We currently maintain a Neutral recommendation on Weyerhaeuser (WY), one of the leading U.S. forest product companies.
The company is principally engaged in the growing and harvesting of timber; manufacturing of wood products targeted at home construction; distribution and sale of forest products; and real estate construction and development. Operations are mainly concentrated in Southern California, Nevada, Washington, Texas, Maryland, and Virginia.
The company recently reported its second quarter 2011 financial results with earnings per share of 6 cents, down compared with 20 cents in the comparable quarter of 2010. The results were hit hard by a fall in revenues and increase in cost of sales.
Of the segments, Timberland revenue increased 28.0% year over year; Wood Products was down by 11.0%; Cellulose Fibers revenue increased 12.4%; and Real Estate went down 25.7%.
Moreover, management’s third quarter outlook for the timberland division of lower earnings raises our concern. Selling prices and harvest volumes for western logs are expected to be lower, while silviculture and road expenses are likely to be higher. Furthermore, the company’s close rival International Paper Co.(IP) posted encouraging second quarter results with earnings more than double on a year-over- year basis.
Taking all these factors into account, we still find Weyerhaeuser’s efforts in increasing its operating efficiencies and decreasing manufacturing costs through restricted energy use within the company to be commendable. Furthermore, a solid asset base and the conversion into a REIT will prove beneficial for the company in the quarters ahead.
For the third quarter 2011, the Zacks Consensus Estimate stands at 12 cents and for the fiscal year 2011 and 2012 at 31 cents and 69 cents, respectively.
INTL PAPER (IP): Free Stock Analysis Report
WEYERHAEUSER CO (WY): Free Stock Analysis Report
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