total ownership. At this rate, PCL will be out of business in about 25 years.
Plum Creek has been criticized in the past for supporting their dividend through land sales. However, they have explicitly identified about 800,000 acres as being non-strategic to their timber business. The largest non-strategic timberland sales were in Wisconsin, Florida, Georgia, and Oregon. Timberland could be classified as non-strategic for a number of reasons. It could be low in productivity, have high costs associated with operations, be in a poor market area, or, it could be just a convenient way to raise cash in an otherwise poor timber market. Surprisingly enough, demand and prices for good timberland remained strong through the last five years when log and lumber prices fell so low.
For 2012, Plum Creek's unit price has gone from $36.56 to $44.37, a 21.4% capital gain return. If you add a dividend of 3.4%, you get a total return of 24.8% for the year. That beats the S&P 500 18.4% gain for 2012.
Using Jeff Williams' "Behind the Number Analysis", gives Plum Creek six passes, and three fail out of nine tests. All in all, not a bad score.
1. Positive net income
2. Positive operating cash flow
3. Increasing year over year ROA
4. Operation cash flow being greater than net income
5. Shares outstanding growth less than 2%
6. Sales growth % being larger than asset growth %
1. Increasing total liabilities to total assets
2. Increasing current ratio
3. Decreasing gross margin to sales ratio
I generally do not recommend stocks one way or another, I just report on their businesses and financial results. Plum Creek has had a nice run-up in price in the last 12 months. Yet, with the housing recovery continuing, a predicted 30% in 2013, Plum Creek 's future looks bright. On the Charles Schwab website, Schwab, Standard and Poor's, Ned Davis, and Reuters rates PCL a "Hold" and Market Edge rate it a "Buy".
The following are not all part of Plum Creek's 2012 results but I felt them worth mentioning. During January, Plum Creek announced three new ventures.
- Plum Creek entered into a joint venture with The Rockefeller Group to develop 4,772 acres in Florida and Georgia.
- Plum Creek entered into a long-term fiber supply agreement with DRAX, a UK power company, to supply 770,000 tons annually to fuel pellet plants in Mississippi and Louisiana. The Europeans somehow think that by logging wood in the US South, trucking it to pellet plants, grinding, drying, and forming the wood into fuel pellets, transporting the pellets to port facilities, and shipping the pellets across the Atlantic to Europe, is greener and more earth friendly than burning any other fuels that they might have access to. Go figure. However, I should not criticize, as this is great for Southern timberland owners as it adds increased demand to the pulpwood market.
- Plum Creek acquired rights to 144 million tons of rock in South Carolina from Vulcan Materials for $75 million. The rock will be mined over a 20-year period.
- In January 2012 Plum Creek acquired a large 8-year timber lease in Florida that should add 700,000 to 800,000 tons to the annual harvest volume for the next eight years.