Q2 2024 Weyerhaeuser Co Earnings Call

Greetings and welcome to the Weyerhaeuser's 2nd Quarter 2024 Earnings Conference Call.

Operator: At this time, all participants are on a listen-only line. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. The confirmation tone will indicate your line is in question. If anyone should require operator assistance during the conference, please press star zero.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Speaker Change: If anyone should require operator assistance during the conference, please press star zero.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor.

Speaker Change: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin.

Andy Taylor: You may begin. Thank you, Rob. Good morning, everyone.

Andy Taylor: Thank you for joining us today to discuss Weyerhaeuser's second quarter 2024 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. Also on the call this morning are Devin Stockfish, Chief Executive Officer, and David Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish. Thanks, Andy.

Andy Taylor: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's second quarter 2024 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website.

Speaker Change: Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in the earnings materials on our website.

Speaker Change: On the call this morning are Devin Stockfish, Chief Executive Officer, and David Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Devin W. Stockfish: Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported second-quarter net earnings of $173 million, or 24 cents per diluted share, on net sales of $1.9 billion. Excluding a special item, we earned $154 million, or 21 cents per diluted share. Adjusted EBITDA totaled $410 million, a 16% increase over the first quarter. These are solid results, and I'd like to thank our teams for their continued focus and operational performance. Through their efforts, Adjusted EBITDA improved across each of our business segments compared to the prior quarter, a notable achievement in light of numerous market-related challenges, particularly in the lumber market.

Devin W. Stockfish: Thanks Andy. Good morning everyone and thank you for joining us.

David M. Wold: Yesterday, Weyerhaeuser reported second quarter gap earnings of $173 million, or $0.24 per diluted share, on net sales of $1.9 billion.

David M. Wold: Excluding a special item, we earned $154 million, or $0.21 per diluted share.

David M. Wold: Adjusted EBITDA totaled $410 million, a 16% increase over the first quarter. These are solid results and I'd like to thank our teams for their continued focus and operational performance.

David M. Wold: Through their efforts, Adjusted EBITDA improved across each of our business segments compared to the prior quarter, a notable achievement in light of numerous market-related challenges, particularly in the lumber market.

Devin W. Stockfish: Before getting into the businesses, I'd like to comment briefly on an exciting growth opportunity within our Southern Timberlands portfolio. As we announced yesterday, we are acquiring approximately 84,000 acres of high-quality timberland in Alabama for $244 million. The collective acreage was sourced through multiple transactions, one of which closed in the second quarter for $48 million.

David M. Wold: Before getting into the businesses, I'd like to comment briefly on an exciting growth opportunity within our Southern Timberlands portfolio.

David M. Wold: As we announced yesterday, we are acquiring approximately 84,000 acres of high-quality timberlands in Alabama for $244 million.

David M. Wold: The collective acreage was sourced through multiple transactions, one of which closed in the second quarter for $48 million.

Devin W. Stockfish: The remaining transactions are under contract and expected to close later this year subject to customary closing conditions. These acquisitions represent an attractive opportunity to expand our footprint in one of the strongest inland saw log and fiber markets in the U.S. These are highly productive and mature timberlands strategically positioned to demonstrate immediate synergies with existing warehouse or operations. In addition, they're expected to generate portfolio-leading cash flow and harvest tons per acre within our Southern Timberlands business.

David M. Wold: The remaining transactions are under contract and expected to close later this year subject to customary closing conditions.

David M. Wold: These acquisitions represent an attractive opportunity to expand our footprint in one of the strongest inland saw log and fiber markets in the U.S. These are highly productive and mature timberlands strategically positioned to demonstrate immediate synergies with existing Weyerhaeuser operations.

David M. Wold: In addition, they're expected to generate portfolio-leading cash flow and harvest tons per acre within our Southern Timberlands business.

Devin W. Stockfish: As highlighted on page 18 of our earnings slides, we've demonstrated meaningful progress toward our multi-year Timberlands growth target. Including these transactions, we will have completed approximately $775 million against our target and are on track to reach $1 billion of strategic timberland acquisitions by the end of 2025. Turning now to our second quarter business, I'll begin with Timberlands on pages 6 through 9 of our earnings slide. Timberlands contributed $81 million to our second quarter earnings.

David M. Wold: As highlighted on page 18 of our earnings slides, we've demonstrated meaningful progress toward our multi-year Timberlands growth target.

David M. Wold: Including these transactions, we will have completed approximately $775 million against our target and are on track to reach $1 billion of strategic Timberlands acquisitions by the end of 2025.

Devin W. Stockfish: Adjusted EBITDA was $147 million, a slight improvement compared to the first quarter, largely driven by increased sales volumes out of the West. Starting with the western domestic market, log prices faced downward pressure in the second quarter, as Mills carried elevated log inventories and continued to navigate a softening lumber market. In addition, log supply was ample given the seasonal improvement in weather conditions, and recent milk curtailments reduced log takeaway in the region. As a result of these dynamics, our average domestic sales realizations decreased slightly compared to the first quarter.

David M. Wold: Turning now to our second quarter business results.

David M. Wold: I'll begin with Timberlands on pages 6 through 9 of our earnings slides.

David M. Wold: Timberlands contributed 81 million dollars to second quarter earnings. Adjusted EBITDA was 147 million dollars, a slight improvement compared to the first quarter, largely driven by increased sales volumes out of the West.

David M. Wold: Starting with the Western domestic market, log prices faced downward pressure in the second quarter as mills carried elevated log inventories and continue to navigate a softening lumber market.

David M. Wold: In addition, log supply was ample given the seasonal improvement in weather conditions, and recent milk curtailments reduced log takeaway in the region. As a result of these dynamics, our average domestic sales realizations decreased slightly compared to the first quarter.

Devin W. Stockfish: Given favorable operating conditions, our fee harvest volumes were moderately higher, and domestic sales volumes improved as demand for our logs remained stable despite softer end markets. However, per unit log and haul costs increased, and forestry and road costs were slightly higher. Moving to our western export,

David M. Wold: Given favorable operating conditions, our fee harvest volumes were moderately higher, and domestic sales volumes improved, as demand for our logs remained stable despite softer end markets.

David M. Wold: Per-unit log and haul costs increased, and forestry and road costs were slightly higher.

Devin W. Stockfish: Log markets in Japan were stable in the second quarter, and demand for our logs was steady, which has provided our customers with an opportunity to pick up market share. For the second quarter, our average sales realizations for export volumes to Japan increased slightly. Sales volumes increased significantly, partially due to the timing of Vestibule. In China, log consumption increased modestly following the Lunar New Year holiday, and log inventories at the ports declined steadily in the second quarter.

David M. Wold: Moving to our Western export business.

David M. Wold: Log markets in Japan were stable in the Second War and demand for our logs was steady.

David M. Wold: Suppliers of European lumber into Japan continue to face shipping and cost headwinds, which has provided our customers an opportunity to pick up market share.

David M. Wold: For the second quarter, our average sales realizations for export volumes to Japan increased slightly.

David M. Wold: Sales volumes increased significantly, partially due to the timing of vessels.

David M. Wold: In China, log consumption increased modestly following the Lunar New Year holiday, and log inventories at the ports declined steadily in the second quarter.

Devin W. Stockfish: That said, log takeaway waned as the quarter progressed. However, on balance, log demand was solid from our strategic customers in the region, and we significantly increased our sales volumes into China during the second quarter. Our average sales realizations were slightly lower compared to the first quarter. Turning to the south, Adjusted Ibada for southern timberlands was comparable to the first quarter. Southern Saw Log Markets moderated in the second quarter, largely in response to elevated mill inventories, a seasonal increase in log supply, and reduced consumption as mills adjusted to lower pricing and takeaway of lumber. In contrast, southern fiber markets were generally stable, as supply and demand returned to a more normalized state.

David M. Wold: That said, log takeaway waned as the quarter progressed. On balance, log demand was solid from our strategic customers in the region, and we significantly increased our sales volumes into China during the second quarter. Our average sales realizations were slightly lower compared to the first quarter.

David M. Wold: Turning to the south, Adjusted Ibada for Southern Timberlands was comparable to the first quarter.

David M. Wold: Southern saw log markets moderated in the second quarter, largely in response to elevated mill inventories, a seasonal increase in log supply, and reduced consumption as mills adjusted to lower pricing and takeaway of lumber.

David M. Wold: In contrast, southern fiber markets were generally stable, as supply and demand returned to a more normalized state.

Devin W. Stockfish: On balance, takeaway for our logs remains steady given our delivered programs across the region. As a result, our average sales realizations were comparable to the first quarter. In the north, adjusted EBITDA decreased slightly compared to the first quarter due to significantly lower sales volumes associated with seasonal spring breakup conditions. Turning now to real estate, energy, and natural resources on pages 10 and 11. Real Estate Neonar contributed $59 million to second quarter earnings.

David M. Wold: On balance, takeaway for our logs remains steady, given our delivered programs across the region.

David M. Wold: As a result, our average sales realizations were comparable to the first quarter. Our fee harvest volumes and forestry and road costs were seasonally higher, and per-unit log-in haul costs were comparable.

David M. Wold: In the north, adjusted EBITDA decreased slightly compared to the first quarter due to significantly lower sales volumes associated with seasonal spring breakup conditions.

David M. Wold: Turning now to real estate, energy, and natural resources on pages 10 and 11.

David M. Wold: Real Estate and E&R contributed $59 million to second quarter earnings.

