The operator welcomes listeners to the Weyerhaeuser Third Quarter 2023 Earnings Conference Call and introduces the host, Vice President of Investor Relations, Andy Taylor. The call is being recorded and can be found on the company's website. CEO Devin Stockfish and CFO Davie Wold discuss the company's third quarter earnings, including a GAAP earnings of $239 million and net sales of $2 billion. Timberlands contributed $78 million to third quarter earnings.

Adjusted EBITDA decreased by $29 million in the third quarter due to lower sales volumes and average sales realizations in the Western and Southern operations. In the Western domestic market, log supply was ample and domestic log markets remained balanced. Average domestic sales realizations were similar to the previous quarter, but domestic sales and fee harvest volumes were slightly lower due to seasonal factors and harvest restrictions. In the Western Export business, sales volumes to Japan decreased due to reduced shipments to a customer that experienced fire damage at one of its sawmills.

The company's customer is rebuilding their mill and expects to recover lost production by adding shifts and production at other facilities. This will result in lower shipments to Japan for the next few quarters, but the company will ship to other customers in Japan and the Western domestic market. In China, log demand is steady but sales volumes were lower as the company focused on higher margin opportunities in the domestic market. In the South, adjusted EBITDA decreased due to slightly moderated sawlog and fiber markets. Despite this, demand for logs remains steady and wet conditions in certain areas resulted in lower fee harvest volumes. Log and haul costs were comparable, but forestry and road costs were seasonally higher.

In the North, adjusted EBITDA increased slightly in the third quarter due to higher sales volumes. Real estate and energy and natural resources contributed $56 million to earnings, with adjusted EBITDA of $94 million. The company received approval for their first forest carbon credits in Maine, covering 50,000 acres and expected to generate 475,000 credits over a 20-year period. The company is developing additional forest carbon projects in the South, with two expected to be approved in the first half of 2024.

Weyerhaeuser has a strong position in the Natural Climate Solutions market and has set a target to grow this business to $100 million by 2025. They see potential for further growth beyond 2025. In the wood products segment, the company has made significant improvements in operational performance and delivered peer-leading EBITDA margins in the first half of 2023. This has allowed the wood products business to generate significant cash flow for Weyerhaeuser.

Despite recent price moderation, the company remains well-positioned to navigate market conditions and return cash to shareholders. Lumber results saw a 14% increase in adjusted EBITDA in the third quarter, with prices initially rising due to demand and supply concerns, but later softening due to economic uncertainty. Sales volumes were slightly lower and log costs were moderately lower, but OSB adjusted EBITDA increased by $81 million due to higher commodity prices. This was driven by resilient demand for new home construction and annual maintenance outages.

The paragraph discusses the pricing trends in the third quarter, with prices remaining high until mid-September before decreasing due to cautious buyer sentiment and concerns about the economy. Despite this, average sales realizations increased by 39% compared to the previous quarter. Unit manufacturing costs were slightly higher due to planned maintenance, but fiber costs improved. Engineered Wood Products saw a decrease in adjusted EBITDA, but demand for their products remained strong. Distribution also saw a decrease in adjusted EBITDA due to lower realizations and sales volumes. The paragraph concludes with an overview of the financial items and a mention of the fourth quarter outlook.

In the third quarter, the company generated $523 million in cash from operations and ended with $1.8 billion in cash, including amounts raised through debt issuance. They used a portion of the proceeds to repay $118 million in notes and have a total debt of $5.7 billion, with $860 million maturing in December. Capital expenditures for the quarter were $99 million and they plan to invest $440 million for the full year. They returned $138 million to shareholders through dividends and $25 million through share repurchases. They have completed $733 million in repurchases under their $1 billion authorization. Adjusted funds available for distribution for the third quarter were $424 million and they have generated $894 million year-to-date. In the unallocated items segment, adjusted EBITDA decreased by $13 million compared to the second quarter. Looking forward, they expect fourth quarter earnings and adjusted EBITDA to be comparable to the third quarter in their Timberlands business.

