Q4 2023 Weyerhaeuser Co Earnings Call

Participants

Andy Taylor; VP of IR; Weyerhaeuser Company

David M. Wold; Senior VP & CFO; Weyerhaeuser Company

Devin W. Stockfish; President, CEO & Director; Weyerhaeuser Company

Anthony James Pettinari; Director & US Paper, Packaging & Building Products Analyst; Citigroup Inc., Research Division

George Leon Staphos; MD and Co-Sector Head in Equity Research; BofA Securities, Research Division

Ketan Mamtora; VP & Building Products Analyst; BMO Capital Markets Equity Research

Kurt Willem Yinger; VP & Research Analyst; D.A. Davidson & Co., Research Division

Matthew McKellar; Assistant VP; RBC Capital Markets, Research Division

Michael Andrew Roxland; Research Analyst; Truist Securities, Inc., Research Division

Susan Marie Maklari; Analyst; Goldman Sachs Group, Inc., Research Division

Presentation

Operator

Greetings, and welcome to the Weyerhaeuser Fourth Quarter 2023 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin.

Andy Taylor

Thank you, Rob. Good morning, everyone. Thank you for joining us to discuss Weyerhaeuser's fourth quarter 2023 earnings. This call is being webcast at www.weyerhaeuser.com. 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 Davie Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Devin W. Stockfish

Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported full year GAAP earnings of $839 million or $1.15 per diluted share on net sales of $7.7 billion. Excluding special items, full year 2023 earnings totaled $749 million or $1.02 per diluted share. Adjusted EBITDA totaled $1.7 billion for the year. For the fourth quarter, we reported GAAP earnings of $219 million or $0.30 per diluted share on net sales of $1.8 billion. Excluding a net after-tax benefit of $98 million for special items, we earned $121 million or $0.16 per diluted share for the quarter. Adjusted EBITDA was $321 million.
I'll start this morning by thanking our employees for their solid execution and performance in 2023. Through their collective efforts, we delivered industry-leading operating performance, continued to serve our customers and drove meaningful advancements across our multiyear targets. As we enter 2024, we're well positioned to capitalize on improving market conditions and remain focused on driving superior long-term value for our shareholders.
As highlighted on Page 19 of our earnings slides, we generated $986 million of adjusted funds available for distribution in 2023. We announced yesterday that our Board of Directors declared a supplemental cash dividend of $0.14 per share. When combined with our quarterly base dividend of $0.76 per share, we're returning total dividends to shareholders of $0.90 per share. Including $125 million of shares repurchased during the year, Weyerhaeuser is returning $783 million of total cash to shareholders based on 2023 results or approximately 80% of 2023 adjusted FAD, which is at the high end of our annual target payout range.
As summarized on Page 20, upon payment of the supplemental dividend, we will have returned $4.6 billion in total cash to shareholders through cash dividends and share repurchase since the first full year of our new cash framework in 2021. It's worth noting that although our adjusted FAD in 2023 was lower than the last couple of years due to challenging market conditions, we continue to demonstrate that our cash return framework is both sustainable and appropriate for the company's portfolio and the cash flow that we generate from our businesses across market cycles. Notably, we increased our base dividend by 5.6% in 2023 and returned additional cash through share repurchase in our supplemental dividend. The additional cash was fully funded within our framework and required no balance sheet or portfolio actions to cover our return commitment.
And given the design of our framework, we retain 20% to 25% of our adjusted FAD annually, all of which can be utilized as we evaluate future capital allocation levers, including strategic growth opportunities. We continue to believe this framework is a powerful differentiator, one that enhances our ability to drive long-term shareholder value by returning meaningful and appropriate amounts of cash back to shareholders across a variety of market conditions and also delivers an attractive total dividend yield to our shareholders.
Before moving on to business segment results, I'd like to comment briefly on the purchase and sale transactions that we completed in the fourth quarter, which included the acquisition of high-quality timberlands in the Carolinas and Mississippi and the divestiture of less strategic acreage in upstate South Carolina. These transactions represent a unique opportunity to further optimize our Southern Timberlands portfolio with high-quality, highly productive acreage that is well integrated with our existing operations. And these transactions were structured in a tax-efficient like-kind exchange, resulting in a net cash inflow of $7 million. The gain was recorded on the sale transaction and reported as a special item in the fourth quarter.
As highlighted on Page 22, we're progressing nicely against our target to grow our Timberlands portfolio through $1 billion of disciplined investments between 2022 and 2025. To date, we've deployed approximately $530 million towards our goal, including announced acquisitions in Washington, the Carolinas and Mississippi.
With that, I'll now turn to fourth quarter business results, starting with Timberlands on Pages 7 through 10 of our earnings slides. Excluding special items, Timberlands contributed $77 million to fourth quarter earnings. Adjusted EBITDA was $143 million and results across all Timberlands regions were comparable to the third quarter. Turning to the Western domestic market, log demand and pricing faced downward pressure at the outset of the fourth quarter as mills adjusted to a softening lumber market and worked through elevated log inventories. As the quarter progressed, lumber takeaway improved slightly and log supply decreased seasonally. Despite lower log prices during the quarter, our average domestic sales realizations were slightly higher compared to the third quarter, largely driven by an increased mix of grade logs.
Our domestic sales volumes were lower in the fourth quarter as we shifted volume to China to capture higher-margin opportunities. Per unit log and haul costs were moderately higher and forestry and road costs were seasonally lower. Our fee harvest volumes were slightly lower compared to the third quarter.
Moving to the Western export business. In Japan, despite ongoing consumption headwinds, inventories of European lumber imports have largely normalized, and the Japanese log market returned to a more balanced state in the fourth quarter. As a result, our average sales realizations for export volumes to Japan were comparable to the third quarter. Our Japanese sales volumes were slightly lower in the fourth quarter and continued to be impacted by reduced shipments to a customer that sustained fire damage at one of its sawmills in the third quarter of last year. That said, this customer has implemented plans to recover most of the lost production, and we continue to shift volume to other customers in Japan. As a result, we expect to increase our export volumes into the Japanese market in the first quarter.
In China, log supply into the region has adjusted to lower consumption levels, and the market was largely balanced in the fourth quarter. As a result, our average sales realizations for export volumes to China were comparable to the third quarter. Given steady demand from our Chinese customers, coupled with moderating market conditions in Western domestic market, we significantly increased our sales volumes into China in the fourth quarter.
Turning to the South. Southern sawlog and fiber markets softened slightly in the fourth quarter, largely in response to ample log supply, elevated mill inventories and reduced demand for finished goods. Despite these market dynamics, demand for our logs remained steady, given our delivered programs across the region. As a result, our average sales realizations and fee harvest volumes were comparable to the third quarter. Per unit log and haul costs were also comparable and forestry and road costs were seasonally lower.
Turning now to Real Estate, Energy and Natural Resources on Pages 11 and 12. For the full year, Real Estate and ENR generated $320 million of adjusted EBITDA, slightly higher than our revised full year guidance. In the fourth quarter, the segment contributed $50 million to earnings. Adjusted EBITDA was $67 million, a $27 million decrease compared to the third quarter, largely driven by the timing and mix of properties sold. Average price per acre increased from the prior quarter and remains elevated compared to historical levels as we continue to see stable interest from buyers for HBU properties, resulting in high-value transactions with significant premiums to timber value.
I'll now make a few comments on our Natural Climate Solutions business. As shown on Page 23, our full year adjusted EBITDA was $47 million. This represents a 9% increase compared to 2022 and a 114% increase since the inception of this business in 2020. For 2023, we achieved solid contributions from conservation, mitigation banking and renewables, and demand for these businesses continues to grow. In addition, we achieved notable milestones in our forest carbon business in 2023, including the approval of our pilot project in Maine and the monetization of the initial credits from this project. These credits were sold in the fourth quarter at a strong price and demonstrate our commitment to offering only the highest-quality credits to the market. Looking forward, we expect the new issuance of credits from our Maine project later this year. Further, we're developing additional forest carbon projects within our U.S. timberlands. We anticipate receiving approval on 2 projects in the U.S. South in early '24 and intend to monetize additional credits in the voluntary market this year.
Turning to our carbon capture and sequestration business. We continue to see solid progress being made on the projects we've announced with Oxy Low Carbon Ventures and Exxon, and both are expected to be online in late 2025 or 2026. Moving forward, we continue to advance discussions with high-quality CCS developers on portions of our Southern U.S. acreage and expect to announce additional agreements in the future.
As we look back over the last several years, I'm extremely proud of the progress that we've made in our Natural Climate Solutions business and the leadership we've demonstrated along the way. We were the first company in our space to embark on this journey in a comprehensive manner and had delivered notable accomplishments across all of our NCS businesses. And in the process, we built a world-class team with deep technical expertise and a strong commercial focus. We've laid the foundation to develop and advance our NCS offerings in-house, allowing Weyerhaeuser to capture the vast majority of the economics associated with these opportunities. And we've quickly established a peer-leading position in emerging carbon markets.
As we think about the future, we remain focused on growing our NCS business to $100 million of EBITDA by year-end 2025, and we see significant future upside as markets continue to develop, particularly in carbon and renewables. And with the work we've already completed and the prospects of advancing NCS across our expansive timberland holdings, we have a lot of conviction that there is no company in this space with the capabilities or asset base to deliver on this value creation opportunity at scale like Weyerhaeuser.
So now moving on to Wood Products on Pages 13 through 15. Wood Products contributed $105 million to earnings before special items in the fourth quarter. Adjusted EBITDA was $159 million, a 52% reduction from the third quarter, largely driven by lower commodity pricing. Starting with lumber. Fourth quarter adjusted EBITDA was a $34 million loss. Weaker product pricing was the primary driver as the framing lumber composite posted its lowest quarterly average in a number of years. Our average sales realizations decreased 14% compared to the third quarter. This was driven by cautious buyer sentiment and ample lumber supply in the North American market.
That said, buyer sentiment and product pricing started to improve toward the end of the year, following stronger-than-expected housing starts data and positive signals from the Fed on the trajectory of interest rates. Our fourth quarter performance was further impacted by a decrease in production levels, which resulted in lower sales volumes and higher unit manufacturing costs. This was largely driven by a combination of taking additional holiday downtime at our Pacific Northwest mills, a period of downtime at our mill in British Columbia and operating challenges at certain facilities. Market conditions were particularly challenging in the Northwest in the fourth quarter, given the more rapid decline in lumber pricing compared to log prices.
As we enter 2024, market conditions are starting to improve, and we expect stronger performance from our lumber business in the first quarter. Adjusted EBITDA for OSB was $73 million, a decrease of $45 million compared to the third quarter, primarily due to lower product pricing. Benchmark pricing for OSB began the quarter on a downward trajectory but stabilized by the end of October and increased through year-end. This improvement was largely driven by lean inventories, supply limitations and a resilient demand from new home construction activity. As a result, our OSB pricing exited the quarter at a higher level than where we entered. However, our fourth quarter average realizations decreased by 17% compared to the prior quarter. Our sales volumes and fiber costs were comparable to the third quarter, and unit manufacturing costs were moderately lower.
Engineered Wood Products delivered $104 million of adjusted EBITDA, a decrease of $21 million compared to the third quarter. Sales realizations for most products decreased slightly as supply and demand continue to rebalance in certain markets. I would note, however, that pricing remains quite healthy on a historical basis. Sales volumes were lower for most products compared to the third quarter, driven by seasonally lower demand and improving supply across the EWP market. Unit manufacturing costs were slightly lower in the fourth quarter, and raw material costs increased primarily for OSB web stock.
In distribution, adjusted EBITDA decreased $15 million compared to the third quarter, largely driven by a decrease in commodity realizations and seasonally lower sales volumes. With that, I'll turn the call over to Davie to discuss some financial items and our first quarter and 2024 outlook.