Devin W. Stockfish: Adjusted EBITDA was $102 million, an $8 million increase compared to the first quarter, partially driven by higher royalty income from construction materials within our energy and natural resources business. In our real estate business, we continue to benefit from solid demand for HBU properties, resulting in high-value transactions with significant premiums to timber values. That said, our average price per acre declined sequentially due to the mix of acres sold in the quarter. I'll now make a few brief comments on our natural climate solutions.

David M. Wold: Adjusted EBITDA was $102 million, an $8 million increase compared to the first quarter, partially driven by higher royalty income from construction materials within our energy and natural resources business.

David M. Wold: In our real estate business we continue to benefit from solid demand for HBU properties resulting in high value transactions with significant premiums to timber value.

David M. Wold: That said, our average price per acre declined sequentially due to the mix of acres sold in the quarter.

David M. Wold: I'll now make a few brief comments on our natural climate solutions business.

Devin W. Stockfish: We continue to see strong demand for large-scale solar development and signed additional agreements in the second quarter. In total, we now have over 70 agreements for potential solar projects, covering more than 130,000 acres across the U.S. South.

David M. Wold: We continue to see strong demand for large-scale solar development and signed additional agreements in the second quarter.

David M. Wold: In total, we now have over 70 agreements for potential solar projects, covering more than 130,000 acres across the U.S. South.

Devin W. Stockfish: Turning to forest carbon, we're advancing several projects through the development pipeline and expect to have two new projects in the U.S. South approved later this year. These projects, in combination with our main pilot project, are expected to generate over 100,000 credits in 2024. Looking forward, we're encouraged by the growing support for voluntary carbon markets and are uniquely positioned to capitalize on increasing demand for high-quality credit. Moving to wood products, pages 12 through 14. Excluding a special item, Wood Products contributed $171 million to second quarter earnings.

David M. Wold: Turning to forest carbon. We are advancing several projects through the development pipeline and expect to have two new projects in the U.S. South approved later this year. These projects, in combination with our main pilot project, are expected to generate over 100,000 credits in 2024.

David M. Wold: Looking forward, we're encouraged by the growing support for the voluntary carbon markets and are uniquely positioned to capitalize on increasing demand for high-quality credits.

David M. Wold: Moving to wood products on pages 12 through 14.

David M. Wold: Excluding a special item, Wood Products contributed $171 million dollars to second quarter earnings.

Devin W. Stockfish: Adjusted EBITDA was $225 million, a 22% improvement over the first quarter, largely driven by an increase in OSB pricing, as well as higher sales volumes and lower costs in lumber and EWP. Starting with lumber, second quarter adjusted EBITDA was an $8 million loss, with soft pricing as the primary headwind. Average benchmark pricing for lumber decreased by 5% compared to the first quarter.

Speaker Change: Adjusted EBITDA was $225 million, a 22% improvement over the first quarter, largely driven by an increase in OSB pricing, as well as higher sales volumes and lower costs in lumber and EWP.

Speaker Change: Starting with lumber, second quarter adjusted EBITDA was an 8 million dollar loss with soft pricing as the primary headwind.

Speaker Change: Average benchmark pricing for lumber decreased by 5% compared to the first quarter. Despite solid single-family housing starts thus far in 2024, other end markets for lumber, particularly the repair and remodel and multi-family housing segments, have been more muted recently.

Devin W. Stockfish: Despite solid single-family housing starts thus far in 2024, other end markets for lumber, particularly the repair and remodel and multi-family housing segments, have been more muted recently. As a result, lumber supply continued to outpace demand, and buyer sentiment remained cautious in the second quarter. Although this dynamic is being felt across the North American lumber market, it's been more acute in Southern Yellow Pine, given softness in treater and multifamily demand, which are proportionally larger markets in the South compared to other regions.

Speaker Change: As a result, lumber supply continued to outpace demand, and buyer sentiment remained cautious in the second quarter.

Speaker Change: Although this dynamic is being felt across the North American lumber market, it's been more acute in southern Yellow Pine, given softness in treater and multifamily demand, which are proportionally larger markets in the south compared to other regions.

Devin W. Stockfish: For the lumber business, our average sales realizations decreased by 2% in the second quarter. Our sales volumes were moderately higher, partially due to increased production following winter weather disruptions in the first. Unit manufacturing costs and log costs were both lower in the second quarter. Before moving to OSB, I'll make a few comments on our recent decision to indefinitely curtail operations at our sawmill in New Bern, North Carolina. These are always difficult decisions given the impact on employees, their families, and the local community, so we did not take this decision lightly. New Bern is the smallest mill in our portfolio at 100 million board feet of capacity.

Speaker Change: For the lumber business, our average sales realizations decreased by 2% in the second quarter.

Speaker Change: Our sales volumes were moderately higher, partially due to increased production following winter weather disruptions in the first quarter.

Speaker Change: Unit manufacturing costs and log costs were both lower in the second quarter.

Speaker Change: Before moving to OSB, I'll make a few comments on our recent decision to indefinitely curtail operations at our sawmill in New Bern, North Carolina. These are always difficult decisions given the impact on employees, their families, and the local community, so we did not take this decision lightly.

Speaker Change: New Bern is the smallest mill in our portfolio at 100 million board feet of capacity.

Devin W. Stockfish: Unlike other facilities across our mill set, for a variety of reasons, we haven't invested meaningful capital in new, so its cost structure was relatively challenged, making it very difficult in the current pricing environment. Given these variables, along with Newbern's limited integration with our fee timberlands, we didn't see a clear path to achieving sufficient financial results to keep the mill running. As a result, we've commenced an orderly wind-down of operations and expect the mill to be fully curtailed in the third quarter.

Speaker Change: Unlike other facilities across our mill set, for a variety of reasons we haven't invested meaningful capital in New Bern.

Speaker Change: So it's cost structure was relatively challenged making it very difficult in the current pricing environment

Speaker Change: Given these variables, along with Newbern's limited integration with our fee timberlands, we didn't see a clear path to achieving sufficient financial results to keep the mill running.

Speaker Change: As a result, we've commenced an orderly wind-down of operations and expect the mill to be fully curtailed in the third quarter.

Devin W. Stockfish: I do want to thank our Newbern team for their contributions to the company, as well as the local community, for their support over the years. We're working to minimize the impact of the curtailment by providing employment opportunities in other parts of our operations or transition services to affected employees. As for the remainder of our mill set, we are very focused on running efficiently and controlling costs. Given our deeply ingrained OPEX culture and relative position on the cost curve, we firmly believe that we're better positioned to operate through the commodity cycle than most of the industry.

Speaker Change: I do want to thank our New Bern team for their contributions to the company, as well as the local community for their support over the years. We're working to minimize the impact of the curtailment by providing employment opportunities in other parts of our operations or transition services to affected employees.

Speaker Change: As for the remainder of our mill set, we are very focused on running efficiently and controlling costs. Given our deeply ingrained OpEx culture and relative position on the cost curve, we firmly believe that we're better positioned to operate through the commodity cycle than most of the industry.

Devin W. Stockfish: Nevertheless, in light of current market conditions, we expect to reduce our lumber production by 5-10% in the third quarter. This will take place across our mill set and is inclusive of the new burn curtailment. And looking forward, we will continue to assess our performance, customer commitments, and broader portfolio integration as we evaluate the need to further optimize our lumber operation. Now, turning to OSB. Adjusted EBITDA increased by $35 million compared to the first quarter, primarily due to higher average sales.

Speaker Change: Nevertheless, in light of current market conditions, we expect to reduce our lumber production by 5-10% in the third quarter.

Speaker Change: This will take place across our mill set and is inclusive of the new burn curtailment.

Speaker Change: And looking forward, we will continue to assess our performance, customer commitments, and broader portfolio integration as we evaluate the need to further optimize our lumber operations.

Speaker Change: So now turning to OSB.

Speaker Change: Adjusted EBITDA increased by $35 million compared to the first quarter, primarily due to higher average sales realization.

David M. Wold: Benchmark pricing for OSB began the quarter at elevated levels but moved significantly lower as the quarter progressed, largely in response to the softer than expected demand during the spring building season and elevated channel inventory. However, pricing stabilized by quarter end and has remained steady into July. Notwithstanding this volatility, average OSB composite pricing was 6% higher compared to the first quarter, while our average realizations were 13% higher. This relative difference was largely due to the length of our order files, which results in a lag effect on OSB realization.

Speaker Change: Benchmark pricing for OSB began the quarter at elevated levels, but moved significantly lower as the quarter progressed, largely in response to the softer than expected demand during the spring building season and elevated channel inventories.

Speaker Change: Pricing stabilized by quarter end and has remained steady into July .

Speaker Change: Notwithstanding this volatility, average OSB composite pricing was 6% higher compared to the first quarter, while our average realizations were 13% higher.

Speaker Change: This relative difference was largely due to the length of our order files, which results in a lag effect for OSB realizations. Our production and sales volumes and unit manufacturing costs were comparable to the first quarter, and fiber costs improved slightly.

David M. Wold: Our production and sales volumes and unit manufacturing costs were comparable to the first quarter, and fiber costs improved slightly. Engineered wood products adjusted EBITDA increased by $6 million compared to the first quarter. Given solid single-family construction activity, the EWP market experienced a slight seasonal improvement in demand at the outset of the second quarter before stabilizing into the summer months. As a result, our sales volumes were higher across all products in the second quarter, and sales realizations were comparable for most.

Speaker Change: Engineered wood products suggested EBITDA increased by six million dollars compared to the first quarter.

Speaker Change: Given solid single-family construction activity, the EWP market experienced a slight seasonal improvement in demand at the outset of the second quarter before stabilizing into the summer months.

Speaker Change: As a result, our sales volumes were higher across all products in the second quarter, and sales realizations were comparable for most.

