Weyerhaeuser Company (WY)

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Weyerhaeuser (WY)

Q2 2011 Earnings Call

July 29, 2011 10:00 am ET


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


Peter Ruschmeier - Barclays Capital

Chip Dillon - Citigroup

Mark Connelly - Credit Agricole Securities (USA) Inc.

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

Mark Wilde - Deutsche Bank AG

George Staphos

Steven Chercover - D.A. Davidson & Co.

Gail Glazerman - UBS Investment Bank



Good morning. My name is Sylvia, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Second Quarter Earnings Conference Call. [Operator Instructions] I would now turn the call over to Ms. Kathryn McAuley, Vice President of Investor Relations.

Kathryn McAuley

Thank you, Sylvia. Good morning, and thank you for joining us on Weyerhaeuser's Second Quarter 2011 Earnings Conference Call. This call is being webcast at www.weyerhaeuser.com. The earnings release, analyst package and web slides for this call can be found at the website or by contacting April Meier at (253) 924-2937.

Please review the warning statement 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 Q2 2011 net earnings of $10 million or $0.02 per diluted share on net sales of $1.8 billion. Second quarter earnings include after-tax charges of $22 million for special items, $16 million for loss on the early extinguishment of debt and an impairment charge of $6 million for the expected sale of the Hardwoods business.

The company's cash balance decreased $582 million primarily due to debt repayment. At the end of the second quarter, Weyerhaeuser's cash and cash equivalents was $181 million (sic) [$881 million].

Please turn to the earnings information package available on our website. This package includes the GAAP reconciliation of special items. In our discussion of the business segments, we will refer to Charts 4 through 10.

Chart 4, changes in contribution to earnings by segment before special items. This chart illustrates the change in contribution by business segments from first quarter 2011 to second quarter 2011. My comments reviewing the second quarter refer to changes from first quarter unless otherwise noted.

We begin our business segment discussion of the second quarter with Timberlands, Charts 5 and 6. In the second quarter, Timberlands contributed $112 million to pre-tax earnings, $23 million more than first quarter. Pre-tax earnings of -- were $89 million in the first quarter before special items. Average third-party price realizations rose 9% in the West, driven by Chinese demand. Southern third-party price realizations were flat in the quarter.

Fee harvest volumes increased 8%. This increase was in part due to Chinese demand for logs. Export volume increased 31% from first quarter. Costs were higher in the West due to roads and diesel. Higher diesel cost also affected the South. Nonstrategic land dispositions were $34 million in second quarter.

Wood Products, Charts 7 and 8. Excluding a $9 million charge for the expected sale of the Hardwoods business, the Wood Products loss widened by $16 million in the second quarter to a loss of $52 million. In Q1, Wood Products lost $36 million.

Lumber price realizations declined 5% or $14 per thousand board feet. Oriented strand board prices fell 7% or $14 per thousand square feet. TJI sales realizations were 1% lower than last quarter, and solid section realizations were 3% higher. Sales volumes increased across all product lines except plywood, partially offsetting lower selling prices and higher cost.

Cellulose Fibers, Chart 9. Cellulose Fibers contributed $80 million to pre-tax earnings in Q2. This was $6 million less than Q1 pre-tax earnings of $86 million. There were 4 scheduled maintenance outages in the quarter compared with the 2 in the first quarter. The annual mill maintenance schedule has been completed for the year. Maintenance costs were $18 million higher due to the annual outages, and pulp production was 6% lower. Pulp price realizations increased $48 per air-dried metric ton or 5%. Pulp sales volume decreased 2% due to weakening demand from China.

Real Estate, Chart 10. Second quarter pre-tax earnings for WRECO was $8 million, a $9 million increase in the contribution to earnings. In the first quarter, WRECO had a pre-tax loss of $1 million. Closings of single-family homes seasonally increased 26% from 363 units in the first quarter to 459 units in the second quarter. However, closings declined 27% from the year ago quarter. Last year's second quarter benefited from the housing tax credits.

Average single-family prices declined 7% from $419,000 to $391,000 due to mix. Gross margins increased to 22.4% from 21.7% in the first quarter. The backlog of single-family homes sold but not closed increased to 673 homes.

And finally, Corporate and Other. Before special items, Corporate and Other contributed $19 million more to earnings in Q2. Corporate and Other includes net pre-tax charges of $11 million related to discontinued operations. This includes operating earnings of $2 million for Westwood Shipping Lines and charges of $13 million for other discontinued operations, primarily in environmental remediation reserve for a previously divested facility.

I would now like to turn the call over to Dan Fulton.

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