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Edited Transcript of WY earnings conference call or presentation 26-Jul-19 2:00pm GMT

Q2 2019 Weyerhaeuser Co Earnings Call

Federal Way Jul 30, 2019 (Thomson StreetEvents) -- Edited Transcript of Weyerhaeuser Co earnings conference call or presentation Friday, July 26, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Devin W. Stockfish

Weyerhaeuser Company - President, CEO & Director

* Elizabeth L. Baum

Weyerhaeuser Company - Senior Director of IR & Enterprise Planning

* Russell S. Hagen

Weyerhaeuser Company - Senior VP & CFO

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Conference Call Participants

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* Anthony James Pettinari

Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst

* Brian P. Maguire

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Clyde Alvin Dillon

Vertical Research Partners, LLC - Partner

* Collin Philip Mings

Raymond James & Associates, Inc., Research Division - Analyst

* George Leon Staphos

BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research

* Mark Adam Weintraub

Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst

* Mark William Connelly

Stephens Inc., Research Division - MD & Senior Equity Research Analyst

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Paul C. Quinn

RBC Capital Markets, LLC, Research Division - Analyst

* Steven Pierre Chercover

D.A. Davidson & Co., Research Division - MD & Senior Research Analyst

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Presentation

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Operator [1]

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Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Second Quarter 2019 Earnings Conference Call. (Operator Instructions)

I will now turn the call over to Ms. Beth Baum, Senior Director, Investor Relations. Please go ahead.

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Elizabeth L. Baum, Weyerhaeuser Company - Senior Director of IR & Enterprise Planning [2]

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Thank you, Dennis. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's second quarter 2019 earnings. This call is being webcast at www.weyerhaeuser.com and our earnings release and presentation materials can also be found on our website.

Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and Russell Hagen, Chief Financial Officer.

I will now turn the call over to Devin Stockfish.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [3]

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All right. Thanks, Beth. Good morning, everyone, and thank you for joining us today. This morning, Weyerhaeuser reported second quarter net earnings of $128 million or $0.17 per diluted share on net sales of $1.7 billion. Excluding a small benefit from special items, we earned $123 million or $0.16 per diluted share. Adjusted EBITDA totaled $343 million.

I'm extremely proud of our team as each of our businesses delivered strong operating performance despite various market and weather-related challenges throughout the quarter. In a moment, I'll dive into our business results, but first, let me set the stage with some brief comments on the housing market.

Outside of the Pacific Northwest, the second quarter was extremely wet. Record-setting precipitation constrained building activity in key areas across the country. Housing starts in most regions increased modestly quarter-over-quarter despite the unusual weather and second quarter housing starts totaled $126 million on a seasonally adjusted basis compared with $1.21 million in the first quarter. However, housing starts in the South, which account for roughly half of U.S. homebuilding activity, declined on a seasonally adjusted basis as builders struggled to navigate flooding and near-historic levels of rainfall.

In addition to the weather-related challenges during the first half of 2019, the industry continues to face many of the same supply-side constraints that have been headwinds for housing over the last several years, namely affordability, regulatory burdens and labor and lot availability. While these constraints continue to affect the housing market, we believe the fundamentals support modest growth for 2019. In particular, mortgage applications for purchase are up over 6% in the first half of 2019 versus the same period in 2018. New home sales are up 2% year-to-date. Builders sentiment remained strong. Economic data remains positive with increasing real wages, unemployment below 4% and consumer confidence near 15-year highs. And affordability has improved as mortgage rates have declined.

Our builder customers are optimistic that they will be able to return to a more normal pace of building activity in the third quarter, and they continue to hope for catch-up activity in the fourth quarter, weather permitting. We also expect builders will continue to adjust product offerings as they seek to meet solid and growing underlying demand for affordable housing.

Turning now to our second quarter business results. I'll begin the discussion with Timberlands, Charts 4 through 6. Timberlands contributed $102 million to second quarter earnings and $175 million to adjusted EBITDA. Western Timberlands EBITDA decreased by $8 million compared with the first quarter due to additional forestry and road building activity, which typically increases during the dryer months.

Demand for Western domestic logs soften slightly as some lumber wells reduced hours in response to continued low lumber prices. Logging conditions improved significantly compared with the first quarter, resulting in good log availability across the Northwest markets. Although pricing trended modestly lower as the quarter progressed, our second quarter domestic log pricing was comparable to the first quarter average.

Moving to the export markets. In Japan, post-and-beam housing starts are up almost 2% year-to-date and demand for our logs remained steady. Average sales realizations for our Japanese export logs were comparable to the first quarter. Second quarter log sales volumes to Japan were stronger than we had originally expected and were down only slightly compared with the prior quarter.

In China, overall log inventories at Chinese ports decreased 11% during the second quarter to 4.1 million cubic meters. However, the inventory trend varied by species. Inventories of North American hemlock and Douglas-fir logs decreased by 44%, but inventories of radiata pine continued to build in the quarter. At the end of June, radiata represented approximately 73% of the ports inventory volumes compared with 60% at the end of March. The oversupply of radiata pine has had only a modest effect on demand and pricing for our logs as the Douglas fir and hemlock that we export generally serve different end markets than radiata.

Second quarter realizations for our China export logs were slightly lower than the first quarter. Log sales volumes decreased, but this was primarily due to the timing of vessel sailings. Overall, second quarter log export revenues were lower than the year ago quarter due to lower realizations for our Japan and China logs and lower sales volumes to China due to timing of shipments.

For Western Timberlands as a whole, EBITDA is significantly lower than a year ago due to the lower prices for domestic and export logs.

Moving to the South. Southern Timberlands EBITDA decreased by $4 million compared with the first quarter due to lower fee harvest volumes. Extremely wet weather created challenging logging conditions during the second quarter. Our fee harvest volume decreased only slightly as our scale, operability and supply chain infrastructure enabled us to largely maintain our planned harvest volume through the record rainfall.

