Weyerhaeuser Reports Third Quarter Loss on Housing Slump
Oct. 25, 2006 - Weyerhaeuser Company today reported third quarter net earnings of $211 million, or 85
cents per diluted share, on net sales of $5.3 billion. This compares with $285
million, or $1.16 per diluted share, on net sales of $5.4 billion for the
third quarter 2005.
Third quarter 2006 earnings include the following after-tax items:
- A gain of $31 million, or 13 cents per diluted share, from the sale of
the North American composites business.
- A gain of $15 million, or 6 cents per diluted share, due to a reduction
of the reserve for hardboard siding claims.
- A charge of $25 million, or 10 cents per diluted share, for the
additional impairment of assets related to the closure of the Prince
Albert, Saskatchewan facility and the write-off of additional goodwill
associated with the former BC Coastal business.
- A charge of $18 million, or 7 cents per diluted share, for asset
impairments and costs associated with facility closures or
curtailments, primarily in the Wood Products segment.
- A charge of $9 million, or 4 cents per diluted share, for impairment of
real estate assets.
- A charge of $6 million, or 2 cents per diluted share, related to the
previously announced acquisition of OrganicID, a research and
Third quarter 2005 earnings include the following after-tax items:
- A gain of $75 million, or 31 cents per diluted share, for the sale of
MAS Capital Management Partners, LP, a joint venture.
- A charge of $19 million, or 8 cents per diluted share, for closure of
- A loss of $14 million, or 6 cents per diluted share, for the early
extinguishment of debt.
During third quarter 2006, Weyerhaeuser repurchased 5.3 million shares of
common stock. As of the end of the third quarter, Weyerhaeuser has repurchased
a total of 5.5 million shares of the 18 million-share repurchase previously
authorized by the company's board of directors.
"We anticipated the downturn in the housing market and transformed
Weyerhaeuser into a more focused company to position it to be a strong
performer during this market cycle," said Steven R. Rogel, chairman, president
and chief executive officer. "While anticipated, the housing market decline
was more abrupt and drove wood products prices and demand into a deeper plunge
than expected. We are taking the necessary actions to match our production to
demand and over the long-term, remain confident about the residential housing
market. We have the right strategies and combination of businesses to succeed
and add value for shareholders.
"Our cellulose fiber, white papers and packaging businesses showed
continued improved performance during the quarter," Rogel said. "Some of this
was the result of stronger pricing, but we also benefited from the decisive
action we have taken to improve the ability of these businesses to meet
customer demand. Such steps take time, but we are starting to benefit from the
long-term changes they are creating within Weyerhaeuser."
Third quarter earnings decreased from second quarter 2006 due to the
timing of sales of non-strategic properties, seasonally reduced fee harvest
levels and the adverse effect of falling lumber prices on domestic log prices.
Third quarter costs benefited from the absence of salvage logging expense with
the completion of the Hurricane Katrina cleanup in the second quarter.
Weyerhaeuser expects lower fourth quarter earnings for the segment
compared with the third quarter due to decreased demand for lumber which will
result in lower domestic log prices.
3Q 2006 2Q 2006 Change
Contribution to pre-tax earnings (millions) $11 $131 ($120)
Third quarter contribution to earnings included a $51 million gain on the
sale of the company's North American composites business, $23 million of
income related to a reduction in the reserve for hardboard siding claims, and
charges of $17 million for the impairment of fixed assets associated with mill
closures and curtailments. Excluding these items, contribution to earnings
decreased $177 million from the second quarter.
Lower prices and volumes contributed to the lower earnings. Weaker prices
in lumber, plywood and oriented strand board caused by normal seasonal
declines in demand and the weakening housing market were significant factors
in the earnings decline. Lower wood product shipment volumes and the loss of
ongoing earnings from the North American composites business, which
Weyerhaeuser sold in late July, also contributed to the decline. Manufacturing
costs did not vary significantly from quarter to quarter.
Weyerhaeuser expects the segment to continue to operate at a loss in the
The company incurred $7 million in countervailing and anti-dumping duties
and related costs on Canadian softwood lumber the company sold into the United
States in the third quarter of 2006. The Canadian softwood lumber agreement
became effective on Oct. 12, and at current price levels, the company will pay
a 15 percent tax on lumber produced by its Canadian mills exported to the
United States. This compares to the duty deposit rate of 13.13 percent in
effect since December 2005. The company expects to receive a refund of duty
based on the outcome of the new agreement.
CELLULOSE FIBER AND WHITE PAPERS
3Q 2006 2Q 2006 Change
Contribution to pre-tax earnings (millions) $115 $23 $92
Fine paper and cellulose fiber products experienced stronger market
conditions in the third quarter, resulting in the realization of higher
prices. Sales volumes for fine paper and cellulose fiber declined slightly in
the third quarter because of the second-quarter closures of a paper machine at
Dryden, Ontario and the Prince Albert, Saskatchewan pulp mill.
Third quarter manufacturing costs for fine paper and cellulose fiber
decreased significantly from the second quarter when the company incurred
shutdowns for annual mill maintenance, capital upgrades and power
interruptions. Productivity improved in the third quarter and energy,
chemicals and maintenance costs decreased.
Weyerhaeuser expects fourth quarter earnings for the segment to be similar
to third quarter.
CONTAINERBOARD, PACKAGING AND RECYCLING
3Q 2006 2Q 2006 Change
Contribution to pre-tax earnings (millions) $96 $74 $22
Third quarter 2006 results included charges of $6 million for costs
associated with facility closures and workforce reductions related to the
continued implementation of the segment's new business model. Second quarter
2006 results included charges of $18 million for restructuring costs
associated with implementing the segment's new business model and charges of
$5 million related to facility closures. Excluding these items, third quarter
earnings improved $5 million compared with the second quarter.
During the third quarter, the company completed the implementation of the
previously announced price increases for containerboard and packaging.
Significantly higher costs for old corrugated containerboard (OCC), rising
wood chip costs and a seasonal decline in packaging shipments to the produce
market segment partially offset the effect from higher prices. In addition,
packaging volumes were down as the company exited certain low-margin business.
Weyerhaeuser expects fourth quarter earnings for the segment to be
comparable with third quarter results. Shipments are expected to increase and
OCC costs are expected to decline from third quarter levels. Rapidly rising
wood chip costs, primarily on the West Coast, and seasonally higher energy
usage are expected to offset higher packaging shipments and lower OCC costs.
REAL ESTATE AND RELATED ASSETS
3Q 2006 2Q 2006 Change
Contribution to pre-tax earnings (millions) $135 $123 $12
Third quarter single-family home closing volume was comparable to the
second quarter. Higher prices for single-family homes closed and lower
overhead contributed to the third quarter earnings increase, partially offset
by $14 million in impairment charges for two real estate projects.
Closing volumes were greater than new sales in the third quarter,
decreasing the backlog of homes sold, but not closed, to approximately 4.5
Weyerhaeuser expects earnings from real estate and related assets to
increase in the fourth quarter because of seasonally higher closing volumes,
which are expected to be partially offset by lower margins. The company
expects fourth quarter earnings to be substantially below last year's fourth
SOURCE: Weyerhaeuser Company