David M. Wold

Thank you, Devin, and good morning, everyone. I'll be covering key financial items and fourth quarter financial performance before moving into our first quarter and full year 2024 outlook. I'll begin with key financial items which are summarized on Page 17. We generated $288 million of cash from operations in the fourth quarter, bringing our total for the year to more than $1.4 billion. As Devin mentioned, we are returning $783 million to shareholders based on 2023 results, which includes $125 million of share repurchases. Fourth quarter share repurchase activity totaled $15 million, and we have now completed approximately $750 million of activity under our $1 billion share repurchase authorization. Entering 2024, we will continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value.
Turning to the balance sheet. We ended the year with approximately $1.2 billion of cash and cash equivalents, of which $102 million is earmarked for the supplemental dividend we announced yesterday that will be paid in February. In December, we repaid our $860 million, 5.2% private note at maturity and also closed on a 5-year $250 million variable rate term loan. This completes a series of transactions over the course of the year, along with our $750 million bond issuance in May to refinance approximately $1 billion of debt. We ended the year with gross debt of $5.1 billion, consistent with our total as of the prior year-end, and we have no further debt maturities until 2025.
Fourth quarter results for our unallocated items are summarized on Page 16. Adjusted EBITDA for this segment increased by $8 million compared to the third quarter. This increase was primarily attributable to changes in intersegment profit elimination and LIFO. Key outlook items for the first quarter and full year 2024 are presented on Pages 24 and 25. In our Timberlands business, we expect first quarter earnings before special items and adjusted EBITDA to be comparable to the fourth quarter of 2023.
Turning to our Western Timberlands operations, we expect steady log demand in the domestic market in the first quarter as mills respond to seasonally lower log supply and the prospect of improving lumber takeaway ahead of the spring building season. Given this dynamic, we expect higher domestic sales volumes compared to the fourth quarter. That said, we anticipate a slight decrease in our overall and our average domestic sales realizations largely driven by a lower mix of grade logs. Absent weather-related disruptions, we expect our fee harvest volumes to be moderately higher in the first quarter. Per unit log and haul costs are expected to be significantly lower as we make the seasonal transition to lower elevation and lower-cost harvest operations. And forestry and road costs are expected to be moderately lower due to the seasonal nature of these activities.
Moving to the export markets, starting with Japan. As Devin mentioned, we expect to deliver higher sales volumes into the Japanese market in the first quarter. This is largely in response to measures taken by one of our customers to increase production following a fire at their sawmill in the third quarter of last year. With a more balanced Japanese log market and improving conditions in the Western domestic market, we anticipate slightly higher average sales realizations for our export logs into Japan in the first quarter.
In China, log demand is expected to moderate in the first quarter in response to reduced consumption during the Lunar New Year holiday. Given this dynamic, coupled with improving Western domestic market conditions, we expect to significantly decrease our sales volumes into China during the quarter. Our average sales realizations are expected to be comparable to the fourth quarter.
Turning to the South. Despite ample log inventories, Southern log markets are expected to be fairly stable in the first quarter as mills respond to a seasonal reduction in log supply and the prospect of increased demand for finished goods. As a result, we expect our average sales realizations to be comparable to the fourth quarter. Our fee harvest volumes and forestry and road costs are expected to be moderately lower due to wet weather conditions that are typical in the first quarter, and we anticipate comparable per unit log and haul costs. In the North, our fee harvest volumes are expected to be comparable to the fourth quarter, and we anticipate moderately higher sales realizations due to mix. Turning to our full year harvest plan. For 2024, we expect total company fee harvest volumes to increase to approximately 35.5 million tons, with all regions delivering slightly higher volumes compared to 2023 levels.
Moving to our Real Estate, Energy and Natural Resources segment. We anticipate steady demand for our real estate properties in 2024 and continue to expect a consistent flow of transactions with significant premiums to timber value. In our Natural Climate Solutions business, we anticipate a significant increase in EBITDA in 2024 as we continue to advance toward our $100 million target. For the segment, we expect full year 2024 adjusted EBITDA of approximately $320 million. Basis as a percentage of real estate sales is expected to be approximately 35% to 45% for the year. First quarter earnings are expected to be comparable to the fourth quarter of 2023, while adjusted EBITDA is expected to be approximately $15 million higher primarily due to the timing and mix of real estate sales.
Turning to our Wood Products segment. Benchmark prices for lumber and OSB have increased from lower levels in the fourth quarter but have remained fairly stable over the last several weeks. As the quarter progresses, we expect improving market conditions and demand for both products heading into the spring building season. Excluding the effects of changes in average sales realizations for lumber and OSB, we expect first quarter adjusted EBITDA and earnings before special items to be slightly higher compared to the fourth quarter of 2023. For our lumber business, we expect higher production and sales volumes in the first quarter and moderately lower unit manufacturing costs as operating conditions improve. Log costs are expected to be slightly lower, primarily in Canada.
For our oriented strand board business, we anticipate sales volumes to be moderately higher compared to the fourth quarter with slightly lower unit manufacturing costs. Fiber costs are expected to be slightly higher in the first quarter. As shown on Page 26, our current and quarter-to-date average sales realizations for lumber and OSB are slightly higher than the fourth quarter averages.
Turning to our Engineered Wood Products business. We expect improving demand heading into the spring building season. As a result, we anticipate moderately higher sales volumes in the first quarter, primarily for solid section products. Our average sales realizations are expected to be slightly lower for most products as previously determined price adjustments take effect in certain markets. Raw material costs are expected to be slightly lower compared to the fourth quarter. For our distribution business, we expect adjusted EBITDA to be higher compared to the fourth quarter, primarily driven by an increase in commodity realizations and higher sales volumes.
I'll wrap up with some additional full year outlook items highlighted on Page 25. Our full year 2023 interest expense was $280 million. For full year 2024, we expect interest expense will be approximately $275 million. Turning to taxes, our full year 2023 effective tax rate was approximately 12%, excluding special items. For first quarter and full year 2024, we expect our effective tax rate will be between 13% and 16% before special items based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary. For cash taxes, we paid $63 million for full year 2023, which was lower than our tax expense excluding special items due to the timing of U.S. and Canadian tax payments. We expect our 2024 cash taxes will be comparable to our overall tax expense.
For pension and post-employment plans, our noncash, nonoperating pension and post-employment expense was $45 million in 2023. For 2024, we expect this expense will be comparable to 2023. Cash paid for pension and post-employment plans in 2023 was $20 million. In 2024, we do not anticipate any cash contributions to our U.S. qualified pension plan, and our required cash payments for all other plans will be approximately $20 million.
Turning now to capital expenditures. Our full year 2023 capital investments totaled $440 million plus $7 million of capitalized interest. We expect total capital for 2024 will be comparable at approximately $440 million, which includes: $115 million for Timberlands, inclusive of reforestation costs; $310 million for Wood Products; and $15 million for planned corporate IT system investments. With that, I'll now turn the call back to Devin and look forward to your questions.