Log availability was tight across Southern markets, particularly in the mid-South, resulting in low mill inventories and continued solid pricing. Average realizations for our Southern sawlogs were flat with the first quarter and realization for our fiber logs increased slightly.

On the export side, Southern log export volumes and realizations were comparable to the first quarter. Comparing overall Southern Timberlands results with the year ago quarter, EBITDA increased slightly due to higher average log sales realizations, partially offset by lower harvest volumes and slightly higher harvest and haul costs due to the wet weather.

Northern Timberlands EBITDA decreased by $6 million compared with the first quarter. Fee harvest volumes declined seasonally as spring breakup limited activity across most of our Northern operations and average realizations improved as our harvest mix shifted seasonally to a higher proportion of hardwood sawlogs. Compared with the year ago quarter, EBITDA from Northern Timberlands decreased slightly due to lower harvest volumes.

Real Estate, Energy and Natural Resources, Charts 7 and 8. Real Estate and ENR contributed $35 million to second quarter earnings and $71 million to adjusted EBITDA. Second quarter EBITDA was $35 million lower than the first quarter, but $24 million higher than a year ago. As we previously indicated, due to strong activity at the end of 2018, our 2019 real estate activity is heavily weighted toward the first half of the year.

Interest from recreational and high net worth buyers remained solid in the second quarter. We also closed a large acreage transaction in Montana, which accounted for approximately half of the acres sold. As a result, the number of acres sold in the second quarter increased 21% compared with the first quarter, and there was nearly 3x higher than a year ago.

Average price per acre decreased significantly compared with the first quarter and the year ago quarter due to the large proportion of acres sold in Montana where Timberland prices are regionally lower.

In Energy and Natural Resources, EBITDA increased slightly compared with the first quarter due to a small seasonal increase in construction materials volumes. Compared with the year ago quarter, ENR EBITDA increased due to higher volumes and pricing for construction materials and hard minerals.

Wood Products, Charts 9 and 10. Wood Products contributed $81 million to second quarter earnings and $128 million to adjusted EBITDA. Compared with the first quarter, earnings and EBITDA increased despite lower average pricing for our commodity products. EBITDA for lumber decreased $3 million as slightly lower lumber realizations and higher log costs were mostly offset by a seasonal increase in sales volumes.

Lumber pricing trended unevenly throughout the quarter, holding flat through April, declining in May as continued wet weather limited customer purchasing and improving in June with the announcement of curtailments in mill closures in British Columbia. On average, the framing lumber composite price decreased 3% in the second quarter compared with the first, and our average realizations decreased by 1%. Lumber sales volumes increased 12% compared with the first quarter, while production was up 4%.

Our mills had another excellent quarter operationally. Unit manufacturing costs decreased slightly compared with the first quarter, and our lumber system achieved the lowest controllable manufacturing cost per unit it has ever recorded. This is a strong indication that our OpEx efforts are yielding meaningful results.

Our Timberlands and Wood Products teams also worked exceptionally well together to keep our mills supplied with logs in very challenging harvest conditions. Despite record levels of precipitation across the U.S. South and Alberta, we experienced only minor out-of-log downtime at one mill in our system.

Comparing second quarter results with the year ago quarter, lumber EBITDA decreased significantly due to lower average sales realizations, partially offset by lower log and manufacturing cost. EBITDA for the second quarter of 2019 includes a charge of $5 million for countervailing and antidumping duties on Canadian softwood lumber.

OSB EBITDA decreased $11 million compared with the first quarter. This is almost entirely attributable to lower average realizations. The second quarter pricing trajectory for OSB mirrored that of lumber. Benchmark North-Central pricing averaged 12% below the first quarter, and our average realizations declined 4%.

Our sales and production volumes were comparable to the first quarter, slightly lower than a year ago, as we took a bit more downtime than originally forecasted. Comparing our second quarter results to the year ago quarter, EBITDA was significantly lower due to a 42% decrease in average sales realizations and slightly lower sales volumes.

Engineered wood products EBITDA increased by $17 million compared with the first quarter. Average sales realizations for solid section products were flat, and average realizations for I-joists decreased by 3% primarily due to seasonal mix. Sales volumes increased by 17% for solid section products and 27% for I-joists due to seasonally higher building activity. Production volumes for solid section and I-joist products increased only modestly as we began the customary drawdown of our first quarter inventory build.

Fiber costs declined due to lower cost for logs and oriented strand board web stock, and unit manufacturing costs for MDF improved due to higher operating rates. Compared with the year ago quarter, lower costs for logs and oriented strand board were partially offset by lower sales volumes.

Distribution EBITDA increased by $7 million compared with the first quarter due to improved sales volumes. EBITDA was slightly lower than a year ago as sales continued to lag last year's levels.

I'd like to now turn to operational excellence. Our businesses are making good progress against our collective 2019 operational excellence target of $80 million to $100 million. Year-to-date, our biggest OpEx benefits in Timberlands continue to come from improved logging and hauling efficiencies in our Southern operations and marketing and merchandising improvements across the West and South.

In Wood Products, our greatest benefits have come from our ongoing initiatives to reduce controllable manufacturing costs for lumber and OSB and improved log recovery in engineered wood products. Our real estate business is also on track to meet or exceed its targeted 30% premium to timber value.

I will now turn it over to Russell to discuss some financial items and our third quarter outlook.

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [4]

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Thanks, Devin, and good morning. Key outlook items for the third quarter are presented on Chart 13 of the earnings slides. In our Timberlands business, as is customary, third quarter earnings and adjusted EBITDA will be seasonally lower. We expect a seasonal decrease similar to what we saw in the third quarter of 2018 when earnings and adjusted EBITDA decreased by approximately $35 million compared with the second quarter.

