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Weyerhaeuser (WY) Down 6.7% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Weyerhaeuser CompanyWY . Shares have lost about 6.7% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is WY due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Fourth-Quarter 2017 Highlights

Weyerhaeuser reported lower-than-expected results for the fourth quarter of 2017, with earnings and sales lagging estimates by 11.4% and 2.5%, respectively.

Earnings from continuing operations before special items in the quarter came in at 31 cents per share, missing the Zacks Consensus Estimate of 35 cents. However, the bottom line surged 121.4% from the year-ago tally of 14 cents.

For 2017, the company's earnings from continuing operations before special items were $1.15, up from 75 cents in 2016.

Higher Timberlands and Wood Products Drive Top Line

Net sales in the fourth quarter were $1,823 million, increasing 14.2% year over year.

However, the top line lagged the Zacks Consensus Estimate of approximately $1.9 billion.

The company operates through three business segments, results of which are detailed below:

Timberlands: The segment's revenues (excluding intersegment sales) in the quarter came in at $496 million, up 7.1% year over year. It accounted for 27.2% of net sales.

Real Estate, Energy and Natural Resources: The segment's revenues, accounting for 5.4% of net sales, were $99 million. The figure decreased 2% from the year-ago tally.

Wood Products: The segment generated revenues (excluding intersegment sales) of $1,228 million, accounting for 67.4% of net sales. Compared with the year-ago quarter, the figure was up 19%.

For 2017, the company's net sales were $7,196 million, up 13.1% year over year.

Margin Profile Improves

In the quarter, Weyerhaeuser's cost of sales increased 3% year over year while represented 72.2% of net sales versus 80.1% in the year-ago quarter. Gross margin grew 790 basis points to 27.8%.

Selling expenses, as a percentage of net sales, came in at 1.2% while general and administrative expenses were at 3.9%. Research and development expenses were $2 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $551 million in the quarter, increasing 37.8% year over year. Adjusted EBITDA margin came in at 30.2% versus 25.1% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the fourth quarter, Weyerhaeuser's cash and cash equivalents were $824 million, up 65.8% from $497 million in the preceding quarter end. Long-term debt was roughly flat at $5,930 million.

In the quarter, the company's net cash generated from operating activities was $354 million versus $151 million used in the year-ago quarter. Capital spending declined 24.1% year over year to $145 million. During the quarter, the company paid dividends worth $242 million.

Outlook

For first-quarter 2018, Weyerhaeuser anticipates sequentially comparable earnings and adjusted EBITDA from the Timberland segment. Results in the West will gain from rise in log sales realization while suffer from lower fee harvest volume. In the South, flat realizations, lower fee harvest volumes and rise in trucking expenses might adversely influence results.

For the Real Estate, Energy and Natural Resources segment, the company anticipates sequentially lower earnings and adjusted EBITDA in the first quarter. Weak Real Estate sales and a decline in royalties generated from the Energy and Natural Resources businesses will impact results.

For the Wood Products segment, the company predicts sequentially comparable earnings and adjusted EBITDA. For lumber, higher sales realizations and volumes as well as better operating rates will benefit results. For oriented strand board, fall in sales realizations will adversely impact results.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.

Weyerhaeuser Company Price and Consensus

Weyerhaeuser Company Price and Consensus | Weyerhaeuser Company Quote

VGM Scores

At this time, WY has a great Growth Score of A, though it is lagging a lot on the momentum front with an D. The stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, WY has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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