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

Zacks Equity Research

Weyerhaeuser Company WY is slated to report first-quarter 2020 results on May 1, before the opening bell.

In the last reported quarter, the company’s earnings missed the Zacks Consensus Estimate by 57.1% but revenues beat the same by 1.6%. On a year-over-year basis, earnings of 3 cents per share were down 70% from the year-ago figure of 10 cents due to volatility in various markets served. Net sales of $1,548 million also decreased 5.4% from a year ago, thanks to lower contribution from two segments — Timberlands and Real Estate, Energy and Natural Resources.

Weyerhaeuser’s earnings topped the consensus mark in one of the last four quarters, missed in two and met the same once, with the average negative surprise being 4.3%.

Trend in Estimate Revision

The Zacks Consensus Estimate for the to-be-reported quarter’s earnings has increased 7.7% to 14 cents per share over the past 60 days. This indicates a 27.3% increase from the year-ago earnings of 11 cents per share. The consensus mark for revenues is $1.67 billion, suggesting a 1.6% year-over-year improvement.

Weyerhaeuser Company Price and EPS Surprise

Weyerhaeuser Company Price and EPS Surprise

Weyerhaeuser Company price-eps-surprise | Weyerhaeuser Company Quote

Factors to Note

Weyerhaeuser’s first-quarter earnings and sales are expected to have increased owing to solid housing market — mostly throughout the quarter — as well as higher domestic and export log sales volumes. The housing market’s strength during the quarter is reflected in new and existing home sales, building permits, as well as housing starts. Improving housing dynamics should have helped Weyerhaeuser to perform well across the entire mix of businesses including lumber, OSB and timber.

Overall, focus on operational excellence in timberlands — which entails merchandising for value, harvest and transportation efficiency, and flexing harvest to capture seasonal and short-term opportunities — is expected to have benefited the company to some extent. In Wood Products, its OpEx initiatives focus on reducing controllable manufacturing costs, thereby increasing high-value product mix and improving log recovery across operations. The real estate business is on track to meet or exceed its targeted 30% premium to timber value.

Weyerhaeuser experienced solid demand through late March. However, the company started witnessing supply chain disruptions related to transportation and delivery of export logs — particularly in Asia — from late March. This might reflect on its results to some extent.

Weyerhaeuser has manufacturing operations in Canada. Therefore, any changes in the U.S. dollar’s strength relative to the Canadian dollar, euro and yen, as well as strength of the euro relative to the yen are expected to reflect on its results. The company’s exposure to raw material price fluctuations and challenging market conditions are also likely to have dented profits in the to-be-reported quarter.

During fourth-quarter earnings call, Weyerhaeuser had provided guidance for first-quarter 2020. For the first quarter, the company expects sequentially higher earnings and adjusted EBITDA in the Timberland segment. Geographically, in the West, the company expects higher domestic and export log sales volumes, moderate average domestic log sales realizations, as well as lower road spending. In the South, it anticipates lower fee harvest volumes and comparable average log sales realizations.

In the Real Estate, Energy and Natural Resources segment, Weyerhaeuser anticipates significantly higher earnings and adjusted EBITDA than fourth-quarter levels. For 2020, the segment’s adjusted EBITDA is estimated to be $255 million, including the effect of fewer available real estate acres, post divestitures of Montana and Michigan timberlands.

In the Wood Products segment, the company predicts earnings and adjusted EBITDA (before any improvement in average sales realizations) to be slightly higher than fourth-quarter levels. Weyerhaeuser expects seasonally improved operating rates and manufacturing costs for engineered wood products, along with slightly higher sales volumes for lumber and oriented strand board.

What Our Model Indicates

Our proven model does not conclusively predict an earnings beat for Weyerhaeuser this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But this is not the case here, as you will see below.

Earnings ESP: It has an Earnings ESP of -8.54%. 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 #4 (Sell).

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

Stocks Worth a Look

Here are some companies 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.

EMCOR Group, Inc. EME has an Earnings ESP of +2.02% and carries a Zacks Rank #3.

frontdoor, inc. FTDR has an Earnings ESP of +9.76% and holds a Zacks Rank #3.

Eagle Materials Inc. EXP has an Earnings ESP of +0.59% and carries a Zacks Rank #3.

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