Devin W. Stockfish

Thanks, Davie. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets and touch briefly on our multiyear targets. Starting with housing. Despite elevated mortgage interest rates for most of the year, the housing market remained resilient in 2023, particularly in the single-family segment. This was supported by a limited inventory of existing homes on the market, combined with the homebuilder's ability to offer mortgage rate buy-downs and other incentives and underpinned by a strong overall demand for housing.
Given the tailwinds from last year, along with improving mortgage rates and a more favorable macro environment, our outlook for single-family housing demand in 2024 is more optimistic relative to this time last year. And that aligns with what we are hearing from our homebuilder customers. We are, however, somewhat less optimistic about the multifamily segment in the near term, largely driven by the recent and upcoming influx of multifamily units entering the market. As a reminder, single-family construction is a much more important demand driver for our business than multifamily. All in all, we're more positive on the housing setup for 2024 and believe we should see an uptick in demand for our products. And our longer-term view on housing fundamentals continues to be very favorable, supported by strong demographic trends and a vastly underbuilt housing stock.
Turning to repair and remodel. Activity in the fourth quarter remained steady. And barring significant weather disruptions, we expect a similar level of repair and remodel demand in the first quarter. As for 2024, we believe the underlying demand fundamentals are incrementally more positive compared to last year, supported by otherwise prospective homebuyers choosing to remodel in lieu of purchasing a new home in a higher mortgage rate environment, combined with a healthier economy. And based on recent trends, we think activity will be more heavily weighted toward the pro segment versus DIY. Looking beyond 2024, most of the key drivers supporting healthy repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock.
Finally, I'd like to provide an update on the progress we've made against the multiyear targets we announced during our Investor Day in September of 2021. As highlighted on Slide 21, we've made notable advancements on all fronts. Starting with our portfolio, we've more than -- we're more than halfway to our $1 billion Timberlands growth target, and we've increased Natural Climate Solutions EBITDA by 114% since the inception of that business. In terms of our operating performance, we've made progress against all of our OpEx priorities and have captured $77 million of margin improvements over the last 2 years. Additionally, through the third quarter of 2023, we delivered peer-leading EBITDA margins across all of our Wood Products businesses and are #1 in EBITDA per acre in Western Timberlands. On the ESG front, we're making progress on reducing our greenhouse gas emissions and have committed to net zero emissions by 2040.
And finally, we continue to demonstrate our ongoing commitment to disciplined capital allocation by increasing our quarterly dividend by more than 5% annually and returning nearly $4.6 billion of cash to shareholders based on our results from 2021 through 2023. We're incredibly proud of these accomplishments, all of which have made Weyerhaeuser a stronger and more valuable company. Looking forward, we remain committed to driving continued improvements across each of these areas and are well positioned to achieve our strategic targets by year-end 2025.
So in closing, our performance in 2023 reflects solid execution across our businesses. As we enter 2024, we're encouraged by resiliency in the housing market and maintain a favorable long-term outlook for the demand fundamentals that will drive growth for our businesses. Our balance sheet is exceptionally strong, and we remain focused on serving our customers and driving long-term value for shareholders through our unrivaled portfolio, industry-leading performance, strong ESG foundation and disciplined capital allocation. So with that, I think we can open it up for questions.

