Seeking Alpha
Long only, value
Profile| Send Message| ()  

Weyerhaeuser (WY) announced 3rd quarter results on Friday. Sales were $1,772 million, down 1% from Q2 and up 13% from Q3 2011. Operating Income was $202 million, up 15% from Q2 and 103% from Q3 2011. Net income was $117 million, up 39% from Q2 but down 25% from Q3 2011.

Cash provided by Operations for 2012 year to date was $329 million, up 188% from 2011. Debt is down 8% year to date and the debt to capital ratio is 50%. Cash on hand is $608 million. Cash generation is paying Weyerhaeuser's dividend of $.17 a quarter. The dividend was just raised from $.15 last quarter.

As I have said in earlier articles, the four timber REITs, WY, (RYN), (PCL), and (PCH), are quite different from each other. In 2012, Weyerhaeuser derived about 40% of EBITDA from Timber, 6% from Real Estate, 21% from Wood Products, and 33% from Cellulose Fibers. A contract with Rayonier and Potlatch can be seen below.

2012 EBITDA

Segment

Rayonier

Potlatch

Weyerhaeuser

Timber

19%

46%

40%

Real Estate

6%

15%

6%

Wood Products

1%

39%

21%

Cellulose Fibers

74%

0%

33%

Two thirds of Weyerhaeuser's businesses, Timber, Real Estate, and Wood Products, are tied to the Housing market. The other third, Cellulose Fibers, is mainly fluff pulp used in baby diapers and such.

EBITDA from Weyerhaeuser's Timber segment showed a 3% gain over Q2 and a 20% gain over Q3 2011. Western prices were down 5% from Q2 and Southern prices were up 2%. Harvest volume is up about 13% year over year. Export volume and prices were down slightly as the China market is still weak, however, Japan is Weyerhaeuser's largest export customer. Weyerhaeuser, unlike the other Timber REITs accounts for non-strategic timberland sales in the Timber segment versus the Real Estate segment. A non-strategic sale in Q3 helped the Timber segment numbers.

Wood Products EBITDA showed a 46% gain over Q2 and was at $92 million up from a negative $10 million in Q3 2011 underscoring the rebounding housing market. Wood Products pricing was up across the board. Improvement in Wood Products prices have not shown up as of yet in log prices to the Timber segment.

Real Estate EBITDA was down 23% from Q2 but up 60% from Q3 last year. Weyerhaeuser's real estate business is composed mainly of home building versus lot and land sales that dominate the other tREITs real estate business. Weyerhaeuser is showing increased closings and a building backlog. The 23% decrease quarter over quarter is due to an increase in mandated affordable housing units in some locations.

Cellulose Fibers EBITDA was up 58% from Q2 but down 35% from Q3 2011. Second quarter 2012 had a higher than usual amount of maintenance downtime. Prices for fluff pulp have been weak to flat.

For 4th quarter, Weyerhaeuser is predicting similar results to Q3 for Timber and Cellulose Fibers and slightly lower earnings for Real Estate and Wood Products. Weyerhaeuser's stock price is now at $27.37, up 49% from $19.10 on January 1, 2012, and yield is about 2.5%. The 52-week range is $15.40 to $28.82. From my point of view, WY is a little pricey right now and their dividend is too low, although I do see improving performance going forward.

Source: Comments On Weyerhaeuser Third Quarter Results