Weyerhaeuser Company (WY) reported better-than-expected results for second-quarter 2014. Adjusted earnings were 40 cents per share, up 21.2% year over year and above the Zacks Consensus Estimate of 34 cents.
The bottom-line excluded 7 cents per share of one-time gain.
Revenues
Weyerhaeuser’s net sales came in at $1,964 million, up 4.8% year over year. However, the top line lagged the Zacks Consensus Estimate of $2,292 million.
The company reports its revenues under the following segments:
Revenues generated from the Timberland segment increased 19.2% year over year to $397 million, representing 20.2% of net sales. The Wood Products segment’s revenues, accounting for 54.8% of net sales, were $1,077 million, up from $1,065 million in the year-ago quarter. Revenues from the Cellulose Fibers segment climbed 2.9% year over year to $490 million and accounted for 24.9% of net sales.
Weyerhaeuser’s real estate business was divested to Tri Ponte Homes, Inc. (TPH) in Jul 2014. Classified as discontinued operations, it generated revenues of $317 million in the second quarter.
Margins
Weyerhaeuser’s cost of sales increased 3.2% year over year, representing 76.3% of total revenue versus 77.5% in the year-ago quarter. Selling, general and administrative expenses were 5.9% of total revenue, decreasing 9.4% from the prior-year quarter. Research and development expenses were about $7 million, as against $8 million in the year-ago quarter.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) came in at $472 million versus $411 million in the year-ago quarter. Adjusted EBITDA margin was 24.0%, up from 21.9% in the year-ago quarter.
Balance Sheet
Exiting second-quarter 2014, Weyerhaeuser had cash and cash equivalents (Forest Products and Real Estate) of $845 million, up from $777 million in the preceding quarter. Long-term debt was flat at $4,891 million.
Cash Flow
Weyerhaeuser generated cash of $322 million from its operating activities, down 13.9% from $374 million in the year-ago quarter. Capital spending soared 76.6% to $83 million. During the quarter, the company paid dividends amounting to $128 million.
Outlook: For third-quarter 2014, Weyerhaeuser anticipates lower earnings from the Timberland segment. Lower sales volume and log prices will impact results in the west U.S., while higher silviculture and road costs will reduce earnings in the south U.S. Also, earnings from disposition of non-strategic timberlands are expected to decline in the quarter.
For the Wood Products segment, sequentially comparable earnings are expected, as lower realizations from lumber and oriented strand board will be offset by lower Western log costs and improved price realization for engineered wood products.
For the Cellulose Fibers segment, management anticipates sequentially lower earnings due to planned maintenance works at liquid packaging board facility and within the pulp mill system.
In the third quarter, Weyerhaeuser anticipates a gain of $1 billion from discontinued operations, related to the real estate business divestiture.
With a market capitalization of $18.3 billion, Weyerhaeuser carries a Zacks Rank #3 (Hold). Two better-ranked stocks in the building products industry include Boise Cascade Company (BCC) and United Rentals, Inc. (URI), each holding a Zacks Rank #2 (Buy).
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