Weyerhaeuser Company — Form 10-Q Summary
Business context and reporting period
Weyerhaeuser filed an unaudited Form 10-Q for the quarter ended March 31, 2012. The company operates as a REIT and reports Forest Products and Real Estate activities. Principal segments are Timberlands, Wood Products, Cellulose Fibers and Real Estate. The filing states that results for an interim period are not necessarily indicative of full-year results.
As of April 27, 2012, 537.5 million common shares were outstanding. The filing indicates that the company had not filed all reports required under the Exchange Act during the preceding 12 months; this status should be verified.
Financial performance and liquidity
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net sales and revenues | $1,494 million | $1,422 million | +5% |
| Gross margin | $204 million | $245 million | -$41 million |
| Gross margin percentage | 13.7% | 17.2% | Down 3.5 points |
| Operating income | $101 million | $236 million | -$135 million |
| Net earnings attributable to common shareholders | $41 million | $99 million | -$58 million |
| Basic and diluted EPS | $0.08 | $0.18 | -$0.10 |
| Net cash used in operations | $60 million | $87 million | $27 million improvement |
| Capital spending and reforestation | $64 million | $47 million | +$17 million |
Operating margin declined to approximately 6.8% from 16.6%, while net margin declined to approximately 2.7% from 7.0%. The company paid $81 million of dividends, or $0.15 per share, during each quarter. It declared another $0.15 per share dividend payable June 1, 2012.
Cash and cash equivalents were $728 million at March 31, 2012, compared with $953 million at December 31, 2011. The $225 million decrease primarily reflected $60 million of operating cash use, $57 million of investing cash use and $108 million of financing cash use, including dividends. A subsequent Real Estate land sale generated approximately $100 million of cash after quarter-end.
Total debt, including current maturities, was approximately $4.48 billion at March 31, 2012: $4.193 billion in Forest Products and $283 million in Real Estate. No borrowings were outstanding under the $1.0 billion revolving credit facility, which expires in June 2015. The company and Weyerhaeuser Real Estate Company were in compliance with facility covenants. Defined debt-to-total-capital ratios were 46.1% for Weyerhaeuser Company and 51.7% for WRECO.
Material changes versus the prior comparable period
- Revenue increased $72 million, led by a $108 million increase in Wood Products and a $20 million increase in Timberlands. Cellulose Fibers revenue fell $33 million and Real Estate revenue fell $23 million.
- Operating income and net earnings fell substantially, primarily because Q1 2011 included a $152 million pretax gain from selling 82,000 acres of non-strategic timberlands.
- Cellulose Fibers earnings contribution decreased $42 million to $44 million, principally because pulp price realizations declined $94 per ton, or 10%, and fiber and chemical costs increased.
- Timberlands earnings contribution decreased $170 million to $71 million, reflecting the absence of the prior-year timberland sale gain, fewer land exchanges, lower domestic log prices and higher operating costs.
- Wood Products improved its loss by $14 million, to a $22 million loss, on higher volumes, improved selected product pricing and lower manufacturing and log costs, partly offset by higher freight expense.
- Real Estate contribution declined $7 million to an $8 million loss. Home closings decreased to 349 from 363, average closing price declined to $376,000 from $419,000, and single-family gross margin excluding impairments declined to 17.3% from 21.7%.
- Q1 2012 included a $52 million pretax gain from amendments to U.S. salaried-employee postretirement medical and life insurance benefits. Selling, general and administrative expense declined $22 million.
- Comprehensive income declined to $6 million from $134 million, primarily due to a $70 million reduction in prior service credits related to the benefit-plan amendment and other comprehensive items.
Guidance, outlook, risks and unusual items
For the second quarter of 2012, management expected modestly higher Timberlands earnings, approximately breakeven Wood Products results, slightly higher Cellulose Fibers earnings and a slight Real Estate profit. Expected drivers included higher log and product volumes, improved lumber and pulp prices, higher fuel and maintenance costs, seasonally higher silviculture expenses, and a small loss from single-family homebuilding. A land sale completed in April was expected to contribute approximately $10 million to Real Estate earnings.
Management expected 2012 net capital expenditures, excluding acquisitions, of approximately $290 million. Expected 2012 pension and other postretirement contributions and payments included approximately $83 million to Canadian pension plans, $60 million to the U.S. qualified pension plan, $20 million to U.S. nonqualified plans and $42 million of other postretirement benefit payments.
Key risks include housing and mortgage conditions, general economic activity, product demand and pricing, pulp and lumber markets, raw material, energy and transportation costs, manufacturing performance, weather and natural disasters, international trade and currency movements, environmental and forestry regulation, litigation, pension investment performance, taxes and execution of restructuring and cost-reduction programs.
The company accrued $33 million for future estimated environmental remediation costs and $69 million for asset-retirement obligations at March 31, 2012. Management stated that litigation outcomes could materially affect a particular quarter or year, although it did not expect a material adverse effect over the long term. Final valuation of year-end pension assets was expected in the second quarter and could affect pension expense.
Important facts for investors to verify
- Confirm the filing-status checkbox indicating that not all required Exchange Act reports had been filed during the preceding 12 months.
- Assess whether the decline in operating and net margins reflects primarily the nonrecurrence of the 2011 timberland gain or continuing weakness in pulp, housing and other markets.
- Review debt maturities, interest costs and covenant calculations, particularly the $167 million of current Forest Products debt maturities.
- Evaluate cash needs against the planned $290 million of annual capital expenditures, dividends and expected pension and postretirement payments.
- Verify the timing and earnings impact of the approximately $100 million post-quarter-end land-sale proceeds and the expected $10 million Real Estate gain.
- Monitor pulp pricing, lumber and log demand, housing closings, homebuilding margins, fuel and maintenance costs, and pension-asset valuation adjustments.
- Review environmental, legal and other contingencies, including the $33 million remediation accrual and $69 million asset-retirement obligation.