The company expects a decrease in log demand and domestic market softening in the fourth quarter for their Western Timberland operations. This is due to lower pricing and elevated log inventories. Sales realizations are expected to be moderately lower, and fee harvest volumes and per unit log and haul costs are expected to be comparable. In the export markets, there will be fewer shipments to Japan due to operational disruptions, while log supply and pricing in China are expected to be stable. Sales volumes into China are expected to increase in the fourth quarter. In the South, log markets are expected to be stable with comparable sales realizations and fee harvest volumes, and lower forestry and road costs due to winter conditions.

In the North, the company expects higher fee harvest volumes and slightly lower sales realizations in the third quarter. Real estate markets have been strong and the company has revised its guidance for adjusted EBITDA. They expect lower earnings and adjusted EBITDA in the fourth quarter due to the timing and mix of real estate sales. The Wood Product segment is expected to have moderately lower earnings and adjusted EBITDA in the fourth quarter, with lower benchmark prices for lumber and OSB. However, benchmark prices for OSB have stabilized. The company anticipates higher sales volumes and slightly lower unit manufacturing costs for their lumber and oriented strand board businesses in the fourth quarter.

The Engineered Wood Products business is experiencing strong demand and stable pricing due to resilient single-family construction activity. Sales volumes are expected to be slightly lower for solid section products but higher for I-Joist products. The Distribution business is expected to have lower adjusted EBITDA due to a decrease in commodity realization. The housing market is largely unchanged, with single-family construction driving demand for the business. Despite headwinds in the multifamily segment, the overall housing demand is solid.

The article discusses the current state of the housing market and repair and remodel market, noting that while there may be challenges in the near-term, long-term demand fundamentals remain strong. The company has also achieved a milestone in their natural climate solutions growth program and maintains a strong balance sheet. The company is focused on maintaining their performance, serving customers, and delivering value to shareholders.

George Staphos from Bank of America asks Devin Stockfish about the extended lead times in EWP and Weyerhaeuser's performance in the market. Devin explains that the company got behind earlier in the year due to their expectation of a softer housing market, but single-family housing has actually held up well. He also addresses the company's EBITDA trends and their ability to remain profitable despite inflation in certain cost areas.

The company has increased production to catch up with the higher demand for single-family construction. This has put them slightly behind, but they are making progress. The cost of materials has gone up in recent years, but the company remains confident in their low-cost production approach. Even in a downturn, they believe they will still be profitable, though some mills in the Pacific Northwest and British Columbia may struggle due to slower decreases in log prices compared to lumber prices. The company is focused on reducing costs and improving efficiency to remain profitable.

Devin Stockfish, CEO of Weyerhaeuser, discusses their strategy in the market and how it will serve them well in both good and challenging times. He also addresses the steady erosion of realizations in the West and attributes it to lumber prices and the tension in the market. He mentions that their export program to Asia can supplement their realizations, but ultimately it depends on lumber prices in the Northwest.

David Wold and Kurt Yinger discuss the company's capital allocation strategy. Wold mentions that they have many options, including M&A, investing in the business, paying down debt, and dividend payments. They have a target of $1 billion in timberland acquisitions and are being disciplined in navigating the competitive market. They also plan to allocate a portion of their capital towards share repurchases to return cash to shareholders.

The company has been active in buying back shares when they are trading at a discount, with $733 million already spent out of a $1 billion authorization. They will continue to be opportunistic with this strategy, but will also consider other options for allocating their cash in a way that creates long-term value for shareholders. They are willing to go above the 100% threshold of adjusted FAD in a given year for share repurchases if the discount widens. The recent fire at a Japanese customer's facility is expected to impact Japanese export volumes by 15-20% over the next couple of quarters.

The company expects flat pricing in the South for the fourth quarter and does not anticipate any significant impact on margins from the decline in Japanese log production. The demand for sawlogs remains strong, while there has been some softness in the pulp and paper markets.

The speaker discusses the current state of the pulp and paper market, noting that there is some optimism among customers about rebuilding inventory. They also mention that some mills have closed down, which could have an impact on demand, but Weyerhaeuser has long-term agreements in place to mitigate any potential impact. They then shift to discussing the Wood Products segment and a question about lumber.

