Q3 Timber REIT Earnings, Part II: Soon-to-be-REIT WY Beats Consensus, PCH Lags

30 10 2010

From the desk of Neena Mishra, Director of Equity Research:

Weyerhaeuser (WY) reported its Q3 2010 results before market open on October 29, 2010. Excluding the income tax adjustment of $1.035 billion (related to its impending REIT conversion), net earnings were $81 million or $0.25 per share, ahead of the consensus estimate of $0.10. Excellent performance by the Cellulose Fibers segment (improved volumes and pricing as well as lower costs) primarily contributed to the outperformance.  The Timberlands segment also improved as higher income from sales of non-strategic timberlands more than offset lowered earnings from timber operations (due to lower log pricing and seasonally higher expenses). Real Estate results reflected lower earnings from land and lot sales, slightly offset by higher income from single family homebuilding operations. The Wood Products segment continued to generate losses as the average sales realizations for lumber and OSB declined significantly. Management guided Q4 results towards lower earnings from Timberlands (excluding timberlands sales), Cellulose Fibers and Real Estate segments and comparable losses from Wood Products.

Potlatch (PCH) reported its Q3 2010 results before market open on October 28, 2010. Net earnings came in at $18.1 million or $0.45 per share, 14 cents below consensus. The positive point in the earnings report was improved performance by the Resource segment (sequentially higher volumes and improvement in both pricing and volumes year-over-year).  The Real Estate segment recorded higher operating income primarily due to the sale of 41,700 acres of non-strategic timberland to TIMO RMK for $29 million (first phase of the previously announced sale). Wood Products generated an operating loss of $600,000 mainly due to the decline in lumber prices during the quarter. The miss can largely be attributed to the poor operating performance by the Manufacturing segment. PCH Management does not provide earnings guidance but they lowered their harvest outlook towards the lower end of their previous guidance range (4.1 to 4.2 million tons from 4.0 to 4.4 million tons earlier) and stated that they will continue to defer sawlog harvest through Q4 2010 and most likely into 2011.





Wood Bioenergy: North Region Leads US in Total and Viable Projects

29 10 2010

According to Wood Bioenergy US, the number of announced and operating wood-consuming bioenergy projects in the continental US increased to 434 as of October 26, 2010.  In total, these projects represent potential, incremental wood use of 121.9 million green tons per year by 2020.  However, based on Forisk analysis of applied technologies and operational development, projects representing only 55% of this volume – 66.6 million tons per year – pass basic viability screening (see tables).

Of the three major US regions, the North – which includes the Northeast, Lake States and Appalachia – leads in projects, with 192 total projects (44.2% of all US projects) and 133 that pass Forisk’s screening methodology (49.3% of all viable US projects).

Click here to download the complete Wood Bioenergy US summary.





Q3 Timber REIT Earnings: RYN Beats, PCL Misses Expectations

28 10 2010

From the desk of Neena Mishra, Director of Equity Research:

Rayonier (RYN) reported its Q3 results before market open on October 26, 2010. Net income for the quarter came in at $63 million or $0.77 per share, 19 cents ahead of the consensus estimates. The beat was mainly due to better-than-expected results by the Real Estate segment, where a $10 million conservation sale, previously expected to close in the fourth quarter, closed in the third quarter. The quarter also included more-than-expected non-strategic timberland sales. Outstanding results by the Performance Fibers segment (driven by continued strong demand for both Cellulose Specialties and Absorbent Materials) also contributed to the solid overall results. The Timber segment continued to benefit from higher stumpage prices locked-in early this year. Improved stumpage prices offset the lower sales volume in the Eastern Region while the Western Region benefitted from stronger export demand. Management expects FY 2010 earnings to be at the higher end of their guidance range of $2.05 to $2.20 per share.