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from Susan Maklari with Goldman Sachs.

Susan Marie Maklari

Just start with the outline that you gave, framing the housing outlook for this year was helpful. And when you think about Weyerhaeuser's positioning relative to that, can you talk about the ability to ramp your production across the different product categories? Where do you think you're sort of best able to really capture the benefits of that lift, especially perhaps if some of the R&R activity comes back this year? And then any thoughts on the channel inventories across the different products and how they're positioned going into the spring?

Devin W. Stockfish

Sure. Well, I'll start with the first question and sort of go product by product. On the lumber side, that's the business where we have the most flexibility to increase production. And I would say just as a baseline, we would expect to see a pretty significant increase in our production levels in 2024 as we've made a lot of capital investments over the last several years that are really starting to come to fruition. But we do have some upside there. Lumber is one of those areas where you can add shifts, you can add some overtime to take advantage of strong markets when those present themselves.
OSB, it's a little bit more difficult. Those operations typically run 24/7 already, so there's really not a whole lot of flex on the OSB side. I would say on the EWP side, there's a little bit of flexibility but those typically have an operating posture where you just don't have as much slack in the system. So really, for the most part, it's going to be lumber and, to a large extent, distribution as well is another area where you can take advantage of strong markets.
On the inventory and the channel question, I would say lumber inventory right now is still pretty lean across the system. OSB, I would say, is more or less normal for this time of year. Before the weather events, I would say that the South maybe on the OSB side was a little leaner than normal but otherwise mostly balanced across the system. And then on EWP, I'd say it's about normal for this time of year.

Susan Marie Maklari

Okay, that's helpful. And then you mentioned the $77 million of OpEx that you have realized in the last 2 years. As you think about 2024, any thoughts on some of the initiatives you'll be focused on, perhaps areas that you are planning to do certain initiatives in? Can you just give us some color on that?

Devin W. Stockfish

Sure. Well, just a quick note on that $77 million. Given the inflationary backdrop that we've been operating in over the last several years, that's really a remarkable number. And as we think about rolling into 2024, a lot of the initiatives are the same ones we've been working on. It's reliability in the Wood Products business, taking advantage of all of those capital projects and just the operating improvements. It's looking for opportunities to improve recovery, to make sure that you're capturing the full value of the raw materials entering the mill set.
We're continuing to work on innovation across the system all throughout Wood Products, and I think that's going to start really delivering some value. On the Timberlands side, it's continuing to look for ways to reduce our log and haul costs, improve how we build roads, really just across the whole system, looking for opportunities to take cost out of the system and improve efficiency and reliability. So it's a lot of the same things that we've been working on for a long time.
I think the good news is that OpEx is deeply ingrained in the culture. We have a lot of buy-in all up and down the organization, and we're going to stay really focused. And assuming that we're going to be in an environment this year with inflation where it's back to a more normalized level, I think we'll see an uptick in the OpEx that we deliver this year relative to the last couple.

Operator

Our next question is from George Staphos, Bank of America.

George Leon Staphos

Congratulations on the year overall. My 2 questions, I wanted to maybe piggyback, it's a good segue from Susan's questions. So certainly, there's been a lot of progress in Wood Products and in lumber, in particular, over the years through black at the bottom. Yet it was interesting that, in fact, lumber did have a bit of a loss here in the fourth quarter. Obviously, at pricing headwinds, you had some seasonality, yet there are some other issues as well in terms of maybe some additional downtime relative to normal. But tell us how you think about maybe the need to go back to black at the bottom and see if there's a need for more significant work, given what you said to Susan's question about the fact there's been more inflation. How should we think about that, Devin?

Devin W. Stockfish

Sure. Good question. George, candidly, Q4 was a very challenging quarter in the lumber markets. The product pricing, really the key driver when you see prices going back to the lowest levels in several years, combined with log prices really not going down nearly as much, that just creates a very challenging operating environment. I think as we look at black at the bottom, we think about that not just on a quarterly basis but really over a year-long period. And even in what was a more challenging environment last year, we're obviously still profitable in lumber.
That all being said, we're never satisfied. And I do think one of the things you'll see in 2024 is we're going to really ramp up the OpEx in really not just in lumber, across Wood Products as we're facing less headwinds from labor inflation, supplies and equipment inflation. Ordinarily, we can more than offset that through our OpEx work. This last year was just a little bit more challenging. So I expect to see more traction on that front.
And then the other thing is we've been doing a lot of work around CapEx over the last several years. And I think in '24, you're going to see some of that result. Holden will be up and fully running this year. We've had a number of other capital projects underway that I think you're going to see the benefits of this year. So we feel pretty good about where we are, notwithstanding a difficult Q4. As we look across the industry and the cost curve, I still think we're in pretty good shape there.
You've been around lumber for a long time, George. From time to time, you see these moments in time where the pricing dips below what's probably reasonable. It will eventually recover, and we think we're on that path here even just as we head into Q1. But we're never satisfied. We're going to keep pushing. We want to be industry-leading from a cost standpoint, from a production standpoint, from an efficiency standpoint, and we're not going to stop until we're there.

