Weyerhaeuser Company (WY)

WY 
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Industry: Consumer Services
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Weyerhaeuser Company (WY)

Q2 2013 Earnings Call

July 26, 2013 10:00 am ET

Executives

Kathryn F. McAuley - Vice President of Investor Relations

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

Doyle R. Simons - Chief Executive Officer, Director, Member of Compensation Committee and Member of Finance Committee

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

Analysts

Gail S. Glazerman - UBS Investment Bank, Research Division

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

Chip A. Dillon - Vertical Research Partners, LLC

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

Mark Wilde - Deutsche Bank AG, Research Division

Anthony Pettinari - Citigroup Inc, Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

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

Mark A. Weintraub - The Buckingham Research Group Incorporated

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 Q2 2013 earnings conference call. [Operator Instructions]

I'd now like to turn the call over to Kathryn McAuley, Vice President, Investor Relations. Please go ahead, ma'am.

Kathryn F. McAuley

Thank you, Brent. Good morning. Thank you for joining us on Weyerhaeuser's second quarter 2013 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. On the call, we will discuss non-GAAP financial measures, and a GAAP reconciliation can be found in the package.

Joining me this morning to discuss second quarter results are Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer. Doyle Simons, CEO elect, is also with us this morning. Doyle becomes President and Chief Executive Officer on August 1. I know you are looking forward to hearing from Doyle, but the purpose of this call is to focus on second quarter earnings and performance.

As summarized on Chart 1, Weyerhaeuser reported second quarter 2013 net earnings to common shareholders of $196 million, or $0.35 per diluted share, on net sales of $2.1 billion.

Turning to our business segments, my comments reviewing the second quarter 2013 refer to changes from the first quarter of 2013.

Beginning with Timberlands, Charts 2, 3, 4. Timberlands contributed $114 million through earnings, $10 million more than in the first quarter. The disposition of non-strategic Timberlands in Q2 was $14 million. Non-strategic Timberlands dispositions were $3 million in Q1. Export demand continued strong as export log sales rose 27%. Western log price realizations increased 9%. Both export and domestic prices were higher.

Southern log price realizations were flat. Fee harvest volumes declined 4% in the West and were essentially flat in the South. Road and silviculture expenses seasonally increased.

Wood Products, Charts 5 and 6. Wood Products contributed $136 million to earnings, $42 million less than in Q1. During the quarter, lumber sales volumes increased 13% and oriented strand board sales volumes rose 3%.

Price realizations declined 8% for OSB, and lumber price realizations were slightly lower. Engineered wood product volumes were flat, while prices increased 4% for both solid section and TJIs. Log costs were higher in the West. Manufacturing costs increased due to downtime and repairs associated with the fire of our Arcadia, Louisiana OSB mill.

Engineered wood products' maintenance expense was higher than normal, and raw material cost increased. Margins in the distribution business were adversely affected by the steep drop in commodity prices during the quarter.

Cellulose Fibers, Charts 7 and 8. Cellulose Fibers contributed $57 million to Q2 earnings, $26 million more than in Q1. Scheduled maintenance costs were $7 million lower than in the previous quarter. There were 12 annual outage days. Higher productivity resulted in a 4% increase in pulp production. Energy fiber and chemical costs were lower. Slightly higher electricity sales at Grande Prairie also contributed to lower manufacturing costs.

Real Estate, Charts 9, 10 and 11. Real Estate contributed $14 million to earnings, an increase of $14 million from the seasonally weak first quarter. 636 homes were closed in second quarter, a 25% increase over the same quarter last year and a 37% increase from the first quarter. The single-family growth margin increased to 21.6% due to mix. The average closing price increased 3% to $405,000. At the end of the second quarter, the backlog, the number of homes sold but not closed, rose 27%. Q2 includes $2 million in earnings from land and lot sales.

Unallocated, Chart 12. Unallocated expense in the quarter netted to 0. The elimination of intersegment profit in inventory and LIFO was an expense of $24 million in Q1 compared to a gain of $8 million in Q2. Unallocated share-based compensation was an expense of $7 million in Q1 compared to a gain of $5 million in Q2 due to the change in stock price.

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

Daniel S. Fulton

Thanks, Kathy, and good morning, everyone. Thanks for joining us today. We've had a very busy quarter at Weyerhaeuser. This morning, I'll provide some color on our second quarter performance beyond the specifics that Kathy has just reviewed. In addition, on June 16, we made a series of significant announcements that we discussed in a call on June 17. Following my discussion of second quarter results, I will recap those announcements and provide an update related to those matters.

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