Weyerhaeuser Company — First Quarter 2023 Form 10-Q Summary
Business context and reporting period
Weyerhaeuser is a timberland owner and forest-products company operating through Timberlands, Real Estate, Energy and Natural Resources, and Wood Products. The filing covers the quarter ended March 31, 2023, compared with the quarter ended March 31, 2022. The interim financial statements are unaudited.
Financial performance and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $1,881 million | $3,112 million | Down $1,231 million, or 40% |
| Gross margin | $369 million | $1,465 million | Down $1,096 million |
| Operating income | $236 million | $1,344 million | Down $1,108 million, or 82% |
| Net earnings | $151 million | $771 million | Down $620 million, or 80% |
| Diluted EPS | $0.21 | $1.03 | Down $0.82 |
| Net cash from operations | $126 million | $957 million | Down $831 million |
| Adjusted EBITDA | $395 million | $1,497 million | Down $1,102 million |
Gross margin was approximately 19.6% of sales versus 47.1% in the prior-year quarter. Operating margin was approximately 12.5% versus 43.2%, and net margin was approximately 8.0% versus 24.8%.
- Wood Products sales decreased 48% to $1,318 million, primarily because of sharply lower structural lumber and oriented strand board realizations. Segment contribution declined to $95 million from $1,182 million.
- Timberlands sales to unaffiliated customers were broadly stable at $462 million versus $465 million, but segment contribution declined to $120 million from $182 million because of lower Western log realizations and higher logging and hauling costs.
- Real Estate, Energy and Natural Resources sales declined 21% to $101 million, and segment contribution declined to $53 million from $81 million. Real estate acres sold decreased to 20,753 from 24,126, while average price per acre fell to $3,241 from $3,785.
- Interest expense declined to $66 million from $72 million following the 2022 debt refinancing. Income tax expense declined to $22 million from $209 million, primarily because of lower taxable REIT subsidiary earnings and a lower estimated annual effective tax rate.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $797 million at March 31, 2023, down from $1,581 million at December 31, 2022.
- Total assets were $16.58 billion and total equity was $10.08 billion at quarter-end.
- Debt included $981 million of current maturities and $4.072 billion of long-term debt, for approximately $5.053 billion of carrying value including current maturities. Fixed-rate debt had an estimated fair value of $5.048 billion.
- Weyerhaeuser entered into a new $1.5 billion senior unsecured revolving credit facility expiring in March 2028. No borrowings were outstanding, leaving approximately $1.5 billion available.
- Scheduled principal maturities include $978 million in 2023, $210 million in 2025, $272 million in 2026, $300 million in 2027 and $3.333 billion thereafter. Within 2023, $118 million was scheduled for the third quarter and $860 million for the fourth quarter.
- Management stated that liquidity was sufficient for foreseeable cash requirements and that the company was in compliance with debt covenants.
Cash deployment and capital allocation
- Capital expenditures were $71 million in the quarter, and management anticipated approximately $440 million of 2023 capital expenditures, subject to change.
- Cash dividends paid were $799 million, including a $0.90-per-share supplemental dividend based on 2022 results, compared with $1.218 billion in the prior-year quarter.
- The company repurchased 1.12 million shares for approximately $35 million and had $342 million remaining under its $1 billion repurchase authorization.
- Financing activities used $841 million of cash, while investing activities used $69 million. Cash declined by $784 million during the quarter.
Material changes, outlook and risks
The principal year-over-year deterioration was the normalization of Wood Products pricing and demand from unusually strong 2022 levels. Management cited softer housing activity, higher mortgage rates, lower affordability, uncertain economic conditions and weaker repair-and-remodel spending. Management also noted that U.S. housing fundamentals remain favorable over the medium to long term because of demographics, prior underbuilding and low housing inventory.
During the quarter, lumber and OSB prices increased from their beginning-quarter levels, but remained materially below the prior-year environment. Management expects longer-term support from U.S. housing construction and repair and remodeling, while recognizing exposure to interest rates, inflation, product prices, housing activity, raw material and labor costs, transportation, weather, fires and other natural disasters, trade policy, currency movements, environmental regulation, litigation and pension investment performance.
The company believes natural climate solutions, forest carbon sequestration, carbon capture and storage, and renewable-energy activities may provide future opportunities; the filing does not provide a quantified earnings or revenue forecast for these opportunities. The company reported no material change to previously disclosed risk factors and no legal proceeding expected by management to have a material adverse effect. Environmental remediation accruals were approximately $65 million.
There was no debt-extinguishment charge in Q1 2023. The prior-year period included a $276 million pretax, or $207 million after-tax, charge related to early debt retirement; Q1 2022 net earnings before special items were $978 million versus reported net earnings of $771 million.
Facts investors should verify
- Whether lumber and OSB pricing and Wood Products margins continue to recover or weaken.
- The company’s ability to fund the $978 million of scheduled 2023 debt maturities while maintaining dividends, repurchases and planned capital expenditures.
- Actual 2023 capital expenditures relative to the approximately $440 million expectation.
- Cash generation after the unusually large dividend payment and the effect of working-capital movements on operating cash flow.
- Exposure to housing starts, mortgage rates, repair-and-remodel demand, export markets, inflation, labor availability and transportation costs.
- Potential changes in environmental remediation obligations, litigation exposure, pension obligations and climate-related opportunities or costs.