U.S. Markets close in 3 hrs 58 mins

Weyerhaeuser's (WY) Shares Down on Q3 Earnings & Sales Miss

Zacks Equity Research
1 / 2

Weyerhaeuser's (WY) Shares Down on Q3 Earnings & Sales Miss

Weather-related woes, trade policy and unusually volatile wood products markets impact Weyerhaeuser's (WY) Q3 results.

Weyerhaeuser Company’s WY shares dropped 1.9% following third-quarter 2018 results, wherein earnings and sales missed the Zacks Consensus Estimate by 28.2% and 2.6%, respectively, owing to significant headwinds from severe weather, trade policy and unusually volatile wood products markets.

Earnings from continuing operations before special items in the reported quarter were 28 cents per share, decreasing 17.6% from the year-ago figure of 34 cents.

In the quarter under review, Weyerhaeuser’s net sales were $1,910 million, up 2% year over year.

The company operates through three business segments, the results of which are given below:

Timberlands: The segment’s revenues in the third quarter were $653 million, down 2.1% year over year. It accounted for 34.2% of net sales. Adjusted EBITDA came in at $206 million versus $220 million a year ago.

Real Estate, Energy and Natural Resources: The segment’s revenues, accounting for 5% of net sales, were $96 million. The figure increased from $82 million in the year-ago period. Adjusted EBITDA grew to $86 million from $74 million a year ago.

Wood Products: The segment generated revenues of $1,346 million, accounting for 70.5% of net sales. The reported figure improved 3.6% on a year-over-year basis. Adjusted EBITDA came in at $250 million, down from $278 million a year ago.

Weyerhaeuser Company Price, Consensus and EPS Surprise

 

Weyerhaeuser Company Price, Consensus and EPS Surprise | Weyerhaeuser Company Quote

Margin Profile Improves

In the reported quarter, Weyerhaeuser’s cost of sales grew 5.7% year over year to $1,452 million. It represented 76% of net sales versus 73.4% in the year-ago quarter. Gross margin contracted 260 basis points to 24%.

Selling expenses were down 9.1% year over year to $20 million, constituting 1% of net sales. General and administrative expenses, accounting for 4.1% of net sales, increased 4% year over year to $78 million. Research and development expenses were $2 million, which is half of the year-ago figure.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) were $505 million in the quarter, decreasing 11.2% year over year.

Balance Sheet & Cash Flow

Exiting the third quarter, Weyerhaeuser had cash and cash equivalents of $348 million, down from $824 million at the end of 2017. Long-term debt was $5,921 million versus $5,930 million at 2017-end.

In the reported quarter, the company generated net cash of $87 million from operating activities versus $323 million a year ago.

Outlook

For fourth-quarter 2018, Weyerhaeuser anticipates sequentially lower earnings and adjusted EBITDA for the Timberland segment. Results, however, will suffer from higher road and forestry costs, as well as rise in fuel and unit-logging expenses. In the West, average sales realization is expected to be slightly lower sequentially. In the South, fee harvest volumes are expected to be higher and average log sales realizations are likely to be comparable.

For the Real Estate, Energy and Natural Resources segment, the company anticipates sequentially comparable earnings and adjusted EBITDA in the fourth quarter. For 2018, the segment’s adjusted EBITDA will be roughly $260 million.

It predicts sequentially lower earnings and adjusted EBITDA at the Wood Products segment. Average sales realizations for lumber and oriented strand board are expected to be considerably lower than the third quarter.

Zacks Rank & Key Picks

With a market capitalization of approximately $21.6 billion, Weyerhaeuser currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same sector include Trex Company, Inc. TREX, North American Construction Group Ltd. NOA and Armstrong Flooring, Inc. AFI. While Trex and North American Construction sport a Zacks Rank #1 (Strong Buy), Armstrong Flooring carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Trex, North American Construction and Armstrong Flooring’s 2018 earnings are expected to grow 44.9%, 235.7% and 104.8%, respectively.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce ""the world's first trillionaires,"" but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>