Weyerhaeuser Company WY has been witnessing strong headwinds from lower average sales for lumber and oriented strand board, reduced volumes and operating rates for its wood products as well as higher unit manufacturing costs. Also, unfavorable foreign currency movements and stiff market competition woes linger.
Meanwhile, the company’s shares have gained 37.2% compared with the industry’s growth of 41.5% in the past year.
Let’s discuss the factors that are likely to impact this Zacks Rank #5 (Strong Sell) company’s growth potential.
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Key Concerns
Decline in sales at Timberland and Wood Products are pressing concerns. During the first nine months of 2019, sales in Timberlands declined 13.7% from year-ago period’s figure. The downside was caused by decline in Western log sales realizations and sales volumes. Also, Wood Products’ sales fell 16.7% during the period, mainly due to lower sales realizations and reduced sales volumes across majority of its product lines.
For the fourth quarter, the company expects sequentially comparable earnings but marginally lower adjusted EBITDA in the Timberland segment. In the Wood Products segment, the company expects earnings and adjusted EBITDA to fall on a sequential basis but rise on a year-over-year basis.
Weyerhaeuser is exposed to currency headwinds. Also, any economic unrest in countries served by the company, especially China and Japan, will affect its export business. Moreover, the company faces stiff competition from North American and global producers who have greater financial resources and lower production costs.
Even though the U.S. housing market has depicted significant improvement since the beginning of 2019, the company anticipates persistent supply-side headwinds for housing.
Builders continue to face a series of challenges including labor and lot unavailability and regulatory burdens as they seek to bring affordable housing to market. Moreover, uncertainty regarding the outlook for U.S. economic growth could affect buyer’s sentiment.
Let’s look at Weyerhaeuser earnings estimate revisions to get a clear picture of what analysts are thinking about the company. Earnings estimates for the fiscal 2020 have been revised downward by 3.7%, in the past 60 days.
Stocks to Consider
Some better-ranked stocks in the Zacks Construction sector include Orion Group Holdings, Inc ORN, Foundation Building Materials, Inc FBM and Installed Building Products, Inc IBP, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Orion Group surpassed the Zacks Consensus Estimate for earnings in two of the trailing four quarters, the average being 74%
Foundation Building Materials’ 2020 earnings are expected to rise 20.4%.
Installed Building Products has an expected earnings per share growth rate of 16% for three to five years.
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