The operator introduces the Weyerhaeuser Fourth Quarter 2023 Earnings Conference Call and reminds participants that the call is being recorded. Andy Taylor, Vice President of Investor Relations, thanks everyone for joining and introduces the speakers, Devin Stockfish, Chief Executive Officer, and Davie Wold, Chief Financial Officer. They reported full year and fourth quarter earnings, with GAAP earnings of $839 million and $219 million respectively. Adjusted EBITDA for the year was $1.7 billion and $321 million for the quarter. Stockfish thanks employees for their performance in 2023.

In 2023, the company had strong operating performance and achieved its multiyear targets. They are well positioned for future market conditions and are focused on creating value for shareholders. They generated $986 million in adjusted funds available for distribution and declared a supplemental cash dividend of $0.14 per share, bringing the total dividends to shareholders to $0.90 per share. They have returned a total of $4.6 billion in cash to shareholders since 2021 and their cash return framework is sustainable and appropriate for their portfolio. They also increased their base dividend and returned additional cash through share repurchase, all within their framework and without any additional actions needed.

The company retained 20% to 25% of its adjusted FAD annually and believes this framework is a powerful differentiator in driving long-term shareholder value. They also completed purchase and sale transactions in the fourth quarter, resulting in a net cash inflow of $7 million. The company is on track to meet its goal of $1 billion in disciplined investments in timberlands by 2025. In the fourth quarter, Timberlands contributed $77 million to earnings and results were consistent across all regions.

In the fourth quarter, the Western domestic market saw a decrease in log demand and pricing due to a softening lumber market and high inventories. However, sales realizations were slightly higher due to an increased mix of grade logs and the shift of volume to China. In Japan, the log market returned to a more balanced state and sales realizations were comparable to the previous quarter, but volumes were slightly lower due to reduced shipments to a customer. However, the company plans to increase export volumes to Japan in the first quarter. In China, log supply has adjusted to lower consumption levels and sales realizations were comparable to the previous quarter.

Despite a slight softening in the Southern sawlog and fiber markets, the demand for logs remained steady due to delivered programs across the region. In the Real Estate, Energy, and Natural Resources segment, the company generated $320 million in adjusted EBITDA for the full year, slightly higher than their revised guidance. In the fourth quarter, the segment contributed $50 million to earnings, with a decrease compared to the third quarter due to timing and mix of properties sold. The Natural Climate Solutions business also saw a 9% increase in adjusted EBITDA for the full year, with solid contributions from conservation, mitigation banking, and renewables. Demand for these businesses continues to grow.

In 2023, the company achieved significant milestones in their forest carbon business, including the approval and monetization of credits from their pilot project in Maine. They anticipate new credit issuances from this project and are developing more forest carbon projects in their U.S. timberlands. They also made progress in their carbon capture and sequestration business, with projects expected to be online in late 2025 or 2026. The company is in discussions with other developers and has built a strong team with expertise in Natural Climate Solutions. They have established a leading position in emerging carbon markets and plan to capture the majority of the economic benefits from these opportunities.

Weyerhaeuser is focused on growing their NCS business and sees potential for future growth in carbon and renewables. In the fourth quarter, Wood Products contributed $105 million to earnings before special items, with adjusted EBITDA of $159 million, a 52% decrease from the previous quarter due to lower commodity pricing. Lumber was the primary driver of this decline, with a $34 million loss in adjusted EBITDA, caused by cautious buyer sentiment and ample lumber supply in the North American market. However, there were positive signals towards the end of the year, such as stronger-than-expected housing starts and a positive outlook on interest rates. The decline in production levels also contributed to lower sales volumes and higher unit manufacturing costs. The Northwest region was particularly affected by the rapid decline in lumber pricing compared to log prices.

The company is expecting improved performance in the lumber business in the first quarter of 2024. However, adjusted EBITDA for OSB decreased due to lower product pricing. OSB pricing stabilized and increased by the end of the quarter due to lean inventories and strong demand from new home construction. Engineered Wood Products also saw a decrease in adjusted EBITDA, but pricing remains healthy. Distribution saw a decrease in adjusted EBITDA due to lower commodity prices and seasonal sales volumes. The call will now be turned over to discuss financial items and the company's outlook for the first quarter and full year of 2024.

