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Weyerhaeuser's (WY) Q1 Earnings In Line, Sales Lag, Down Y/Y

Zacks Equity Research

Weyerhaeuser Company WY reported first-quarter 2019 results, wherein earnings met the Zacks Consensus Estimate, while net sales missed the same. Adjusted earnings (before special items) of 11 cents were in line with the consensus mark but decreased 69.4% from the year-ago figure of 36 cents. The company has been witnessing unfavorable average sales realizations for oriented strand board, domestic and export logs, and lower volumes.

Revenue Discussion

In the quarter under review, Weyerhaeuser’s net sales of $1,643 million missed the consensus mark of $1,733 million by 5.2%. Also, the reported figure was down 11.9% from $1,865 million in the prior-year quarter.

The company currently operates through three business segments, namely Timberlands, Real Estate, Energy and Natural Resources, and Wood Products.

Net sales in Timberlands (accounting for 33.8% of total net sales) during the first quarter were $556 million, declining 12% from the year-ago figure of $632 million. Adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA) came in at $193 million versus $268 million a year ago, reflecting a decline of 28%.

Real Estate, Energy and Natural Resources’ net sales (7.2%) were $118 million. The reported figure increased 131.4% from the year-ago period. Adjusted EBITDA also grew 158.5% to $106 million from $41 million a year ago.

In the Wood Products segment, net sales of $1,094 million (66.6%) decreased 17.4% on a year-over-year basis. Adjusted EBITDA came in at $115 million, decreasing 59.8% from the year-ago figure of $286 million.

Weyerhaeuser Company Price, Consensus and EPS Surprise

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

Operating Highlights

Gross profit declined to $321 million from $517 million a year ago.

Selling expenses, as a percentage of net sales, grew 100 basis points year over year to 1.3%. General and administrative expenses, accounting for 5.4% of net sales, also increased 14.1% year over year to $89 million. However, research and development expenses were $1 million, lower than the prior-year level of $2 million.

Adjusted EBITDA was $365 million in the quarter, decreasing from $544 million a year ago.

Financial Highlights

At the end of the first quarter, Weyerhaeuser had cash and cash equivalents of $259 million, down from $334 million in the comparable period of 2018. Long-term debt was $6,156 million versus $5,419 million at 2018-end.

In the reported quarter, the company’s cash used for operating activities was $14 million versus cash provided from operating activities of $136 million a year ago. During fourth-quarter 2018, the company repurchased approximately $60 million of its common stock.

Q2 Guidance

For second-quarter 2019, Weyerhaeuser expects sequentially lower earnings and adjusted EBITDA at the Timberland segment. In the West, lower export sales volumes will likely impact results, due to the timing of vessel sailings. This will partly be offset by favorable domestic log sales realizations. Average Southern log sales realizations are expected to be same as the first quarter. Western and Southern silviculture activity and related costs are expected to increase seasonally. In the North, fee harvest volumes will decrease significantly due to spring break-up.

In the Real Estate, Energy and Natural Resources segment, the company anticipates sequentially lower but annually higher earnings and adjusted EBITDA in the second quarter due to the timing of favorable Real Estate transactions. Nonetheless, the segment’s adjusted EBITDA for full-year 2019 will be roughly $270 million.

In the Wood Products segment, it predicts significantly higher earnings and adjusted EBITDA on a sequential basis. The upside will be mainly driven by seasonally higher volumes and operating rates across all its product lines.

Zacks Rank & Key Picks

Currently, Weyerhaeuser carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the Zacks Construction sector include Potlatch Corporation PCH, Trex Company, Inc. TREX and Universal Forest Products, Inc. UFPI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

PotlatchDeltic has a strong earnings surprise history, having surpassed the Zacks Consensus Estimate in three of the last four quarters, with the average positive surprise being 17.1%.

Trex has a solid record of earnings surprises, having surpassed the Zacks Consensus Estimate in all the trailing four quarters, with the average being 11.2%.

Universal Forest’s earnings are expected to grow 14.2% this year.

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