Weyerhaeuser Company (WY)

WY 
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Weyerhaeuser (WY)

Q4 2010 Earnings Call

February 04, 2011 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

Mark Connelly - Credit Agricole Securities (USA) Inc.

Joshua Barber - Stifel, Nicolaus & Co., Inc.

Mark Weintraub - Buckingham Research Group

Mark Wilde - Deutsche Bank AG

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 for today. At this time, I would like to Welcome Everyone to the Weyerhaeuser Fourth Quarter Earnings Conference Call. [Operator Instructions] Thank you. I would now like to introduce Kathy McAuley, Vice President, Investor Relations. Ma'am, you may begin your conference.

Kathryn McAuley

Thank you, Nicole. Good morning. Thank you for joining us on Weyerhaeuser's Fourth Quarter 2010 Earnings Conference Call. I am Kathy McAuley, Vice President of Investor Relations. This call is being webcast at www.weyerhaeuser.com. The earnings release and materials 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. Joining me this morning are Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer.

This morning, Weyerhaeuser reported Q4 2010 net earnings of $171 million or $0.32 per diluted share, a net sales of $1.7 billion. Fourth quarter earnings include after-tax gains of $119 million from special items, an after-tax gain of $31 million on the sale of five short line railroads, an after-tax charge of $89 million for restructuring, closures and impairment. Income tax adjustments of $177 million, which include benefits of $149 million from the Cellulosic Biofuel Producers Credit and $22 million from the reversal of deferred tax liabilities related to the company's REIT conversion.

As we commented last quarter, the Cellulosic Biofuels Credit offsets income tax liability. We will carry the credit forward. Excluding these items, the company reported Q4 2010 net earnings of $52 million or $0.10 per diluted share.

For the full year of 2010, Weyerhaeuser reported net earnings of $1,281,000,000 or $3.99 per diluted share on net sales of $6.6 billion. Full year 2010 earnings, include $1,064,000,000 from income tax adjustments related to Weyerhaeuser's conversion to a Real Estate Investment Trust.

The financial data accompanying our earnings release has been redesigned. We hope you find this new format useful and welcome your comments. Please turn to the earnings information package available on our website. This package includes a GAAP reconciliation of special item. In our discussions of the business segments, we will refer to Charts 4 through 10.

Turning to Chart 4, changes in contribution to earnings by segment. This chart illustrates the change in contribution by business segments from the third quarter to the fourth quarter. We began our business segment discussion of the fourth quarter with Timberlands, Charts 5 and 6.

In the fourth quarter, Timberlands contributed $56 million pretax to earnings. The Q3 pretax contribution was $75 million. Earnings from non-strategic Timberlands disposition declined from $34 million in Q3 to $19 million in Q4.

Sales volumes declined 3%. Costs were higher due to seasonal downtime in the West and slightly higher fuel costs in silvicultured spending in the South. Key depletion declined 3% in fourth quarter as we continue to defer the harvest. In 2010, the fee harvest was down an additional 10% from the already reduced level of 2009.

Western log prices rose 4% while Southern log prices declined 4%. Japanese log export softened in Q4. However, log exports to China increased 10% in the quarter. Japan continues to be our largest log export market.

Wood Products, Charts 7 and 8. Seasonally slower demand and continued difficult market conditions affected the fourth quarter. Before special items, Wood Products lost $85 million. In the previous quarter, the segment lost $100 million. Log cost were slightly lower in the quarter and SG&A cost decreased. Total sales realizations were flat in Q4 with slight increases in lumber prices offsetting decreases in OSB and plywood prices. Lumber sales realizations increased $6 per thousand board feet or 2%. And OSB prices decreased $7 per thousand square feet or 4%.

Engineered Solid Section and I-joists sales realizations were flat compared to Q3. Lumber sales volume was down 8% and OSB sales volume decreased 5%. Volumes for Engineered Solid Sections declined 13% and Engineered I-joists volumes decreased 10%. Asset impairment, closures and restructuring charges of $103 million pretax were recognized in the fourth quarter. These charges were for the rationalization of capacity, which includes the permanent closure of three Wood Products facility.

Turning to Cellulose Fibers, Chart 9. In the fourth quarter, on a pretax basis, Cellulose Fibers earned $138 million. In the third quarter, the business earned $181 million. Costs increased and productivity was lower due to the impact of an annual maintenance outage at the New Bern North Carolina mill. There were no maintenance outages in the third quarter.

Pulp shipment volumes declined 2% due to the timing of shipments. Pulp prices were flat in the quarter.

And finally turning to Chart 10, Real Estate. Before special items, WRECO contributed $13 million pretax to Q4 earnings. In the third quarter, the business contributed $20 million.

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