Weyerhaeuser Company (WY)

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Weyerhaeuser (WY)

Q4 2011 Earnings Call

February 03, 2012 10:00 am ET

Executives

Kathryn F. McAuley - Vice President of Investor Relations

Daniel S. Fulton - Chief Executive Officer, President, Director and Member of Executive Committee

Patricia Bedient - Chief Financial Officer and Executive Vice President

Analysts

Anthony Pettinari - Citigroup Inc, Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Gail S. Glazerman - UBS Investment Bank, Research Division

Mark Wilde - Deutsche Bank AG, Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

Steven Chercover - D.A. Davidson & Co., Research Division

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Paul C. Quinn - RBC Capital Markets, LLC, Research Division

Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division

Mark A. Weintraub - Buckingham Research Group, Inc.

Presentation

Operator

Good morning, my name is Carrie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Fourth Quarter 2011 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Kathryn McAuley, Vice President of Investor Relations. Thank you, Ms. McAuley, you may begin your conference.

Kathryn F. McAuley

Good morning. Thank you for joining us on Weyerhaeuser's Fourth Quarter 2011 Earnings Conference Call. This call is being webcast at www.weyerhaeuser.com. The earnings release, analyst package and web slides of this call can be found at our 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 is Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer.

Please turn to the earnings information package available on our website. As summarized on Chart 1 on the package, this morning, Weyerhaeuser reported fourth quarter 2011 net earnings of $65 million or $0.12 per diluted share. Our net sales from continuing operations of $1.6 billion. Earnings for the fourth quarter included net after-tax charges of $12 million for restructuring and asset impairments. Excluding these items, the company reported net earnings of $77 million or $0.14 per diluted share.

For the full year 2011, the company reported net earnings of $331 million or $0.61 per diluted share and net sales from continuing operations of $6.2 billion. A GAAP reconciliation on special items can be found on Charts 2 and 3. In the following discussion of the business segments, I will refer to Charts 4 through 10.

Turning to Chart 4. This illustrates the change in contribution by business segment from third quarter 2011 to fourth quarter 2011. My comments reviewing the fourth quarter refer to changes from the third quarter unless otherwise noted. We begin our business segment discussion of the fourth quarter with Timberlands, Charts 5 and 6.

Timberlands contributed $70 million to pretax earnings, $8 million more than Q3. Earnings from the disposition of nonstrategic timberlands increased $17 million to $21 million. Fee harvest volumes rose 2% in the West and 5% in the South. Log prices declined 4% in the West, due to weaker Chinese demand. Log prices were slightly higher in the South. Road and silviculture costs were seasonally lower, fuel costs were higher.

Wood Products, Charts 7 and 8. In the seasonally weak fourth quarter, Wood Products lost $61 million, $18 million more than in Q3 but less than in the fourth quarter of 2010. Sales volume seasonally declined. Lumber, 8%; oriented strand board, 6%; and engineered Wood Products, 12%. As illustrated on Chart 8, price realizations for most products were lower. Lumber and oriented strand board prices decreased 2%; engineered solid section prices declined 4%, and engineered I-Joist prices were 1% lower.

Operating rates were lower in response to weaker market demand. Downtime across all product lines increased from 12 weeks in Q3 to 47 weeks in Q4. Unit manufacturing costs were higher due to market downtime.

Cellulose Fibers, Chart 9. The pretax contribution to earnings in fourth quarter was $134 million, $1 million less than in Q3. Average pulp price realizations declined 3% or $25 per air-dried symmetric ton. Pulp sale volumes increased 10%. There were no annual maintenance outages in the quarter.

Real Estate, Chart 10. Real Estate contributed $41 million to pretax earnings, $31 million more than in third quarter. Earnings were also higher than in Q4 2010. Single-family home closings seasonally increased 15% from Q3 to 582 homes. Year-over-year closings declined 4%. The average price on homes closed decreased $5,000 from the third quarter. This reduction was due to mix.

The single-family gross margin was 25.4%, an increase from 23% in Q3, but lower than the gross margin of 26.1% in the year-ago quarter. Land sales contributed $19 million in earnings.

In Corporate & Other. Corporate & Other was $6 million lower in Q4. Gains on foreign exchange were more than offset by increased charges for share-based compensation and other items.

I will now turn the call over to Dan Fulton. Dan?

Daniel S. Fulton

Thanks, Kathy, and good morning, everyone. Thanks for joining us today. Despite continued economic challenges, our company took full advantage of every opportunity to improve our overall performance during the last quarter and the entire year, and I'm pleased with our overall results.

In my remarks this morning, I'll provide some highlights of our fourth quarter results for each business segment, as well as observations on overall performance for the year. I'll also provide my perspective for the year ahead. Patty will then present our first quarter outlook as well as financial highlights, and then I'll add a few more remarks before turning to your questions.

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