Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Weyerhaeuser Co (WY, Financial) reported second-quarter GAAP earnings of $173 million, or $0.24 per diluted share, on net sales of $1.9 billion.
- Adjusted EBITDA totaled $410 million, a 16% increase over the first quarter.
- The company is acquiring approximately 84,000 acres of high-quality timberlands in Alabama for $244 million, expected to generate portfolio-leading cash flow.
- Real estate and ENR contributed $59 million to second-quarter earnings, with adjusted EBITDA increasing by $8 million compared to the first quarter.
- Strong demand for large-scale solar development, with over 70 agreements covering more than 130,000 acres across the US South.
Negative Points
- Lumber market remains challenging, with soft pricing leading to an $8 million loss in adjusted EBITDA for the lumber segment.
- The decision to indefinitely curtail operations at the New Bern, North Carolina sawmill due to its cost structure and limited integration with fee timberlands.
- Southern sawlog markets moderated in the second quarter due to elevated mill inventories and reduced consumption.
- Western domestic log prices faced downward pressure due to elevated log inventories and a softening lumber market.
- Third-quarter earnings and adjusted EBITDA for Timberlands are expected to be $20 million to $30 million lower than the second quarter due to lower sales volumes and realizations in the West.
Q & A Highlights
Q: Can you talk a bit more about how you arrived at the 5% to 10% reduction in capacity for Wood Products in the third quarter?
A: We are always looking to balance our supply with our customer demand. The 5% to 10% reduction is based on our assessment of the market, our cost structure, and our customer base. We believe this range allows us to manage inventory levels effectively while seeking to drive the most earnings in the current environment. It's important to note that current lumber prices are making most of the market underwater, which won't last forever. Prices will eventually come up, and we'll be back in a more sustainable place for lumber. β Devin Stockfish, CEO
Q: How do you think about helping investors appreciate the inherent value in your Timberlands acquisitions and the potential for upside in returns?
A: We're excited about the Alabama transactions, which are high-quality Timberlands expected to generate top-tier cash flow. To highlight the value, we'll continue to get investors out into the timberlands and demonstrate the progress in our natural climate solutions business. For example, our solar agreements covering over 130,000 acres will start generating cash flow as projects come online. This will help educate the investment community on the value opportunities within our portfolio. β Devin Stockfish, CEO
Q: Can you elaborate on the downward pressure in the Western Timberlands market and its impact on EBITDA?
A: The primary pressure is on the price side. Mills are running at reduced postures due to low lumber prices, limiting our ability to raise log prices. This dynamic is also affecting our Japan pricing, which typically tracks domestic prices. Additionally, the strengthening yen against the dollar is creating headwinds. Overall, it's the price pressure that's impacting EBITDA in the West. β Devin Stockfish, CEO
Q: What is your outlook for the OSB market for the rest of the year, considering new capacity and cautious buyer sentiment?
A: For Q3, we expect comparable sales volumes to Q2 with steady realizations. New capacity coming online in Q4 may put downward pressure on pricing unless demand picks up. However, we believe that as mortgage rates come down, the housing shortage will drive increased building activity, which will absorb the new supply and support the OSB market in the longer term. β Devin Stockfish, CEO
Q: How do you view the impact of the increased softwood lumber duty cash deposit rates on the Canadian industry?
A: The increase from 8% to 14% is another headwind for producers moving lumber into the US market. While we don't have visibility into competitors' cost structures, this could potentially lead to capacity decisions that might help balance the market. β Devin Stockfish, CEO
Q: Can you provide more details on the natural climate solutions business and its progress?
A: The opportunity in natural climate solutions is larger than initially anticipated, although the timeline for some projects, like carbon capture and storage, has been longer. Solar demand has been high, but project timelines remain lengthy. Mitigation banking has shown more demand than expected, and forest carbon is gaining momentum with growing support. We expect significant contributions from these areas in the coming years. β Devin Stockfish, CEO
Q: What are your operating rates for the various wood products businesses in Q2, and what do you expect for Q3?
A: In Q2, lumber operated in the low 80% range, OSB in the mid-90s, and EWP in the low 80s. For Q3, we expect similar operating rates, with the ability to adjust based on market conditions. β Devin Stockfish, CEO
Q: How do you view the competitive environment for EWP, and what could drive an inflection point in pricing?
A: The EWP market is competitive, but the Trus Joist brand and our customer support provide a competitive advantage. If single-family housing activity increases to around 1.1 million units or more, we could see the EWP market tighten and prices rise. Even in the current environment, EWP pricing remains strong relative to historical levels. β Devin Stockfish, CEO
Q: How do you plan to manage the lumber business given the recent negative EBITDA and challenging market conditions?
A: Our mill set is well-positioned on the cost curve, and we expect to be black at the bottom in our southern operations and Alberta. While current pricing is challenging, it won't last forever. We are focused on cost management, operational excellence, and balancing production with customer demand. We expect prices to eventually rise, improving our overall performance. β Devin Stockfish, CEO
Q: What are your expectations for the OSB market for the rest of the year, considering new capacity and cautious buyer sentiment?
A: For Q3, we expect comparable sales volumes to Q2 with steady realizations. New capacity coming online in Q4 may put downward pressure on pricing unless demand picks up. However, we believe that as mortgage rates come down, the housing shortage will drive increased building activity, which will absorb the new supply and support the OSB market in the longer term. β Devin Stockfish, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
