SEATTLE – Plum Creek Timber Company, Inc. (NYSE: PCL) today announced third quarter earnings of $100 million, or $0.58 per diluted share, on revenues of $414 million. Earnings for the third quarter of 2014 were $61 million, or $0.34 per diluted share, on revenues of $375 million. The results for the third quarter of 2014 included a $3 million, or $0.02 per diluted share, after-tax gain from insurance recoveries related to a fire at the company’s medium density fiberboard (MDF) plant in June 2014.
Earnings for the first nine months of 2015 were $163 million, or $0.93 per diluted share, on revenues of $1.1 billion. For the first nine months of 2014, earnings were $146 million, or $0.82 per diluted share, on revenues of $1.0 billion. Results for the first nine months of 2014 included a $2 million, or $0.01 per share, after-tax gain reflecting insurance recoveries net of the fire losses from the MDF fire.
Adjusted EBITDA, a non-GAAP measure of operating performance, for the first nine months of 2015 was $472 million, higher than the $389 million in the same period of 2014. The growth in adjusted EBITDA is largely the result of the timing of Real Estate activity during 2015. A reconciliation of adjusted EBITDA to net income and cash flow from operations is provided as an attachment to this release.
“Earnings for the third quarter were better than we initially anticipated with good performance from each of our business segments despite uneven demand and more challenging near-term market conditions,” said Rick Holley, chief executive officer. “As always, our operations are remaining flexible, adjusting to local market conditions with the goal of maximizing the value of our harvests over the long term.”
Review of Third Quarter Operations
The Northern Resources segment reported operating income of $6 million during the third quarter, compared to the $13 million reported during the third quarter of 2014. Overall harvest volumes were about 167,000 tons, or 16 percent, lower than the same period of 2014. Fire restrictions during the quarter limited harvesting activity somewhat in the western states, impacting the segment’s sawlog harvest by approximately 50,000 tons. Fire damaged only 350 acres of Plum Creek lands despite the active Western fire season. Average sawlog prices in the third quarter declined about $4 per ton, or 5 percent, from near record levels reported in the prior year. Average pulpwood prices increased $4 per ton, about 9 percent, over the third quarter of 2014. Pulpwood demand remained strong as mills in the Lake States and New England found it challenging to build log inventories due to tight supply conditions in both regions.
Operating income in the Southern Resources segment was $33 million, down $2 million from the third quarter of 2014. Although harvest volumes were largely unchanged compared to the third quarter of 2014, the harvest mix shifted toward a higher component of pulpwood. Average sawlog prices were comparable to those reported a year ago, while Southern pulpwood prices increased $1 per ton, approximately 5 percent, over the same period.
The Real Estate segment reported revenue of $129 million and operating income of $84 million in the third quarter of 2015. Third quarter 2014 revenue was $69 million and operating income was $34 million. Results for the third quarter of 2015 included the previously disclosed sale of approximately 98,000 acres of non-strategic timberlands in Florida for $1,230 per acre. The company also sold 3,700 acres of recreation lands for $2,015 per acre and 1,060 acres of small non-strategic timberlands, primarily in New England, for $650 per acre during the quarter.
The Manufacturing segment reported operating income of $8 million for the third quarter compared to $16 million for the third quarter of 2014. The 2014 results included a $5 million pre-tax insurance recovery gain. Excluding the non-recurring gain, results in the third quarter of 2014 were $11 million. The $3 million decline in profitability compared to the prior year is primarily due to weaker results from the lumber product line.
Operating income from the Energy and Natural Resources segment was $5 million, down $1 million from the third quarter of 2014. The decrease in earnings was primarily the result of lower royalty income from coal and natural gas assets compared to the third quarter of 2014.
During the third quarter of 2015, the company announced it had formed a joint venture with several institutional investors to own and sustainably manage a portfolio of U.S. timberlands. The joint venture, Twin Creeks Timber, LLC, will provide the institutional investors an opportunity to co-invest in timberlands currently owned by Plum Creek and to purchase other high quality timberlands on the open market. The initial portfolio, valued at approximately $560 million ($2,150 per acre), will consist of 260,000 acres of Southern U.S. timberland located in five states and will be sourced from Plum Creek timberlands in the region. In January 2016, Plum Creek will sell timberlands valued at approximately $420 million to Twin Creeks for cash, and contribute timberlands valued at approximately $140 million for a 25 percent equity interest in the joint venture. The venture is expected to begin operations in January 2016.