Weyerhaeuser Company (WY)

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Weyerhaeuser (WY)

Q3 2013 Earnings Call

October 25, 2013 10:00 am ET


Kathryn F. McAuley - Vice President of Investor Relations

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

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


George L. Staphos - BofA Merrill Lynch, Research Division

Gail S. Glazerman - UBS Investment Bank, Research Division

Anthony Pettinari - Citigroup Inc, Research Division

Mark Wilde - Deutsche Bank AG, Research Division

Chip A. Dillon - Vertical Research Partners, LLC

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Mark W. Connelly - CLSA Limited, Research Division

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

Evan Wingren - D.A. Davidson & Co., Research Division

Mark A. Weintraub - The Buckingham Research Group Incorporated



Good morning. My name is Natalia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Q3 2013 Earnings Call. [Operator Instructions] I would now turn the call over to Ms. Kathryn McAuley, Vice President, Investor Relations. You may begin.

Kathryn F. McAuley

Thank you, Natalia. Good morning. Thank you for joining us on Weyerhaeuser's third quarter 2013 earnings conference call. This call is being webcast at www.weyerhaeuser.com. Please review the statements -- the warning statements on 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. A GAAP reconciliation can be found in the earnings materials, which are on our website.

Discussing third quarter 2013 this morning are Doyle Simons, Chief Executive Officer; and Patty Bedient, Chief Financial Officer. I will now turn the call over to Doyle. Doyle?

Doyle R. Simons

Thank you, Kathy. Good morning, everyone, and thank you for joining us for today. It's been a busy almost 3 months since I joined Weyerhaeuser, and as I've said before, I'm excited to be here.

This morning, I am pleased to report solid third quarter earnings of $157 million or $0.27 per diluted share on net sales of $2.2 billion. This is a 34% increase in earnings compared with third quarter 2012 and a 28% increase in adjusted EBITDA compared with year-ago levels.

Let me now turn to our business segments, starting with Timberlands, Charts 2 to 4. Timberlands contributed $118 million to earnings in the quarter, up $4 million from second quarter 2013 as the contribution from a partial quarter from the Longview Timberland acquisition mostly offset a smaller-than-expected seasonal decline in earnings from the company's legacy Western operations. In addition, non-strategic Timberlands dispositions were up modestly in the quarter.

In the West, log sale realizations were down in both domestic and export markets. Fee harvest from legacy Western lands was seasonally lower and as expected, road and silviculture expenses increased in the quarter.

In the South, log sale realizations in the third quarter were flat compared to the second quarter and fee harvest volumes were up modestly.

We continue to be excited about our acquisition of the Longview Timberland and are fully engaged in leveraging our silviculture, logistics and marketing expertise to realize the full potential of this outstanding asset. This transaction closed on July 23 and contributed $16 million in earnings and $26 million in EBITDA in the quarter. Going forward, we will be focused on maximizing the earnings and cash flow from all our Timberlands.

Wood Products, Charts 5 and 6. Wood Products contributed $79 million to earnings in the quarter, down from $136 million in the second quarter, but above the $59 million of earnings from third quarter 2012. Average sales realizations for OSB declined 26% in third quarter 2013 compared with second quarter 2013, and realizations for lumber fell by approximately 7%. The effect of these lower prices was somewhat offset by higher sales volumes across all product lines and lower log cost in the West.

Adjusted EBITDA in the quarter was $110 million. In lumber, EBITDA was down $26 million in the third quarter compared with the second, as lower prices were partially offset by higher volumes and lower log cost, especially in the West.

In our lumber operations, we are focused on continuing to drive down our cost structure and improve our margins.

In OSB, EBITDA was down by approximately $42 million in the quarter compared to second quarter as significantly lower prices were partially offset by higher volumes and lower fiber costs. We continue to be focused on lowering manufacturing cost and delivering high margin products to our growing customer base in this business.

Engineered Wood Products generated EBITDA of $16 million in the quarter compared with $7 million in the second quarter of 2013. This improvement was due to higher prices in volumes and lower costs. We are committed to continuing to improve the operating performance of this business.

The Distribution business remained challenged in the quarter as it worked through higher-priced commodity inventory. We expect improved results from this business in the fourth quarter due to our performance improvement initiatives.

Cellulose Fibers, Charts 7 and 8. Cellulose Fibers contributed $47 million in the quarter, down from second quarter 2013 as higher-than-anticipated costs associated with the scheduled shutdown of a liquid packaging board facility, higher fiber costs associated with wet weather in the South and higher chemical costs in the quarter more than offset slightly higher pulp realizations due to mix. We are focused on 3 priorities in this business: first, we will continue to drive down our cost through operational excellence; second, we will focus on developing new specialty products to improve our margins; and finally, we will continue to support our growing global customer base. Our ramp up of our new modified fiber facility in Gdansk, Poland is going well.

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