Weyerhaeuser Company (WY)

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Weyerhaeuser Co. (WY)

Goldman Sachs Basic Materials Conference

May 21, 2013 1:35 pm ET


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


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


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

We'll get started with our next presenter, Weyerhaeuser, a leading player in the wood products business, real estate and of course, the crown jewel of the company, the timberland. They also have exposure in fluff pulp. Very fortunate to have Dan Fulton, the CEO of the company, with us today. So I will turn it over to him to tell us more about the story. Dan?

Daniel S. Fulton

Thanks, Alex. We have a limited amount of time today. I want to thank everybody for being here. I'm going to start very quickly with a forward-looking statement and while you're memorizing that, just remind you, we had an analyst -- Annual Analyst Meeting about 1.5 week ago. The materials that I'm using today are excerpts from that, so you're getting a condense version of what was probably a 2-hour presentation. But all of that material is available on our website. So there may be times during my presentation where I may refer you to the slides that would have a little bit more detail.

I'm going to start very quickly with what I consider to be the primary reasons to own Weyerhaeuser company. Number one, we're an industry leader in all of the businesses in which we participate, starting with, as Alex described, that our crown jewel, which is our 6 million acres of timberland ownership in United States. Timberland is split between the Pacific Northwest and the U.S. south. I'm going to talk about that a little bit, and it's importantly held in a tax efficient REIT structure. In addition to our timberlands, we're also a large scale producer of wood products, cellulose fibers, and we're a homebuilder. I'm going to spend just a little bit of time on each of those. My focus today is really going to be on our timberlands asset.

Second key message relates to the housing market. We've got a lot of leverage to the housing industry through our Timberlands, our Wood Products manufacturing and our homebuilding business, and we're finally at the stage where I can say with a lot of confidence, housing recovery is on their way. We see it across our company, starting with sales in our homebuilding business, translating to orders into our Wood Products business coming from across the country and then finally, into the woods.

Thirdly, we've done a lot of work during the downturn. Adjusting the size of the company, taking out costs, seeking opportunities for revenue enhancement. And so we are positioned today to capture the benefit not only of the operating improvements that we've made, but the recovery itself.

Real quick overview of our corporate structure. So Weyerhaeuser company is a timber REIT. We hold our timberlands in the REIT parent company, and then we have a taxable REIT subsidiary that manages and controls our taxable activities. So there are some taxable activities that occurs in Timberlands, merchandising and logistics, once the timber is harvested. Our Wood Products manufacturing sales, fibers manufacturing and our homebuilding business are all held as part of the taxable REIT subsidiary.

Housing is important to us. As I mentioned, 3 of our 4 businesses heavily leveraged to housing. 75% of our revenue last year, if I were to include the intersegment sales from our timber business to our Wood Products business, are tied to those 3 entities: Timberlands, Wood Products and homebuilding. Recovery is underway. We see it with supply and demand fundamentals coming in the balance. Prices are beginning to rise, not just in resale homes, but in new homes. When prices rise, it creates increased consumer confidence, increases the traffic into our model home, complexes and then we start to see the flywheel of this recovery really start to take hold.

So homebuyers are reentering the market. I was asked a couple of weeks ago, where did I think we were in the recovery, and I use the baseball analogy and stuck my neck out and said I think we're in the bottom of the third inning. It feels about that way to me.

We're on our way to recovery towards long-term trend level of starts. As a long-term trend level, we use a factor of 1.6 million to 1.9 million residential units a year. That's a number that's been developed by the Joint Center for Housing at Harvard. They're a long-term forecaster. It's based upon population growth, demographics, household formation, immigration plus replacing of homes that are destroyed either through redevelopment or through weather events, such as we had last year with Sandy and unfortunately, such as we just had in Oklahoma.

Turning to our Timberlands business. I'm going to talk about 5 key points here. We really do believe we've got world-class timber holdings. Our 2 million acres in the Pacific Northwest, our 4 million acres in the south, I believe, are the most attractive, sustainably managed industrial timberlands in this country, certainly, and perhaps the world. Over time, the harvest that comes off our property will be increasing both through improving volume as well as the mix shifts a little bit more towards sawtimber. We add value in our Timberland business through our silviculture practices. We have scale operations. I'm going to talk about that a little bit. That's makes a big difference when you're going to market at the size that we are. And then we are uniquely positioned on the West Coast of the United States, and that's what I'm going to talk about here.

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