The speaker is asked about the potential supply response to lumber prices being below cash costs and the impact of labor shortages on supply. They mention that historically, there is usually a supply response when prices are below cash costs and that some producers may be hesitant to let go of labor. However, they believe that producers will eventually make decisions to cut back on production if they continue to lose money. They also note that the labor market has improved slightly compared to earlier in the year.

The speaker discusses the outlook for the Wood Products industry, particularly in relation to housing starts and the demand for new homes. They believe that larger national builders will continue to build, but smaller builders may struggle due to higher interest rates. The company has a diverse customer base and good relationships with the big builders.

The company expects to continue growing their business with medium and small builders, as there is a high demand for homes due to the lack of availability. The builders have done well in navigating the current housing market, and the company expects this trend to continue next year. There is a shortage of lumber and OSB inventory, and the company's extended order files suggest a lack of extra EWP in the system. The company has also received approval for a forest carbon project in Maine.

Devin Stockfish, CEO of Weyerhaeuser, discusses the company's progress towards their goal of reaching $100 million in EBITDA by the end of 2025. He mentions that the first carbon credit project was successful and they have two more slated for approval in the first half of next year. They are also exploring other avenues such as mitigation banking, conservation, renewables, carbon capture and storage, and forest carbon to reach their goal. Stockfish believes that the size of this business will ultimately scale up to be more than $100 million. A question is asked about the pricing of Engineered Wood Products (EWP) and the team clarifies that it is based on volume and various factors.

The speaker explains that the slight decrease in price realization for the fourth quarter is due to targeted price adjustments in certain products, but overall demand and pricing in the Engineered Wood Products business remains stable. The speaker also clarifies that any price concessions made were likely due to extended order files and not a lack of competitiveness.

In the paragraph, the speaker discusses the company's approach to pricing, which is targeted and adjusted based on local supply and demand dynamics. They also mention that there were no significant changes in pricing in Q3 and that the operating rate for EWP was in the high 70s range. The speaker also explains that the company schedules maintenance downtime throughout the year and that it is difficult to predict OSB prices quarter-to-quarter.

The company has a set maintenance schedule for its mills and tries to stick to it, but sales volumes were down due to annual maintenance downtime at one mill. The company is currently marketing its carbon credits and expects to sell them at a price in the mid- to high 20s range. The annual carbon credits will vary depending on the growth and carbon sequestration trajectory of the forest.

Mark Weintraub from Seaport Research Partners asks Devin Stockfish about his thoughts on the repair and remodel market for single-family homes in the upcoming year. Devin believes that there are both positive and negative factors at play, such as an aging housing stock and low interest rates, but also a lock-in effect and fewer people moving. Overall, he expects the market to remain solid, with a slight increase or decrease in growth. However, he does not anticipate the same level of growth seen during the pandemic.

The speaker discusses the potential for the company to sell timberlands in order to buy back stock at a discounted price. However, they believe that the value of timberlands will continue to increase and they plan to be a net buyer of timberlands in the future. They also mention their past success in adjusting their portfolio to generate capital. As of now, they do not have plans to divest significant amounts of timberland.

The company is considering all options to improve their financial situation, including arbitraging spreads, but they do not see divesting timberlands as a significant part of their plan. OSB prices have gone down, but EWP prices have gone up due to a lag in internal transfers. The company does not anticipate any major differences in their carbon projects in the South compared to those in the North, and they expect to sell initial main credits at a mid- to high 20s range.

The speaker, Devin Stockfish, responds to a question about the current state of lumber imports from Europe. He acknowledges that there was a spike in imports earlier in the year but notes that it has been decreasing. However, he believes that European producers will continue to supply lumber to the US market, even at lower prices, as it is an important market for them. He also mentions that the European economy may improve in the future, leading to less lumber being imported. Overall, he expects the trend of decreasing European imports to continue, but not disappear completely.

During a recent conference call, Devin Stockfish, CEO of Weyerhaeuser, discussed the company's inventory and CapEx plans for 2024. Stockfish confirmed that all inventory from the previous year had been accounted for and that the company's multiyear guidance for 2024 would likely remain unchanged. He also thanked investors for their continued interest in Weyerhaeuser. The call concluded shortly after.

This summary was generated with AI and may contain some inaccuracies.