Weyerhaeuser Company (WY)

WY 
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Weyerhaeuse (WY)

Q3 2010 Earnings Call

October 29, 2010 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

Peter Ruschmeier - Barclays Capital

Joshua Zaret - Longbow Research LLC

Stephen Atkinson - BMO Capital Markets Canada

Christopher Chun - Deutsche Bank AG

Mark Weintraub - Buckingham Research Group

George Staphos

Richard Skidmore - Goldman Sachs Group Inc.

Steven Chercover - D.A. Davidson & Co.

Chip Dillon - Crédit Suisse AG

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 Third Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to introduce Kathryn McAuley, Vice President of Investor Relations. Ms. McAuley, you may begin your conference.

Kathryn McAuley

Good morning. Thank you for joining us on Weyerhaeuser's Third Quarter 2010 Earnings Conference Call. I am Kathy McCauley, Vice President of Investor Relations. This call is being webcast at www.weyerhaeuser.com. The earnings release and material 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 call.

Joining me this morning are Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer.

Today, Weyerhaeuser reported net earnings of $1,116,000,000 for the third quarter or $3.50 per diluted share on net sales of $1.7 billion. This compares with essentially break-even results on net sales of $1.4 billion for the same period last year. In the second quarter of 2010, Weyerhaeuser reported net earnings of $14 million or $0.07 per diluted share on net sales of $1.8 billion.

Earnings for the third quarter included $1,035,000,000 from income tax adjustments primarily related to the reversal of deferred taxes as a result of Weyerhaeuser's conversion to a REIT. Excluding the income tax adjustment, Weyerhaeuser reported Q3 net earnings of $81 million or $0.25 per diluted share, a $137 million increase compared with last year's third quarter.

On our website, we provided an earnings information package, which includes a GAAP reconciliation of special items. You will notice that we had added new information to this package. We hope you find this information useful. We begin our discussion this morning with a review of Chart 4, the waterfall chart in the earnings information package. A discussion of each business covering Charts 5 to 10 will then follow.

Turning to Chart 4, changes in contribution to earnings by segment. Weyerhaeuser's segment earnings for the second quarter of 2010 to the third quarter were as follows beginning with the first bar on the left-hand side of the page. In the second quarter, Weyerhaeuser earned $168 million before special items, interest and taxes. Timberlands ended Q3 with earnings $5 million higher than in Q2. Wood Products earnings were $89 million lower than in the second quarter. Cellulose Fibers contributed $107 million more to earnings in the third quarter. Earnings from Real Estate were $7 million lower than second quarter, and Corporate & Other contributed $2 million more in Q3. The final bar to the right of the page is Weyerhaeuser's third quarter earnings of $186 million before special items, interest and taxes.

Turning next to the business segments, we begin the discussion with Timberlands, Charts 5 and 6. Timberlands contributed $75 million to pretax earnings in Q3, $5 million more than in Q2. The Q3 disposition of non-strategic Timberlands was $34 million pretax compared to $14 million pretax in Q2. This increase was partially offset by lower log price realizations as illustrated on Chart 6. Log prices in the West declined 7%. Export sales realizations were down 5% due to mix. Log prices in the South were flat.

Chart 6 shows fee harvest volumes in the West and South. The fee harvest was seasonally stronger in the third quarter. Western harvest volume rose a modest 3%. Southern volume increased 10%. Year-to-date, the Western harvest is down 18%, and the South is down 15% from last year. Harvest deferrals continue. Spending for road and silviculture was seasonally higher, silviculture spending including a catch-up from activities deferred as a result of poor weather earlier this year.

Turning next to Wood Products, Charts 7 and 8. Market conditions rapidly deteriorated at the end of second quarter and difficult markets persisted in Q3. Wood Products lost $100 million, $89 million worth in the Q2 lost before special items of $11 million. As indicated on Chart 8, lumber prices declined 18% or $61 per thousand board feet and OSB prices plummeted 30% or $81 per thousand square feet. Engineered Wood Products prices increased slightly, but engineered I-joist shipments fell 24%. The Wood Products business reduced working capital by $54 million during Q3 and ended the quarter at cash breakeven.

Turning to Cellulose Fibers, Chart 9. In third quarter, Cellulose Fibers on a pretax basis earned $181 million, contributing $107 million more to earnings than in second quarter. During the quarter, pulp prices reached a 15-year peak. Pulp price realizations increased by $70 per ton, 8% higher than in Q2. Pulp sales volumes increased 8% in the quarter. There were no maintenance outages in Q3, resulting in $30 million less of maintenance spending and an improvement in productivity. There had been three maintenance outages in the second quarter.

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