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Weyerhaeuser (WY) to Post Q1 Earnings: What's in the Cards?

Zacks Equity Research

Weyerhaeuser Company WY is set to report first-quarter 2019 results on Apr 26, before the opening bell. The wood-based building products manufacturer reported lower-than-expected earnings in two of the last four quarters, with the average negative surprise being 5.2%. Moreover, in the last reported quarter, the company’s earnings and revenues missed the Zacks Consensus Estimate by 9.1% and 8.9%, respectively.

Which Way are Estimates Trending?

Let’s take a look at the estimate revision trend in order to get a clear picture of what analysts are thinking about the company prior to the earnings release. The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has declined 11.1% over the past 30 days to 16 cents per share. This is indicative of a decrease of 55.6% from the year-ago earnings of 36 cents per share. Revenues are expected to be $1.76 billion, down 5.4% year over year.

Weyerhaeuser Company Price and EPS Surprise

Weyerhaeuser Company Price and EPS Surprise | Weyerhaeuser Company Quote

Let’s See How Things are Shaping Up for This Announcement

Weyerhaeuser’s first-quarter results are likely to be impacted by the recent deterioration in oriented strand board or OSB prices and lumber prices. Although Weyerhaeuser, which shares space with Universal Forest Products, Inc. UFPI in the Zacks Woods industry, remains focused on operational excellence that includes merchandising for value, harvest and transportation efficiencies, along with flexing harvest to capture seasonal as well as short-term opportunities, its exposure to OSB and lumber price fluctuations are significant headwinds.

The company expects significantly higher sequential earnings and adjusted EBITDA from the Wood Products segment, which accounts for 65.7% of total net sales. The upside was mainly driven by seasonally higher volumes and operating rates, improved unit manufacturing costs, along with decreased Western and Canadian log prices in fourth-quarter 2018. The Zacks Consensus Estimate for Wood Products operating income of $90 million implies a decrease from $270 million in the year-ago period but an increase from $26 million in the fourth quarter.

For the Timberlands segment, accounting for 40.6% of net sales, Weyerhaeuser anticipates sequentially lower earnings and adjusted EBITDA. In the South, the company anticipates lower fee harvest volumes and comparable average log sales realizations. In the West, average sales realization is expected to be lower and average log sales realizations are projected to be marginally down sequentially, mainly due to reduced road and forestry spending. The Zacks Consensus Estimate for Timberlands operating income of $98 million implies a decrease from $189 million in the year-ago period and $107 million in the fourth quarter.

For the Real Estate, Energy and Natural Resources segment, the company anticipates sequentially higher earnings and adjusted EBITDA in the first quarter on the back of favorable Real Estate transactions. However, royalties from Energy and Natural Resources operations are likely to be seasonally lower. The Zacks Consensus Estimate for the segment operating income of $53 million implies an increase from $25 million in the year-ago period and $43 million in the fourth quarter.

Overall, the company has been highly focused on reducing controllable costs by improving reliability, enhancing product margins and maximizing the benefit of focused capital investment, which is a positive for the upcoming results. Moreover, strong repair and remodeling activity, which drives about 40% of lumber demand, is expected to be beneficial for the company in the quarter to be reported.

What the Zacks Model Says

Our proven model does not conclusively show that Weyerhaeuser is likely to beat estimates in the to-be-reported quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Earnings ESP: Earnings ESP, which represents the difference between the Most Accurate Estimate and the Zacks Consensus Estimate, is -36.51%. 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 #5 (Strong Sell). Notably, we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into the earnings announcement, especially when the company is seeing negative estimate revisions.

You can see the complete list of today’s Zacks #1 Rank stocks here.

Stocks Worth a Look

Here are some stocks 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.

Apergy Corporation APY has an Earnings ESP of +0.81% and carries a Zacks Rank #1.

Armstrong World Industries, Inc. AWI has an Earnings ESP of +3.70% and a Zacks Rank #3.

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