Weyerhaeuser Company (WY)

WY 
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Weyerhaeuser Company (WY)

Q3 2009 Earnings Call

October 30, 2009 10:00 am ET

Executives

Kathryn McAuley - VP, IR

Dan Fulton - President and CEO

Tom Gideon - EVP, Forest Products

Larry Burrows - President and CEO, Weyerhaeuser Real Estate Company

Patty Bedient - EVP and CFO

Analysts

Gail Glazerman - UBS

Mark Connelly - Sterne Agee

Mark Weintraub - Buckingham Research

Peter Ruschmeier - Barclays Capital

Claudia Houston - JP Morgan

Mark Wilde - Deutsche Bank

Richard Skidmore - Goldman Sachs

Chip Dillon - Credit Suisse

Presentation

Operator

Ladies and gentlemen, welcome to the Weyerhaeuser Q3 '09 Earnings Conference Call on Friday, 30th of October 2009. (Operator Instructions).

I'll now hand the conference over to Kathryn McAuley. Please go ahead, madam.

Kathryn McAuley

Welcome to Weyerhaeuser's third quarter 2009 earnings conference call. I am Kathy McAuley, Vice President of Investor Relations. Joining me this morning are Dan Fulton, President and Chief Executive Officer, Patty Bedient, Executive Vice President and Chief Financial Officer, Tom Gideon, Executive Vice President, Forest Products; and Larry Burrows, President, Weyerhaeuser Real Estate Company.

This call is being webcast, at www.weyerhaeuser.com. The earnings release and material 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. Forward-looking statements will be made during this conference call.

This morning Weyerhaeuser reported breakeven results for the third quarter on net sales of $1.4 billion. Significant after-tax items were a gain of $98 million or $0.46 per share on the sale of 140,000 acres of non-strategic timberland in Northwestern Oregon, a gain of $74 million or $0.35 per share for alternative fuel mixture credits, a charge of $62 million or $0.29 per share for corporate and wood products, asset impairment and restructuring charges, a charge of $33 million for $0.16 per share for real estate asset impairments and restructuring charges, a charge of $21 million or $0.10 per share for income tax adjustments. Excluding these items, the company reported a net loss of $56 million or $0.26 per share.

A GAAP reconciliation of special items is available on our website in the earnings information package. Please turn to chart four in the earnings information package, as I will next discuss this waterfall chart.

Chart four is a bar chart detailing the changes in contribution to earnings by segment from the second quarter to the third quarter of 2009. This is presented on the basis of contribution to earnings before special items, interest and taxes.

Turning to chart four. Changes in Weyerhaeuser's segment earnings from the second quarter to third quarter were as follows. Beginning with the first bar on the left-hand side of the page, Weyerhaeuser lost $61 million in the second quarter of 2009. Proceeding from left to right across the waterfall chart, we begin with the discussion with timberlands.

Timberlands earnings were $13 million lower in Q3. This decline was driven by significantly lower harvest volumes and fewer non-strategic land sales, excluding the 140,000 acre Oregon land sale. The wood products loss improved by $55 million in the third quarter. This improvement was driven by higher prices for softwood lumber and OSB, manufacturing cost improvements, as well as lower lot costs.

Cellulose fibers earnings were $51 million higher due to less maintenance expense in the third quarter. Also pulp realizations rose and shipment volumes increased. The real estate loss widened by $11 million in Q3 due to lower average home prices. While total home closings increased from Q2, the mix of product in Q3 was generally at a lower price point, which decreased margins. Also, there was less earnings from land or lot sales in Q3.

Corporate and other expense increased by $6 million in the third quarter due to foreign exchange, lower earnings from less wood shipping and marking some equity compensation to market.

The final bar to the right of the page is the third quarter loss of $15 million before special items, interests and taxes. Please note chart one in the information package contains the actual second and third quarter contribution to earnings by segment and the total of special items, interests and expenses and taxes.

I will now turn the call over to Dan Fulton.

Dan Fulton

As I begin my comments this morning, I'd like to first say that we're pleased this morning to report a quarter-over-quarter improvement. As a company with three of our four business segments linked closely to US housing starts however continue to operate in extremely challenging markets. Throughout the year we've begun to see signs of stabilization and even slight improvement in new housing construction activity.

While we continue to be confident about market recovery, the pace of recovery is still uncertain and the market feels tentative and sometimes fragile as we move towards yearend. The reinvigorated economy will benefit all of our business segments, but we're not relying simply on market recovery in order to improve our financial performance.

Once again, Tom Gideon and Larry Burrows join me on this call to discuss the quarterly performance of our forest products and real estate business. Our CFO, Patty Bedient, will provide our outlook for the balance of the year. Patty will also report on financial details and additional actions taken to improve our financial flexibility as we prepare for a recovery, while positioning ourselves for a continued period of uncertainty.

Before I turn the call over to Tom, Larry and Patty, I'd like to discuss a few high level points that I'd like all of you to take away from this call. Across the company during the quarter we continued to make operational changes in order to adapt to market conditions.

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