George Leon Staphos

Appreciate the thoughts on that, Devin. And certainly, we'll look to mark the progress. My other question, again, is on the lumber side, but in this case, EWP and Engineered Product. So can you talk about why you're seeing, I guess, realization as flat to down? I don't want to paraphrase poorly but that was my take on your commentary, looking out into 1Q. I realize it's a regional market, you get sometimes some imbalances. But what's your view on the year relative to supply-demand, your operating stance, and how that will translate overall into commercial realizations?

Devin W. Stockfish

Sure, George. On the realization side, as we look at the EWP market, unlike OSB and lumber, which price minute to minute, EWP pricing actions typically have a lag. And so as much as anything, Q1, the commentary on realizations is just over the course of 2023, as that market was rebalancing, there were a variety of different price actions in different geographies. And so Q1 is really when those are hitting in full. The EWP market as a whole, I think, is still pretty solid. Pricing overall, if you look back on a historical basis, is still very strong.
As we look into '24, we're getting some pretty strong optimistic signals from our builder customers. And so we're expecting steady demand. Pricing is always just a reflection in each individual market of what the supply-demand dynamic looks like. But in a stronger housing environment, with what we expect to be mortgage rates continuing to come down, we think the setup for EWP is good. And to the extent that, that market really develops and picks up, we'll be in good shape from an EWP standpoint.

Operator

Our next question comes from Anthony Pettinari with Citi.

Anthony James Pettinari

Looking at the market for Timberlands, when you look back at 2023, can you talk about maybe what kind of price appreciation trends you saw in the market maybe on average for good quality Southern Timberlands and the volume of transactions that you saw? And then as we start out the year here, any kind of further comments on just how you see the market in terms of availability of timberlands, who you're competing with for some of these transactions? Or has there been any sort of change there?

Devin W. Stockfish

Sure. Well, when we look back at 2023, I think the year as a whole is pretty typical in terms of transaction volume, somewhere in that $2.5 billion mark. Last year was a little bit more heavily weighted to the back half of the year. We saw more activity as we got towards the end of 2023. In terms of the overall appreciation, you can look back just really over the last several years. It wasn't that long ago where $2,000 an acre for good timberlands in the South was pretty typical.
Those values have increased pretty substantially. We've seen examples of really high-quality timberlands in the South going as much as $4,000 an acre, and it's not atypical to see above-average properties going in the high 2s. So we've seen a pretty strong value appreciation in U.S. Southern Timberlands prices. Same thing for the West, I would say, just as an example. As we think about 2024, still very early in the year. There aren't a whole lot of transactions in the market right now. That's not unusual in January. But as we think about the year as a whole, we're expecting a pretty typical year, anywhere between $2 billion and $3 billion of transaction value for the year. I would expect those deals to continue to be very competitive. Still seems to be a lot of interest in this asset class.
And in terms of who we're going to be competing for deals, it's going to, I'm sure, be the same cast of characters. The TIMOs will be active. The timber REITs, I assume, will be into some of those deals, maybe not quite as much, given some of the announcements from some of our competitors. But I suspect they'll still be having their toe in the water to some extent. But then I think you're also going to continue to see some of these new entrants, some of the alternative entities that are looking for carbon values or others that haven't historically been active.
So we're expecting it to continue to be competitive. We'll be very active as we have been over a number of years. We'll continue to look for opportunities to improve the value of our asset but at the same time being disciplined to make sure that we pay the right price for those assets.

Anthony James Pettinari

Okay. Okay, that's helpful. And then just shifting gears to Wood Products. In the Pacific Northwest, I think recently, you had a competitor that closed a sawmill in Oregon. And they expressed concerns around potentially restrictive policies on harvests on state forests. And I'm just curious, I mean, does that have any impact on the market or your business maybe not directly but just in terms of availability of contractors, competitive dynamics? I'm just curious if there's any read-through there.

Devin W. Stockfish

Sure. Well, the reference there from that mill closure was with respect to some new regulations in Oregon that came into full implementation on January 1 of this year. And the reality is Oregon was already a very tensioned wood basket and with these new regulations, which I'll say just by the way, these regulations are really just bringing Oregon closer to the regulations in Washington. So it's -- we've done business in Washington for a long time under those regulations, and we'll be just fine under these new regulations.
But the reality is it's going to make Oregon somewhat more tensioned than it already was. And so fiber supply will be challenged for certain participants depending on the geography. For Weyerhaeuser, we're in a beneficial position in that we have our own fee timberlands. And so I don't anticipate any issues with fiber availability for our mills. But it may ultimately push the price of logs up in that market as there's less timber supply across the stable manufacturing base.

Operator

Our next question comes from Kurt Yinger with D.A. Davidson.

Kurt Willem Yinger

I just had one question. Can you maybe talk a little bit more about what you're seeing in terms of European lumber imports over the second half of the year? And in addition to that, we've heard at least that there's been a growing amount of imported LVL showing up as well. How are you thinking about that potentially impacting the EWP market in '24? And longer term, I guess, the potential that European competitors could try to, I guess, become bigger participants in the domestic market here?

