Weyerhaeuser Company (WY)

WY 
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Weyerhaeuser Company (WY)

Q2 2014 Earnings Conference Call

August 1, 2014 10:00 AM ET

Executives

Denise Merle – SVP, Human Resources and IR

Doyle Simons – President and CEO

Patty Bedient – EVP and CFO

Analysts

Anthony Pettinari – Citi

Mark Weintraub – Buckingham Research

Chip Dillon – Vertical Research Partners

Gail Glazerman – UBS

Alex Ovshey – Goldman Sachs

Mark Wilde – BMO Capital Markets

Mark Connelly – CLSA

George Staphos – Bank of America

Steve Chercover – DA Davidson

Paul Quinn – RBC Capital Markets

Collin Mings – Raymond James

Presentation

Operator

Good morning. My name is Brad, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser’s Second Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. (Operator Instructions). Thank you.

I now like to turn the call over to Denise Merle, Senior VP of Human Resources and Investor Relations. Please go ahead ma’am.

Denise Merle

Thank you, Brad. Good morning, everyone. And thank you for joining us today to discuss Weyerhaeuser’s second quarter 2014 earnings. This call is being webcast at www.weyerhaeuser.com, our earnings release and presentation materials can also be found on 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 with me this morning are Doyle Simons, Chief Executive Officer; Patty Bedient, Chief Financial Officer and Beth Baum, Director of Investor Relations.

I will now turn the call over to Doyle Simons.

Doyle Simons

Thank you, Denise and good morning everyone. Weyerhaeuser delivered a solid earnings performance in the second quarter driven by very strong results in each of our businesses and reflecting our employees’ relentless focus on operational excellence.

This morning we reported second quarter net earnings of $280 million or $0.47 per diluted share on net sales from continuing operations of $2 billion. Excluding discontinued operations and special items, we earned $234 million or $0.40 per diluted share. This is an increase of nearly 65% compared with the first quarter and almost 30% compared with one year ago.

Special items in the quarter included an ongoing gain from a change to the post retirement health plan and restructuring charges associated with our SG&A cost reductions.

Earnings associated with Weyerhaeuser real-estate company RICO are being reported as discontinued operations as a result of the divestiture of that business on July 7. I would like to thank the Weyerhaeuser and RICO employees for their hard work in completing this transaction.

As part of the RICO transaction, we retired nearly 59 million common shares worth over $1.9 billion. These retirements which will be reflected in our third quarter share count more than offset the common shares issued in conjunction with last year’s Longview Timber acquisition.

I will begin the discussion of our business results with some brief comments about market conditions. Severe winter weather earlier this year dampened the start of the spring building season and the U.S. housing market recovery remained sluggish with total housing start up only 6% in the first half of 2014 compared with 2013.

Rising employment and strong consumer confidence support our expectation of further housing market improvements. However, we have lowered our 2014 housing outlook as a result of the weaker market during the first half of the year and are now planning for between 1 million and 1.1 million starts.

The bottom line is we believe that residential housing markets will continue to improve but at a slower rate than it had been previously anticipated.

Let me now turn to our business segments starting with Timberlands, charts 3 to 5. Timberlands posted another outstanding quarter contributing $170 million to earnings. In the West, we experienced steady demand in our domestic markets, our realizations from Western domestic logs declined.

Although overall Chinese demand softened somewhat during the quarter as a result of elevated inventory to support our sales volumes to our customers increased compared with the first quarter and our pricing remained comparable. As anticipated, Japanese demand weakened in the second quarter due to the effect of the increased consumption tax.

Western logging and road cost increased seasonally as we log our higher elevations in the summer months when snow is not present. We remain extremely pleased with the performance of our Longview Timber acquisition which contributed $51 of EBITDA in the quarter.

In the South, sea harvest volumes declined due to wet weather and log prices rose by approximately 1% compared with the first quarter. Second quarter also included $24 million from dispositions of non-strategic Timberlands an increase of $20 million compared with the first quarter.

The Timberlands segment continues to benefit from operational excellence initiatives including reduction and stomp to customer logging cost and increased extraction of export quality logs.

Wood products charts 6 and 7, wood products earned $102 million in the second quarter, an improvement of nearly 60% compared with the first quarter. Adjusted EBITDA increased to $132 million compared with $93 million in the first quarter and sales volumes increased seasonally across all our product lines.

In lumber, EBITDA improved by $9 million as high sales volumes due to improved weather and seasonality were partially offset by lower average price realizations. Lumber manufacturing costs continued to decline as a result of our operational excellence initiative which are focused on lowering our costs net of logs.

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