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Weyerhaeuser's (WY) Q4 Earnings Miss Estimates, Down Y/Y

Zacks Equity Research

Weyerhaeuser Company WY reported fourth-quarter 2018 results, wherein earnings and sales missed the Zacks Consensus Estimate. Adjusted earnings of 10 cents missed the consensus estimate of 11 cents by 10%.

Adjusted earnings (before special items) also declined 67.7% from the year-ago figure of 31 cents. The company has been facing unfavorable average sales realizations for lumber and oriented strand board, lower volumes and operating rates for lumber as well as engineered wood products, along with higher unit manufacturing costs.

Weyerhaeuser Company Price, Consensus and EPS Surprise

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

Revenue Discussion

In the quarter under review, Weyerhaeuser’s net sales of $1,636 million missed the consensus mark of $1,797 million by 9%. Also, the reported figure was down 10.3% year over year from $1,823 million.

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 40.6% of total net sales) during the fourth quarter were $664 million, down 7% from the year-ago figure of $714 million. Adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA) came in at $188 million versus $252 million a year ago, reflecting a decline of 25.4%.

Real Estate, Energy and Natural Resources’ net sales (6.2%) were $102 million. The reported figure increased 2% from the year-ago period. Adjusted EBITDA also grew 3.3% to $90 million from $87 million a year ago.

In the Wood Products segment, net sales of $1,075 million (65.7%) decreased 12.5% on a year-over-year basis. Adjusted EBITDA came in at $66 million, down 74.4% from the year-ago figure of $258 million.

Inter-segment sales came in at $205 million during the reported quarter.

Operating Highlights

Cost of sales during the fourth quarter grew 2.2% year over year to $1,345 million. It represented 82.2% of net sales versus 72.2% in the year-ago quarter. Notably, gross margin declined a significant 1000 basis points (bps) to 17.8% from 27.8% in the prior-year quarter.

Selling expenses, as a percentage of net sales, grew 190 bps year over year to 1.3%. General and administrative expenses, accounting for 5% of net sales, also increased 13.9% year over year to $82 million. Research and development expenses were $2 million, in line with the prior-year level.

Adjusted EBITDA was $346 million in the quarter, decreasing 37.2% year over year.

Financial Highlights

At the end of 2018, Weyerhaeuser had cash and cash equivalents of $334 million, down from $824 million at 2017-end. Long-term debt was $5,419 million versus $5,930 million at 2017-end.

In the reported quarter, the company generated net cash of $292 million from operating activities versus $354 million a year ago. During the fourth quarter of 2018, the company repurchased approximately $75 million of its common stock.

Full-Year 2018 Review

For the full year of 2018, Weyerhaeuser’s top and bottom lines missed the Zacks Consensus Estimate by 3.8% and 3.3%, respectively. Nevertheless, its adjusted earnings of $1.18 per shares and net sales of $7,476 million increased 2.6% and 3.9%, respectively, on a year-over-year basis.

However, adjusted EBITDA fell 2.3% to $2,032 million from $2,080 million a year ago.

Guidance

For first-quarter 2019, Weyerhaeuser expects sequentially lower earnings and adjusted EBITDA at the Timberland segment. In the South, the company anticipates lower fee harvest volumes along with 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 slightly down sequentially, mainly due to reduced road and forestry spending.

In 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. Nonetheless, the segment’s adjusted EBITDA for full-year 2019 will be roughly $260 million.

In the Wood Products segment, it predicts significantly higher earnings and adjusted EBITDA sequentially. 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 the fourth quarter of 2018.

Zacks Rank & Key Picks

Currently, Weyerhaeuser carries a Zacks Rank #5 (Strong Sell). Some better-ranked stocks in the Zacks Construction sector include Gates Industrial Corporation PLC GTES, Altair Engineering Inc. ALTR, and Great Lakes Dredge & Dock Corporation GLDD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Gates Industrial, Altair Engineering and Great Lakes’ earnings for the current year are expected to increase 44.6%, 23.1% and 111%, respectively.

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