Weyerhaeuser (WY)

Q3 2011 Earnings Call

October 28, 2011 10:00 am ET


Kathryn F. McAuley - Vice President of Investor Relations

Patricia Bedient - Chief Financial Officer and Executive Vice President

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


George L. Staphos - BofA Merrill Lynch, Research Division

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

Anthony Pettinari - Citigroup Inc, Research Division

Mark A. Weintraub - Buckingham Research Group, Inc.

Joshua L. Zaret - Longbow Research LLC

Chip A. Dillon - Vertical Research Partners Inc.

Mark Wilde - Deutsche Bank AG, Research Division

Gail S. Glazerman - UBS Investment Bank, Research Division



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

Kathryn F. McAuley

Thank you, Ashley. Good morning. Thank you for joining us on Weyerhaeuser's Third 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 gathered 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 are Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer.

This morning, Weyerhaeuser reported third quarter 2011 net earnings of $157 million, or $0.29 per diluted share, on net sales from continuing operations of $1.6 billion. Earnings for the third quarter include after-tax gains of $91 million from special items. These items include a benefit of $83 million, or $0.15 per diluted share, related to foreign tax credits. A gain of $32 million, or $0.06 per diluted share, on disposition, a charge of $24 million, or $0.04 per diluted share, for impairments and restructuring in wood products. Excluding these items, the company reported net earnings of $66 million, or $0.12 per diluted share. Please turn to the earnings information package available on our website. This package includes a GAAP reconciliation of the special items. In the discussion of the business segment, I 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 segment from second quarter 2011 to third quarter 2011. My comments reviewing the third quarter refer to changes from the second quarter unless otherwise noted.

We begin our business segment discussion of the third quarter with Timberlands, Charts 5 and 6. In the third quarter, timberlands contributed $62 million to pretax earnings, $50 million less than in Q2. $28 million of the decrease was the result of lower earnings from nonstrategic land sales. Third quarter land dispositions were $4 million compared to $32 million in the second quarter. Average third-party price realizations in the West declined 5%, as the weakening Chinese market exerted downward pressure on domestic and export prices. In the South, average third-party price realizations declined slightly. Fee harvest volumes were flat in the quarter. Volumes were down in the West as the Chinese export markets softened. Volumes rose in the South. Costs received nearly higher. These increases were due to road construction in the West and silviculture spending in the South.

Wood Products, Charts 7 and 8. Continuing operations in wood products lost $43 million, $10 million less than second quarter. Lumber price realizations were flat. Price realizations for OSB and engineered solid section declined slightly. Engineered I-Joist price realizations rose slightly. Operating rates in Q3 were flat in lumber, improved in OSB and were slightly lower in engineered wood products. Restructuring and impairment charges were $38 million, primarily related to the permanent closure of 4 previously idled engineered wood products facilities. This was offset by a $5 million gain on the sale of properties. Charges related to the sale of discontinued operations were $13 million in Q3.

Cellulose Fibers, Chart 9. Third quarter cellulose fibers pretax contribution to earnings was $135 million, $55 million higher than second quarter. Average pulp prices sales realizations declined 4%, or $40 per metric ton. Pulp sales volumes were flat. Maintenance cost was lower and pulp production increased 13%. There were no maintenance outages during the third quarter. There were 4 scheduled annual maintenance outages in the second quarter.

Real Estate, Chart 10. Real estate contributed $10 million to pretax earnings, $2 million more than second quarter. Single-family closings increased seasonally from 459 homes in Q2 to 508 homes in Q3. The average price on homes closed during the quarter increased $12,000 to $403,000. This increase was due to mix. Margins on single-family homes closed also increased due to mix.

Corporate and Other. Excluding discontinued operations, Corporate and Other was $5 million lower in Q3. Foreign exchange charges, primarily related to the strengthening of the U.S. dollar, reduced Corporate and Other by $18 million. This was partially offset by $7 million of additional gains related to share-based compensation. A decline in the company's stock price during the quarter resulted in a larger mark-to-market adjustment. Discontinued operations included a loss from operations of $4 million and gains of $58 million on the sale of Westwood and properties in the third quarter. Discontinued operations had a charge of $11 million in second quarter.

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