Weyerhaeuser Reports Third Quarter Results
Weyerhaeuser Company (“Weyerhaeuser”) reported third quarter net earnings of $283 million, or 38 cents per diluted share, on net sales of $2.1 billion. This compares with net earnings of $99 million, or 13 cents per diluted share, on net sales of $1.7 billion for the same period last year.
Third quarter results include after-tax charges of $103 million for special items, primarily a non-cash timber casualty loss associated with Oregon fire damage. Excluding special items, the company reported third quarter net earnings of $386 million, or 52 cents per diluted share. This compares with net earnings before special items of $59 million for the same period last year and $77 million for the second quarter of 2020.
Adjusted EBITDA for the third quarter of 2020 was $745 million compared with $308 million for the same period last year and $386 million for the second quarter of 2020.
“In the third quarter, each of our businesses delivered outstanding operational and financial results despite disruptions from severe weather, unprecedented forest fires and the ongoing COVID-19 pandemic,” said Devin W. Stockfish, president and chief executive officer. “We achieved record Wood Products Adjusted EBITDA, surpassing the previous high by nearly 60 percent. In addition, we redeemed $325 million of debt maturities and announced transactions to strategically upgrade our Oregon timberland holdings.”
“Entering the fourth quarter, Weyerhaeuser is operating from a strong financial position, and we are increasingly confident that the recent strength in U.S. housing will continue notwithstanding ongoing macroeconomic headwinds,” Stockfish continued. “Today, we are reinitiating a quarterly dividend and implementing a new dividend framework that will enhance our ability to return meaningful and appropriate amounts of cash to our shareholders across a variety of market conditions. This framework positions Weyerhaeuser to deliver superior long-term value creation through our unmatched portfolio, industry-leading performance and disciplined, prudent capital allocation.”
Q3 2020 Performance
In the West, fee harvest volumes decreased 15 percent compared with the second quarter as wildfire conditions restricted harvest activity. This was largely offset by higher average sales realizations for domestic logs. Domestic log sales volumes decreased modestly compared with the second quarter, and export log sales volumes were significantly lower as the company shifted volume to the domestic market to take advantage of higher margin opportunities. In the South, fee harvest volumes decreased 5 percent as the company continued to implement the previously announced reduction in its 2020 fee harvest volumes. Average log sales realizations were comparable to the second quarter and forestry spending increased seasonally.
Third quarter special items consist of an $80 million timber casualty loss related to the Oregon wildfires. This non-cash charge represents the estimated book value of timber and related assets that will not be able to be salvaged based on currently available information.
Q4 2020 Outlook
Weyerhaeuser expects fourth quarter earnings and Adjusted EBITDA will be higher than the third quarter. In the West, the company anticipates higher average sales realizations for domestic and Japanese export logs and improved log sales volumes as Oregon harvest activity resumes and salvage operations begin. In the South, the company expects slightly higher forestry expense and slightly lower average log sales realizations due to mix.
In September 2020, the company announced an agreement to sell 149,000 acres of southern Oregon timberlands and a separate agreement to purchase 85,000 acres of mid-coastal Oregon timberlands. The two agreements are subject to customary closing conditions and are both expected to close in fourth quarter 2020.
Real Estate, Energy & Natural Resources
Q3 2020 Performance
Real estate sales improved slightly compared with the second quarter as an increase in the number of acres sold was largely offset by a lower average price per acre due to mix. Adjusted EBITDA increased, but earnings decreased slightly due to a higher average land basis on the mix of properties sold. Energy & Natural Resources royalties increased due to seasonally higher production of construction materials.
Q4 2020 Outlook
Weyerhaeuser anticipates fourth quarter earnings and Adjusted EBITDA will be lower than the third quarter due to the timing of real estate transactions and average land basis will decrease due to the mix of properties sold. The company continues to expect full year 2020 Adjusted EBITDA for the segment will be approximately $235 million.
Q3 2020 Performance
Benchmark prices for lumber and oriented strand board reached record levels in the third quarter, and average sales realizations for lumber and oriented strand board improved 54 percent and 65 percent, respectively, compared with second quarter averages. Sales volumes for engineered wood products also increased significantly. These improvements were partially offset by higher raw material costs.