David M. Wold: Unit manufacturing costs improved sequentially, and raw material costs moved lower for solid section products but higher for I-Joyce, primarily related to OSB web stock. In distribution, Adjusted EBITDA decreased by $2 million compared to the first quarter, as lower commodity margins offset higher sales. With that, I'll turn the call over to Davey to discuss some financial items in our third quarter. Thank you, Devin. And good morning, everyone.

Speaker Change: Unit manufacturing costs improved sequentially, and raw material costs moved lower for solid section products, but higher for I-Joyce, primarily related to OSB webstock.

Speaker Change: In distribution, Adjusted EBITDA decreased by $2 million compared to the first quarter, as lower commodity margins offset higher sales volumes.

Devi: With that, I'll turn the call over to Devi to discuss some financial items and our third quarter outlook.

David M. Wold: I'll be covering key financial items and second quarter financial performance before moving into our third quarter outlook. We ended the quarter with $1 billion in cash, with approximately $200 million earmarked for the remainder of the Timberland acquisitions we announced yesterday. Our balance sheet, liquidity position, and financial flexibility remain exceptionally strong, and we are well positioned to navigate a range of market conditions. In the second quarter, we generated $432 million of cash from operations, and capital expenditures were $91 million.

Davey: Thank you Devin. And good morning everyone. I'll be covering key financial items and second quarter financial performance before moving into our third quarter outlook.

Devi: I'll begin with key financial items, which are summarized on page 16.

Devi: We ended the quarter with $1 billion of cash, with approximately $200 million earmarked for the remainder of the Timberland acquisitions we announced yesterday.

Devi: Our balance sheet, liquidity position, and financial flexibility remain exceptionally strong, and we are well positioned to navigate a range of market conditions.

Devi: In the second quarter, we generated $432 million of cash from operations, and capital expenditures were $91 million.

David M. Wold: We returned $146 million to shareholders through the payment of our quarterly base dividend, which was increased in the first quarter by 5.3% to $0.20 per share. In addition, we returned $50 million to shareholders through share repurchase activity in the second quarter. These shares were repurchased at an average price of $29.96, and as of quarter end, we had completed approximately $850 million of repurchase under our $1 billion authorization. Looking forward, we'll continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value.

Devi: We returned $146 million to shareholders through the payment of our quarterly-based dividend, which was increased in the first quarter by 5.3% to $0.20 per share. In addition, we returned $50 million to shareholders through share repurchase activity in the second quarter.

Devi: These shares were repurchased at an average price of $29.96, and as of quarter end, we had completed approximately $850 million of repurchase under our $1 billion authorization.

Devi: Looking forward, we'll continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value.

David M. Wold: Second quarter results for our unallocated items are summarized on page 15. Adjusted EBITDA for this segment increased by $6 million compared to the first quarter, primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key Outlook items for the third quarter are presented on page 19. For our Timberlands business, we expect third quarter earnings and adjusted EBITDA to be approximately $20 to $30 million lower than the second quarter of 2024, largely driven by lower sales volumes and realizations in the West. For context,

Devi: Second quarter results for our unallocated items are summarized on page 15.

Devi: Adjusted EBITDA for this segment increased by $6 million compared to the first quarter. Primarily attributable to changes in intersegment profit elimination and LIFO.

Devi: Looking forward, key Outlook items for the third quarter are presented on page 19.

Devi: In our Timberlands business, we expect third quarter earnings in adjusted EBITDA will be approximately $20 to $30 million lower than the second quarter of 2024, largely driven by lower sales volumes and realizations in the West.

David M. Wold: Results for our Timberlands business are generally at their lowest level in the third quarter, given seasonal dynamics. Turning to our Western Timberland operations, We expect domestic log demand and pricing to face downward pressure in the third quarter as mills continue to carry elevated log inventories and navigate a challenging lumber market. As a result, our domestic sales realizations are expected to be moderately lower compared to the second quarter. Our fee harvest volumes will be slightly lower, as we have made the seasonal transition into higher elevation operations, which generally have lower productivity. Forestry and road costs are expected to be seasonally higher in the third quarter, and per unit log and haul costs are expected to be lower, moving to the export market.

Devi: For context,

Devi: Results for our Timberlands business are generally at their lowest level in the third quarter given seasonal dynamics.

Devi: Turning to our Western Timberland operations.

Devi: We expect domestic log demand and pricing to face downward pressure in the third quarter as mills continue to carry elevated log inventories and navigate a challenging lumber market.

Devi: As a result, our domestic sales realizations are expected to be moderately lower compared to the second quarter. Our fee harvest volumes will be slightly lower, as we have made the seasonal transition into higher elevation operations, which generally have lower productivity.

Devi: Forestry and road costs are expected to be seasonally higher in the third quarter and per unit log and haul costs are expected to be lower.

David M. Wold: In Japan, we anticipate continued steady demand from our customers in the third quarter. As a result, our sales volumes are expected to be comparable to the second quarter. That said, we anticipate a moderate decrease in our average sales realizations given ongoing consumption headwinds in the Japanese log market and the effects of a strengthening yen against the dollar. In China, log demand is expected to moderate in the third quarter in response to lower consumption levels and an increase in log inventories at the port.

Devi: Moving to the export markets.

Devi: In Japan, we anticipate continued steady demand from our customers in the third quarter.

Devi: As a result, our sales volumes are expected to be comparable to the second quarter.

Devi: That said, we anticipate a moderate decrease in our average sales realizations given ongoing consumption headwinds in the Japanese log market and the effects of a strengthening yen against the dollar.

Devi: In China, log demand is expected to moderate in the third quarter, in response to lower consumption levels and an increase of log inventories at the ports. As a result, our sales volumes to China are expected to be lower compared to the second quarter, and our average sales realizations are expected to decrease slightly.

David M. Wold: As a result, our sales volumes to China are expected to be lower compared to the second quarter, and our average sales realizations are expected to decrease slightly. In the south, we expect saw log markets to moderate somewhat in the third quarter, as log supply remains ample and mills further adjust to lower pricing and takeaway of lumber. In contrast, southern fiber markets are expected to remain stable, with slight upside as the quarter progresses.

Devi: In the south, we expect saw log markets to moderate somewhat in the third quarter, as log supply remains ample and mills further adjust to lower pricing and takeaway of lumber. In contrast, southern fiber markets are expected to remain stable, with slight upside as the quarter progresses.

David M. Wold: On balance, takeaway for our logs is expected to remain steady given our delivered programs across the region. As a result, we expect our sales realizations will be comparable to the second quarter. Given favorable weather conditions in the third quarter, we anticipate our fee harvest volumes will be moderately higher, per unit log and haul costs are expected to be comparable, and forestry and road costs are expected to be seasonally higher. In the north, our feed harvest volumes are expected to be significantly higher compared to the second quarter, as we have fully transitioned from spring breakup conditions, and our sales realizations are expected to be moderately lower due to mix.

Devi: On balance, takeaway for our logs is expected to remain steady given our delivered programs across the region.

Devi: As a result, we expect our sales realizations will be comparable to the second quarter.

Devi: Given favorable weather conditions in the third quarter, we anticipate our feed harvest volumes will be moderately higher.

Devi: Per unit log and haul costs are expected to be comparable, and forestry and road costs are expected to be seasonally higher.

Devi: In the north, our feed harvest volumes are expected to be significantly higher compared to the second quarter, as we have fully transitioned from spring breakup conditions, and our sales realizations are expected to be moderately lower due to mix.

David M. Wold: Turning to our Real Estate, Energy, and Natural Resources segment, real estate markets have remained solid year-to-date, and we have capitalized on steady demand and pricing for HBU properties. As a result, we are increasing our guidance for full year 2024 adjusted EBITDA to approximately $330 million, $10 million higher than prior guidance. We continue to expect basis as a percentage of real estate sales to be 35 to 45% for the year, and we remain on track for a year over year increase in contributions from our natural climate solutions business as we continue to advance toward our 2025 target.

Devi: Turning to our real estate, energy, and natural resources segment, real estate markets have remained solid year to date and we have capitalized on steady demand and pricing for HBU properties.

Devi: As a result, we are increasing our guidance for full year 2024 adjusted EBITDA to approximately $330 million, $10 million higher than prior guidance.

Devi: We continue to expect basis as a percentage of real estate sales to be 35 to 45 percent for the year. And we remain on track for a year-over-year increase in contributions from our Natural Climate Solutions business as we continue to advance toward our 2025 target.

David M. Wold: For the third quarter, we expect earnings will be approximately $10 million lower and adjusted EBITDA will be approximately $30 million lower than the second quarter due to the timing and mix of real estate sales. For our wood product segment, we expect third-quarter earnings before special items and adjusted EBITDA will be lower compared to the second quarter, excluding the effects of changes in average sales realizations for lumber and OSB. Benchmark prices for lumber and OSB have been fairly stable in July after decreasing for most of the second quarter.

Devi: For the third quarter, we expect earnings will be approximately $10 million lower and adjusted EBITDA will be approximately $30 million lower than the second quarter.

Devi: due to the timing and mix of real estate sales.

Devi: For our wood product segment, we expect third quarter earnings before special items and adjusted EBITDA will be lower compared to the second quarter, excluding the effects of changes in average sales realizations for lumber and OSB.

Devi: Benchmark prices for lumber and OSB have been fairly stable in July after decreasing for most of the second quarter.

David M. Wold: For lumber, buyers remain reluctant to build inventories, and supply continues to outpace demand. For OSB, supply and demand are currently more balanced, yet buyer sentiment has turned more cautious as we've transitioned beyond the spring building season. As shown on page 20, our current and quarter-to-date average sales realizations for lumber are moderately lower than the second quarter average. For OSB, our current and quarter-to-date average sales realizations are significantly lower than the second quarter average.