Plum Creek (PCL) reported its Q3 results after market close on October 25, 2010.  Earnings for the quarter came in at $32 million or $0.20 per share, on revenue of $259 million, compared with the consensus estimates of earnings of $0.24 per share. The miss can largely be attributed to lower real estate sales, where revenues of $39 million fell below the company’s guidance of $50 to $55 million. Timber segment earnings improved due to seasonally higher harvest levels and slightly higher pulpwood pricing in the Northern Segment and higher harvest volume (partially offset by slightly lower pulpwood pricing) in the Southern segment. Manufacturing income was lower from the previous quarter (though higher than the estimates) since the volumes declined (most notably for MDF as the temporary demand increase earlier created by the Chilean earthquake vanished), while the pricing was mixed. Management now expects the FY 2010 earnings to be between $1.28 and $1.35 per share.





Weyerhaeuser Pays Regular Dividend on Increased Share Count; Timber REITs Yield 4.74%

18 10 2010

Weyerhaeuser (WY) ended last week by declaring a regular quarterly dividend of $0.05 per share, payable on December 1, 2010 to shareholders of record at the close of business on November 5, 2010.

Due to the increased share count to 536 million shares from 212 million in the prior quarters, the total payout to shareholders will be $27 million, up from $11 million paid previously. WY’s share count increased on September 1, 2010, with the special dividend payment associated with the expected REIT conversion.

WY had reduced its quarterly dividend from $0.60 per share to $0.25 per share in January 2009 and further to $0.05 per share in July 2009. However, as noted in earlier posts, the dividend is expected to increase over the longer-run after its REIT conversion to align with the other timber REITs. Currently, WY’s dividend yields 1.27% compared with the average yield of 4.74% for the three timber REITs (see table below).  WY will provide guidance on future dividends in December 2010.

The table summarizes the relative size and recent financial performance of WY relative to the three timber REITs, which are indexed in the Forisk Timber REIT (FTR, “footer”) Index to provide a benchmark for comparative analysis.

For FTR Index calculation methodology, please visit www.forisk.com and click on “Services/Equity Research.”  For detailed historical FTR Index data in Excel or questions regarding the Index, please contact Neena Mishra, nmishra@forisk.com





Timber REIT Performance Varies Across Sector YTD

6 10 2010

Timberland assets provide to their owners the option of altering the mix and timing of forest harvest activities. During adverse market conditions, public timber REITS embrace this “option value.”  Over the past three years, we have seen Plum Creek (PCL), Potlatch (PCH) and Rayonier (RYN) defer harvests, mainly of higher valued sawlogs used to manufacture lumber, while shifting the harvest mix towards pulpwood markets, where pricing has remained relatively stable.

However, the financial returns of these firms are also subject to the performance their manufacturing assets. Wood products businesses – such as lumber, OSB and plywood – have operated at reduced levels due to subdued demand. As income from the timber and wood products segments declined, sales of non-strategic lands have become an important source of cash for timber REITs, especially for Plum Creek and Potlatch.  Alternately, Rayonier continues to benefit from the healthy results of its performance fibers segment due to stronger export markets and favorable pricing.  These differences across business operations partly explain the varying performances of individual timber REIT shares in 2010 (see figure).

Year-to-date, the Forisk Timber REIT (FTR, “footer”) Index returned 5.66% (annualized) versus 3.74% (annualized) for the S&P 500. Rayonier outperformed the sector with its share price up 26.21% year-to-date (annualized), with Potlatch up 7.99% and Plum Creek down 8.95%.

For FTR Index calculation methodology, please visit www.forisk.com and click on “Services/Equity Research.”

For detailed historical FTR Index data in Excel or questions regarding the Index, please contact Neena Mishra, nmishra@forisk.com

For information regarding Forisk Equity Research and quarterly coverage, please contact Brooks Mendell, bmendell@forisk.com





Number of Announced/Operating Wood Bioenergy Projects in the US Continues to Increase

1 10 2010

According to Wood Bioenergy US, the number of announced and operating wood-consuming bioenergy projects in the continental US increased to 408 as of September 24, 2010.  In total, these projects represent potential, incremental wood use of 119.9 million green tons per year by 2020.  However, based on Forisk analysis of applied technologies and operational development, projects representing only 62.2 million tons per year pass basic viability screening (see figure).

Based on this analysis, 52% of these publicly-known projects pass the screen. By region, 67% of the wood bioenergy projects in the North and West pass, while the pass rate in the US South is 38%.

Click here to download the complete Wood Bioenergy US summary.