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Factors Likely to Shape Weyerhaeuser's (WY) Q4 Earnings

Zacks Equity Research

Weyerhaeuser Company WY is slated to report fourth-quarter 2019 results on Jan 31, before the opening bell.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 20% but revenues beat the same by 0.4%. On a year-over-year basis, earnings of 8 cents per share were significantly down from the year-ago figure of 28 cents due to volatility in various markets served. Net sales of $1,671 million also decreased 12.5% from a year ago, thanks to lower contribution from two major segments — Timberlands and Wood Products.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has increased 16.7% to 7 cents per share over the past 30 days. However, this indicates a 30% increase from the year-ago earnings of 10 cents per share. The consensus mark for revenues is $1.52 billion, suggesting a 6.9% year-over-year improvement.

Weyerhaeuser Company Price and EPS Surprise

Weyerhaeuser Company Price and EPS Surprise
Weyerhaeuser Company Price and EPS Surprise

Weyerhaeuser Company price-eps-surprise | Weyerhaeuser Company Quote

Factors to Note

Weyerhaeuser’s fourth-quarter earnings and sales are expected to have decreased owing to lower oriented strand board (OSB) and lumber prices. That said, rebounding housing market indicators like new and existing home sales, building permits, as well as housing starts are expected to have showed strength in the fourth quarter, supposedly offsetting the above-mentioned headwinds. Improving housing dynamics should have helped Weyerhaeuser to perform well across the entire mix of businesses including lumber, OSB and timber.

For the Wood Products segment (accounting for 72.1% of total net sales), the company expects earnings (before special items) and adjusted EBITDA to be down sequentially but up on a year-over-year basis. Weyerhaeuser expects seasonally lower sales volumes across most product categories, as building activity typically declines in the fourth quarter owing to weather-related woes. Meanwhile, higher Western log costs are likely to have been offset by a modest improvement in operating expenses.

For the fourth quarter, the company expects sequentially comparable earnings but marginally lower adjusted EBITDA at the Timberland segment. In Western Timberland operations, it expects domestic log sales volumes to decline modestly in the fourth quarter on a sequential basis. Wet operating conditions reduced log supply late in the third quarter and inventories tightened. It anticipates domestic log sales realizations to improve modestly in the fourth quarter as a result of steady domestic demand and continued seasonal reduction in supply from non-industrial landowners. Western road and unit logging costs are expected to have declined from the third quarter.

In the South, the company expects average log sales realizations to be slightly lower than the third quarter and fee harvest volumes to decline. In the North, it expects fourth-quarter EBITDA to decline sequentially due to seasonally lower fee harvest volumes and a partial quarter of Michigan results. Notably, in November, the company sold 555,000 acres of Michigan Timberlands for $300 million.

For the Real Estate Energy and Natural Resources segment, it anticipates sequentially lower earnings and adjusted EBITDA for the fourth quarter.

Overall, focus on operational excellence in timberlands — which entails merchandising for value, harvest and transportation efficiency, and flexing harvest to capture seasonal and short-term opportunities — is expected to have benefited the company in the quarter to some extent. In Wood Products, its OpEx initiatives focus on reducing controllable manufacturing costs, thereby increasing high-value product mix and improving log recovery across operations. The real estate business is on track to meet or exceed its targeted 30% premium to timber value.

Weyerhaeuser has manufacturing operations in Canada. Therefore, any changes in the U.S. dollar’s strength relative to the Canadian dollar, euro and yen, as well as strength of the euro relative to the yen are expected to have reflected on its results. The company’s exposure to raw material price fluctuations and challenging market conditions are also likely to have dented profits in the to-be-reported quarter.

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for Weyerhaeuser this time around. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) to deliver a positive surprise. This is not the case here, as you will see below.

Earnings ESP: Weyerhaeuser has an Earnings ESP of -23.08%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Weyerhaeuser currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some companies in the Zacks Construction sector, which according to our model have the right combination of elements to post an earnings beat in their respective quarters to be reported.

North American Construction Group Ltd. NOA has an Earnings ESP of +14.29% and carries a Zacks Rank #1.

Installed Building Products, Inc. IBP has an Earnings ESP of +3.09% and carries a Zacks Rank #1.

M.D.C. Holdings, Inc. MDC has an Earnings ESP of +2.42% and holds a Zacks Rank #2.

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