Weyerhaeuser Company (WY)

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Weyerhaeuser Company (WY)

Q4 2009 Earnings Call Transcript

February 5, 2009 10:00 am ET

Executives

Kathy McAuley – VP, IR

Dan Fulton – President and CEO

Patty Bedient – EVP and CFO

Tom Gideon – EVP, Forest Products

Larry Burrows – President and CEO, Weyerhaeuser Real Estate Company

Analysts

Peter Ruschmeier – Barclays Capital

Chip Dillon – Credit Suisse

Mark Connelly – Sterne Agee

George Staphos – Bank of America/Merrill Lynch

Gail Glazerman – UBS

Mark Wilde – Deutsche Bank

Claudia Houston – JP Morgan

Mark Weintraub – Buckingham Research Group

Steven Chercover – D. A. Davidson & Co.

Paul Quinn – RBC Capital Markets

Joshua Zaret – Longbow Research

Presentation

Operator

Good morning, my name is Tia and I will be your conference operator today. At this time I would like to welcome everyone to the Weyerhaeuser’s fourth quarter earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remark there will be a question-and-answer period.

(Operator instructions) I will now turn the conference over to Ms. Kathy McAuley. Ma’am, you may begin.

Kathy McAuley

Thank you, Tia. Good morning. Welcome to Weyerhaeuser’s fourth 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 the 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. This morning Weyerhaeuser reported a fourth quarter 2009 net loss of $1.75 million or $0.83 per share on net sales from continuing operations of $1.5 billion. For the full year 2009, Weyerhaeuser reported a net loss of $545 million or $2.58 per share, on net sales from continuing operations of $5.5 billion.

Significant after-tax items in the fourth quarter were a benefit of $77 million or $0.36 per share for alternative fuel mixture credit, a charge of $67 million or $0.31 per share for real estate asset impairment, closures, restructuring and other charges. Our charge is $57 million or $0.27 per share for forest product asset impairment, closures, restructuring and other charges. Our charge is $19 million or $0.09 per share for the early extinguishment of debt. Excluding these items the company reported a net loss of $109 million or $0.52 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 discuss this waterfall chart. Chart four is a bar chart detailing the changes in contribution to earnings before special items, interest and taxes.

Changes in Weyerhaeuser’s segment earnings from the third quarter to the fourth quarter were as follows

Beginning with the first bar on the left-hand side of the page, in the third quarter of 2009, Weyerhaeuser earned $15 million before special items, interest and taxes. Proceeding from left to right across the waterfall chart, we will begin a discussion with Timberlands.

Timberlands’ earnings were $30 million lower in Q4. This decline was driven by significantly lower harvest volumes and fewer sales of non-strategic timberland. Higher logging costs more than offset improvement in pricing mix. Wood products earnings were $31 million lower in fourth quarter; significantly lower production due to weak seasonal market demand resulted in higher per unit manufacturing cost. Average lumber prices declined 3% from the third quarter average. OSB prices were 6% lower and engineered wood products prices were flat.

Cellulose fibers earnings were $10 million lower in Q4, an 8% increase in average pulp prices was more than offset by higher fiber maintenance and energy cost.

Real estate earnings were $20 million higher than in the previous quarter. This improvement was driven by higher margins and a 54% increase in closing. Corporate and other expenses increased by $25 million, due primarily to foreign exchange and lease adjustments for transportation assets. The final bar to the right of the page is the fourth quarter loss of $61 million before special items, interests and taxes.

Please note chart one, in the information package detailed, the Q3 and Q4 pre-tax contributions to earnings by segment before significant items as well as consolidated results. And now I'll turn the call over to Dan Fulton.

Dan Fulton

Thank you Kathy, and good morning. In our earnings release this morning, I voice confidence in our ability to deliver significantly improved operating performance despite the unacceptable 2009 financial results and continued challenges as we enter 2010.

I’d like to spend my portion of today's call providing more detail and color to the items I outlined in my statement, because it will help set the stage for the comments from our team that’s following.

Although I'll discuss each point individually, you should think of them as interconnected and encompassing our strategic approach to meeting the current challenges while positioning us to rebuild our revenues and earnings.

Just to remind everyone, the areas of focus I outlined in this morning's release involved cutting costs, reducing production to meet demand, generating cash, deferring our harvest, improving long-term competitiveness across all business lines, growing with strategic customers and announcing our decision to convert to a real estate investment trust.

I started my comment in the release by noting that we had cut costs, and that’s a good place to open my discussion on this call. As we said repeatedly, we must reduce our SG&A costs to make us more competitive, and by the end of 2009 we’d cut those costs by nearly $300 million. Our overall head count is down 26% because of the SG&A changes as well as reductions in operations.

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