Earnings Scorecard: Plum Creek Timber

| About: Plum Creek (PCL)

Plum Creek Timber Co. Inc. (NYSE:PCL), a real estate investment trust (REIT) owning and managing timberlands in the U.S., reported fiscal 2010 fourth quarter recurring earnings of 45 cents per share, which marginally exceeded the Zacks Consensus Estimate by a penny.

We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

Total revenues for the quarter were $356 million compared with $258 million in the year-ago quarter. Total quarterly revenues were in line with the Zacks Consensus Estimate. For full year 2010, Plum Creek reported earnings of $213 million or $1.31 per share, compared with $236 million or $1.44 per share in 2009. Excluding non-recurring items, earnings for full year 2010 were $1.32 per share, which were in line with the Zacks Consensus Estimate.

Total revenues for fiscal 2010 were $1.19 billion compared with $1.29 billion for 2009. Total fiscal 2010 revenues were in line with the Zacks Consensus Estimate. All the operating segments of the company performed relatively well during the year and management further expects overall operations to benefit from an improving economy in 2011.

Earnings Estimate Revisions- Overview

Fiscal earnings estimates have moved in both directions for Plum Creek since the earnings release, meaning that analysts are neutral about the long-term performance of the company. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last 7 days, fiscal 2011 earnings estimates were raised by 4 analysts out of 13 covering the stock, while 3 had lowered the same. For fiscal 2012, none out of 11 analysts covering the stock have revised their estimates upward, while 1 has lowered it during the same time period. This indicates no clear directional movement for the fiscal year earnings.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2011 have decreased by 2 cents in the last 7 days to $1.38. For full year 2011, Plum Creek expects earnings in the range of $1.25 to $1.45 per share. For fiscal 2012, earnings estimates have decreased by 9 cents to $1.70 as cyclical nature of the business, cutthroat competition and strict environment policies undermine its growth potential.

Moving Forward

The long-term earnings estimate picture for Plum Creek appears to be a bit negative. Plum Creek’s business is affected by the cyclical nature of the forest products industry. In addition, prices for logs and manufactured wood products remain highly volatile.

Plum Creek operates in a cutthroat market and competes with national and local players on a number of factors, including quality and price. Wood products also face increasing competition from a variety of substitute products such as non-wood and engineering wood products. As such, factors beyond the direct control of the company affect its long-term profitability.

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.

In addition, the upsurge in housing market fundamentals and demand for real estate properties across the nation provides a strong economic backdrop for the company to demonstrate solid financial performance in the future.

We maintain our ‘Neutral’ rating on Plum Creek. Plum Creek currently has a Zacks #3 Rank that translates into a short-term Hold rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a Neutral recommendation and a Zacks #3 Rank for Weyerhaeuser Co. (NYSE:WY), a competitor of Plum Creek.