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Weyerhaeuser Co. (WY)
Q1 2014 Earnings Conference Call
April 25, 2013 10:00 AM ET
Kathy McAuley - VP, IR
Doyle Simons - CEO
Patty Bedient - CFO
Mark Weintraub - Buckingham Research Group
Mark Connelly - CLSA
George Staphos - Bank of America Merill Lynch
Gail Glazerman – UBS
Alex Ovshey - Goldman Sachs
Paul Quinn - RBC Capital Markets
Steve Chercover - D.A. Davidson
Colin Ming - Raymond James
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Thank you, Carmen. Good morning. Thank you for joining us today to discuss Weyerhaeuser's First Quarter 2014 earnings. This call is being webcast at www.weyerhaeuser.com, our earnings release and presentation materials can also be found at our website.
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. We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in earnings materials on our website.
On the call this morning are Doyle Simons, Chief Executive Officer; and Patty Bedient, Chief Financial Officer. Now, I will turn the call over to Doyle.
Thank you, Kathy and good morning everyone, earlier today we reported first quarter net earnings of a 183 million or $0.31 per diluted share on net sales of 2 billion. Excluding special items we achieved solid first quarter net earnings of a 153 million or $0.26 per diluted share as our businesses delivered strong operating results despite unusually severe winter weather throughout much North America in the quarter. Special items in the quarter included a gain resulting from an amendment to a post retirement health care plan, a gain on sale of a non-strategic asset and restructuring charges associated with our previously announced SG&A cost reduction initiative.
I will begin this morning with a few comments on the housing market and overall economic conditions before turning to a discussion of our business results. The unusually severe winter weather dampened market momentum early in the year and housing starts in January and February declined slightly on a seasonally adjusted basis compared with year ago levels. As the winter weather is moderated markets are improving, in March single family housing starts increased to 635,000 on a seasonally adjusted annual basis, 2% higher than a year ago. Single family also comprised a greater percentage of total housing starts in March, compared with February.
Prices for existing homes are 13% higher than last year, and fundamentals of job growth and improving household formation support our expectation for continued recovery in the housing markets. Although the weather’s disruption experienced during the past few months has slightly diminished the overall housing outlook for 2014, the market consensus continues to forecast significant growth compared with 2013 and we are planning for approximately 1.1 million starts including over 700,000 single family starts. Globally Chinese demand for our logs and pulp remains strong as the pace of orders rescinds following a normal seasonal slowdown associated with the Lunar New Year.
Orders from our Japanese customers weakened slightly at the conclusion of the first quarter due to uncertainty regarding the effect of the increased consumption tax. However Japan remains a very strong customer for our logs and we expect that demand will remain generally solid overall.
Let me now turn to our business segment starting with Timberland, charts three to five, Timberlands had an outstanding quarter, contributing a 164 million to earnings, an improvement of more than 20% compared with last quarter, demand for western logs was strong in the quarter and prices rose in export and domestic markets. Operating margins improved due to higher harvest volumes and our operational excellence initiative. The strong performance of our western Timberlands business also reflects increasing benefits from the Longview timber acquisition which contributed 53 million of EBITDA in the quarter an improvement of 18 million from the fourth quarter.
In the south, log prices rose modestly, continuing the slow upward trajectory we observed in the fourth quarter. Wet weather resulted in lower southern sea harvest volumes as well as reduced silviculture spending. First quarter earnings from disposition and non strategic Timberlands are usually minimal and as expected, dispositions declined to 4 million in the quarter. Excluding dispositions, the segment earned a $160 million. This is the highest quarterly Timberlands’ earnings excluding land sales since the second quarter of 2006.
Wood products, charts 6 and 7. Wood products earned 64 million, an improvement compared with the fourth quarter despite the effect of severe winter weather. Weather resulted in reduced sales volumes for most products as demand stalled and transportation challenges related to Canadian rail car and trucking availability made it harder to deliver products to our customers. Adjusted EBITDA in the quarter improved to 93 million, compared with 88 million in the fourth quarter. In lumber, EBITDA improved by 17 million. This improvement is primarily attributable to increased lumber sales realizations which more than offset lower sales volumes and higher western log cost.
Operating rates improved and the business did a good job of controlling cost in the quarter despite weather related disruptions. In OSB, EBITDA declined by 10 million, as our prices fell by 3% and sales volumes declined by approximately 5%, manufacturing cost rose slightly as the business incurred higher energy and maintenance cost as a result of the extreme weather.