Devi: For lumber, buyers remain reluctant to build inventories, and supply continues to outpace demand.

Devi: For OSB, supply and demand are currently more balanced, yet buyer sentiment has turned more cautious as we've transitioned beyond the spring building season.

Speaker Change: As shown on page 20, our current and quarter-to-date average sales realizations for lumber are moderately lower than the second quarter average. For OSB, our current and quarter-to-date average sales realizations are significantly lower than the second quarter average.

David M. Wold: For our lumber business, as Devin mentioned, we expect to reduce lumber production by 5-10% in the third quarter, inclusive of the new burn curtailment. As a result, we anticipate lower sales volumes and higher unit manufacturing costs compared to the second quarter. Our log costs are expected to be slightly lower. For our OSB business, we expect lower production volumes and moderately higher unit manufacturing costs due to planned annual maintenance outages that are typical in the third quarter. However, we anticipate our sales volumes to be comparable. However, our fiber costs are expected to be slightly higher in the third quarter, primarily in Canada.

Devi: For our lumber business, as Devin mentioned, we expect to reduce lumber production by 5 to 10% in the third quarter, inclusive of the new burn curtailment. As a result, we anticipate lower sales volumes and higher unit manufacturing costs compared to the second quarter. Our log costs are expected to be slightly lower.

Speaker Change: For our OSB business, we expect lower production volumes and moderately higher unit manufacturing costs due to planned annual maintenance outages that are typical in the third quarter. However, we anticipate our sales volumes to be comparable.

Speaker Change: Our fiber costs are expected to be slightly higher in the third quarter, primarily in Canada.

David M. Wold: In our engineered wood products business, we continue to see steady demand for our products, given the solid single-family construction act. As a result, we expect our sales volumes to be comparable to the second quarter. We anticipate moderately lower sales realizations, primarily for plywood and MDF products. Raw material costs are expected to be lower in the third quarter, primarily for OSB webstock.

Speaker Change: In our engineered wood products business, we continue to see steady demand for our products given solid single-family construction activity.

Speaker Change: As a result, we expect our sales volumes to be comparable to the second quarter. We anticipate moderately lower sales realizations, primarily for plywood and MDF products.

Speaker Change: Raw material costs are expected to be lower in the third quarter, primarily for OSB webstock.

David M. Wold: For our distribution business, we expect adjusted EBITDA to be slightly lower compared to the second quarter due to a decrease in commodity realization. With that, I'll now turn the call back to Devin and look forward to your questions. Thanks, Davey.

Speaker Change: For our distribution business, we expect adjusted EBITDA to be slightly lower compared to the second quarter due to a decrease in commodity realizations.

Speaker Change: With that, I'll now turn the call back to Devin and look forward to your questions.

Devin W. Stockfish: Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel market. Starting with how, Despite a softer-than-expected spring building season, our macro view on the housing market is largely unchanged from the last quarter. The single-family segment is holding up reasonably well, hovering around a million units year-to-date.

Devin W. Stockfish: Thanks, Davey. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets.

Devin W. Stockfish: Starting with housing. Despite a softer-than-expected spring building season, our macro view on the housing market is largely unchanged from the last quarter.

Speaker Change: The single-family segment is holding up reasonably well, hovering around a million units year-to-date.

Devin W. Stockfish: And now withstanding elevated mortgage interest rates, single-family construction activity continues to be supported by healthy underlying demand for housing, a limited inventory of existing homes on the market, and actions taken by the larger public home builders to offset affordability challenges. In contrast, the multifamily segment has been more challenged, given the significant amount of new supply entering the market this year, on top of elevated supply in 2023, and the impact of higher rates on new projects.

Speaker Change: And notwithstanding elevated mortgage interest rates, single-family construction activity continues to be supported by healthy underlying demand for housing, a limited inventory of existing homes on the market, and actions taken by the larger public home builders to offset affordability challenges.

Speaker Change: In contrast, the multifamily segment has been more challenged, given the significant amount of new supply entering the market this year, on top of elevated supply in 2023, and the impact of higher rates on new projects.

Devin W. Stockfish: Moving into the second half of 2024, we're still expecting solid single-family building activity with potential upside if mortgage rates come down as the year progresses. And that's consistent with what we're hearing from our home building consultants. In contrast, we expect multifamily to remain soft through year end and into 2025. Longer term, our view on housing fundamentals continues to be favorable, supported by strong demographic trends and a vastly underbuilt housing supply. Turning to the repair and remodel market, activity has been softer year to date, particularly in the do-it-yourself sector. However, the professional segment is still holding up relatively well. To a certain extent, persistent inflationary pressures are weighing on consumer sentiment and spending.

Speaker Change: Moving into the second half of 2024, we're still expecting solid single-family billing activity, with potential upside if mortgage rates come down as the year progresses.

Speaker Change: And that's consistent with what we're hearing from our home building customers.

Speaker Change: In contrast, we expect multifamily to remain soft through year-end and into 2025.

Speaker Change: Longer term, our view on housing fundamentals continues to be favorable, supported by strong demographic trends and a vastly underbuilt housing stock.

Speaker Change: Turning to the repair and remodel market, activity has been softer year-to-date, particularly in the do-it-yourself segment.

Speaker Change: However, the professional segment is still holding up relatively well.

Speaker Change: To a certain extent, persistent inflationary pressures are weighing on consumer sentiment and spending. We're also seeing some near-term headwinds from fewer people buying and selling homes in the current environment.

Devin W. Stockfish: We're also seeing some near-term headwinds from fewer people buying and selling homes in the current environment. But as we think about the back half of 2024, we are expecting fairly steady repair and remodel activity, albeit at levels below the last several years, and would expect demand to increase when interest rates move lower and consumer sentiment improves. And, longer term, many of the key drivers supporting solid repair and remodel activity remain intact, including favorable home equity levels and an aging housing stock.

Speaker Change: But as we think about the back half of 2024, we are expecting fairly steady repair and remodel activity, albeit at levels below the last several years, and would expect demand to increase when interest rates move lower and consumer sentiment improves.

Speaker Change: In longer term, many of the key drivers supporting solid repair and remodel activity remain intact, including favorable home equity levels and an aging housing stock.

Devin W. Stockfish: In closing, our teams delivered solid operating performance in the second quarter, and we continue to make meaningful progress on multi-year growth targets to enhance our Timberlands portfolio and advance our natural climate solutions business. Although near-term market conditions have moderated, we maintain a constructive, longer-term outlook for the demand fundamentals that support growth in housing, repair and remodel, and natural climate solutions. And with our unmatched portfolio of assets, our strong balance sheet, and a disciplined approach to capital allocation, we're well positioned to execute against our strategy and navigate a range of market conditions.

Speaker Change: So, in closing, our teams delivered solid operating performance in the second quarter, and we continue to make meaningful progress on multi-year growth targets to enhance our Timberlands portfolio and advance our natural climate solutions business.

Speaker Change: Although near-term market conditions have moderated, we maintain a constructive, longer-term outlook for the demand fundamentals that support growth in housing, repair and remodel, and natural climate solutions.

Speaker Change: And with our unmatched portfolio of assets, our strong balance sheet, and disciplined approach to capital allocation, we're well positioned to execute against our strategy and navigate a range of market conditions.

Devin W. Stockfish: We remain relentlessly focused on operational excellence and innovation and are committed to serving our customers and delivering superior long-term value for our shareholders. So with that, I think we can open it up to questions. Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star 2 if you'd like to withdraw your question.

Speaker Change: We remain relentlessly focused on operational excellence and innovation and are committed to serving our customers and delivering superior long-term value for our shareholders.

Speaker Change: So with that, I think we can open it up for questions.

Speaker Change: Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Our first question comes from Susan Maklari with Goldman Sachs. Please proceed with your question. Thank you. Good morning, everybody. Good morning.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Speaker Change: One moment, please, while we poll for questions.

Speaker Change: Our first question comes from Susan Maklari with Goldman Sachs. Please proceed with your question.

Susan Marie Maklari: Thank you. Good morning, everybody.

Susan Marie Maklari: My first question is on wood products. You know, you mentioned that you were taking that reduction in capacity in the third quarter. Can you talk a bit more about how you arrived at that five to 10% range? What would take us to the lower end of that versus the higher end of that range? And how do you think about positioning the operations, just given the changes in the competitive landscape more broadly? You know, we've been hearing smaller players have more staying power this cycle.

Susan Marie Maklari: Morning. Morning to you.

Susan Marie Maklari: Good morning. My first question is on wood products. You mentioned that you're taking that reduction in capacity in the third quarter. Can you talk a bit more about how you arrived at that 5% to 10% range? What would take us to the lower end of that versus the higher end of that range? And how do you think about positioning the operations just given the changes in the competitive landscape more broadly? We've been hearing smaller players have more staying power this cycle. And does that require you to take different actions today than perhaps you would in the past? How do you think about positioning the business for the near term as well as the longer term? And I guess maybe what would you need to see to take more actions there?

Susan Marie Maklari: And does that require you to take different actions today than perhaps you would in the past? How do you think about positioning the business for the near term as well as the longer term? And maybe what would you need to see to take more action?

Devin W. Stockfish: Yeah, well, maybe I'll answer your second question first and then get back to how we got to the five to ten percent. You know, as we look at the lumber business, and this is frankly true for all of our businesses. You know, one of the things that we've really been focused on over the last several years is really aligning our businesses to the cyclical nature of our industry. And so what does that mean?