In our Western Timberland operations, we expect our third quarter harvest volumes will be lower than the second quarter. As is typical for this time of year, our road spending will be slightly higher. Operating conditions in the West have been favorable for the past several months. Domestic log inventories are at healthy levels ahead of fire season. Our domestic log sales realizations trended down late in the second quarter, and we anticipate our average realizations for the third quarter will be moderately below the second quarter average absence significant fire-related disruptions or restrictions.

In Japan, post-and-beam housing starts are expected to remain steady, and we continue to experience solid demand for our export logs. In the third quarter, we expect Japanese export sales volumes will be comparable with the second quarter and average log sales realizations will be slightly lower.

Chinese export log sales volumes are expected to increase in the third quarter due to the timing of vessel sailings. We anticipate average sales realizations will decline modestly compared to the second quarter. Although demand remains fairly steady, we do anticipate the recent sharp drop in radiata pine pricing will create some downward pressure on our prices for our Chinese export logs.

In the South, forestry spending will increase as we enter the dryer summer months and complete activities that were deferred by wet conditions in the first half of the year. We anticipate higher fee harvest volumes in the third quarter, and average sales realizations are expected to be comparable to the second quarter.

In the North, third quarter fee harvest volumes will be significantly higher than the second quarter as we move past the spring breakup season.

Turning to our Real Estate, Energy and Natural Resources segment. As previously discussed, the cadence of our real estate sales will be more heavily weighted to the first half of the year in 2019. We continue to see strong interest in higher and better use lands from high net worth individuals and recreational buyers. Markets in the South and the West are particularly strong.

We anticipate third quarter adjusted EBITDA for the Real Estate, Energy and Natural Resources segment will be approximately $15 million lower than the second quarter. Land basis as a percentage of real estate sales will be slightly higher than the second quarter at approximately 60%. We expect third quarter earnings will be $10 million lower than the second quarter. We continue to expect adjusted EBITDA of approximately $270 million for the full year 2019, and we now expect land basis as a percentage of real estate sales will be between 50% and 55% for the full year.

For Wood Products, we expect third quarter earnings and adjusted EBITDA will be comparable to the second quarter before the benefit from improvement in sales realizations. We anticipate comparable sales volumes and slightly lower fiber costs, offset by slightly higher unit manufacturing costs, engineered wood products due to scheduled downtime. We expect third quarter realizations for lumber and OSB will be higher than the second quarter average.

For both lumber and OSB, third quarter to date average sales realizations are comparable with the second quarter average, and current realizations are $5 higher than the second quarter average. As a reminder, for lumber, every $10 change in realizations is approximately $11 million of EBITDA on a quarterly basis. And for OSB, every $10 change in realizations is approximately $8 million of EBITDA on a quarterly basis.

Chart 11 outlines the major components of our unallocated items. The $13 million favorable variance in earnings before special items compared with the first quarter is primarily attributable to lower variable compensation expense. Second quarter also included a small noncash foreign exchange gain as compared with a noncash charge in the first quarter.

Each year in the second quarter, we finalize prior year-end estimates for pension plan assets and liabilities. As a result, our second quarter pretax special items include a $6 million benefit and finalization of the noncash settlement charge related to the transfer of pension assets and liabilities to the purchase of a group annuity contract, which we completed in the first quarter. Excluding pension settlement items, our second quarter noncash, nonoperating pension and post-retirement benefit cost was comparable to the first quarter. We continue to expect to record approximately $60 million of expense for the full year 2019.

Turning to our key financial items, which are summarized on Chart 12. We ended the second quarter with a cash balance of $212 million. Cash from operations during the second quarter was $396 million, an increase of $410 million over the first quarter, which is typically the lowest cash flow quarter of the year. Capital expenditures for the second quarter totaled $84 million. We expect total CapEx for 2019 will be approximately $380 million, $120 million for Timberlands inclusive of reforestation costs, $250 million for Wood Products and $10 million for planned corporate IT system upgrades.

Moving on to financing. We ended the quarter with approximately $6.3 billion of total debt outstanding. We have no debt maturities until 2021. We expect full year 2019 interest expense will be approximately $375 million, excluding special items.

I'll wrap up with taxes. In the second quarter, we recorded an income tax benefit as we recalibrated our annual effective tax rate to account for lower-than-expected Wood Products pricing. We currently expect our full year effective tax rate will reflect a benefit of approximately 20% before special items. We expect to pay minimum cash taxes in 2019.

Now I'll turn the call back to Devin and look forward to your questions.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [5]

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Great. Thank you, Russell. Looking forward, we continue to believe there is a modest growth trajectory for U.S. housing as the market addresses supply-side constraints and narrows the gap to fundamental demand. But we also remain positioned and prepared to fully capitalize on a range of market conditions. Most importantly, we will continue to focus on what we can control, optimizing our operations and portfolio, capturing efficiencies, capitalizing on our diversification and scale and delivering operational excellence every single day. We will remain focused on these things so that we will drive industry-leading operational and financial performance and deliver superior value to our shareholders.

And now I'd like to open up the floor for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Brian Maguire with Goldman Sachs.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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Russell, just wanted to clarify the comment you made on the 3Q outlook for Wood Products. I think you noted in the release, you expected to be flat sequentially, assuming that price realizations are flat. But then I think in your prepared remarks, you also talked about assuming higher lumber and OSB prices. So just want to reconcile those. And then when you talk about prices being flat, are you talking about versus the 2Q average or where you ended 2Q or kind of where we are today?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [3]

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Yes. I think really, what we're looking at is, one, we're operating very well in our manufacturing operations. The cost structure is clearly, as Devin mentioned, really well positioned. So as we look at quarter-over-quarter, and the activity pricing has been pretty flat, but we would expect as we come into later in the summer, as activity increases that we'll see improving pricing. So it's kind of how we're looking at it. We're really in -- and just really good positioned to benefit from that improvement in pricing.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [4]

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Brian, this is Devin. Just to follow up on that. I think directionally, we're expecting a pricing uplift. As we see construction activity continue to pick up in the back half of the year, obviously, there have been a lot of curtailments and mill closure announcements. I think those are still working their way through the system. So directionally, we're expecting an uplift. I think for us, the challenge is quantifying the timing and the magnitude.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [5]

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I guess to be clear, if that uplift developed, that would be upside to the flat sort of outlook on earnings?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [6]

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Correct.

