Weyerhaeuser Company (WY)

WY 
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Weyerhaeuser (WY)

Q4 2012 Earnings Call

January 25, 2013 10:00 am ET

Executives

Kathryn F. McAuley - Vice President of Investor Relations

Daniel S. Fulton - Chief Executive Officer, President, Director and Member of Executive Committee

Patricia M. Bedient - Chief Financial Officer and Executive Vice President

Analysts

Gail S. Glazerman - UBS Investment Bank, Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

Chip A. Dillon - Vertical Research Partners, LLC

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Carly Mattson - Goldman Sachs Group Inc., Research Division

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Mark Wilde - Deutsche Bank AG, Research Division

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Steven Chercover - D.A. Davidson & Co., Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated

Paul C. Quinn - RBC Capital Markets, LLC, Research Division

Presentation

Operator

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Q4 2012 Earnings Call. [Operator Instructions] And I'd like to turn the call over to your host, Kathryn McAuley, Vice President of Investor Relations. Ma'am, please go ahead.

Kathryn F. McAuley

Thank you. Good morning. Thank you for joining us on Weyerhaeuser's Fourth Quarter 2012 Earnings Conference Call. This call is being webcast at www.weyerhaeuser.com. The earnings release, analyst package and web slides for this call can be found at our website or by contacting April Meier at (253) 924-2937.

Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. Joining me this morning are Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer.

As summarized on Chart 1, Weyerhaeuser reported fourth quarter 2012 net earnings of $143 million or $0.26 per diluted share and net sales of $2 billion. For the full year of 2012, Weyerhaeuser reported net earnings of $385 million or $0.71 per diluted share on net sales of $7.1 billion.

Turning to our business segments. My comments reviewing the fourth quarter 2012 refer to changes from the third quarter of 2012. Beginning with Timberlands, Charts 2 and 3. Timberlands contributed $95 million to pretax earnings, $15 million more than in Q3. Earnings from nonstrategic land dispositions were $20 million, a decrease of $5 million. In the West, log price realizations increased 8% and volumes rose 5%, driven by strong export in domestic demand. Southern log price realizations increased 3% and volumes rose 9% as log demand began to tighten. Fee harvest volumes were 13% higher in the South and 5% higher in the West. These increases were due to seasonal factors and market demand.

Wood Products, Charts 4 and 5. Wood Products contributed $38 million to pretax earnings in Q4, $21 million less than in third quarter. Commodity products benefited from tight inventory channels. Price realizations increased 2% for lumber and 8% for oriented strand board. Lumber volumes were 1% higher, and oriented strand board volumes rose 6%.

Engineered wood product volumes were seasonally weak. Solid section volumes declined 12% and TJI's 14%. Increased log and raw material costs in maintenance downtime resulted in higher operating costs.

Cellulose Fibers, Charts 6 and 7. Cellulose Fibers contributed $61 million to pretax earnings, $17 million less than in Q3. Pulp sales price realizations declined 2% and sales volumes rose 6%. Liquid packaging board price realizations declined 6%, and volumes were 7% lower due to operational issues at a production facility. Chemicals and energy costs increased in the quarter. These cost increases were partially offset by lower maintenance costs. During the fourth quarter, there was one scheduled maintenance outage of 6 days versus 13 days maintenance outage in third quarter.

Real Estate, Charts 8 and 9. Real Estate contributed $81 million to pretax earnings, $64 million more than in Q3. Earnings from nonstrategic land sales were $65 million. Earnings from single-family home sales were $16 million. The average closing price increased to $381,000 from $372,000 in the previous quarter. Gross margins declined to 20.2% due to mix. The backlog of homes sold but not closed was 774 at the end of Q4, an increase of 80% from the number of homes in the backlog at the end of 2011.

Unallocated items, Chart 10. The foreign exchange loss of $2 million in Q4 was due to a weakening of the Canadian dollar. This was a negative swing of $13 million. The elimination of interest segment profit in inventory and LIFO was income of $8 million, primarily resulting from lower lumber and oriented strand board inventory. This compares to an expense of $10 million in the third quarter.

I will now turn the call over to Dan Fulton. Dan?

Daniel S. Fulton

Thanks, Kathy. Good morning, everyone. Thanks for joining us today. Over the past several years, we've laid the foundation by implementing initiatives that positioned the company to capture the benefits of an improving U.S. housing market. 2012 marked the clear beginning of that long-term recovery. This market improvement, together with our progress in implementing our own improvement initiatives, is evident in our fourth quarter and annual results.

Revenues rose 13% during the fourth quarter and 14% for the full year. Our fourth quarter earnings increased 22% over the third quarter due to strong results from our Timberlands and our Real Estate segments. For the year, our net earnings before special items increased 78%, led by improvements within our Wood Products business.

Our performance has improved steadily throughout the year, allowing us to continue to invest in our business, pay down debt and increase our dividend. As a result, our total shareholder return for the year was over 50%. I'm excited about the opportunity to build on the momentum of 2012 as we enter 2013.

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