Speaker Change: Yeah well maybe I'll answer your second question first and then get back to how we we got to the five to ten percent. You know as we look at the lumber business and this is frankly true for all of our businesses

Speaker Change: You know, one of the things that we've really been focused on over the last several years is really aligning our businesses for the cyclical nature of our industry. And so what does that mean? Well, it means

Devin W. Stockfish: Well, it means, you know, strengthening the balance sheet, which we've done a tremendous amount of work on that very strong balance sheet. But it's really focused on making sure that, you know, your operations are low cost and can weather these dips that you see from time to time in these markets. And we've been really focused on that with all of the OPEX work that we've done. I think you can see that in our relative operating performance, you know, industry-leading margins across all of our businesses. And we're very focused on that in good times and in more challenges.

Speaker Change: Strengthening the balance sheet, which we've done a tremendous amount of work on that, very strong balance sheet.

Speaker Change: But it's really focused on making sure that, you know, your operations are low cost and can weather these dips that you see from time to time in these markets. And we've been really focused on that with all of the OPEX work that we've done.

Speaker Change: I think you can see that in our relative operating performance, industry leading margins across all of our businesses.

Devin W. Stockfish: And that way, you don't have to take such dramatic action when you see some of these more challenging markets. So, you know, that's what we're focused on all the time, whether lumber prices are high or low, because I think that's the way that you win in commodity markets. And, you know, as we see the market today, obviously, particularly lumber, it's a little bit more challenged with the pullback that we've seen on multifamily and repair and remodel. That's created an imbalance in supply and demand in the market.

Speaker Change: And we're very focused on that in good times and in more challenging times. And that way, you don't have to take as dramatic action when you see some of these more challenging markets like we're seeing in Loma.

Speaker Change: Transcribed by https://otter.ai

Speaker Change: And, you know, as we see the market today, obviously in particularly lumber, it's a little bit more challenged.

Devin W. Stockfish: And so you're seeing that in the pricing environment. The 5% to 10%, that's really us looking out at the market. We're always looking to balance our supply with our customer demand. We look at the integrated nature of our model to see where we have opportunities to create value and where we need to dial back a little bit. So as we looked into the third quarter, obviously, the New Bern mill had some unique situations there just because of the cost structure at that mill.

Speaker Change: Our supply with our customer demand, we look at the integrated nature of our model to see where, where do we have opportunities to create value? And where do we need to dial back a little bit. So as we looked into the third quarter,

Speaker Change: Obviously, the New Bern mill had some unique situation there just because of the cost structure at that mill and the size. But outside of that, it's really just trying to balance the demand from our customers maintaining the right inventory levels.

Devin W. Stockfish: But outside of that, it's really just trying to balance the demand from our customers, maintaining the right image, and really seeking to drive the most earnings that we can in this current environment. I will say, you know, it's important to remember that we're at a price right now that, you know, is essentially making most of the market underwater. That's not going to last forever.

Speaker Change: and really seeking to drive the most earnings that we can in this current environment.

Speaker Change: I will say, you know, it's important to remember, you know, we're at a price right now that, you know, is essentially making most of the market underwater. That's not going to last forever. At some point, you are going to see more action taken. Prices will come up, and then we'll be back in a more sustainable place for lumber.

Devin W. Stockfish: At some point, you're going to see more action, prices will come up, and then we'll be back in a more sustainable. That's very helpful, Devin. And then maybe turning to Timberlands, you know, obviously you've got this nice deal that's coming together, part of it in the second quarter, the remaining piece in the back half of this year. As you continue to make those investments and you get closer to that billion-dollar target by the end of next year for Timberlands, how do you think about helping investors appreciate the inherent value in these deals and the potential for the upside in returns that you can realize over time as some of these alternative opportunities come together?

Speaker Change: Okay. That's very helpful, Devin. And then maybe turning to Timberlands.

Speaker Change: You know, obviously, you've got this nice deal that's coming together, part of it in the second quarter, the remaining piece in the back half of this year. As you continue to make those investments and you get closer to that billion-dollar target by the end of next year in Timberlands, how do you think about helping investors appreciate the inherent value in these deals and the potential for the upside in returns as you can realize over time as some of these alternative opportunities come together, and perhaps even relative to alternative uses of your cash, whether it's investing in organic growth or shareholder returns, just any thoughts around that?

Devin W. Stockfish: And, you know, perhaps even relative to alternative uses of your cash, whether it's investing in organic growth or shareholder returns, just any thoughts around that? Yeah, you know, maybe I'll take a crack. And Davey, you can come in if I miss anything here.

Devin W. Stockfish: You know, first of all, I would just say we're really excited about these Alabama transactions. You know, this is an opportunity to pick up some very high-quality timber lenses, as we mentioned in the release. When we look across the entirety of our southern portfolio from a cash flow per acre standpoint, really, it's going to be, you know, really at the top of our ownership. So really pleased to get that, you know, as we think about demonstrating and highlighting the value of our underlying timberlands, I think you're, you know, you're going to look at a couple of different things.

Speaker Change: Yeah, you know, maybe I'll take a crack, and Davey, you can come in if I miss anything here. You know, first of all, I would just say we're really excited about these Alabama transactions. You know, this is an opportunity to pick up some very high-quality timber lenses, as we mentioned.

Davey: In the release, really, when we look across the entirety of our southern portfolio from a cash flow per acre standpoint, really,

Speaker Change: It's going to be, you know, really in at the top of our our ownership. So really pleased to get that, you know, as we think about Demonstrating and highlighting the value of our underlying timberlands. I think you're you know

Devin W. Stockfish: Number one, you know, we're going to continue to get investors out into the timberlands. We did that last year, and I think that was a good opportunity for people to see on the ground just the quality of the asset.

Speaker Change: You're going to look at a couple of different things. Number one, you know, we're going to continue to get investors.

Devin W. Stockfish: I do think, you know, as we continue to get deeper into this natural climate solutions journey, and you start to see some of the work that we've really been putting in over the last few years, this is going to start coming to fruition in the years to come. And I think that will be a great way to highlight some of this alternative value. And, you know, I'll just use solar as an example. That's been an area that's been particularly attractive. You know, that's a nice, healthy uplift over timberland values. And, you know, we've already got agreements signed on over 130,000 acres.

Speaker Change: out into the Timberlands. We did that last year. I think that was a good opportunity for people to see on the ground just the quality of the asset.

Speaker Change: I do think, you know, as we continue to get deeper into this natural climate solutions journey and you start to see some of the work that we've really been putting effort in over the last few years, this is going to start coming to fruition in the years to come, and I think that will be a great way to highlight

Speaker Change: some of this alternative value. And, you know, I'll just use solar as an example. That's been an area that's been particularly attractive. You know, that's a nice, healthy uplift over timberland values. And, you know, we've already got agreements signed up on over 130,000 acres.

Devin W. Stockfish: So we need that, you know, we need that solar capacity to be installed and come to fruition, and you're going to start seeing that cash flow, you know, hitting the P&L over time. And that'll be, you know, a way that we can really demonstrate the uplift from all of this work on alternative values. But it's an important part of, you know, what we need to do to really educate our investment community on the value opportunity.

Speaker Change: So we need that, you know, we need that solar capacity to be installed and come to fruition and you're going to start seeing that cash flow.

Speaker Change: hitting the P&L over time, and that'll be a way that we can really demonstrate the uplift from all of this work on alternative values. But it's an important part of what we need to do to really educate our investment community on the value opportunity within this portfolio.

David M. Wold: Yeah, and I would just add, Sue, I think this really just demonstrates the beauty of our flexible cash return framework as we think about all the options that are available to us. You know, we're continuing to, of course, provide our base dividend to investors, but we're also able to invest in our business and complete attractive share repurchase activity through the cycle when others may not be in position to do so. So when markets inevitably improve, we'll be well positioned to take advantage of that position.

Speaker Change: Yeah, and I would just add, Sue, I think this really just demonstrates the beauty of our flexible cash return framework as we think about all the options that are available to us. You know, we're continuing to, of course,

Sue: Provide our base dividend to investors, but we're also able to invest in our business

David M. Wold: So we can continue to evaluate all the options that are available to us and ultimately allocate our capital in the way that creates the most value for shareholders. Okay, thank you both for your color, and good luck.

Sue: Yeah, okay. Thank you both for the color and good luck.

Susan Marie Maklari: Thank you. Our next question is from George Staphos with Bank of America. Please proceed with your question. Hi. Thanks, everyone. Good morning. Hi Devin. Hi David. Can you guys hear me okay?

Speaker Change: Thank you.

Speaker Change: Our next question is from George Staphos with Bank of America. Please proceed with your question.

George Leon Staphos: Hi George. Yes. Thanks so much. First of all, with Timberlands and the Outlook, it sounded like the larger amount of downward pressure is coming from the West. If we think about the key export markets, China, Japan, and domestic markets, and then think about shipments and realizations, or costs for that matter, within that grid, where would you have us think about where you're seeing the most cost for that sequential downtick in timber EBITDA?

George Leon Staphos: Hi. Thanks, everyone. Good morning. Hi, Devin and Davey. Can you guys hear me okay?

Speaker Change: Yeah.

George Leon Staphos: Okay, thanks so much. So, I guess, first of all, with Timberlands and the Outlook...

Speaker Change: It sounded like...

Speaker Change: The larger amount of downward pressure is coming from the west.

Speaker Change: If we think about the key export markets, China and Japan, and domestic markets, and then think about shipments,

Speaker Change: and realizations or costs for that matter.

Speaker Change: within that grid.

Speaker Change: Where would you have us think about where you're saying...

Speaker Change: The most cost for that sequential downtick and timber EBITDA.

