Who doesn't like trees? They're pretty, they provide shade, they're good for the environment, and so on. As the owner of a decent-sized chunk of old-growth North Carolina pine forest, I can confidently say that wood is good.
Oh, by the way, you can sell it, too.
This point is not lost on Plum Creek Timber (NYSE: PCL ) , a timber company that has organized itself as a REIT (after long ago starting its public life as a limited partnership). Not only has the company increased its acreage and harvests over time, but also it has delivered good performance and income to its shareholders.
Second-quarter results reflect another ho-hum great performance. And don't think for a minute that I'm trying to denigrate this company -- not at all. It's just that I have a hard time getting really worked up about quarterly earnings for Plum Creek. I mean, when your product takes 20 to 90 years to produce, it tends to push you toward a longer-term view of things.
Revenue was up about 5% for the quarter, and the company posted 9% operating income growth. Harvest volumes in the north grew 8%, while volumes grew 24% in the south (though the year-ago level was depressed by bad weather). Sawlog prices have remained firm, and the company has seen solid pricing for pulpwood as well.
For the full year, Plum Creek is on track to harvest between 19 million and 19.5 million tons of wood -- the higher end of which I believe would be a record for the company. While management thinks it could harvest more if prices warranted it, it stands ready to cut back the harvests if prices don't justify them. That's the beautiful thing about timber -- if you don't like the current price, you can sit back and watch your product get bigger and more valuable.
I'm a fan of this company, and I've owned the stock in the past. That said, I share Fool colleague Rich Smith's concerns about the present market for timberland. Simply put, it seems like this mini-boom in lumber prices has brought new investors out of the woodwork, and a lot of money seems to be chasing timber these days.
That suggests, then, that Plum Creek's shares might be a bit overvalued today. I do believe that long-term-oriented investors will come out fine in these shares, but for Fools now looking at the timber space for the first time, they need to realize that they might be getting into the market at the same time as many other investors.
For more on Plum Creek:
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that
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he's neither long nor short the shares).
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