Plum Creek Timber Co. Inc. PCL is expected to report third-quarter 2015 results on Oct 26, after the market closes.

Last quarter, the company posted a positive earnings surprise of 50%. In fact, in the last four quarters, Plum Creek posted positive earning surprises with an annual average beat of 19.4%.

Let’s see how things have shaped up for this announcement.

Factors to Consider This Quarter

Plum Creek projects lumber production in the U.S. to rise in the second half of 2015, led by execution of certain capital projects and opening of new production facility. The company also expects demand for lumber to continue rising in North American markets, which it plans to meet with increased production in South.

For third-quarter 2015, Plum Creek predicts harvest levels in the Northern Resources segment to rebound to around 1 million tons, while it continues to expect Northern harvest volume for 2015 in a range of 3.5–3.6 million tons.  The company anticipates Northern sawlog price to remain stable in the third quarter as against the second quarter; while the average pulpwood price is projected to increase by $4 per ton from that of the prior quarter. All these are expected to get reflected in third-quarter 2015 results.

However, increasingly stringent environmental norms as well as intensified competition from substitute products pose challenges before the company. These will likely be reflected in third-quarter 2015 results.

Plum Creek’s activities during the quarter were inadequate to win analysts’ confidence. Consequently, the Zacks Consensus Estimate for the stock remained unchanged at 51 cents per share over the last 7 days.

Earnings Whispers

Our proven model does not conclusively show that Plum Creek will beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. That is not the case here as you will see below.

Negative Zacks ESP:  That is because the Most Accurate estimate and the Zacks Consensus Estimate per share stand at 50 cents and 51 cents, respectively. This translates into an Earnings ESP of -1.96%.

Zacks Rank #3: Plum Creek’s Zacks Rank #3, when combined with a negative Earnings ESP, makes surprise prediction difficult.

Note that, we caution against stocks with Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.

Stocks to Consider

You could consider stocks in the REIT sector that have the combination of a positive Earnings ESP and a favorable Zacks Rank, and are hence poised for an earnings beat this quarter:

Digital Realty Trust Inc. DLR has an Earnings ESP of +0.78% and a Zacks Rank #3. The company will report third-quarter results on Oct 29.

Hospitality Properties Trust HPT has an Earnings ESP of +1.08% and a Zacks Rank #2. The company will report third-quarter results on Nov 3.

Acadia Realty Trust AKR has an Earnings ESP of +2.86% and a Zacks Rank #3. The company will report third-quarter results on Nov 3.

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