George Leon Staphos: Are you talking about the cost side or the realization side? Well, I'm talking about EBITDA. We're expecting EBITDA to decline. So if I think about your markets and realizations and costs or shipments, where is most of that pressure coming from, if you understand my question? Yeah, I understand it.

Speaker Change: Are you talking on the cost side or the realization side, George?

George Leon Staphos: Well, I'm talking about EBITDA. We're expecting EBITDA to decline. So if I think about your markets and realizations and costs or shipments, where's most of that pressure?

George Leon Staphos: coming from if you get my question. Yeah, I get you. It's mostly on the price side, you know, and the dynamic that we have at play right now in the West, I mean, it continues to be a very tensioned market.

Devin W. Stockfish: It's mostly on the price side. You know, and the dynamic that we have at play right now in the West, I mean, it continues to be a very tight market. And under most circumstances, you're going to see pretty strong log pricing in the West, and we've seen that over the years. The challenge that we have at the moment is with lumber prices where they are, we're just kind of bumping up against the ceiling where mills can still make money, and frankly, I think a lot of them are not currently.

George Leon Staphos: And under most circumstances, you're going to see pretty strong log pricing in the West. And we've seen that over the years. The challenge that we have at the moment is...

George Leon Staphos: With lumber prices where they are, we're just...

George Leon Staphos: kind of bumping up against the ceiling where mills can still make money. And frankly, I think a lot of them are not currently. And so what that's doing is.

Devin W. Stockfish: And so what that's doing is, you know, it's causing the mills to run at reduced capacities across the West. And so that is, you know, really reducing the amount of takeaway. Now, we're still moving volume because we have a strong customer base, but our ability to raise prices in this environment is pretty challenged. And, you know, when you look at Japanese pricing, which is, you know, kind of the second most important thing here, that typically tracks what's going on in the domestic market.

George Leon Staphos: You know, it's causing the mills to run at reduced postures.

George Leon Staphos: across the West, and so that is, you know, really reducing the amount of takeaway. Now, we're still moving the volume.

George Leon Staphos: And, you know, when you look at the Japan pricing, which is, you know, kind of second most important here, that typically tracks what's going on in the domestic market. You always get a premium to domestic prices, but those two are correlated.

Devin W. Stockfish: You always get a premium over domestic prices, but those two are correlated. So the ability to really raise prices in Japan is somewhat limited both by the domestic dynamic and also, as Davey mentioned in his script, the challenges with the yen right now are affecting that. Thanks, Devin.

George Leon Staphos: And so the ability to really raise prices in Japan is somewhat limited both by the domestic dynamic, but also.

George Leon Staphos: As Davey mentioned in his script, the challenges with the yen right now are making that a little bit tougher as well. So, it's really on the price side as much as anything. That's what's going on with the EBITDA in the West.

George Leon Staphos: Next question. If we think about lumber markets, and we move to the south, and I forget the precise amount of board feet that were added in the industry over the last five years, you know, if you had a figure that was top of mind, it would be helpful. What do you think the industry operating rates are within the south for lumber? Recognizing that it's tough to call, not a monolithic market.

George Leon Staphos: Thanks, Devin. Next question. If we think about lumber markets...

Speaker Change: And we move to the south. And I forget the precise amount of board feet that was added in the industry over the last five years. You know, if you had a figure that was top of mind, it would be helpful. What do you think?

Speaker Change: Right now, industry operating rates are, within the South, in lumber, are recognizing, tough to call, not a monolithic market, you know, we're running five days, seven days, but

Devin W. Stockfish: You know, we're running five days, seven days, but there's a lot of capacity that was added in converting that was the hope that would ultimately drive higher timber prices over time. Right now, however, it doesn't look like lumber is being demanded at the rate that capacity came in. What do you think the imbalance is in the South right now in terms of lumber? Yeah, I mean, there have been several billion board feet that have been added over the last several years.

Speaker Change: There's a lot of capacity that was added in converting that was the hope that would ultimately drive higher timber pricing over time Right now it doesn't look like lumber is being demanded at the rate that capacity came in What do you think that imbalances in the South right now in terms of lumber?

Speaker Change: Yeah, I mean there have been several billion board feet that have been added over the last several years. I would just note when you look at capacity across North America as a whole, it's been pretty stable over the last several years.

Devin W. Stockfish: I would just note, when you look at capacity across North America as a whole, it's been pretty stable over the last few years. To your specific question around production, I think what we're seeing, and again, it's hard to say for sure, but certainly from our log customer standpoint, yeah, we're definitely seeing reduced production across the US South. And by the way, that's true in the South for southern yellow pine.

Speaker Change: But to your specific question around production,

Speaker Change: You know, I think what we're seeing, and again, it's hard to say for sure, but certainly from our log customer standpoint, we're definitely seeing reduced production across the U.S. South. And by the way, that's true.

Speaker Change: in the Northwest, in this true and British Columbia, I believe, as well.

Speaker Change: It's hard to mention it just because we don't have that level of insight into our competitors' operating rates, but it's certainly down.

Speaker Change: relative to where it would be in a normalized condition.

Speaker Change: You know, I would say, you know, the two things from a overall supply-demand dynamic I think that are important to remember, too, in the South are...

Speaker Change: You know, number one, treated lumber is a pretty big market in the south for southern yellow pine.

Devin W. Stockfish: That's probably been down mid to high single digits this year, from the best we can tell. And then multifamily, just because there is a lot of multifamily activity that's been going on that uses southern yellow pine, that obviously has been down quite a bit this year. So I think the combination of that, gradually. Capacity coming in to the south, as well as those two components being down, has really put some pressure on Southern Yellow Pine.

Speaker Change: That's probably been down mid to high single digits this year from best we can tell.

Speaker Change: And then multifamily, just because there is a lot of multifamily activity that's been going on.

Speaker Change: that uses southern yellow pine. That obviously has been down quite a bit this year. So I think the combination of that incremental capacity coming in to the south, as well as those two components being down, has really put some pressure on southern yellow pine. Now, I will say just

Devin W. Stockfish: Now, I will say, just again, over time, what's going to happen is you're going to continue to see SPF coming out of this market. And you've seen a lot of rationalization over the last few years. And what's going on in the market today is Southern Yellow Pine is just kind of pushing into some of those markets that have historically been SPF, but that's going to take a little time to fully play out. No, that's helpful.

Speaker Change: Again over time what's going to happen is you're going to continue to see SPF coming out of the

Speaker Change: The market, and you've seen a lot of rationalization over the last few years. And what's going on in the market today is Southern Yellow Pine is just kind of pushing into some of those markets that have historically been SPF, but that's going to take a little time to fully play out. Right.

George Leon Staphos: Last question for me; I'll turn it over to you. Recognizing you're not going to make changes to capital allocation based on a quarter or two, you shouldn't. Where you sit here today, do you still feel comfortable about the dividend growth outlook that you've talked about over the years, the 5%? And how does the acquired Timberland now help you keep up that dividend growth or, in total, allow more optionality in your capital allocation? Thanks, guys. Good luck in the quarterfinals. Yeah, thanks, George.

Speaker Change: No, that's helpful. Last question for me, I'll turn it over.

Speaker Change: recognizing you're not going to make changes on capital allocation.

Speaker Change: Based on a quarter or two, you shouldn't, you know, where you sit here today Do you still feel comfortable about the dividend growth outlook?

Speaker Change: that you've talked about over the years, the 5%. And how does the acquired Timberland now help you keep up that dividend growth or in total allow more optionality in your capital allocation? Thanks guys, good luck in the quarter.

David M. Wold: I mean, obviously, the dividend is a board decision, but the ability to increase that base dividend is supported by ongoing increases in our sustainable cash flow generation. So to your point, those Timberland acquisitions we announced yesterday, the growth in the natural climate solutions business, all of those things help support our ongoing cash flow generation. And so that's ultimately what's going to support that growth in the dividend over time. But I'd also point out that it's not just those things.

Speaker Change: Yeah, thanks, George. I mean, obviously, the dividend's a board decision, but the ability to increase that base dividend is supported by ongoing increases.

Speaker Change: to our sustainable cash flow generation. So to your point, those Timberland acquisitions we announced yesterday, the growth in the natural climate solutions business, all of those things help support our ongoing cash flow generation.

David M. Wold: We also have improvements we've made over time in our capital structure, debt paydown, refinancing, the share repurchase, of course, helps contribute towards that, as does OPEX and innovation, the things that we're doing every single day to help make sure we have the right cost structure across our business. I'd say we've modeled a number of different scenarios and feel very confident in our ability to increase our base dividend, even in challenging market conditions. Okay. Thanks, David. I'll turn it over to you.

Speaker Change: And so that's ultimately what's going to support that growth in the dividend over time. But I'd also point out it's not just those things. We also have improvements we've made over time in our capital structure, debt paydown, refinancing.

Speaker Change: The share repurchase, of course, helps contribute towards that, as does OPEX and innovation, the things that we're doing every single day to help make sure we have the right cost structure across our business. I'd say we've modeled a number of different scenarios and feel very confident in our ability to increase our base dividend, even in challenging market conditions.

Speaker Change: Okay. Thanks, David. I'll turn it over. Thanks, Devin. Thanks, George.

George Leon Staphos: Thanks, Devin. Thanks, George. Our next question comes from Amir Patel with CIBC Capital Markets. Please proceed with your question. Hi, good morning, George.

Speaker Change: Our next question comes from Amir Patel with CIBC Capital Markets. Please proceed with your question.

Hamir Patel: In your recent response, you highlighted the treated market down, I think you said mid to high single digits. So in that R&R channel, do you have a sense as to how much maybe the DIY component is down? Because I think you've mentioned that it's faring worse than the broader market. Yeah, I mean, it's probably down in a similar range.

