The Rising Influence of Rising Affluence

[DewDiligence]

PCL is likely to have a sell-off tomorrow because the company lowered its 2014 GAAP EPS guidance by $0.25 at the top and bottom of the range:

http://ih.advfn.com/p.php?pid=nmona&article=63056474

Of the $0.25 reduction in GAP EPS, $0.18 is a non-cash item in the real-estate segment: the planned land sales during the rest of 2014 will have a higher balance-sheet carrying value than the land that was originally intended to be sold. I.e. land sales for 2014 will still be in the original guidance range of $240-280M (of which $140-180M will come during 2H14), but the average cost basis of the land being sold will be 45% of the sale price rather than the previously expected 35% of sales, thereby reducing the GAAP capital gains on these sales. This has no bearing whatsoever on the health of PCL’s real-estate segment, but rather derives from the company’s opportunistic decision to sell different tracts of land than the ones they originally planned to sell.

The other $0.07 of the $0.25 GAAP EPS reduction is $15M of real money, but this $15M has been deferred to subsequent years, not forfeited. I.e., PCL decided to harvest 500K fewer tons of timber in its southern region than previously expected because they would rather wait for prices of southern sawlogs to improve. The trees comprising the 500K tons in question will simply continue growing until PCL decides the time has come to harvest them.

Since most investors do not understand PCL’s business very well and will likely presume that the reduction in GAAP EPS guidance means the business is in trouble, I expect tomorrow to be a buying opportunity.