Impressive first quarter results and robust second quarter guidance resulted in overall positive sentiments for Weyerhaeuser Co. (WY) following its earnings release on April 29, 2010. The company expects an increase in home closings, profits from wood products business, and an escalation in profits of cellulose fibers business.
Analysts have unanimously increased their earnings estimates for the full fiscal year 2010 and 2011, following the earnings release. Of the 15 analysts covering the stock, 11 raised their estimates for 2010 and 9 raised their estimates for 2011 in the last 30 days, with none lowering them. The collective positive view stems from expectations of continued improvement in revenue and volumes, healthy margins, improved pricing, and lower cost structure.
Analysts have handsomely revised their earnings estimate for full year 2010 and 2011. For 2010, estimates have gone up from a loss of 28 cents to a profit of 17 cents, and for 2011, from a profit of 81 cents to $1.17 per share. Reduced losses in the first quarter and the guidance of a profitable second quarter 2010 clearly justify the magnitude of earnings estimate revision.
We stay Neutral on the stock (supported by the Zacks long-term Neutral recommendation), as the positives are offset by concerns over the industry’s sensitiveness to macroeconomic conditions and its cyclical nature. Three of the company's five business segments are highly dependent on the US housing market, which is still at the early stages of recovery after plunging badly, following the recent economic crisis. Weyerhaeuser also faces stiff competition from Canfor, International Paper, and Louisiana-Pacific.