Q4 2020 Outlook
Excluding the effect of changes in average sales realizations, the company expects fourth quarter earnings and Adjusted EBITDA will be significantly lower than the third quarter, though both are expected to exceed previous record levels attained in 2018. The company expects a modest seasonal reduction in sales volumes, higher Western and Canadian log costs, and lower operating rates for some product lines due to planned maintenance outages.
Q3 2020 Performance
Third quarter results include a charge from elimination of intersegment profit in inventory and LIFO compared with a benefit in the second quarter. Unallocated corporate function and variable compensation expense also increased, primarily due to a year-to-date adjustment for performance-based incentive compensation.
Reinitiating Common Dividend
On May 1, 2020, Weyerhaeuser’s board of directors temporarily suspended the company’s quarterly cash dividend to preserve financial flexibility in light of significant uncertainty regarding the duration and magnitude of the effects of the COVID-19 pandemic on the company’s business conditions.
Since May, the board has continued to regularly review opportunities to reinitiate a quarterly cash dividend, taking into account the company’s cash flow, liquidity, customer demand, market conditions, the broader macroeconomic environment and other factors, with the desire for a sustainable dividend framework that will drive long-term shareholder value across market cycles.
Over the past several months, demand for housing and wood products has proven resilient, and the company is increasingly confident that U.S. housing activity will remain strong even as the pandemic and macroeconomic headwinds continue. Weyerhaeuser has also meaningfully strengthened its financial position, having reduced gross debt by over $400 million on a year-to-date basis, announced the fourth quarter 2020 redemption of $500 million of additional maturities, and attained its target leverage ratio. The company maintains ample liquidity, including $787 million in cash and cash equivalents and $1.5 billion of undrawn revolver capacity as of September 30, 2020.
Based upon its most recent review of these and other factors, Weyerhaeuser’s board of directors is reinitiating a quarterly cash dividend. The board is also implementing a new dividend framework to enhance Weyerhaeuser’s ability to return meaningful and appropriate amounts of cash to shareholders across a variety of market conditions.
This new dividend framework includes two components:
– Sustainable quarterly base cash dividend: This core mechanism for returning cash to shareholders is supported by cash flows from the company’s Timberlands and Real Estate, Energy and Natural Resources segments and is positioned to grow sustainably over time. For the fourth quarter 2020, the board of directors has declared a quarterly base cash dividend of $0.17 per share.
– Variable supplemental dividend: The company expects to supplement its quarterly base dividend with an additional return of cash, as appropriate, to achieve a targeted total annual return to shareholders of 75 to 80 percent of annual Adjusted Funds Available for Distribution(1). Weyerhaeuser expects this will occur primarily through a supplemental cash dividend. In certain circumstances, the company may also utilize opportunistic share repurchase. In general, the company expects a supplemental dividend will be declared and paid annually, with the first payment occurring in first quarter 2022.
Stockfish concluded, “This new dividend framework supports our commitment to returning a significant portion of free cash flow to shareholders, while ensuring that our return of cash is sustainable and appropriate across market cycles. Going forward, Weyerhaeuser remains focused on disciplined, prudent capital allocation to sustainably grow our base dividend and drive superior long-term value for shareholders.”
For the full third quarter results, click here.
Weyerhaeuser Company, one of the world’s largest private owners of timberlands, began operations in 1900. We own or control approximately 11 million acres of timberlands in the U.S. and manage additional timberlands under long-term licenses in Canada. We manage these timberlands on a sustainable basis in compliance with internationally recognized forestry standards. We are also one of the largest manufacturers of wood products in America. Our company is a real estate investment trust. In 2019, we generated $6.6 billion in net sales and employed approximately 9,400 people who serve customers worldwide. We are listed on the Dow Jones Sustainability North America Index. Our common stock trades on the New York Stock Exchange under the symbol WY. Learn more at www.weyerhaeuser.com.
Nancy Thompson – Media Relations – (919) 861-0342
Source: Weyerhaeuser Company