Weyerhaeuser (WY) announced 4th quarter and 2012 year-end results on January 25. See the results here. Sales were $7,059 million, up 14% from 2011. Operating income was $735 million, up 24% from 2011, and net income was $385 million, up 16% from 2011. Adjusted EBITDA was $1,162 million, up 13% from 2011.
Cash provided by operations for 2012 was $581 million, up 99% from 2011. Total long-term debt was 4,291, down 4% from 2011 year end. Cash on hand is $898 million. Cash generation is covering Weyerhaeuser's dividend, which was $334 million in 2012, up 3% from 2011. WY's dividend, however, is still an anemic 2.3%.
When it comes to timber REITs, I prefer looking at EBITDA or cash from operations rather than net income because of the large non-cash expenses for depletion associated with timber. We'll use EBITDA when talking about the different business segments. As I have said in earlier articles, the four timber REITs, WY, (RYN), (PCL), and (PCH), have quite different mixes in their business segments. In 2012, Weyerhaeuser derived about 38% of its EBITDA from timber, 12% from real estate, 20% from wood products, and 30% from cellulose fibers.
Housing starts for 2012 were 781,000, up 30% from 2011. Still, this is only about 50% of historic norms so there is tremendous upside for Weyerhaeuser's business as the housing market continues to improve. Weyerhaeuser is predicting another 30% increase in housing starts for 2013. For 2012, 70% of Weyerhaeuser's businesses, timber, real estate, and wood products, were tied to the housing market. The other 30%, cellulose fibers, is mainly fluff pulp used in baby diapers and such, and liquid packaging.
For 2012, EBITDA from Weyerhaeuser's timber segment was down 3% from 2011 even with a 13% higher harvest volume. Western prices were down 9% from 2011 due to the weak export market, however, southern prices were up 4%. As I have said in the past, log prices have still not benefited much from the improvement in housing. This was true in 2012 but should improve in 2013 as housing starts continue to climb. Export demand, particularly from China, was soft in 2012. Demand from both China and Japan is expected to improve in 2013.
Wood products EBITDA showed an improvement from a negative $43 million in 2011 to a positive $246 million in 2012, further underscoring the rebounding housing market. Lumber production was up 9% over 2011 and OSB production was up 18%. Prices for lumber were up 14% and OSB 36% over 2011. Production in engineered products was also up but prices were down. The outlook for 2013 in wood products is very positive as housing continues to improve.
Real estate EBITDA was up 60% for 2012 over 2011. Weyerhaeuser's real estate business is composed mainly of home building versus lot and land sales that dominate the other tREITs real estate businesses. Weyerhaeuser is showing increased closings of 21% over 2011. Traffic was up 28%. On the down side, home prices were down 6% and gross margin was down 11% from 2011. This was mainly due to mix, which included a large number of mandated affordable housing units. Building backlog is up 80%. The real estate segment looks very positive for 2013 although not in the 1st quarter.
Cellulose fibers EBITDA was down 38% for 2012. Prices were down 12% and production was down 5% over 2011. The outlook for fluff pulp in 2013 is not expected to see much improvement over 2012 until late in the year. Even with the negative results, cellulose fiber still produced about 30% of Weyerhaeuser's EBITDA for 2012.
For 2012, Weyerhaeuser's unit price has gone from $18.67 to $29.15, a 56.1% capital gain return. If you add a dividend of 2.4%, you get a total return of 58.5% for the year. Not bad.
Using Jeff Williams' "Behind the Number Analysis", gives Weyerhaeuser seven passes, one neutral, and one fail out of nine tests, again, "Not Bad!"
1. Positive net income
2. Positive operating cash flow
3. Increasing year over year ROA
4. Operation cash flow being greater than net income
5. Increasing gross margin to sales ratio
6. Sales growth % being larger than asset growth %
7. Shares outstanding growth less than 2%
8. Decreasing gross margin to sales ratio
9. Increasing current ratio
I generally do not recommend stocks one way or another, I just report on their businesses and financial results. Weyerhaeuser has had a tremendous run-up in price in the last 12 months. Yet, with the housing recovery continuing, a predicted 30% in 2013, Weyerhaeuser's future looks bright. Also, as business improves, the 2.3% dividend has a good chance of being raised. Because I am a dividend investor, I personally would not buy WY until the dividend goes over 3.5%. However, it could get there within the next year or two.
On the Charles Schwab website, Schwab and Market Edge rate WY and "Hold", Argus and Standard and Poor's rate it a "Buy", and Ned Davis rates it a "Sell".