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [7]

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Yes.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [8]

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Correct.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [9]

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Okay. Just wanted to be clear on that. And then you commented on some of the curtailments that have been announced. Just wondering how long you think it'll take for some of that to create some tension on the market. And I guess tied into that question, how would you assess the inventories in the channel and sort of your own inventories because obviously, there have been a lot of curtailments. So far, it hasn't really moved the needle a lot on pricing, but I'm guessing there's still a little bit of excess inventory in the channel.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [10]

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Yes. So let me speak to channel inventory first, and then I'll get back to your second question. I'd say as a general statement across the industry, I would say that inventory levels are in the normal range. Now there may be a few geographies where it's a little high or a little low, but on balance, I think they're in a normal range.

I do think one of the dynamics that you're seeing at present is that buyers are generally not building inventories. They feel pretty confident that they can get supply on an as-needed basis to meet their needs. And so I wouldn't say that inventories are in a extreme level by any means.

The one, I guess, caveat to that is, SPF, as you alluded to, with some of the mill closures and curtailments, some of that volume from those mills that are closing down seems to be finding its way into the market, and I think that's been a little bit of a headwind on SPF here just recently.

That being said, there have been a lot of capacity that's coming out of the system for the announced mill closures. There's a little noise in the system as that volume flows through. As you think about mills that are closing down, they're going to have to move their inventories out into the market, and sometimes that will put a little pressure on things. But after that sort of works its way through the system, we would expect that to normalize over time. Whether that's 2 weeks, 4 weeks, what have you, hard to predict. But certainly, directionally, that's what we would expect to happen.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [11]

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Okay. And just last one for me. The log costs out in Western Canada have been elevated. I think the pine beetle impact that you guys have been talking about for a number of years, maybe it's finally starting to work its way from the initial stages of creating an oversupply of logs to maybe now restricting supply a bit. Just wondering if you could talk about that market and how in general that's impacting you. I know you have a little bit of lumber capacity in that area. But net-net, I would think the pressure that it creates on some of the imports to the U.S. would be a benefit for you. But just want to get some perspective from you on that.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [12]

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Yes. So there are really 2 things going on in British Columbia. One, as you mentioned, is the impact of the pine beetle and forest fire, which has reduced the overall supply of timber. Now I would say that's -- it's differential by region. And so when you're talking about certain areas in sort of the mid-BC range, it's a little bit more heavily impacted. Where we own a mill is a little bit further south. The wood basket that we operate in hasn't been impacted in a meaningful way by the pine beetle or forest fire. So our fiber supply at our mill is actually in reasonably good shape.

The other piece that you've been hearing about from a log cost perspective is the way that they'd use stumpage rates in British Columbia. And that reset on July 1, it went up. You probably heard that talk to you from a number of our competitors that are bigger in that region. And so that's the other impact on log costs is just the method that they used to calculate stumpage rates.

For us, given the wood basket that we operate in where fiber is a little bit more available, we have a mill that's a low-cost mill, top-quartile cost structure in that region. And so even with the increased stumpage rates, I think we're feeling pretty good about the operations that we have in British Columbia.

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Operator [13]

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Your next question is from the line of Mark Wilde with BMO Capital Markets.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [14]

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I wondered, Devin if you could just give us any color on lumber trade dispute. Is the pain that we're seeing in lumber markets right now, is this sparking anymore interest in discussions or is still a back-burner issue?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [15]

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Yes. I'd say there hasn't been a whole lot of movement on that front. Really, the activity is primarily in the litigation channels with the WTO and NAFTA. And so that process is going to take several years to work its way through. Ultimately, we would hope to come to a resolution that both sides can live with. From our perspective, that would be quota-based, but there hasn't been a whole lot of movement on that front recently.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [16]

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Okay. And then just to come back to this kind of Canadian log issue. Can we get a general sense of what you think at current SPF pricing levels? Are many of the mills up there actually cash positive? Would you guess?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [17]

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Yes. Mark, it's really hard for us to speculate on the cost structure for our competitors. Really, what we can speak to you is our mill in British Columbia, as I mentioned, we think that's a top quartile mill, and we can make money even at these levels. And so you can do the math. If we think we're a top quartile cost structure, that means others aren't, at least not everyone. And so you can probably run your own math. It's hard for us to speculate specifically on their cost structure, though.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [18]

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Yes. Okay. That's fine. And last one for me is if the -- maybe you can provide a little bit of color on what you're seeing in U.S. Timberland markets, both in terms of the volume of properties that are in the market and then what you're seeing in terms of Timberland valuations?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [19]

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Sure, Mark. This is Russell. 2019 has actually been a pretty slow start. We've seen a little more activity as we come into the summer months. But I think in general, our expectation is that 2019 will be a pretty light year from a timber transaction, kind of from the broader market timber transaction base.

Typically, we expect around $2 billion to trade and then every year, you see maybe one large transaction sit on top of that. And so the average over the last number of years has been $2 billion to $4 billion. But I would speculate that we'd be hard-pressed to hit $2 billion in 2019 given the amount of transactions that we've seen close and the amount of acres that are on market or we would expect to see come to the market.