Devin W. Stockfish

Well, with respect to your first question on European lumber, we certainly saw that come down over the back half of 2023. I think that's a reflection of primarily lumber prices and just the all-in cost to get lumber from Europe to the U.S. Relative to the pricing dynamic, it just didn't make a lot of sense. So that certainly came down over the course of '23.
On a go-forward basis, as we think about lumber, European lumber coming into the market, a couple of things I would point out. First of all, one of the things that was making that trip a little easier is with all of the salvage activity in Central Europe from the beetle infestation, they were getting very, very cheap logs. That salvage activity is starting to wind down. And certainly, we've seen that in terms of the fewer logs going into China from Europe from salvage. And we've heard anecdotally, a lot of the salvageable -- economically salvageable wood is working through. So there won't be as much cheap fiber to compete in this market.
And then over the longer term, given that beetle infestation, the loss of Russian lumber into that market, at some point, the European economy will improve and the domestic demand for European lumber will improve. And I think you'll see more of that lumber staying in that market over the long term.
With respect to your question about LVL, I think that anecdotally, I think that's true around the margins. You are seeing more of that coming into the U.S. I still think it's more or less a rounding error at this point. For us, in the market that we participate in on the EWP space, it comes with a heavy service component. And there's a customer service aspect that we're able to provide to our customers that one of the reasons is why Trus Joist is such a respected brand. It's not just the quality but the service component. And I think that will be hard for people that are importing a small amount of LVL to compete with. So it's something we'll watch, but I'm not overly concerned about it at this point.

Operator

Our next question is from Matthew McKellar with RBC Capital Markets.

Matthew McKellar

First would be now that you're through monetizing your initial forest carbon credits for the pilot project in Maine, could you maybe share any key lessons learned through undertaking that first project? And talk to how you intend to apply those to the projects you're developing in the U.S. South and elsewhere over the next couple of years.

Devin W. Stockfish

Sure. Well, we certainly learned some things going through that project. That's why we called it a pilot project. I think the key things from my standpoint are number one, and we certainly saw this, I think, in the price that we were able to get with these initial carbon credits, quality matters. And so we put in the time upfront to build out the internal team and expertise to do these things right. And I think that will certainly serve us well.
These are complicated. And so again, that expertise to be able to navigate the -- both the development but also the interactions with the third-party auditors and the ACR, that process, having people that really know what they're doing serves you well and makes it more efficient. And I think we've learned a number of things that will make that process go much more quickly going forward. I do think there's still an opportunity to build out some of the infrastructure, particularly around third-party auditors for the amount of carbon credits that we expect to be coming to market in the years to come. We're going to need more infrastructure to ensure that, that can be done efficiently.
But the good news is as we get through this project, if you bring quality projects to the market, we think there's a lot of demand. And so we're really pleased with where we are. We're building out the pipeline, 2 projects we expect to get approved in the first half. We've got 2 or 3 more in the pipeline. We expect to be monetizing additional credits this year, and those just continue to build. Each project you get layers on top of the prior ones, and you build out a nice revenue stream over time. So I think we're really well positioned and in good shape heading into 2024.

Matthew McKellar

Great. And maybe next, has there been any change at all in your confidence level or appetite around the target of acquiring that $1 billion in timberlands by 2025? It looks like you included your transaction in the Carolinas and Mississippi with FIA towards that target, but that did come with a net cash inflow. So just wondering if there's any change in your thinking, even at the margin, around being a net acquirer of timberlands with the view that prices should rise over time.

Devin W. Stockfish

No. We still have a high degree of conviction about the value of timberlands over time and our ability to generate strong returns off of that asset. So just a reminder, that $1 billion was really just a reflection of year-over-year through our programmatic M&A activities, we think we will, on average, bring in about $250 million of acquisitions. So there's no magic to that $1 billion. We're going to continue to buy timberlands today, tomorrow, years from now. That's just our core business.
We're also always going to be optimizing. And so from time to time, you'll see us trim the portfolio here and there. I think this FIA transaction was a great example of that. We picked up some really strong mature timber that's going to generate nice cash flow close to our other operations, close to our mills, opportunities to create synergies there, and divested some land, which was fine land. It was just -- it was a little bit more scattered in upstate South Carolina, wasn't near other operations, so just weren't able to provide some of the synergies that we can provide in other places.
So those kinds of transactions will happen from time to time. It's pretty unique to be able to do those buy-sell transactions concurrently. When you find those opportunities, we're certainly happy to entertain those. But on balance, we still expect to be a net acquirer over time because we think the value of timberlands is going up, and we think we do a good job running them and continue to generate returns.

Operator

Our next question comes from Mike Roxland with Truist Securities.

Michael Andrew Roxland

Congrats on the year. Just one quick question on EWP. I just want to get some color on order files and how extended they may be into 1Q, particularly as you mentioned, Devin, that those builders are actively seeking products ahead of the spring construction season. So where do order files stand at present? And can you comment on where your EWP operating rate was in 4Q? I think you called out a high 70s rate in 3Q.