Hamir Patel: Hi, good morning.

Hamir Patel: In your recent response, you highlighted the treated market down, I think you said mid to high single digits. So in that R&R channel, do you have a sense as to how much maybe the DIY component is down? Because I think you've mentioned that's faring worse than the broader market.

Devin W. Stockfish: You know, as you know, it's hard to get really tight numbers in the repair and remodel market. So you kind of have to piece it together from our different customers and some other anecdotal evidence, but that's kind of where we're thinking mid to high single on the DIY. Fair enough.

Speaker Change: Yeah, I mean, it's probably down in a similar range, you know, as you know, it's it's hard to get really tight numbers in the repair and remodel market, so you kind of have to piece it together from our different customers and some other anecdotal, but, but that's kind of where we're thinking mid to high single on the DIY side.

Hamir Patel: Then, Devin, are you able to share your operating rates in the quarter for the various wood products? Yeah, so Q2 for lumber, we were kind of in the low 80% range for OSB, call it mid 90s, and for EWP, low 80. That was a great two-cut. Thanks, that's helpful. And the last question I had was, for the latest timberland acquisitions in Alabama, I appreciate the disclosures there on the eBit that you expect from timber sales, but would you see additional natural climate solutions revenues from the acreage you acquired? Yeah, of course, Amir.

Devin W. Stockfish: Fair enough. Devin, are you able to share your operating rates in the quarter for the various wood products businesses?

Devin W. Stockfish: Yeah so Q2 for lumber we were kind of in the low 80% range for OSB call it mid 90s and for EWP low 80s.

Speaker Change: That was super great, too.

Speaker Change: for teaching you that. Thanks. That's helpful. And just the last question I had was for the latest Timberland acquisitions in Alabama.

Speaker Change: Appreciate the disclosures there on the EBITDA you expect from timber sales, but would you see additional natural climate solutions revenues of the acreage you acquired?

Devin W. Stockfish: We, you know, are pretty limited in terms of what we're underwriting today in terms of that upside over time. But as we've seen in the transactions that we've acquired in the Carolinas and Mississippi and other spots over the last few years, we continue to see a lot more opportunities than we had originally anticipated as we bring those into our portfolio. And so certainly that's true in the natural climate solutions business, but it's also true as we think about the synergies that we identify in terms of putting them into our operating footprint and really just running those Timberlands over time. Fair enough, but that's all I had. I'll turn it over to you.

Hamir Patel: Yeah, of course, Amir. We, you know, it's pretty limited in terms of what we're underwriting today in terms of that upside over time, but as we've seen in the transactions that we've acquired in the Carolinas

Speaker Change: and Mississippi and other spots over the last few years, we continue to see a lot more opportunities than we had originally anticipated as we bring those into our portfolio. And so certainly that's true on the natural climate solutions business, but it's also true as we think about the synergies that we identify in terms of putting them into our operating footprint and really just.

Speaker Change: just running those Timberlands over time.

Speaker Change: It's fair enough, but that's all I had. I'll turn it over. Thanks, Deb.

Hamir Patel: Thanks, Devin. Thank you. Our next question comes from Kurt Yinger with D.A. Davidson.

Deb: Thank you.

Speaker Change: Our next question comes from Kurt Yinger with D.A. Davidson. Please proceed with your question.

Kurt Willem Yinger: Please proceed with your question. Great, thanks, and good morning, everyone. I just wanted to start off on Timberland.

Kurt Willem Yinger: Given the capital you've deployed there and hopefully the fact that we're at a bottom in terms of the lumber pricing cycle, how much confidence do you have that harvest contributions and cash flow can start to show some sustainable improvements over the next two to three years? Excluding price, what other levers do you think are going to be most important in driving that for Weyerhaeuser? Yeah, I'd say a couple things, and I'm going to differentiate here between the West and the South.

Kurt Willem Yinger: Great, thanks and good morning everyone.

Kurt Willem Yinger: I just wanted to start off on Timberland. I guess given kind of the capital you've deployed there and hopefully the fact that we're at kind of a bottom in terms of the lumber pricing cycle, how much confidence do you have that harvest contributions and cashflow can start to show?

Speaker Change: Yeah, I'd say a couple things, and I'm going to differentiate here between the West and the South.

Devin W. Stockfish: You know, in the West right now, obviously, realizations are down relative to where they've been over the last several years. In a normalized lumber environment, I would expect higher log realizations in the West. So we still feel good about the overall dynamic for pricing in the West outside of these unique circumstances that we're in right now. So, you know, you should see, you know, a nice pickup in log realizations out of the West. In the south, we have been adding timberland here over the last several years as part of our billion-dollar program, and you're going to start seeing that reflected in harvest volume. That's a component.

Speaker Change: In the West right now, obviously, realizations are down relative to where they've been over the last several years. In a normalized lumber environment, I would expect

Speaker Change: higher log realizations in the West. So we still feel good about the overall dynamic for pricing in the West outside of these unique circumstances that we're in right now in the lumber.

Speaker Change: So, you know, you should see, you know, a nice pickup in log realizations out of the West when things normalize. In the South, you know, we have been adding timberlands here over the last several years as part of our billion-dollar program.

Speaker Change: program and you're going to start seeing that reflected in harvest volumes in the years to come.

Devin W. Stockfish: We do think, again, outside of the situation that we're in today where lumber markets are challenged, in those geographies where we've seen new capacity come in, we do expect to see log prices go up over time. We're also very focused, as we've talked about before, on growing our export business out of the U.S. South. And, you know, it's still a small component right now, but I'm pretty excited about some of the opportunities in India and Vietnam. And I think we're really looking to grow that over time, which is a big component. And then again, you know, just the natural climate solutions.

Speaker Change: [inaudible]

Speaker Change: We're also very focused, as we've talked about before,

Speaker Change: And, you know, it's still a small component right now, but I'm pretty excited about some of the opportunities in India and Vietnam, and I think we're really looking to grow that over time, which is a component. And then again, you know, just the natural climate solutions piece.

Kurt Willem Yinger: You know, I think as you look out over the next 5, 10, 15 years, one of the things you're really going to see is that the alternative values that are inherent in a timber portfolio are going to start materializing in a much greater way. And, you know, whether that's solar, wind, carbon, carbon capture and storage, real estate development, mitigation, banking, conservation, there are a lot of different things that you can do on a land base like ours.

Speaker Change: I think as you look out over the next 5, 10, 15 years, one of the things you're really going to see

Speaker Change: is the alternative values that are inherent in a timber portfolio are going to start materializing in a much greater way and you know whether that's

Speaker Change: Solar, Wind, Carbon, Carbon Capture and Storage, Real Estate Development.

Speaker Change: Mitigation, banking, conservation. There are a lot of different things that you can do on a land base like ours. We've got a whole team that's really focused on identifying and capturing that value. We're still in the early stages, but you're going to really start to see that materialize in a more meaningful way in the years to come.

Kurt Willem Yinger: We've got a whole team that's really focused on identifying and capturing that value. We're still in the early stages, but you're going to really start to see that materialize in a more meaningful way in the years to come. So that's, you know, when we look out into the future, obviously, we're going to continue to focus on having the lowest log and haul costs we do today. And we will, I think, in the future, because we're super focused on it.

Speaker Change: And so that's, you know, when we look out into the future, obviously, we're going to continue to focus on having the lowest log and haul costs we do today, and we will, I think, in the future, because we're super focused on it. I think we'll see some upside on log prices.

Kurt Willem Yinger: I think we'll see some upside on log prices, but we're also very focused on creating alternative values off the land base. So that's what gives us confidence that, you know, this program to acquire Timberlands is going to develop nicely and create a lot of value for our stakeholders. Okay, thanks for that. And then, in terms of EWP, I mean, it was pretty encouraging to see I-Joyce and Solid Section pricing hold firm. How would you kind of describe the competitive environment out there?

Speaker Change: [inaudible]

Speaker Change: Got it. Okay, thanks for that. And then...

Speaker Change: In terms of EWP, I mean, it was...

Speaker Change: Pretty encouraging to see iJoyst and SolidSection pricing hold firm. How would you kind of describe the competitive environment out there? And and how would you sort of characterize pricing risk if we were to see single-family starts?

Devin W. Stockfish: And how would you sort of characterize pricing risk if we were to see single-family starts kind of sequentially soften a bit further, just given what we've seen in the last Yeah, I mean, you know, as you say, this is a product line that's primarily focused on single-family homes. And so that's, It's held up reasonably well, and that's given us the ability to continue to move product and keep That's our expectation, by and large, for Q3 as well. But, if single-family fell off dramatically, would we see some additional price pressure for EAWP? Of course, but that's not our base case.

Speaker Change: Yeah, I mean, you know, as you say, this is a product line that's primarily focused on single family and so that's

Speaker Change: You know, that's held up reasonably well, and that's given us the ability to continue to move product and keep prices relatively steady, and that's our expectation by and large for Q3 as well.

Speaker Change: You know, look, if single-family fell off dramatically, would we see some additional price pressure for EAWP? Of course, but that's not our base case. You know, we think that single-family is going to hold up reasonably well.

Devin W. Stockfish: We think that the single family is going to hold up reasonably well. It's a competitive marketplace. We've got some solid competitors. They make a nice product as well, but I think the TrustJoyce brand does carry a premium in the market.