One thing I'd say is, I think, it's just a timing of transactions. I don't think it points to any fundamental change in the timber market. We're still seeing strong values. We're still seeing quality properties trade at good prices, and we're still seeing capital coming into the market, seeking out the investment. So I think we're just going to see a slow year. A slow year, this year.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [20]

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Okay. If I can flip one more. Is it possible, Devin, for you to just update people on your thinking around the dividend? I think there has been some concern that you won't cover the dividend this year, and I think it would be good to just hear how you and the Board are thinking about that? Clearly, there's a lot of volatility in your cash flow. Is it because of what's been going on in the wood markets?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [21]

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Yes. Sure, Mark. Obviously, the first half of the year has been a little soft on pricing across a number of our products and that impacts cash flow.

I would say just as a starting point, we're expecting prices to pick up over the back half of the year, as I mentioned earlier. But putting that aside, I think we've been clear, returning cash to shareholders through our sustainable dividend is a core capital allocation priority as is reinvesting in the business and maintaining an appropriate capital structure. And so to the extent that we continue to see a soft pricing environment, we've got levers we can pull. There's a little bit we can do around CapEx and further cost control. We're obviously always working on OpEx. But over and above that, we have 2 key levers to pull. First, as we continue to look to optimize our portfolio, we have opportunities to monetize noncore assets. You've seen us do that in the past with our Uruguay divestiture with what we did on the Twin Creeks transaction. And so that's a lever that we have to pull.

Additionally, we have a strong balance sheet and lots of liquidity, and we're prepared to tap some of that liquidity to bridge as needed. I do think it's important to point out, we value our investment-grade credit rating, and so we'll obviously balance that in consideration to the other levers that we have to pull. But again, we do think you're going to see some uptick in pricing, but we've got levers that we can pull to continue to execute on our capital allocation priorities in the meantime.

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Operator [22]

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Your next question is from the line of George Staphos with Bank of America.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [23]

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I had 3 questions. One on homebuilding and housing, one on cost and operations, and then one on timber pricing.

First, some of the research on some of the counter that we've heard and seen suggest that one of the issues that's been impacting homebuilding is -- a lot of the issue that you had mentioned in terms of land availability, labor availability and so on. But one of the things that's hurting affordability is permitting costs and those are somewhat intractable and being driven by fiscal issues and other issues that kind of feedback into community. So to the extent that your customers have a view on this and where that comes down, that's become a very meaningful price for a new homeowner to get over to build that new home. What are you hearing in the marketplace? And I'll come in with my follow-ons.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [24]

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Yes. There's no question that, that is one of the things that's driving the affordability issue. We've heard estimates as high as 25% of the cost and some homes being built are due to some of the regulatory burdens that are put on the builders. And so that's a challenge. Now the issue there is that's something typically that you have to battle out at the local level.

The one thing that does give me some optimism around that, however, is there is a growing appreciation, I think, in the public policy space that affordable housing is a real issue that must be resolved. You've heard the Governor of California talk about building 2.5 million to 3 million units to just get back up to base level demand. Here in Seattle where the market's tight, it's a topic of conversation regularly. And I think you're seeing that play out.

Now the challenge in moving local governments is going to be differential depending on where you are in the country, but I do think that has really found its way into the public debate. And that gives me some level of optimism that perhaps it's an issue that we can figure out to help with the affordability issue.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [25]

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All right. And we'll keep coming back to that.

In terms of cost, I mean you pointed to it from our vantage point. You did really, really well this quarter. How did you keep SG&A really well aligned? I think it was flat year-on-year, flat in the quarter, especially within Wood Products. And what is repeatable in terms of your manufacturing cost leverage in Wood Products looking out in the next couple of quarters? Was there anything aberrational in your ability to keep costs as low as they were in the quarter?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [26]

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No, absolutely not. And both from an SG&A perspective and an operating cost within the businesses, whether it's Wood Products or elsewhere, the reason that we've been on the positive trajectory there is because we focus on it. We talk about it all the time. We're always focused on it. OpEx has become part of the DNA of this organization. That's true in the business. It's true with the corporate level. And so I wouldn't say there's anything aberrational in Q2. My expectation is, as we mentioned, we're targeting another $80 million to $100 million of improvement in 2019, and we're confident that we're going to get it.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [27]

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And Devin, just the SG&A, we should be able to see or you should be able to maintain that leverage going forward?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [28]

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That's certainly the goal.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [29]

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Okay. And the last, I didn't hear you, Russell, talk about -- you just mentioned there was a downtick in Western realizations and logs. If you could comment in terms of what was driving that end of quarter pressure, that would be helpful.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [30]

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Yes. Let me just comment on the Western system generally because that's a little context for what's going on with the pricing.

I'd say over Q2, the demand was steady in the Western system. But as is typically the case as the weather improves, as you get into the dryer months, you see additional volume coming into the market from the nonindustrial farmer wood. And so that's an incremental volume that we see every year. I think the 2 additional factors at play this year are, number one, while our demand has been steady to China, I do think you've seen a little bit of a drop-off within the Western region on shipments to China, so some of that volume has stayed domestic; and then the third piece is there were some ice storms in Southern Oregon over the wintertime, and you're seeing a lot of the landowners moving some of that salvage volume to market, which is impacting the dynamic in Southern Oregon, it is bleeding up a little bit to mid-Oregon as well. And so those 3 things together, I think, have put a little bit of a softness in pricing in the West. That's not atypical of what you typically see this time of year as you see the farmer wood come to market, but that's sort of where we are. And I would say that's likely going to continue here until we get into the more wet months here in the Pacific Northwest. So as we said, we would anticipate Q3 pricing in the West to be down moderately compared to Q2.

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Operator [31]

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Your next question is from the line of Collin Mings with Raymond James.

