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Weyerhaeuser Company WY is well positioned to reap benefits from the solid U.S. housing industry, focus on operational excellence and shareholder-friendly moves. Also, the impressive Wood Products segment performance, strong repair and remodel demand as well as stable balance sheet position are encouraging.
The Zacks #1 (Strong Buy) Ranked company's shares have declined 4%, outperforming the Zacks Building Products - Wood industry’s 4.6% fall in the past month. In fact, the company has outperformed other industry players like PotlatchDeltic Corporation PCH, Masonite International Corporation DOOR and JELD-WEN Holding, Inc. JELD in the said period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
This outperformance can be primarily attributed to Weyerhaeuser’s impressive year-over-year earnings and revenue performance.
A Quick Glance at Q1 Results
Recently, the company posted strong first-quarter 2021 results, with both the top and bottom lines improving impressively on a year-over-year basis by 45% and 405.6%, respectively. Adjusted EBITDA also increased a significant 166.6% year over year. The robust performance is reflective of improving housing market activity, which in turn led to improved demand during the period.
Strength in Housing Industry
Housing markets are booming, owing to lack of existing homes for sale and continuation of the low-rate environment. Demand for housing and wood products has been improving amid COVID-related disruptions and rapid lumber market swings. Apart from the remarkable recovery in single-family housing construction, repair/remodel activity has also been robust, supported by do-it-yourself and professional activity.
This year, various macroeconomic tailwinds like preference for larger single-family homes (given ongoing work-from-home flexibility & mortgage interest rates near record lows); strong homebuilder confidence; record low inventory for existing home sales; demographic trends that support growing millennial homeownership while older adults are deciding to age in place; as well as the possibility of a federal tax credit for first-time homebuyers under the Biden administration will continue aiding U.S. housing activity.
For second-quarter 2021, it expects Wood Products’ earnings and adjusted EBITDA to be significantly higher on a sequential basis. Also, it expects increased sales volumes for lumber and sales realizations for EWP — partly offset by higher raw material costs, mainly for OSB webstock — and lower operating rates for OSB due to planned maintenance outages.
Robust Business Strategies
Weyerhaeuser has been undertaking a number of initiatives in order to drive profits in the long run. It remains focused on operational excellence that includes merchandising for value, harvest and transportation efficiencies along with flexing harvest to capture seasonal and short-term opportunities. The company reaped approximately $100 million benefits, company-wide, owing to operational excellence improvements in 2020. In first-quarter 2021, the company came up with its highest quarterly adjusted EBITDA on record. Notably, this initiative led to more than $0.5 billion of company-wide margin improvement from 2014 through 2019.
For 2021, the company expects another $50-$75 million of operational excellence improvement across businesses.
Weyerhaeuser keeps on rewarding shareholders through dividend payments. The company paid nearly $127 million cash dividends in first-quarter 2021 and $381 million in 2020. The move is a reflection of its strong cash position and sound capital allocation policy.
The company’s cash and cash equivalents at first quarter-end were $1.02 billion, up from $495 million at 2020-end. Moreover, cash from operations for the quarter was $698 million compared with $86 million in the year-ago period. This marked its highest quarterly operating cash flow since fourth-quarter 2006 and strongest first-quarter cash flow on record. Weyerhaeuser used a major portion of this cash to strengthen the balance sheet by redeeming some of its 2023 debt maturities.
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Weyerhaeuser Company (WY) : Free Stock Analysis Report
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