In the fourth quarter, the company generated $288 million in cash from operations and returned $783 million to shareholders, including $125 million in share repurchases. They plan to continue leveraging their flexible cash return framework and opportunistically repurchase shares in 2024. The company ended the year with $1.2 billion in cash and cash equivalents and repaid a $860 million private note while also closing on a $250 million term loan. They have no further debt maturities until 2025. Adjusted EBITDA for unallocated items increased by $8 million compared to the third quarter. The company expects first quarter earnings and adjusted EBITDA to be comparable to the fourth quarter in their Timberlands business.

In the first quarter, the company expects steady log demand in the domestic market, with higher sales volumes but slightly lower average sales realizations. There will also be a moderate increase in fee harvest volumes and lower log and haul costs due to seasonal operations. In the Japanese market, the company expects higher sales volumes and slightly higher average sales realizations. In China, log demand is expected to decrease and sales volumes will significantly decrease, with average sales realizations comparable to the fourth quarter. In the South, the company expects steady demand and similar average sales realizations.

In the first quarter, Southern log markets are expected to be stable despite ample log inventories. Sales realizations are expected to be comparable to the fourth quarter, with lower fee harvest volumes and forestry and road costs due to wet weather conditions. In the North, fee harvest volumes are expected to be comparable to the fourth quarter with higher sales realizations. For the full year, total company fee harvest volumes are expected to increase. In the Real Estate, Energy and Natural Resources segment, demand for real estate properties is expected to remain steady and the Natural Climate Solutions business is expected to see a significant increase in EBITDA. For the segment, adjusted EBITDA is expected to be approximately $320 million for the year. In the Wood Products segment, benchmark prices for lumber and OSB have increased from lower levels in the fourth quarter but have remained stable in recent weeks.

The company expects improving market conditions and demand for their products in the first quarter of 2024. They anticipate higher sales volumes and lower costs in their lumber and oriented strand board businesses, while their engineered wood products and distribution businesses are expected to see moderately higher sales volumes and slightly lower costs. The company also projects a decrease in interest expense and a similar effective tax rate compared to the previous year.

The company expects its effective tax rate and cash taxes to be comparable in 2024 to those in 2023. They also anticipate similar expenses for pension and post-employment plans. Capital expenditures for 2024 are expected to be around $440 million, with a focus on Timberlands, Wood Products, and corporate IT systems. The housing market remained resilient in 2023 despite higher mortgage rates, thanks to limited inventory and strong demand. The company also briefly mentions their multiyear targets.

The company is more optimistic about single-family housing demand in 2024 due to tailwinds from last year, improving mortgage rates, and a favorable macro environment. They are less optimistic about the multifamily segment, but overall, they expect an uptick in demand for their products. Repair and remodel activity remained steady in the fourth quarter and is expected to continue in the first quarter of 2024. The company believes that demand for repair and remodel will be more heavily weighted towards the Pro segment. The company is progressing towards their multiyear targets announced in September 2021 and expects healthy demand for repair and remodel in the future due to favorable home equity levels and an aging housing stock.

In this paragraph, the speaker discusses the company's progress and achievements, including reaching over half of their $1 billion Timberlands growth target, increasing EBITDA in their Natural Climate Solutions business, and making improvements in operating margins. They also highlight their commitment to ESG goals and disciplined capital allocation. Looking forward, they remain optimistic about the housing market and their strong balance sheet. The speaker concludes by opening the floor for questions from the audience.

Devin Stockfish, CEO of Weyerhaeuser, discusses the company's ability to increase production in different product categories to capture the benefits of a potential lift in the housing market. He mentions that they have the most flexibility in lumber production, with the ability to add shifts and overtime. OSB production is more difficult to increase, while there is some flexibility in EWP production. Lumber inventory is currently low, while OSB inventory is normal.

Devin Stockfish, CEO of a company, discusses the company's recent OpEx savings and plans for future initiatives in a conference call with Susan Maklari. He notes that the $77 million in OpEx savings over the past two years is impressive given the inflationary environment. The company will continue to focus on reliability, efficiency, and innovation in its Wood Products and Timberlands divisions. Stockfish believes that OpEx is deeply ingrained in the company's culture and expects an uptick in savings this year. George Staphos from Bank of America is the next questioner.

