Zacks_Analysts' Blog : Earnings Preview: Plum Creek - Analyst Blog

Plum Creek Timber Company Inc. (PCL), a real estate investment trust (REIT), is scheduled to report its third quarter 2011 earnings on October 24, 2011, after the closing bell. The current  Zacks Consensus Estimate for the third quarter is pegged at 30 cents per share, representing a year-over-year growth of 51.6%.

Second Quarter Recap

Plum Creek reported second quarter 2011 earnings of $44 million or 27 cents per share, compared with $35 million or 21 cents in the year-earlier quarter.  However, second quarter 2011 earnings missed the Zacks Consensus Estimate by  2 cents.

Total revenue in the quarter were $284 million compared with $258 million in the year-ago quarter. Total quarterly revenue exceeded the Zacks Consensus Estimate of $279 million. The year-over-year increase in total revenue was primarily due to strong performance in the Real Estate segment, partially offset by weaker-than-anticipated results from timber operations. With a considerable geographic diversity, Plum Creek managed to adjust its harvest plans during the quarter to capitalize on stronger markets and protect value in the weaker ones.

Guidance

Plum Creek lowered its fiscal 2011 earnings expectation from the earlier range of $1.25-$1.45 per share to $1.15-$1.30, after taking into consideration its strategic decision to reduce the sawlog harvest volume vis-à-vis weak Southern sawlog prices.

Agreement of Analysts

In the last 7 days and 30 days, none of the analysts  revised their earnings estimates for the first quarter or for fiscal 2011.  This demonstrates that analysts are mostly neutral about the future outlook of the company.

Magnitude of Estimate Revisions

Over the last 30 days, earnings estimates for the third quarter and fiscal 2011 remained unchanged at 30 cents and $1.19 per share, respectively, reflecting the cautious stance adopted by the analysts regarding the performance of the company.

Our Take

Based in Seattle, Washington, Plum Creek Timber Company, Inc. is a real estate investment trust (REIT) that owns one of the largest and most geographically diversified private timberland in the U.S.

Plum Creek’s diversified timber and land base provides excellent operational flexibility to respond to changing market conditions amid challenging macroe conomic environment. In addition, 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.

However, Plum Creek’s business is subject to strict environment policies, which have generally become more stringent in recent years. The company has to adhere to all the state laws and regulations and incur significant expenditures to minimize the adverse effect on the environment, failing which it could face severe penalties. This considerably affects the bottom-line growth of the company.

Plum Creek currently retains a Zacks #5 Rank, which translates into a short-term Strong Sell rating. We are also maintaining our long-term Underperform recommendation on the stock. One of its competitors, Potlatch Corporation (PCH) also holds a Zacks #5 Rank.