Weyerhaeuser (WY) Q1 Earnings Top, Housing Market A Boon

Weyerhaeuser Company (NYSE:WY) reported better-than-expected results for the first quarter of 2018 with earnings and sales surpassing estimates by 9.1% and 4.2%, respectively.

Earnings from continuing operations before special items in the reported quarter were 36 cents per share, surpassing the Zacks Consensus Estimate of 33 cents. Also, the bottom line surged 63.6% from the year-ago tally of 22 cents.

Solid Wood Products and Timberlands Drive Top Line

In the quarter under review, Weyerhaeuser’s net sales were $1,865 million, up 10.2% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $1.79 billion.

The company operates through three business segments, results of which are given below:

Timberlands: The segment’s revenues (excluding intersegment sales) in the first quarter were $505 million, up 3.9% year over year. It accounted for 27.1% of net sales.

Real Estate, Energy and Natural Resources: The segment’s revenues, accounting for 2.7% of net sales, were $51 million. The figure decreased 3.8% from the year-ago tally.

Wood Products: The segment generated revenues (excluding intersegment sales) of $1,309 million, accounting for 70.2% of net sales. Compared with the year-ago quarter, the figure was up 13.4%.

Margin Profile Improves

In the reported quarter, Weyerhaeuser’s cost of sales grew 6% year over year to $1,348 million. It represented 72.3% of net sales versus 75.1% in the year-ago quarter. Gross margin expanded 280 basis points to 27.7%.

Selling expenses flared up 4.5% year over year to $23 million and came in at 1.2% of net sales. General and administrative expenses, at 4.2% of net sales, decreased 10.3% year over year to $78 million. Research and development expenses were $2 million, half of the year-ago tally.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $544 million in the quarter, increasing 19.8% year over year. Adjusted EBITDA margin was 29.2% versus 26.8% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the first quarter, Weyerhaeuser had cash and cash equivalents of $598 million, down from $824 million at the end of the preceding quarter. Long-term debt remained flat at $5,928 million.

In the reported quarter, the company generated net cash of $136 million from operating activities, reflecting year-over-year growth of 288.6%. Capital spending of $61 million grew 17.3% year over year. During the same period, the company paid dividends worth $242 million.

Outlook

In the quarters ahead, Weyerhaeuser anticipates leveraging benefits from strengthening housing-market conditions (as evident from rising housing starts) in the United States.

For second-quarter 2018, Weyerhaeuser anticipates sequentially lower earnings and adjusted EBITDA from the Timberland segment. Results in the West will gain from rise in log sales realization, while suffering from higher road and forestry costs, as well as rise in unit-logging costs. In the South, log sales realizations are predicted to be flat quarter over quarter. On a year-over-year basis, the segment’s earnings and adjusted EBITDA are anticipated to rise substantially.

For the Real Estate, Energy and Natural Resources segment, the company anticipates sequentially comparable earnings and adjusted EBITDA in the second quarter. For 2018, the segment’s adjusted EBITDA will be roughly $250 million.

For the Wood Products segment, the company predicts sequentially higher earnings and adjusted EBITDA. Sales volume and operating rates are predicted to be seasonally higher in the second quarter. Sales realizations will rise for lumber, engineered wood products and oriented strand board. Rise is log costs in the West will be a headwind.

Weyerhaeuser Company Price, Consensus and EPS Surprise