Timber REITs: Land Sales Offset Weak Log Markets for PCL and PCH in 2Q 2011

27 07 2011

Second quarter 2011 results reported by Plum Creek (PCL) and Potlatch (PCH) the past two days indicated continued weakness in those segments affected by housing markets (timber harvesting and wood products manufacturing).  Both firms somewhat offset lower timber harvesting cash flows with higher sales of timberlands. While sawlog pricing in the West still benefits from strong export demand (primarily China), sawlog prices in the South remained under pressure due to dry weather and weak demand.  (Dry weather provides optimal log harvesting conditions and, therefore, increases potential supplies in the down market.) Southern pulpwood prices also weakened due to weather related reasons.

PCL reported its 2Q 2011 earnings at $44 million or $0.27 per diluted share, two cents short of the consensus estimate. Operating income from Northern Resources remained unchanged year-over-year at $3 million, while Southern Resources’ operating income came in at $15 million, down from $24 million a year ago. Due to weak pricing, the company further reduced its sawlog harvest in the South by ~100,000 tons.  Real Estate reported operating income of $50 million, up from $26 million in 2Q 2010, from large conservation sales in Florida, Arkansas and Louisiana. Manufacturing income was $5 million, compared with $8 million (excluding one-time gains) in the prior year quarter.  Management lowered its guidance for 2011 operating income to $1.15­­–$1.30 per share, reflecting lower harvest levels and weaker Southern sawlog prices. The company will complete its previously announced acquisition of 50,000 acres of timberland during 3Q 2011.

PCH reported net earnings of $8.4 million or $0.21 per diluted share, in-line with consensus estimates. Resource segment operating income was $7.5 million, down from $15 million in 2Q 2010. Harvest levels were down both in the Northern and Southern regions. Real Estate operating income was $11 million, as the company sold ~12,000 acres of non-strategic land and ~2,000 acres of rural land. Wood Products income was $2.8 million, down from $6.0 million in 2Q 2010.

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