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 20 cents per share, which exceeded the Zacks Consensus Estimate by 8 cents.
We cover below the results of the recent earnings announcement, subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
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 performances across all its 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. (Read our full coverage on this earnings report: Plum Creek Beats Estimates)
Earnings Estimate Revisions - Overview
Fiscal earnings estimates have dipped for Plum Creek since the earnings release, meaning that analysts are bearish about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 30 days, fiscal 2010 earnings estimates were lowered by all the 12 analysts covering the stock. For fiscal 2011, 11 out of 13 analysts covering the stock have revised their estimates downward. This indicates a negative directional movement for the fiscal year earnings.
Management also felt that the overall pace of economic 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.
Magnitude of Estimate Revisions
Earnings estimates for fiscal 2010 have dipped by a penny from $1.33 to $1.32 since the earnings announcement. For full year 2010, Plum Creek expects earnings in the range of $1.28 to $1.35 per share. For fiscal 2011, earnings estimates have decreased 8 cents from $1.49 to $1.41. This is disappointing news for the company.
The long-term earnings estimate picture of Plum Creek is negative. Plum Creek’s business is affected by the slow recovery of the overall economy, which has lowered the demand for sawlog. Plum Creek’s business is also affected by the cyclical nature of the forest products industry.
In addition, prices for logs and manufactured wood products remain highly volatile. As such, factors beyond the direct control of the company undermine its long-term growth potential.
However, Plum Creek is the largest publicly-held timber REIT, and owns the largest and most geographically diversified private timberland in the U.S. This enables the company to benefit from large economies of scale and capitalize on the increasing value of timber over time to offset several negative effects of cyclical commodity pricing.
Currently, we maintain our Neutral rating on Plum Creek, which presently has a Zacks #5 Rank translating into a short-term Strong Sell recommendation and indicates that the stock is expected to perform well below the overall U.S. equity market for the next 1–3 months.
Disclosure: No position