We are upgrading our recommendation on Plum Creek following
better-than-expected third-quarter 2014 earnings results. The
company's adjusted earnings came above the Zacks Consensus Estimate
as it benefited from growth in operating income of the timber
resources segments. Going forward, we believe that the company's
timber lands and other assets acquisition from MeadWestvaco would
be cash-flow accretive in 2014. Moreover, the company remains
committed toward enhancing shareholders' value. It plans to sell
timberland at full private market price and use the proceeds to
buyback shares and repay debt. But tepid growth in the residential
construction market, a decline in harvest volumes and anticipated
slower growth in log prices raise our concern. However, we believe
that as Plum Creek is having a notable exposure in Southern
sawlogs, a rebound in housing starts can be well capitalized on by
the company, going forward.
Based in Seattle, WA, Plum Creek Timber Company Inc. is a
leading publicly held timber real estate investment trust (REIT)
and the largest owner of private timberland in the U.S. The company
produces lumber, plywood and medium density fiberboard (MDF) at
wood product manufacturing facilities in the Northwest. The company
also has natural resource businesses that focus on opportunities
resulting from property ownership. It includes the scope for
mineral extraction and natural gas production as well as
communication and transportation.
Plum Creek reports its operational data under five business
segments. It includes timberland operations in two business
segments: the Northern Resources Segment and the Southern Resources
Northern Resources Segment comprises timberlands in Maine,
Michigan, Montana, New Hampshire, Oregon, Vermont, Washington, West
Virginia and Wisconsin. Timber harvested in the Northern Resources
segment is sold as logs to domestic mills and used in its own
manufacturing facilities as well. The Southern Resources Segment
consists of timberland in Alabama, Arkansas, Florida, Georgia,
Louisiana, Mississippi, North Carolina, Oklahoma, South Carolina
and Texas. Logs are sold to third-party mills including
manufacturers of lumber, plywood, pulp and paper products.
Among other segments, Real Estate segment comprises sale of
better-use timberland and non-strategic timberland. It also
operates a real estate development business.
The Manufacturing segment includes lumber mills, plywood plants,
lumber-remanufacturing facilities and medium density fiberboard
facilities. These facilities convert logs to lumber, plywood and
other products and convert chips, sawdust and wood shavings to
Moreover, Plum Creek has the Energy and Natural Resources
segment consisting of the natural resource businesses, which focus
on opportunities for oil and natural gas production, rock and
mineral extraction, wind power and communication and transportation
rights. This segment was previously known as Other segment and
effective fourth-quarter 2013, the company changed its name to
maintain the transparency and comparability of its existing
Plum Creek's total revenue contribution by different product
types in second-quarter 2014 is given below.
Plum Creek Timber Co. Inc. (PCL): Read the Full
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