Weyerhaeuser Company (WY) reported strong second quarter 2024 results, demonstrating its resilience despite ongoing headwinds in the lumber market. The company's earnings and net sales, while missing analyst estimates, showcased significant improvements across all business segments compared to the first quarter.

Financials

For the full year 2023, Weyerhaeuser reported annual net income of $839 million, annual revenue of $7.67 billion, annual operating cash flow of $1.43 billion, and annual free cash flow of $753 million.

In the second quarter of 2024, the company reported net earnings of $173 million, or $0.24 per diluted share. Excluding a special item, Weyerhaeuser earned $154 million, or $0.21 per diluted share. Net sales for the quarter came in at $1.94 billion.

Weyerhaeuser's Timberlands segment contributed $81 million to second quarter earnings, with adjusted EBITDA of $147 million. The Real Estate, Energy and Natural Resources (Real Estate & ENR) segment contributed $59 million to earnings, with adjusted EBITDA of $102 million. The Wood Products segment, excluding a special item, contributed $171 million to earnings, with adjusted EBITDA of $225 million.

Business Overview

Weyerhaeuser is principally engaged in growing and harvesting timber, maximizing the value of its acreage through the sale of higher and better use (HBU) properties, monetizing the value of surface and subsurface assets through leases and royalties, and manufacturing, distributing and selling products made from trees. The company's business segments are organized based primarily on products and services, which include Timberlands, Real Estate & ENR, and Wood Products.

The Timberlands segment is responsible for logs, timber, recreational leases and other products. The Real Estate & ENR segment focuses on real estate sales and energy and natural resources. The Wood Products segment manufactures and distributes structural lumber, oriented strand board, engineered wood products and building materials.

Timberlands Segment Performance

Weyerhaeuser's Timberlands segment faced some headwinds in the second quarter, with adjusted EBITDA declining slightly compared to the first quarter. In the Western domestic market, log prices faced downward pressure as mills carried elevated log inventories and continued to navigate a softening lumber market. However, the company's fee harvest volumes were moderately higher, and domestic sales volumes improved as demand for logs remained stable.

In the Western export business, log markets in Japan were stable, and demand for Weyerhaeuser's logs was steady. Log demand in China increased modestly following the Lunar New Year holiday, but log takeaway waned as the quarter progressed. In the South, Timberlands adjusted EBITDA was comparable to the first quarter, as Southern sawlog markets moderated in response to elevated mill inventories and a seasonal increase in log supply.

Real Estate & ENR Segment Performance

Weyerhaeuser's Real Estate & ENR segment contributed $59 million to second quarter earnings, with adjusted EBITDA of $102 million, an $8 million increase compared to the first quarter. The company continued to benefit from solid demand for HBU properties, resulting in high-value transactions with significant premiums to timber value. However, the average price per acre declined sequentially due to the mix of acres sold.

In the company's Natural Climate Solutions business, Weyerhaeuser saw strong demand for large-scale solar development and signed additional agreements in the second quarter. The company now has over 70 agreements for potential solar projects, covering more than 130,000 acres across the U.S. South. Weyerhaeuser is also advancing several Forest Carbon projects through the development pipeline and expects to have two new projects in the U.S. South approved later this year.

Wood Products Segment Performance

Excluding a special item, Weyerhaeuser's Wood Products segment contributed $171 million to second quarter earnings, with adjusted EBITDA of $225 million, a 22% improvement over the first quarter. This was largely driven by an increase in oriented strand board (OSB) pricing, as well as higher sales volumes and lower costs in lumber and engineered wood products (EWP).

In the lumber business, second quarter adjusted EBITDA was a loss of $8 million, with soft pricing as the primary headwind. Average benchmark pricing for lumber decreased by 5% compared to the first quarter, as demand from the repair and remodel and multifamily housing segments was more muted. Weyerhaeuser expects to reduce its lumber production by 5% to 10% in the third quarter, inclusive of the indefinite curtailment of its New Bern, North Carolina mill.

In the OSB business, adjusted EBITDA improved compared to the first quarter, primarily due to higher average sales realizations. Benchmark pricing for OSB began the quarter at elevated levels but moved significantly lower as the quarter progressed, largely in response to softer-than-expected demand during the spring building season and elevated channel inventories.

Engineered Wood Products adjusted EBITDA increased by $6 million compared to the first quarter, driven by solid single-family construction activity and slightly seasonal improvement in demand at the outset of the second quarter.

Liquidity

Weyerhaeuser ended the second quarter with $997 million in cash and cash equivalents and $1.5 billion of availability on its line of credit, which expires in March 2028. The company generated $432 million in cash from operations and returned $146 million to shareholders through the payment of its quarterly base dividend.

Weyerhaeuser also repurchased 1,669,145 common shares for approximately $50 million during the second quarter, as part of its $1 billion share repurchase program. As of June 30, 2024, the company had remaining authorization of $152 million for future share repurchases.

Outlook

For the third quarter of 2024, Weyerhaeuser expects earnings and adjusted EBITDA in the Timberlands segment to be approximately $20 million to $30 million lower than the second quarter, largely driven by lower sales volumes and realizations in the West.

In the Real Estate & ENR segment, the company expects third-quarter earnings to be about $10 million lower and adjusted EBITDA to be around $30 million lower than the second quarter, primarily due to the timing and mix of real estate sales.

Within the Wood Products segment, Weyerhaeuser expects its third-quarter earnings before special items and adjusted EBITDA to decline from the second quarter, excluding the impact of changes in average sales realizations for lumber and OSB. The company anticipates lower sales volumes and higher unit manufacturing costs for lumber, as well as lower production volumes and moderately higher unit manufacturing costs for OSB.

Conclusion

Weyerhaeuser's second quarter performance demonstrates the company's resilience and operational excellence in the face of challenging market conditions. The company's strategic timberland acquisitions, progress in its Natural Climate Solutions business, and disciplined capital allocation position it well to navigate the current environment and capitalize on long-term growth opportunities. Weyerhaeuser's unmatched portfolio of assets, robust balance sheet, and focus on innovation make it a compelling investment proposition for shareholders.