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Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [32]

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Going back to Mark's question earlier around the dividend and capital allocation, it does not look like you repurchased any shares during the quarter. Can you maybe just update us on how share repurchases fit into your cap allocation priorities?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [33]

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Yes. Sure, Collin. This is Russell. As you know, our first priority is returning cash to the shareholders through the sustainable dividend, and then we'll do share repurchases on opportunistic basis. In the first quarter, we repurchased around $60 million worth of shares, and we did not have any repurchase in the second quarter, but it's something that we look at on an ongoing basis. It's part of our overall capital allocation program, and we'll update you next quarter as to our activity.

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Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [34]

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Okay. Switching gears, just as far as China, and I really appreciate all the detail around log inventory in China across the different species you broke out earlier. But can you maybe just expand on why you think there is such a divergence there? And maybe expand on how you think that's going to impact that market going forward?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [35]

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Yes. And so the overall rationale for why the radiata pine inventory built up is a little bit hard for us to project. We obviously don't have timberlands in New Zealand. What I will say is on an ongoing basis, I do think you've seen a bit of a price correction on radiata pine. Ordinarily, that would impact the volumes going in -- going into the fall.

The other piece I would just say in terms of the overall dynamic in China, typically, July and August are warmer months in the Southern China region. And so you ordinarily would see a little bit of a slowdown and takeaway. And I think in certain end markets, you're also seeing a little bit of lessened economic activity impacting the takeaway at the ports. And so I think both on the supply and demand side, that's why it's gotten a little bit out of balance and why you're seeing some of that price correction.

I will say, as we mentioned earlier, though, for our business, for hemlock and Doug fir, we're still seeing good steady demand from our customers, pricing softened a little bit, but we haven't seen the same kind of price correction that we've seen in some of the other species.

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Collin Philip Mings, Raymond James & Associates, Inc., Research Division - Analyst [36]

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Appreciate all the detail there. And then just shifting to the U.S. South. I mean clearly, wet weather has helped support log pricing drop the first half of the year in the South. Maybe just as we've kind of moved into the summer and starting to roll into 3Q, have you seen any shifts across different wood baskets in terms of log pricing here, just maybe the wet weather hasn't been as pronounced in some areas?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [37]

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Yes. And I think you're absolutely right. The first half of the year, very wet. That really kept log inventories, the mills down, kept pricing tension in the market. And so any part of the uplift that you saw was attribute to weather.

I will say as we continue to see the manufacturing capacity come into the region and get up and running in those wood baskets, I think that's another piece that added to the uplift on pricing. Our view is that will be something that will continue on. Now that's local to those specific wood baskets, but I do think where we've seen that, that's putting an upward pricing pressure.

With respect to going into Q3, I think on balance, we're expecting comparable quarter-over-quarter pricing. You're going to see maybe a little bit more pricing pressure in some of those regions that have just recently seen a whole bunch of rain, maybe a little less so in regions that have been dryer. But on balance across the South, we're looking at comparable quarter-over-quarter.

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Operator [38]

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Your next question is from the line of Chip Dillon with Vertical Research.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [39]

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Just to get a hand on the second half cash flow, I know that you're unwinding and I think this is going to be largely done by next year, the Timberland transactions from 15 years ago with SPEs. Is it fair to say that you're going to probably need to make, what, a $300 million payment in the second half and you get that back next year, and therefore, should we, unless there's a dramatic recovery in pricing, expect that net debt number, which I get to about 6.1 billion, you mentioned gross debt $6.3 billion, should rise a little bit into year-end and then hopefully drop off next year?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [40]

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Chip, yes. I think you actually described that pretty well. We entered into a couple of timber transactions back in 2002 and 2004 and set up the financial instruments to monetize those. And the first set of those transactions or vehicles were completed last year. And then we have the second step or a second set coming due this year. On the third quarter, we'll make a payment of $302 million. And then in the first quarter of 2020, we'll receive $362 million. So I would expect at year-end, you're going to see a little bit elevation on that. We'll probably tap a revolver to cover that, but it will be repaid back right in the first quarter, so it'll be very temporary.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [41]

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Okay. And then just to clarify, on the Timberlands expectation for the third quarter, you -- I think you said down $35 million EBITDA from a year ago, which I think would mean just a very small, like $5 million drop from the second quarter. Is that the right zip code?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [42]

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Chip, it's $35 million quarter-over-quarter. So...

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [43]

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Second to third.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [44]

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Oh, second to third.

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [45]

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Correct. Similar, though, to the drop that we had in 2018 second to third quarter. So it's really -- it's a seasonal effect, really, around harvest levels and pricing. And then also road costs, also material cost.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [46]

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Okay. And then last question is in the OSB business. I know -- and I'll be the first to admit, I was a little skeptical about you guys running so hard, but you clearly have made the right choice because of -- we see folks falling by the wayside, so to speak. And you're making money, and that's totally up, on the up and up. But you did mention you took some downtime in OSB. And I'm just curious, was that because you have a different approach there? Or is it because you were approaching cash cost at a couple facilities? Just curious why you chose to take downtime in OSB.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [47]

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Yes. Yes, Chip, and that really was just some maintenance downtime that extended a little bit longer than we had anticipated. At a high level, we're obviously always trying to match our supply with the profitable demand, generate appropriate returns over time. I think with our products mix and remember, we're predominantly a value-added OSB product. So we are not as heavy into the commodity sheathing business. And when we combine that with all the work that we've done on our cost structure, it allows us to be cash flow positive where others perhaps may not. And so in Q2, every one of our OSB mills was cash flow positive in every month, unless they had scheduled maintenance downtime.

And I'd say, obviously, the ultimate goal is not to just be cash flow positive. The goal is to exceed or earn in excess of your cost of capital over time and that's certainly our expectation. But we're continuing to watch that and monitor it closely.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [48]

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So said differently, if you needed an extra coat of paint this year or next year, why not extend it a few days when the prices are low and do it this year because maybe next year, it'll be a much better market?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [49]

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Well said.