In response to a question about the loss in lumber sales in the fourth quarter, Devin Stockfish, the speaker, explains that it was a challenging quarter due to low prices and high log prices. He also mentions the company's focus on improving operating expenses and increasing capital expenditures to address inflation and improve profitability in the future.

Holden, a lumber company, is expected to have a strong year due to various capital projects. The company aims to be industry-leading in terms of cost, production, and efficiency. However, there may be some fluctuations in lumber pricing in the first quarter. As for the EWP (engineered wood products) market, there may be some flat to down realizations due to pricing actions in different regions, but overall the market is still strong.

The speaker discusses the outlook for the housing market in 2024 and mentions that they are receiving positive signals from their builder customers. They expect steady demand and believe that lower mortgage rates will benefit their company. The speaker then moves on to discuss the market for timberlands in 2023, noting that transaction volume was around $2.5 billion and prices have increased significantly in recent years. They also mention that high-quality timberlands are now valued at around $4,000 per acre.

The speaker discusses the market transactions in 2024 and predicts a typical year with $2-3 billion in transaction value. They expect competition to remain high with the usual players, such as TMOs and timber REITs, as well as potential new entrants. They also mention a recent competitor's mill closure due to new regulations in Oregon, but it is unclear if it will have a direct impact on their business.

The speaker discusses the impact of new regulations on Oregon's wood supply, noting that the state was already under strain. They mention that Weyerhaeuser is in a good position due to their own timberlands, but expect the price of logs to increase. They then address the decrease in European lumber imports in the second half of 2023 and the potential for European competitors to enter the domestic market in the future.

The speaker discusses the decline in salvage activity in Central Europe due to the beetle infestation, which has led to cheaper logs being available for purchase. However, this activity is expected to decrease in the future, leading to less competition in the market. The speaker also mentions the potential impact of European lumber demand increasing in the long term, as well as the minimal competition from imported LVL products due to the company's strong customer service. In response to a question, the speaker discusses the company's recent monetization of forest carbon credits and shares plans for future projects in the U.S. South and other areas.

The speaker reflects on the lessons learned from their pilot carbon credit project and emphasizes the importance of quality and expertise in the process. They also mention the need for more infrastructure to support the growing demand for carbon credits. They express confidence in their future projects and mention their goal of acquiring $1 billion in timberlands by 2025.

Devin Stockfish, CEO of Weyerhaeuser, stated that the company still has a high degree of conviction about the value of timberlands over time and their ability to generate strong returns from that asset. The $1 billion transaction with FIA was a reflection of their programmatic M&A activities, which on average brings in about $250 million in acquisitions. The company will continue to buy timberlands and optimize their portfolio by trimming it from time to time. The FIA transaction was a good example of this, as they acquired mature timber close to their operations and divested land that was not near their other operations. Weyerhaeuser expects to be a net acquirer of timberlands over time due to the increasing value of the asset and their ability to generate returns from it.

The speaker is providing information on the current state of order files and operating rates for lumber, OSB, and EWP products. They mention that order files are in a normal range for this time of year, with EWP having been brought down to a more normalized level in 2023. Operating rates for EWP were in the low 80s in Q4 and are expected to increase in Q1 2024. The speaker also mentions that order files typically extend 3-5 weeks and that there is strong interest from builders. They also briefly touch on Timberland and mention closures and restructuring in the industry.

The speaker discusses the decline in the pulpwood market and how it has affected their company. They mention having strong relationships with consumers and the impact on pricing. They also mention their silviculture practices and preserving flexibility for the future. The company is exploring potential opportunities for export and alternative markets for pulpwood.

The business development team at Weyerhaeuser is focused on moving their pulpwood volume over time. There are no major projects planned for Wood Products, but rather smaller projects aimed at improving efficiency and reaching world-class status. The company's capital allocation strategy continues to prioritize a mix of supplemental dividends and share repurchases.

David Wold, Weyerhaeuser's CFO, discusses the company's capital allocation strategy and the various options they have for using their resources. He mentions that they have a lot of levers to choose from, including M&A, investing in the business, paying down debt, and dividends. They are constantly evaluating these options and their approach is to return 75-80% of their adjusted FAD to shareholders. They also have flexibility to use share repurchase and allocate the remaining adjusted FAD to other opportunities, such as timberland acquisitions. Overall, their goal is to create value for shareholders through their capital allocation decisions.

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