Weyerhaeuser Company — 2021 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Unaudited results cover the quarter ended March 31, 2021, compared with the quarter ended March 31, 2020. Weyerhaeuser operates in Timberlands, Real Estate, Energy and Natural Resources, and Wood Products. The company is organized as a real estate investment trust, with taxable income primarily generated through taxable REIT subsidiaries, including Wood Products.
Financial Performance and Condition
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $2,506 million | $1,728 million | +$778 million, 45% |
| Gross margin | $1,076 million | $346 million | +$730 million |
| Operating income | $956 million | $240 million | +$716 million, 298% |
| Net earnings | $681 million | $150 million | +$531 million, 354% |
| Basic and diluted EPS | $0.91 | $0.20 | +$0.71 |
| Net cash from operations | $698 million | $86 million | +$612 million |
| Adjusted EBITDA | $1,101 million | $413 million | +$688 million |
- Gross margin was approximately 42.9% of sales versus 20.0% in the prior-year quarter. Operating margin was approximately 38.1% versus 13.9%, and net margin was approximately 27.2% versus 8.7%.
- Wood Products sales increased 64% to $2,021 million, driven primarily by higher structural lumber and oriented strand board realizations. Segment contribution to earnings increased to $840 million from $134 million.
- Timberlands sales to unaffiliated customers declined 1% to $379 million, while contribution to earnings increased 3% to $108 million. Real Estate, Energy and Natural Resources sales declined 5% to $106 million, but contribution increased 83% to $66 million due primarily to lower costs of sales.
- Cash and cash equivalents were $1,016 million at March 31, 2021, up from $495 million at December 31, 2020. The company also had $1.5 billion available under its revolving credit facility.
- Total debt was approximately $5.5 billion, including $150 million of current maturities. Long-term debt, net, was $5,325 million. No borrowings were outstanding under the $1.5 billion revolving facility.
- Total assets were $16,874 million and total equity was $9,328 million at March 31, 2021.
- Capital expenditures and timberlands reforestation spending totaled $53 million in the quarter. Management expects 2021 capital expenditures of approximately $420 million, subject to change.
- Cash dividends paid were $127 million, or $0.17 per common share. No share repurchases occurred.
Material Changes Versus the Prior Comparable Period
- Revenue growth was concentrated in Wood Products, where structural lumber sales increased $482 million and oriented strand board sales increased $248 million. Higher selling prices more than offset lower volumes.
- Commodity pricing was exceptionally strong: first-quarter average benchmark framing lumber prices increased 41% sequentially to $978 per thousand board feet, while oriented strand board prices increased 30% to $904 per thousand square feet.
- Wood Products sales volumes declined for structural lumber, oriented strand board and softwood plywood, reflecting supply constraints and temporary winter-weather disruptions in the U.S. South.
- Operating results benefited from a $730 million increase in consolidated gross margin. The improvement was partly offset by higher general and administrative expense, including liability-classified share-based compensation.
- Income tax expense increased to $189 million from a $3 million tax benefit, primarily because of higher earnings in taxable REIT subsidiaries.
- Operating cash flow improved substantially, while investing cash flow declined to a $53 million use from $441 million of inflow in the prior-year quarter. The comparison reflects the absence of the $362 million final variable-interest-entity proceeds and $145 million of Montana timberland-sale proceeds received in Q1 2020.
- Financing cash flow was a $124 million use versus $792 million of inflow in Q1 2020, when the company issued debt and borrowed under its credit facility.
Outlook, Commentary, Risks and Unusual Items
- Management reported resilient housing, repair-and-remodeling, and wood-products demand, with demand continuing to exceed available production capacity during the quarter.
- Future performance is expected to be influenced by U.S. housing activity, repair and remodeling, COVID-19 conditions and vaccinations, government stimulus and proposed infrastructure spending. The filing does not provide specific earnings or revenue guidance.
- Management identified risks related to commodity prices, housing demand, raw-material availability and costs, transportation and labor availability, weather, fires and other natural disasters, trade restrictions and tariffs, foreign exchange, environmental and forestry regulation, competition, manufacturing disruptions, litigation, pension investment performance and COVID-19.
- Winter weather temporarily disrupted production and sales volumes for wood products and logs in the U.S. South. Commodity pricing and results may be volatile and are not necessarily sustainable at first-quarter levels.
- Unallocated charges were $65 million, compared with $43 million in Q1 2020. The prior-year period included a $12 million legal benefit; Q1 2021 included no comparable benefit. A $3 million net litigation expense was recorded in Q1 2021.
- Environmental remediation accruals were approximately $58 million. Management stated that no current legal proceeding is expected to have a material adverse effect on the consolidated financial statements.
- The company was in compliance with its debt covenants. Management believes LIBOR discontinuation will not materially affect its financial position or interest expense; only $225 million of debt was subject to an agreement using LIBOR as an alternative rate.
- Subsequent to quarter-end, the company completed the purchase of approximately 69,200 southwest Alabama timberland acres for approximately $149 million on April 27, 2021. It also announced an agreement to sell approximately 145,000 Washington timberland acres for $266 million, expected to close in Q3 2021, subject to customary conditions.
Facts Investors Should Verify
- Whether exceptionally high lumber and oriented strand board prices persist and how quickly pricing affects future margins.
- Whether lower first-quarter production and sales volumes reflect temporary weather and supply issues or broader operating constraints.
- The timing and financial impact of the Alabama timberland acquisition and proposed Washington timberland divestiture.
- Debt maturities, refinancing requirements and continued compliance with debt covenants.
- Cash taxes and the effective tax rate applicable to taxable REIT subsidiary earnings.
- Environmental remediation, litigation and other contingent liabilities beyond recorded accruals.
- Actual 2021 capital expenditures relative to management’s approximately $420 million expectation and the sustainability of operating cash flow.