Earnings Scorecard: Plum Creek - Analyst Blog

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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 2012 first quarter earnings of 18 cents per share, which missed the Zacks Consensus Estimate by 5 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


Plum Creek reported fiscal 2012 first quarter earnings of $29 million or 18 cents per share, compared with $38 million or 23 cents in the year-earlier quarter. The year-over-year decline in earnings was primarily due to lower operating income from the Real Estate segment.

Total revenues for the quarter were $337 million compared with $275 million in the year-ago quarter. Total quarterly revenues exceeded the Zacks Consensus Estimate of $330 million. Adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) for the first quarter of 2012 was $139 million compared to $100 million in the year-ago quarter.

The company witnessed significant fluctuations in revenue generated across the geographical regions. With considerable geographic diversity, Plum Creek was able to adjust its harvest plans to capitalize on stronger markets and protect value in weaker ones. Consequently, management was confident to meet its earnings expectations for 2012.

(Read our full coverage on this earnings report: Plum Creek Misses Estimates )

Earnings Estimate Revisions - Overview

Fiscal earnings estimates have dipped for Plum Creek since the earnings release, meaning that analysts were somewhat bearish 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 2012 earnings estimates were lowered by 4 analysts out of 9 covering the stock, while 1 has raised the same. For fiscal 2013, 3 out of 7 analysts covering the stock have revised their estimates downward, while one has increased it. This indicates a negative directional movement for the fiscal year earnings.

Management also felt that the overall pace of recovery was slow. However, it expected the business conditions to improve as the year progresses.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2012 have dipped 4 cents from $1.17 to $1.13 since the earnings announcement. Management, however, remains overtly optimistic about a strong performance in the current fiscal year.

For full year 2012, Plum Creek expects earnings in the range of $1.00 to $1.25 per share. For fiscal 2013, earnings estimates have decreased 2 cents from $1.44 to $1.42. This is disappointing news for the company.

Moving Forward

The long-term earnings estimate picture of Plum Creek is neutral, although it is slightly skewed in the negative direction. 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.

Plum Creek's diversified timber and land base provides excellent operational flexibility to respond to changing market conditions amid challenging macroeconomic environment. The company is likely to continue to defer harvest and sell off non-core timber assets in order to fund its dividend and maintain significant liquidity.

This defensive behavior seems appropriate given the company's stated objective of maximizing long-term value and maintaining a stable dividend payout.

However, Plum Creek's business is affected by the slow recovery of the overall economy, which has resulted in a lesser demand for sawlog. 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.

Currently, we maintain our Neutral rating on Plum Creek with a Zacks #3 Rank, which translates into a short-term Hold recommendation. We also have a Neutral recommendation and a Zacks #3 Rank for Weyerhaeuser Co. ( WY ), a competitor of Plum Creek.

About Earnings Estimate Scorecard

As a PhD from MIT, Len Zacks proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These "Earnings Estimate Scorecard" articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/


 
PLUM CREEK TMBR (PCL): Free Stock Analysis Report
 
WEYERHAEUSER CO (WY): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: PCL , WY

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