Devin W. Stockfish

Yes. So you're a little fuzzy there. I think you're asking about order files. Across the different product lines, order files are pretty much in the normal range across lumber and OSB for this time of year. EWP, we have brought those down to a more normalized level last year. I think as we started off 2023, we were expecting a softer single-family housing market, and so we had dialed back production. It took us a good part of the year to get caught back up. Our order files extended out quite a bit for much of 2023.
But heading into '24, I think we're in a better position, which will be, I think, appreciated by our customers. As we look at operating rates in Q4 for EWP, we were in the low 80s in terms of operating rates for EWP and we'll be up somewhat as we look to Q1 2024.

Michael Andrew Roxland

Appreciate that. And so then for the order files, I mean, how far do they extend in 1Q thus far? Is it to February, March? I mean, how many weeks out do they extend, particularly given the fact -- given your comment around the strong interest from the builders.

Devin W. Stockfish

Yes. I mean, it's product dependent but it can range anywhere from 3 weeks to 5 weeks is pretty much in that normal range, and that's kind of where we're sitting right now.

Michael Andrew Roxland

Perfect. And then just one quick question on Timberland, especially on pulpwood. I want to get your thoughts around the mill closures, line closures that happened in terms of the number of containerboard mills that closed, the number of pulp lines have been taken offline permanently. You have Enviva going through a restructuring. So would love to get your thoughts on pulpwood demand, obviously plus [valuable inflection], but nevertheless, it helps with -- a shorter rotation helps with near-term cash flow. So how do you think about rotations, harvest planning and the like, given the changing end market dynamics?

Devin W. Stockfish

Yes, that's a great question. We've seen over the last several years, generally speaking, the pulpwood market has been somewhat in decline. We've seen a lot of mill closures over the years, as you say. Just even recently, we've had a handful of either full mill closures or line closures. And that's created some challenge, broadly speaking, in the pulpwood market. I would say for us, because of our scale, we generally have pretty strong relationships with the big consumers of pulpwood. That's true across the pulp and paper manufacturers. That's true across the pellet manufacturers.
And so as a general matter, we're typically able to move our volume. But obviously, the pricing dynamic is impacted with less demand overall, so it's something that we're certainly watching. As we think about silviculture, one of the fundamental tenets of how we think about that over the long term is to make sure that we have optionality out into the future. And so as we think about how many trees per acre, our thinning regimes, all of those things, they contemplate a future where we either need more or less grade fiber, et cetera. So we try to preserve as much flexibility out into the future as we can.
All of that being said, I would note on the pulpwood market, we're continuing to look -- we, Weyerhaeuser, are continuing to look for opportunities to move that volume. We're having conversations with parties in Asia about potential either pellet or pulpwood-type opportunities for export. I think there may, in the not-too-distant future, be opportunities for biofuels, sustainable aviation fuels that could tension up some of those markets as well. And so our business development team is very focused on that. And we'll make sure that we, Weyerhaeuser, are able to move our pulpwood volume over time.

Operator

Our final question is from Ketan Mamtora with BMO Capital Markets.

Ketan Mamtora

Devin or Davie, can you talk a little bit about maybe just a couple of key projects that you have in Wood Products from a CapEx standpoint?

Devin W. Stockfish

Yes. I mean, so I'll start with Holden. That's our latest mill rebuild brownfield project. That's coming along nicely. We started up the planer mill in Q4. We're ramping up production. We feel very good about that project. The beauty about Holden is it's going to be a phenomenal world-class mill that's completely surrounded by our fee timberlands. So a lot of synergies there, and we're excited to see that fully ramp up this year.
Beyond that, our program is really just -- it's projects that we've already done in other places. So it's nothing super sexy. It's adding CDKs, it's adding new merchandisers, trim store stackers, gang saws. Really, the way that program is developed is every mill has a 5-year road map on how to get from where we are today to world-class. And each individual mill may have different things that are bottlenecks that they need to fix and solve to get to that point. So it's nothing really remarkable. It's just continuing to do what we have been doing, executing well and making sure we do those projects on time, on budget. And that's really the essence of our capital plan and has been, for the most part, for a number of years.

Ketan Mamtora

Understood. That's helpful. And then just one more question around capital allocation, Devin. As you sort of look to 2024 and beyond, I mean, it's been for a couple of years that you are on this sort of the new approach to capital allocation. Any sort of update around how you guys are thinking about supplemental dividend versus share repurchases? And sort of as you look at the different options, sort of how do you think about one over the other?

David M. Wold

Sure. You bet, Ketan. I think we really have looked at that consistently over the last few years, and I really don't see that changing substantially as we move forward. I would just say we're in a very fortunate position. We have a lot of levers, so that includes M&A, investing in the business, paying down debt, base variable dividend payments, among others. We're constantly evaluating those views on capital allocation, but those factors are dynamic so it's something we always need to be watching.
To your point, our capital allocation framework starts with that commitment to return 75% to 80% of our adjusted FAD back to shareholders via the base, the supplemental. And we do have the flexibility with our framework to use share repurchase as we've done over the last few years. So that portion is really earmarked for returning cash back to shareholders. And with the remaining adjusted FAD, we can allocate that across other opportunities.
So as we move forward, I would expect we're likely going to be allocating most of that amount that we have on our balance sheet here in the near term to timberland acquisitions as part of our previously announced plan to purchase $1 billion of timberlands over the next few years. But that said, we do have the flexibility within our capital allocation approach to deploy those cash across the options when we see an opportunity to create value for shareholders.

Operator

There are no further questions at this time. I would like to turn the floor back over to Devin Stockfish for closing comments.

Devin W. Stockfish

Terrific. Well, thanks everyone for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day.

Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.