Weyerhaeuser Company WY recently announced an all-cash deal with an affiliate of The Lyme Timber Company to sell 555K acres of Michigan timberlands for $300 million. This divestiture is part of its ongoing initiatives to strategically optimize the timberlands portfolio. The Northern region, which includes Michigan timberlands, encompasses a diverse mix of hardwood and softwood acres.
The transaction, which is slated to close in fourth-quarter 2019, is subject to customary closing conditions. Weyerhaeuser expects to recognize a gain from the sale and anticipates no tax liability related to the transaction.
Meanwhile, it has been facing volatility in various markets served and weather-related challenges. Although the company’s earnings in second-quarter 2019 topped analysts’ expectation, sales lagged the same. The bottom line significantly declined from the year-ago level.
Moreover, net sales declined 18.1% year over year in the quarter, primarily due to lower sales of Timberlands and Wood Products. During the second quarter, net sales in Timberlands (accounting for 23.7% of total net sales) declined 13.5% from the year-ago figure, primarily attributable to decreased Western log sales realizations and sales volumes. Again, Wood Products’ net sales declined 21% in the second quarter, mainly due to decreased sales realizations and reduced sales volumes across majority of its product lines. For the third quarter, the company expects sequentially lower earnings and adjusted EBITDA at the Timberland segment.
Hence, the latest transaction involving $300 million in proceeds can help the company to bring in more cash in this trying period to boost wood product profits.
Shares of Weyerhaeuser have gained 26.2%, comparing unfavorably with its industry's growth of 28.7%. Nonetheless, the company's focus on operational excellence and improving housing market fundamentals is likely to drive performance going forward.
Weyerhaeuser — which shares space with Universal Forest Products, Inc. UFPI, Louisiana-Pacific Corporation LPX and Trex Company, Inc. TREX in the Zacks Building Products - Wood industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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