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Operator [50]

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Your next question is from the line of Mark Weintraub with Seaport Global.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [51]

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A couple follow-ups. First, you had mentioned that in some of the Southern geographies where new lumber capacity is been coming on, you felt a little bit more tension in pricing. Roughly, what percentage of your Southern harvest would you say is in those baskets where there is lumber capacity coming on such that it can add some tension to those geographies?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [52]

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Yes. Well, rather than give you a specific percentage, I can talk about sort of geographically. When you think about some of the capacity that's been coming into the Arkansas, Oklahoma region, that's an area where we've seen price tensioning. And in fact, really some of our highest delivered log prices in Q2 were coming out of that region. Sort of the Mississippi area where the Bureau Mill came in, that's an area that's been tensioned. We obviously have significant landholdings in Mississippi. There are spots throughout the rest of the South where some of the mill capacity is impacting our harvest. North Carolina is another strong operating region. We've got a mill that's coming up to speed in that region. And so I think regionally, there are spots where it's helpful.

Obviously, there's new mill capacity coming in, in Alabama. We have some holdings there. That's not a state where we have a significant amount of holdings, but it's having a little bit of a knock-on effect in some of those regions as well.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [53]

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And are there certain locations where you have land where there's going to be capacity coming on shortly, which wasn't covered in the list you gave where hopefully we're going to see that tension pickup?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [54]

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Well, I think those are the regions primarily that we're looking to see the new capacity. There's -- if you're asking if there's anything in the rumor mill that's coming on other than what's been publicly announced, I don't think we have anything to add there.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [55]

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Okay. Just also a follow-up on the question of levers that you have to pull. You'd mentioned optimizing the portfolio and looking at noncore assets. Is there any color you can provide to us as to what some of the noncore assets might include?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [56]

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Yes. I don't know that we're prepared to really list out specific noncore assets other than just to say obviously as we look across our acreage and our businesses. We're looking to generate good strong return on our assets, and that's really part and parcel to how we look to optimize our portfolio and to the extent that we have assets that we don't feel are generating the right return profile. That would be something that we would look at. And so I guess just directionally, we believe there are probably some noncore assets within the portfolio that we could monetize if and when we need to.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [57]

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Sure. And then lastly, trying to make sure I understand. So on the tax rate, so for the full year, as I understand it, you expect that to be a 20% benefit. Is that correct? And I also believe that you said that from a cash perspective, it basically would -- maybe if you could just restate what you would expect, if anything, on the cash side.

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [58]

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Yes. So this is Russell. So that's correct. We expect a 20% benefit for the full year, and that's really just recalibrating our tax provision to factor in the lower wood products pricing. So as far as cash taxes, we'll pay minimal cash taxes. We have some refunds associated with the pension work that we did last year. And so we would expect to see minimal cash taxes in 2019.

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Mark Adam Weintraub, Seaport Global Securities LLC, Research Division - MD & Senior Research Analyst [59]

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Okay. So on a net basis, minimal cash taxes paid. Or were the refunds supplemental to that so that on a net basis, you have cash coming in from taxes?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [60]

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Yes. No. On a net basis, it's minimal cash taxes. And then we do have, as we announced, I think, in the prior quarter, we do have an outstanding refund that we've put in with the IRS.

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Operator [61]

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Your next question is from the line of Mark Connelly with Stephens.

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Mark William Connelly, Stephens Inc., Research Division - MD & Senior Equity Research Analyst [62]

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Russell, you spoke earlier about the slow timber transaction market. Has your view of the attractiveness of values in that market change much? Or is there just not enough out there to make you want to be more involved?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [63]

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Mark, we really don't have a changed view. The transactions that we are seeing close are strong values. We're just seeing a slow market right now, and I really don't have an answer as to why we don't see more volume on the market.

Just in context, it's about 120 million acres of investable timberlands in the United States. And so as we've seen in the past, those acres are going to trade hands over time, and we would expect that continue into the future. So I just think we're in a slow part of time as it relates to timber transactions, but we really haven't seen any change in value and they remained strong.

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Mark William Connelly, Stephens Inc., Research Division - MD & Senior Equity Research Analyst [64]

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Okay. That's very helpful. And then just one quick question, Devin, on the South. How much is the wet weather and the wet soil in the South affecting your current harvesting? And when do you think we get back to normal if there's any such thing as normal weather anymore?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [65]

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Yes. Well, in the second quarter, there's no question, it was difficult logging conditions. And we did lose some volume. It was only slight for us, and so down just a few million dollars in terms of the actual dollar impact to us. But there's no question, logging conditions are very difficult when you have that amount of rain.

What I would say is it doesn't typically take all that long for the woods to dry out this time of year. And so we did see a good rainstorm coming through in Arkansas. We saw a little bit in Louisiana. Most of the other regions have dried out for the most part. So I think by and large, you're probably seeing relatively normal logging activity across the South at this point.

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Operator [66]

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Your next question is from the line of Steve Chercover with Davidson.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [67]

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So just to begin, with respect to your black at the bottom initiative within Wood Products, is this what black at the bottom looks like? And to the -- of your 100 to -- sorry, $80 million to $100 million OpEx targets, how much more may trickle into the Wood Products bucket?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [68]

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Yes. With respect to the OpEx piece, so of the $80 million to $100 million, $40 million to $50 million of that is in our Wood Products business. And what I would say is by the end of this year, we'll be essentially there on black at the bottom outside of maybe 1 or 2 mills. But I think certainly, we're, by all intents and purposes, we're going to be there by the end of the year.

