Weyerhaeuser Rises On Timber, Lumber And Homebuilding

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Weyerhaeuser ( WY ) is fired up about the housing recovery.

It manages and harvests timberlands and manufactures wood products used in home construction, such as plywood, particle board and engineered wood.

Weyerhaeuser also builds single-family homes under various brand names. It is especially active in California, Nevada and Arizona, where it operates as Pardee Homes.

"We're looking forward to 2013 because I think we have the opportunity to fully participate in this (housing) recovery," CEO Daniel Fulton told analysts in the fourth-quarter conference call.

In business since 1900, Weyerhaeuser is one of the largest owners of timberland in the U.S. It owns or controls more than 6 million acres in the Pacific Northwest and the South.

It's also one of the biggest manufacturers of wood and cellulose-fiber products. The company is based in Federal Way, Wash., between Seattle and Tacoma.

"Weyerhaeuser is sensitive to housing in three of its four business segments: real estate, wood products and ultimately timber, the logs it harvests and converts," said analyst Steven Chercover of D.A. Davidson.

Lumber Demand

The more homes built, the more lumber is needed, he says. And that means more trees for the company to harvest. Some of its timber is exported to Asia.

Weyerhaeuser's bullish management expects 2013 housing starts in the U.S. to top 1 million units, for 675,000 single-family homes and 335,000 multifamily units, a total that would be about 30% higher than in 2012.

The one business that's not sensitive to housing is cellulose fibers, which includes fluff products such as diapers.

Chercover compares Weyerhaeuser to a four-cylinder engine.

"Three of its cylinders were misfiring during the housing recession," he said. "Now that housing is improving, the whole engine is starting to perform instead of one cylinder."

The fourth quarter capped off a year that was the best in years as the company began to emerge from the negative effects of the housing downturn.

Earnings jumped 76% from 2011 to 58 cents a share. Analysts forecast profit will rise 90% this year, to $1.10 a share, according to Thomson Reuters. It had lost as much as $2.05 a share in 2009.

As a REIT, much of the company's profits are funneled back to shareholders. The firm raised its dividend late last year.

"They're starting to share the spoils of the better outlook and cash flow with shareholders," Chercover said.

First-quarter results will be released April 26. Analysts expect profit of 21 cents vs. just 2 cents in the same quarter a year ago.

But some analysts aren't too fired up about the company just yet. They caution that investors have already bid up shares in anticipation of the housing rebound.

"What to do with the stock: take profits," advised Credit Agricole Securities analyst Mark Connelly after Q4 results were released Jan. 25. Good advice? After falling some, shares have since climbed only slightly, logging most of their 24% year-over-year gain to date before the Q4 report.

Timber REITSPotlatch ( PCH ),Plumb Creek Timber ( PCL ) andRayonier ( RYN ) have also seen their shares rise in the last year. All three recently hit 52-week highs.

Connelly allowed that Weyerhaeuser's homebuilding operations in Southern California, Las Vegas and Phoenix appear to be "good news in the near term" as those "boom-bust" markets rebound strongly.

The company's real estate business in Q4 earned $81 million on $407 million in revenue. But results included a $65 million sale of non-strategic land in San Diego, which was zoned for multifamily housing.

Without the land sale, which amounted to 9 cents a share, Weyerhaeuser would have missed Wall Street views by a hair. With the sale, it earned 26 cents a share, up 86% from the earlier year.

Revenue totaled $2 billion, up from $1.6 billion a year prior.

Connelly noted that lumber and wood panel results were weaker than expected despite a strong pickup in prices. And the firm's fluff business, which carried the company through the downturn, "stalled" on overcapacity.

Industrywide, overcapacity issues are expected to ease by mid-year, however.

Bullish Forecast

Weyerhaeuser's bullish housing forecast for 2013 could support current strong prices for lumber and wood panels. Chercover said lumber prices at the end of March were $408 per thousand board feet vs. $279 a year earlier. Year-to-date, prices were up $25.

Wood particle board was up $60 in the first three months of 2013, he says. In the last year, the price had climbed from $202 to $430.

Fourth-quarter profit gains were driven mostly by timberland and real estate. Home sales in the company's Southern California and Las Vegas markets showed "significant turnaround," management noted.

"Our Pardee president described the change as though someone turned on a switch," CEO Fulton said in the Q4 earnings call. He said that California sales were up more than 80% and Las Vegas sales nearly tripled from a year earlier.

The California housing recovery bodes well for the firm's Western wood products and timberland sales, he said.

Pardee's home backlog at year-end was up 80% from the prior year, while the average home price in backlog was 13% higher.

The company's homebuilding division should have "momentum into 2014," Chercover says.

Meanwhile, Weyerhaeuser's export shipments to Japan, China and South Korea have been growing, especially on higher demand from Japan. About 70% of the firm's exports go to Japan, 20% to China and the rest to Korea.

Japan is more profitable because it buys higher-quality logs.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Investing Ideas

Referenced Stocks: PCH , PCL , RYN , WY

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