Timber REITs: Plum Creek (PCL) and Rayonier (RYN) Just Beat Q4 2010 Expectations

2 02 2011

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

Both Plum Creek (PCL) and Rayonier (RYN) reported Q4 2010 results in the past week.  Both firms just beat market expectations through off-setting different combinations of higher and lower pricing and volumes across their business segments.

On January 31, 2011, PCL reported Q4 2010 net income at $0.45 per share (excluding special items), a penny ahead of consensus, primarily due to higher-than-expected Real Estate sales.

Northern Resource operating income was lower compared with the prior-year quarter, due to lower volumes and slightly weaker pricing. Prices for sawlogs in the West started recovering later in the quarter, due to rising export demand. PCL expects to export 7% of its Oregon sawlogs in Q1 2011. Southern Resource operating income benefitted from higher sawlog harvest volumes, which offset a 3-4% decline in pricing for pulpwood and sawlogs.

Real Estate operating income was $73 million, up from $44 million for Q4 2009, as the company sold ~115,000 acres of land during the quarter. This included ~69,000 acres from the third phase of its Montana conservation sale. Wood Products reported profits of $3 million as prices for lumber and plywood increased 8% and 6% respectively.

Management expects 2011 earnings to be between $1.25 and $1.45 per share. Timber harvest levels and mix are expected to remain similar to last year.

On January 25, 2011, RYN reported fourth quarter net income (excluding special items) of $0.43 per share, four cents ahead of consensus. The beat can primarily be attributed to better-than-expected results from Performance Fibers.

Timber segment operating income was flat compared with the prior-year period. Eastern Region sales declined from the prior-year period, as higher prices were more than offset by lower volumes. Western Region sales and income improved from prior-year quarter, primarily due to higher prices (resulting mainly from stronger export demand).

Real Estate operating income of $1 million was $4 million lower than Q4 2009, reflecting lower rural sales volumes.  However, Performance Fibers income came in $4 million above the prior-year quarter, reflecting increased prices for both cellulose specialties and absorbent materials, while sales volumes were lower due to the timing of customer orders and production issues.

For 2011, the company expects better timber segment results resulting from continued export demand for sawlogs and strong pulpwood demand in the Southeast. Performance Fibers is expected to continue to benefit from strong demand for cellulose specialties Overall, Management expects the 2011 EPS to be between $2.50 and $2.70 per share.

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