Weyerhaeuser Company (WY)

WY 
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Industry: Consumer Services
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Weyerhaeuser (WY)

Q1 2011 Earnings Call

April 29, 2011 10:00 am ET

Executives

Patricia Bedient - Chief Financial Officer and Executive Vice President

Kathryn McAuley - Vice President of Investor Relations

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

Analysts

Mark Connelly - Credit Agricole Securities (USA) Inc.

Mark Weintraub - Buckingham Research Group

Joshua Barber - Stifel, Nicolaus & Co., Inc.

Mark Wilde - Deutsche Bank AG

Richard Skidmore - Goldman Sachs Group Inc.

George Staphos

Steven Chercover - D.A. Davidson & Co.

Mark Weintraub - Buckingham Research Group, Inc.

Gail Glazerman - UBS Investment Bank

Presentation

Operator

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser First Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Kathryn McAuley, Vice President Investor Relations. Ma'am, you may begin your conference.

Kathryn McAuley

Thank you, Nicole. Good morning. Thank you for joining us on Weyerhaeuser's First Quarter 2011 Earnings Conference Call. I am Kathy McAuley, Vice President of Investor Relations. This call is being webcast at www.weyerhaeuser.com. The earnings release and materials 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.

This morning, Weyerhaeuser reported Q1 2011 net earnings of $99 million or $0.18 per diluted share, a net sales of $1.6 billion. First quarter earnings include an after-tax gain of $96 million on a previously announced sale of 82,000 acres of nonstrategic Timberlands in Southwest Washington State. Excluding this special item, the company reported net earnings of $3 million, break-even on a per share basis.

Please turn to the earnings information package available on our website. This package includes a GAAP reconciliation of special items. In our discussions of business segments, we will refer to Charts 4 through 10.

Chart 4, Changes in Contribution to Earnings by Segment. This chart illustrates the changing contribution by business segment from fourth quarter 2010 to first quarter 2011.

We begin our business segment discussion of the first quarter with Timberlands, Charts 5 and 6. In the first quarter, Timberlands contributed $89 million to pretax earnings before special items, $33 million more than in Q4 2010. Third party sales volumes rose 4% from Q4. This increase was in part due to Chinese demand for logs. Japan remains our largest export market accounting for approximately 70% of export volume.

Third party average log price realizations increased 5% in the West and declined 2% in the South. The fee harvest increased 11% from the fourth quarter, most of the increase occurred in the West and was driven by export demand.

Higher volumes resulted in lower costs in the West. Costs in the South were lower due to less silviculture spending. Some of the cost improvement was offset by rising diesel prices.

Wood Products, Charts 7 and 8. Excluding special items, Wood Products narrowed its loss from $85 million to a loss of $36 million, an improvement of $49 million. Lumber and OSB sales realizations increased 8%. Lumber volumes were flat. OSB volumes increased 9%. Operating rates for lumber and OSB were higher in first quarter. Log costs rose in the West. Solid section volumes were flat and prices declined slightly due to mix. TJI volumes fell 10%, prices modestly increased.

Cellulose Fibers, Chart 9. Cellulose Fibers contributed $86 million to pretax earnings in Q1, $52 million less than in Q4. Maintenance costs increased and productivity was lower due to two scheduled annual outages in the quarter. In addition, we also had $7 million of spending in first quarter, preparing for the annual maintenance outages scheduled for the second quarter.

Fiber costs were higher in the West and chemical costs increased. Pulp price realizations declined $14 per ton. The majority of our pulp production, fluff and fluff pulp prices were slightly lower. Pulp volumes were flat.

Real Estate, Chart 10. WRECO lost $1 million in the first quarter. First quarter is the seasonally weakest of the year. Single-family closings were down 40% from Q4 and 8% from the first quarter a year ago. The average closing price declined $20,000 to $419,000 due to mix. The gross margin was 22%, down from 26% in Q4, also due to mix. The backlog of single-family homes sold but not closed increased to 611 homes.

And finally, Corporate & Other. Before special items, Corporate & Other contributed $43 million less to earnings in first quarter. Pension and postretirement expense held in corporate was a noncash charge of $12 million in Q1. In Q4, it was a credit of $19 million. Share-based compensation expense rose $8 million in the first quarter, primarily due to the increase in our stock price.

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

Daniel Fulton

Thanks, Kathy. And good morning, everyone. Over the last several earnings calls, I've been reporting on how we're doing as we battle this dismal housing market. I'm glad to report that we continue to make progress during the first quarter.

Our top line grew year-over-year, as well as our bottom line. And I remind you that this occurred while U.S. housing softened. While margins and returns are still not where we want them to be, we continue to act on the items that we control and take advantage of every opportunity.

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