In terms of what black at the bottom looks like, this certainly is not a great pricing environment. I wouldn't call this what I would see as the bottom. I mean so we're certainly planning the black at the bottom initiative for pricing south of this.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [69]

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Okay. And so with respect to your fleet then, it's effectively about as modern as you can get until there's a new generation of technology that you could invest in and deploy across the asset base.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [70]

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Yes. I actually wouldn't say that at all. I mean it's a range. We have certain mills in our system, Dierks and Millport, which are clearly best-in-class technology. But we have plenty of other mills in our system that are a bit more aged, and we're slowly building up that technology. And that's part of our capital expenditure plan and our program. We have road maps at each mill. So I wouldn't say that we're anywhere near having best-in-class technology across our entire Wood Products portfolio.

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Steven Pierre Chercover, D.A. Davidson & Co., Research Division - MD & Senior Research Analyst [71]

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Okay. And then switching gears a bit and keeping in mind the statement that timber values remain strong. Would it be fair to say that in this environment, you need more sellers than buyers? And would you have the financial flexibility to transact if an attractive asset came to market?

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Russell S. Hagen, Weyerhaeuser Company - Senior VP & CFO [72]

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Yes. Steve, this is Russell. We're obviously in the market. We have timber operations in every major wood basket in the United States. So we see everything that comes to the market.

I would say that if there's an opportunity to acquire timberlands that created shareholder value and fit within our portfolio, and we can demonstrate that we could capture the synergies from that, that's clearly something that we would look at. I mean our long-term view is to build the most valuable timber portfolio. So that would add to that overall strategy.

As far as how we're looking on the buyer sell side, as Devin mentioned, we're constantly looking at our portfolio to optimize it, to make sure that we are the rightful owner of every asset in every market. And in doing so, we may identify areas or properties that don't fit on the long-term basis. But again, that's just an ongoing process that we work through every day.

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Operator [73]

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Your next question is from the line of Paul Quinn with RBC Capital Markets.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [74]

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I just had a couple of easy questions on the Wood Products side. One surprise to me was the EWP and the outperformance there, and it doesn't seem to be price-related at all. I guess there's a little bit of tailwind on cost. But real big volume pickup and noting that, that business is really into new home construction. Just trying to understand, we didn't see a lot of big pickup in new home construction in the first half. So why was that segment so strong?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [75]

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Yes. Well, that's a great point. I'll just say, I'm incredibly proud of the work that our EWP team is doing. Really, there are a couple of things there. It's, first and foremost, our manufacturing team is doing a great job managing costs, running our mills efficiently, and that's a great starting point. We've got terrific products in our EWP business and our sales and marketing team does an excellent job of servicing customers. And that's a good recipe for success regardless of market conditions. And so we were able to move profitable volume across our portfolio of products in the quarter and I think that's really what drove the results.

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Paul C. Quinn, RBC Capital Markets, LLC, Research Division - Analyst [76]

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Okay. And then just you did a good job at outlining sort of BC log costs. You've got a couple mills in Alberta. What are you seeing there log cost wise? And any type of inflation you're seeing as well?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [77]

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Not really any sort of meaningful appreciation of log costs in Alberta. Those are remaining reasonable. Again, it's all wood basket-dependent in one respect, and we have good fiber availability near the mills that we're running in Alberta. And so they don't have the same stumpage model in Alberta as they do in BC, so you didn't see that same uptick in July that you saw in the British Columbia region. So log costs are pretty much comparable.

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Operator [78]

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And today's final question will come from the line of Anthony Pettinari with Citi.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [79]

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You've spoken about very wet weather depressing homebuilder demand throughout the first half of the year. I guess when you look at July, are you seeing -- or can you quantify any kind of demand pull or reacceleration of job site activity? And then just generally, when you have this kind of prolonged poor weather, do these projects just get pushed later into the season? Or is there some portion that's just sort of lost for the year?

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [80]

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Yes. With respect to July, from what we're seeing with our customer, there seems to be steady demand and steady pull-through. And so we still anticipate that construction activity will continue to build momentum. We haven't seen anything that would lead us to a different conclusion in July.

With respect to the projects that were delayed in the first half due to weather, I think there's a general optimism among our customers and the homebuilders that they're going to make some of that up. Now realistically, there is a limit on how much of that they're going to be able to make up this year primarily because of labor availability. I think if people can get the folks to actually go out and do the building, they're going to make up a pretty fair amount. But I think it has been much discussed. That remains a challenge throughout the industry. So they'll make up some. I doubt they will make up all, but we would anticipate, as I said, a pickup in activity to see when we get to the end of the year, some moderate level of growth year-over-year.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [81]

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Okay. That's helpful. And then just quick question on Southern logs. Obviously, there's still a 25% tariff into China, and you discussed the weakness in radiata pine and some of the underlying weakness in China. With all that said, are you still shipping southern yellow pine to China? If you can quantify that. And then just while you're at India, obviously a smaller market, but one that had been growing pretty quickly. Just wondering if there's anything you can kind of add on India as well.

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Devin W. Stockfish, Weyerhaeuser Company - President, CEO & Director [82]

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Yes. Sure. With respect to China, southern yellow pine hit a 25% tariff. That's a pretty steep headwind. And so we're still shipping to China at a relatively low level. Really, the amount that we need just to keep the supply chain open. We've got a few really big customers in China for southern yellow pine, and they're using that still. And so we're still getting a bit of takeaway on southern yellow pine, but certainly, at a much reduced rate than we had been on a trajectory even a year ago.

With respect to India, we have been shipping into that market sort of off and on over the last 18 months. One of the things that we saw when they put the tariffs on southern yellow pine that caused some market disruptions. Some of the volume that was headed for China ended up in India, and so it was a little choppy, but I think that's normalized a bit. And so I think that would be an interesting market for us. Still very small, but an opportunity to grow over time.

All right. Well, I think that was our final question. So thank you to everyone for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day.

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Operator [83]

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Ladies and gentlemen, thank you for joining the Weyerhaeuser second quarter 2019 earnings conference call. You may now disconnect.