Weyerhaeuser Company — Form 10-Q Summary
Business context and reporting period
Quarterly report for the period ended September 30, 2021, comparing the third quarter and year-to-date periods with 2020. Weyerhaeuser operates through Timberlands, Real Estate, Energy and Natural Resources, and Wood Products. Its results remained highly sensitive to U.S. housing, repair and remodeling activity, wood-product prices, export demand, freight and labor availability, weather, wildfires, and COVID-19 developments.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | YTD 2021 | YTD 2020 |
|---|---|---|---|---|
| Net sales | $2,345 million | $2,110 million | $7,995 million | $5,469 million |
| Gross margin | $756 million | $720 million | $3,393 million | $1,414 million |
| Operating income | $649 million | $510 million | $3,034 million | $993 million |
| Net earnings | $482 million | $283 million | $2,191 million | $505 million |
| Diluted EPS | $0.64 | $0.38 | $2.92 | $0.68 |
| Net cash from operations | Not separately provided | Not separately provided | $2,665 million | $1,085 million |
| Adjusted EBITDA | $746 million | $745 million | $3,420 million | $1,544 million |
Q3 gross margin was approximately 32.3% of sales versus 34.1% in the prior-year quarter; operating margin was approximately 27.7% versus 24.2%; and net margin was approximately 20.6% versus 13.4%. Year-to-date gross margin was approximately 42.4% versus 25.9%, operating margin was approximately 37.9% versus 18.2%, and net margin was approximately 27.4% versus 9.2%.
At September 30, 2021, cash and cash equivalents were $2,326 million, with an additional $120 million of restricted cash. Total debt carrying value was $5,250 million, consisting of $150 million of current maturities and $5,100 million of long-term debt. The company had no borrowings under its $1.5 billion revolving credit facility, which expires in January 2025. Management stated that liquidity was sufficient for foreseeable cash requirements.
Material changes versus the prior comparable period
- Q3 sales increased $235 million, or 11%, primarily from higher Wood Products and Timberlands sales realizations.
- Q3 operating income increased $139 million, or 27%, partly because 2020 included an $80 million Oregon wildfire casualty loss.
- Q3 net earnings increased $199 million, or 70%, also benefiting from $32 million lower interest expense and $25 million lower income tax expense.
- Year-to-date sales increased $2,526 million, or 46%, and operating income increased $2,041 million, or 206%, largely due to substantially higher Wood Products pricing and the absence of the 2020 wildfire loss.
- Wood Products Q3 operating income declined $49 million to $517 million despite a $157 million sales increase, as structural lumber prices fell 23% and freight costs increased. Year-to-date Wood Products operating income increased $1,836 million to $2,695 million.
- Timberlands Q3 operating income increased $144 million to $133 million, aided by an $80 million 2020 wildfire loss comparison and a $32 million gain on the Washington timberlands sale.
- Real Estate, Energy and Natural Resources Q3 sales were unchanged at $69 million, while operating income increased $28 million to $45 million due primarily to lower costs.
- Year-to-date cash from operations increased $1,580 million to $2,665 million. Investing cash flow was negative $108 million, reflecting the $149 million Alabama timberlands acquisition and lower proceeds from variable-interest entities, partly offset by $261 million of timberlands sale proceeds.
- Year-to-date financing cash outflow was $606 million, including $382 million of common dividends and $225 million of long-term debt repayments. The company repurchased 780,228 shares for approximately $26 million.
Guidance, outlook, commentary, risks and unusual items
- Management expected 2021 capital expenditures to be slightly below $460 million because of supply-chain and contract-labor constraints.
- The company expected to pay a significant supplemental dividend based on 2021 annual results in the first quarter of 2022. A $0.50-per-share supplemental dividend declared in September was paid in October 2021, creating $375 million of dividends payable at September 30.
- Wood-product prices corrected sharply during the quarter after record levels earlier in 2021; lumber and OSB prices began rebounding toward quarter-end. Management cited softer summer repair-and-remodel demand, dealer inventory management, and continued housing-market sensitivity.
- Third-quarter housing starts averaged 1.57 million units at a seasonally adjusted annual rate, while new-home sales declined 24% from the prior-year quarter. Repair-and-remodel expenditures declined 3.5% sequentially.
- Unusual items included the $32 million gain on the Washington timberlands sale, the absence of the $80 million Oregon wildfire casualty loss recorded in Q3 2020, and the absence of 2020 early-debt-extinguishment charges.
- The company completed a $149 million acquisition of 69,000 acres in southwest Alabama and a $261 million sale of 145,000 acres in Washington, structured as a like-kind exchange.
- Management identified risks from COVID-19 and future variants, housing and economic conditions, inflation and interest rates, demand and pricing volatility, tariffs and trade restrictions, shipping and transportation costs, labor availability, weather and catastrophic fires, environmental regulation, litigation, pension performance, and climate-related developments.
- The company accrued approximately $64 million for future estimated remediation costs at Superfund and other potentially responsible sites. Management did not believe current legal proceedings would have a material adverse effect.
- The company planned to transition its revolving credit facility from LIBOR to an alternative reference rate in 2022 and reported compliance with debt covenants.
Most important facts for investors to verify
- Whether lumber and OSB prices, housing activity, and repair-and-remodel demand stabilize after the sharp 2021 correction.
- The sustainability of unusually strong year-to-date Wood Products earnings and cash generation as pricing normalizes.
- Completion and economic effects of the Alabama acquisition, Washington divestiture, and related like-kind exchange.
- Future supplemental dividends, share repurchases under the new $1 billion authorization, and overall capital-allocation priorities.
- Debt maturities, including the $1.051 billion scheduled in 2023 and the $436 million scheduled in 2025, as well as the October 2021 repayment of $150 million of notes.
- Potential effects of wildfires, severe weather, COVID-19, supply-chain constraints, environmental matters, and the approximately $64 million remediation accrual.
- Whether management’s projected 2021 capital spending below $460 million is achieved and whether liquidity remains sufficient under adverse market conditions.