Comments On Plum Creek's Third Quarter Results

| About: Plum Creek (PCL)

Plum Creek (NYSE:PCL) announced 3rd quarter results last Thursday. Sales were $354 million, up 20% from both Q2 and Q3 2011. Operating Income was $79 million, up 44% from Q2 and 14% from Q3 2011. Net income was $59 million, up 64% from Q2 and 18% from Q3 2011.

Cash provided by Operations for 2012 year to date was $237 million, down 19% from 2011. Debt is up 21% year to date and the debt to capital ratio is 60%. Cash on hand is $320 million. Cash generation is easily covering Plum Creek's dividend of $.42 a quarter.

As I have said in earlier articles, the four timber REITs, PCL, (NYSE:RYN), (NYSE:WY), and (NASDAQ:PCH) are quite different from each other. In 2012, Plum Creek derived about 36% of EBITDA from Timber, 53% from Real Estate, 8% from Wood Products, and 3% from other activities. Contrast this with the other tREITs who reported last week.






Plum Creek






Real Estate





Wood Products





Cellulose Fibers







EBITDA from Plum Creek's Timber segment showed an 8% gain over Q2 and a 10% gain over Q3 2011. Western prices were down from Q2 due to weak export prices and Southern prices were up slightly. Harvest volume for 2012 is up 18% over the first nine months in 2011. Total harvest for 2012 is expected to be about 11% over 2011. Sawtimber versus pulpwood mix remain about the same.

Wood Products EBITDA showed an 8% gain over Q2 and an 86% gain from Q3 2011 underscoring the rebounding housing market. Wood Products prices were up for lumber, plywood, and MDF. Plum Creek's lumber operation produces mainly boards, which are not a strongly correlated to the housing market as dimensional lumber produced by the other tREITs.

Plum Creek's EBITDA was dominated by Real Estate, which was up 114% from Q2 and up 50% from Q3 last year. Plum Creek's real estate business in 2012 accounted for 53% of the total EBITDA. Third quarter saw a 100,000 acres non-strategic timberland sale in Wisconsin that averaged $670 per acre.

For the 4th quarter, Plum Creek is predicting reduced earnings of $0.25 - $0.30 per share, down from the $0.36 in Q3. Plum Creek's stock price is now at $43.21, up 17% from $36.86 on January 1, 2012. The yield is about 3.8%, the highest of the four tREITs. The 52-week range is $34.22 to $44.99. Third quarter results were buoyed considerably by a large non-strategic timberland sale, a similar occurrence to the first quarter. These types of sales are very lumpy in nature and cannot be counted on over the long run. As of yet, higher log prices have not yet materialized from the demand for wood brought about by the improving housing sector, and export demand from China is weak. When either or both of these factors improve, Plum Creek's earnings and cash flow should rebound considerably.

Disclosure: I am long PCL, RYN, PCH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.