Weyerhaeuser's Solid Q3 Finds Its Foundation In Housing

| About: Weyerhaeuser Co. (WY)

On Friday morning, Weyerhaeuser (NYSE:WY) reported net earnings of $117 million or 22 cents per share for the third quarter of 2012. While this is below last year's Q3, which came in at 29 cents per share, it is above Wall Street average estimates for about 18 cents per share. Net sales for Q3 totaled $1.8 billion, compared to $1.6 billion for Q3 of 2011, and roughly in line with average Wall Street expectations.

Much of Weyerhaeuser's recent strength has come from the resurgence in new home building throughout the United States during most of 2012. Most homebuilding is done in the warmer months, especially in the northern states, and so the company's Q4 is expected to likely show some seasonal cooling. Weyerhaeuser commented that it "expects slightly lower earnings from single-family homebuilding operations in the fourth quarter," and also that it "anticipates lower earnings from the Wood Products segment in the fourth quarter due to seasonal declines in pricing and demand for most products."

DanFulton, Weyerhaeuser's president and chief executive officer, said the company is "capitalizing on an improving housing market to the benefit of our shareholders." Earlier this month, Weyerhaeuser increased its quarterly dividend by thirteen percent, from $0.15 to $0.17 per share. This dividend increase is Weyerhaeuser's first since converting to a REIT.

Weyerhaeuser is the largest timber REIT in the United States. The company converted to a REIT in 2010, after selling off some of its consumer product segments. Timber REIT dividends are currently taxed as long-term capital gains, and not at the corporate dividend or ordinary income tax rates. This makes timber REITs a rather unique asset because it differs from the tax treatment of most other REIT dividends, which are generally taxed at the significantly higher income-tax rate. Future tax changes could make the quality undesirable. Some peer timber REITs would include Plum Creek (NYSE:PCL), Potlatch (NASDAQ:PCH) and Rayonier (NYSE:RYN).

While not REITs, many paper products companies have increased their dividends recently. For example, also earlier this month, paper products giant International Paper (NYSE:IP) raised its quarterly dividend by 14 percent, from $0.2625 to $0.30 per share. Additionally, Canadian paper and paper products maker Domtar (NYSE:UFS) raised its dividend earlier this year by over 28 percent, from $0.35 to $0.45 per share. Interestingly, Weyerhaeuser has some history with both these paper giants, having sold its it containerboard, packaging and recycling business to IP for $6 billion, and having divested and merged its former paper business with Domtar's.

Weyerhaeuser also noted that it expects Q4 earnings from its cellulose fibers segment to be comparable to Q3, but composed of lower selling prices for fluff pulp that will be offset by increased sales volumes and lower maintenance.

In addition to the timber REITs and paper products companies listed above, there are also ETF options for investors interested in timber, paper and forestry related investments. For example, there is the Guggenheim Timber ETF (NYSEARCA:CUT) and the iShares S&P Global Timber & Forestry ETF (NASDAQ:WOOD). Both ETFs presently yield about 2.1 percent, but CUT's fees are 0.70 percent, while WOOD's are 0.48 percent. Both of these ETFs hold large positions in timber REITs and other business types that own tree acreage or which produce paper products. Weyerhaeuser is currently the largest holding of both ETFs.

Disclosure: I am long UFS, WY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.