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Weyerhaeuser (WY) Q2 Earnings Top on Strong Housing Market

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Weyerhaeuser Company WY reported better-than-expected results in the second quarter of 2018, with earnings and sales surpassing estimates by 7.3% and 3.5%, respectively, buoyed by strong housing market fundamentals.

Earnings from continuing operations before special items in the reported quarter were 44 cents per share, surpassing the Zacks Consensus Estimate of 41 cents. Also, the bottom line surged 57.1% from the year-ago tally of 28 cents.

Solid Growth Across Segments Drives Top Line

In the quarter under review, Weyerhaeuser’s net sales were $2,065 million, up 14.2% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $1.99 billion.

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

Timberlands: The segment’s revenues in the second quarter were $667 million, up 5.5% year over year. It accounted for 32.3% of net sales.

Real Estate, Energy and Natural Resources: The segment’s revenues, accounting for 2.8% of net sales, were $58 million. The figure decreased from $46 million in the year-ago period.

Wood Products: The segment generated revenues of $1,525 million, accounting for 73.8% of net sales. Compared with the year-ago quarter, the figure was up 17.9%.

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 8.3% year over year to $1,447 million. It represented 70.1% of net sales versus 73.9% in the year-ago quarter. Gross margin expanded 380 basis points to 29.9%.

Selling expenses flared up 4.5% year over year to $23 million and came in at 1.1% of net sales. General and administrative expenses, accounting for 3.9% of net sales, increased 5.3% year over year to $80 million. Research and development expenses were $2 million, which is half of the year-ago tally.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $637 million in the quarter, increasing 25.9% year over year.

Balance Sheet & Cash Flow

Exiting the second quarter, Weyerhaeuser had cash and cash equivalents of $901 million, up from $824 million at the end of 2017. Long-term debt remained flat at $5,924 million with the year-ago quarter.

In the reported quarter, the company generated net cash of $597 million from operating activities, reflecting year-over-year growth of 22.4%. Capital spending of $29 million grew 16% year over year. During the same period, the company paid dividends worth $243 million.

Outlook

In the quarters ahead, Weyerhaeuser anticipates leveraging benefits from strengthening housing-market conditions in the United States.

For third-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 higher earnings and adjusted EBITDA in the third quarter. For 2018, the segment’s adjusted EBITDA will be roughly $250 million.

For the Wood Products segment, the company predicts sequentially lower earnings and adjusted EBITDA. Sales realizations for lumber and oriented strand board are expected to be moderately lower.

Zacks Rank & Key Picks

With a market capitalization of approximately $26.4 billion, Weyerhaeuser currently carries a Zacks Rank #2 (Buy). Other top-ranked stocks in the industry include Louisiana-Pacific Corporation LPX, Norbord Inc. OSB and PotlatchDeltic Corporation PCH, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Louisiana-Pacific, Norbord and PotlatchDeltic’s 2018 earnings are expected to grow 30.5%, 19.8% and 4.7%, respectively.

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