Speaker Change: It's a competitive marketplace. We've got some solid competitors. They make a nice product as well, but I think the Trust Joyce brand does carry a premium in the market. We do a lot in terms of customer support to make sure that we are taking care of our customers. We think

Devin W. Stockfish: We do a lot in terms of customer support to make sure that we are taking care of our customers in a unique way that provides us with a competitive advantage. I think we'll fare well, regardless of what's going on in the market, but as long as single-family housing holds up, I think we should be just fine from an EWP perspective. Got it. OK. Well, I appreciate all the details. I'll turn it over to you. All right, thank you. Thanks, Kurt.

Speaker Change: in a unique way that provides us with a competitive advantage. And so, I think we'll fare well regardless of what's going on in the market. But as long as single family housing holds up, I think we should be just fine from an EWP standpoint.

Speaker Change: Got it. OK. Well, appreciate all the details. I'll turn it over.

Kurt Willem Yinger: Our next question comes from Mike Roxland with Truist Securities. Please proceed with your question. Thank you, Devin, Davey, Andy, and Kara for taking my questions, and congratulations on a good quarter despite the back...

Speaker Change: All right. Thank you.

Speaker Change: Our next question comes from Mike Roxland with Truist Securities. Please proceed with your question.

Michael Andrew Roxland: Thank you, Devin, Davey, Andy, and Kara for taking my questions and congrats on a good quarter despite the backdrop.

Michael Andrew Roxland: Thank you. Um, Devin, just one question on the weakness of housing. I mean, how much of the weakness do you think relates to regional and smaller builders who don't have the wherewithal of the larger builders to buy down rates or offer other incentives? Yeah, I mean, I think that's certainly a component. And there's no question we have seen a bifurcated market with interest rates being where they are. The ability for bigger builders to buy down rates is a meaningful competitive advantage in this market.

Speaker Change: Thank you.

Michael Andrew Roxland: Devin, just one question on the weakness in housing, how much of the weakness that we're seeing in housing starts do you think relates to regional and smaller builders who don't have the wherewithal of the larger builders to buy down rates or offer other incentives?

Michael Andrew Roxland: So yeah, I think that certainly impacted overall new home construction activity. However, I don't think it's one for one in terms of, you know, for every house that a small builder doesn't build, it just doesn't get built because the big, you know, big builders are just taking market share.

Devin W. Stockfish: Yeah, I mean, I think that's certainly a component, and there's no question we have seen a bifurcated market with interest rates being where they are.

Devin W. Stockfish: Ability for the bigger builders to buy down rates is a meaningful competitive advantage in this market, so

Speaker Change: Yeah, I think that certainly impacted overall new home construction activity. However, I don't think it's one-for-one in terms of, you know, for every house that a small builder doesn't build, it just doesn't get built because

Devin W. Stockfish: And you can certainly see that over the last few years. Now, the good news, I think, is as rates come down and as those smaller builders are again able to, you know, compete on a little bit more equal footing, I think that is another increment that can come back into play. Gotcha. Got it. Okay. And then just on EWP.

Speaker Change: The big builders are just taking market share. And you can certainly see that over the last few years.

Speaker Change: Now, the good news, I think, is as rates come down and as those smaller builders are again able to, you know, compete on a little bit more equal footing, I think that is another increment that can come back into the market.

Speaker Change: Gotcha, got it, okay, and then just on EWP...

Michael Andrew Roxland: You mentioned the operating rate being in the low 80s for 2Q. If I think it was in the high 70s for 1Q, I think you had some mill reliability issues last quarter. Were those addressed in 2Q?

Speaker Change: You mentioned the operating rate being the low 80s for 2Q. I think it was in the high 70s for 1Q. I think you had some mill reliability issues last quarter. Were those addressed in 2Q? And where do you think the operating rate will be in EWP for 3Q?

Devin W. Stockfish: And where do you think the operating rate will be in EWP for 3Q? And just lastly, EWP, if trends continue the way they are in terms of single families holding their own, when do you think an inflection point can be reached in EWP pricing? Could that be 3Q, it's late 3Q, 4Q, what do you think needs to get us over the hurdle to actually see prices inflect higher? Thanks very much

Speaker Change: And just lastly, to EWP, if trends continue the way they are in terms of single-family holding its own...

Speaker Change: When do you think an inflection point can be reached in EWP pricing? Could that be late 3Q, 4Q? What do you think needs to get us over the hurdle to actually see prices inflect higher? Thanks very much. Yeah.

Michael Andrew Roxland: Yeah. Well, you know, in terms of operating rates, in Q1, there was a little bit of a reliability issue, some of that was weather-related, but it was pretty minor in the grand scheme of things.

Speaker Change: Well, you know in terms of operating rates, you know in Q1 It was you know, there was a little bit of a reliability issue. Some of that was weather related It was pretty minor in the grand scheme of things

Devin W. Stockfish: You know, right now, we are operating at kind of that low 80%. That's more or less what we're expecting for Q3 as well. You know, we can dial that up a little bit if markets improve, but we're really just trying to kind of keep that production in line with what we see as customer demand. So this is the rate we're going to be running at here until we see a meaningful pickup in activity.

Speaker Change: You know, right now, we are operating, you know, at kind of that

Speaker Change: Low 80% that's that's more or less what we're expecting for q3 as well

Speaker Change: You know, we can dial that up a little bit if markets improve, but we're really just trying to kind of...

Speaker Change: keep that production in line with what we see as customer demand. So

Speaker Change: This is the rate we're going to be running at here until we see a meaningful pick up in activity. In terms of what's the inflection point, we're going to need to see a little bit more housing activity. If we can get up to 1.1 or north of that on the single-family side, I think...

Devin W. Stockfish: You know, in terms of what's the inflection point, you know, we're going to need a little bit more housing activity. You know, if we can get, you know, up to 1.1 or north of that on the single family side, you know, I think it doesn't take a whole lot to see the EWP market tension go up. So you don't need all that much more.

Speaker Change: It doesn't take a whole lot to see the EWP market tension up. So, you don't need all that much more, but again, you know, even in this current environment, you know, we can, I think, do pretty well in this EWP business. It's important to remember, you know,

Michael Andrew Roxland: But again, you know, even in this current environment, we can, I think, do pretty well in this EWP business. It's important to remember, you know, obviously we've seen prices come down a little bit from the pandemic highs, but when you look at where EWP pricing is relative to history, it's still very strong. Yep, I would agree with that. Thanks very much and good luck in the second one. All right, thank you.

Speaker Change: Obviously, we've seen prices come down a little bit from the pandemic highs, but when you look at where EWP pricing is relative to history, it's still very strong.

Speaker Change: Yep, would agree with that. Thanks very much and good luck in the second half.

Ketan Mamtora: Our next question is from Ketan Matora with BMO Capital Marks. Please proceed with your question. Thank you, and good morning, Devin.

Speaker Change: Alright, thank you.

Speaker Change: Our next question is from Ketan Mamtora with BMO Capital Markets.

Speaker Change: Please proceed with your question.

Ketan Mamtora: You know, I want to start with lumber, and look, I mean, clearly, Weyerhaeuser has made a lot of progress towards its, you know, black-at-the-bottom, you know, efforts, but, you know, EBITDA in the last three quarters has been, you know, kind of negative, so I'm just curious, you know, as we look at, you know, sort of back half and to your comments around, you know, demand being on the softer side, especially for R&R, I'm just curious, you know, why do you think a more decisive kind of action towards production curtailments is not warranted given the market backdrop? Yeah, well, a couple of things. Good question.

Ketan Mamtora: Thank you and good morning Devin, Devi, you know I want to start with lumber and look I mean clearly Weyerhaeuser has made a lot of progress towards it you know black at the bottom you know effort

Speaker Change: But, you know, EBITDA in the last three quarters has been, you know, kind of negative.

Speaker Change: So I'm just curious, you know, as we look at, you know, sort of back half and to your comments around, you know, demand being on the softer side, especially for R&R, I'm just curious, you know, why do you think a more decisive kind of action towards production curtailments is not warranted given the market backdrop?

Devin W. Stockfish: So a couple of things I'd note, you know. First of all, when we talk about black at the bottom, it is important to note that our wood product segment as a whole certainly has been black at the bottom. But with respect to lumber specifically, no question, this has been a very challenging pricing environment. Recently, you know, we've seen lumber prices at multi-year lows.

Speaker Change: Yeah, well a couple things, good question, so a couple things I'd note, you know first of all when we talk about black at the bottom it is important to note that our wood product segment as a whole certainly has been black at the bottom, but with respect to lumber specifically

Speaker Change: You know, no question. This has been a very challenging pricing environment recently, you know, we've seen lumber prices at multi-year lows

Speaker Change: And this has, you know, been a challenge for the lumber industry as a whole.

Speaker Change: I would say, you know, that's particularly true for our Northwest and British Columbia operations where...

Speaker Change: You know, even though we do have low cost mills, the log costs have remained elevated, you know, relative to the lower lumber price.

Speaker Change: [inaudible]

Devin W. Stockfish: And this has been a challenge for the lumber industry as a whole. I would say, you know, that's particularly true for our Northwest and British Columbia operations where, you know, even though we do have low-cost mills, the log costs have remained elevated, you know, relative to the lower lumber prices. But let's just say a few things for context when we think about what's going on. So, you know, first.

Devin W. Stockfish: Our mill set overall is positioned very well on the cost curve. And you can see that I think in our relative performance, even, you know, obviously, we're not pleased with where EBITDA has been in lumber, but, relative to the rest of the industry, I think we've demonstrated where we sit on the cost. Second, I think we can and should be black at the bottom, even at these prices in our southern operations and in Alberta.

Speaker Change: Our mill set, overall, is positioned very well on the cost curve, and you can see that, I think, in our relative performance, even, you know, obviously, we're not pleased with where EBITDA has been in lumber, but relatively, the rest of the industry, I think we've demonstrated, you know, where we sit on the cost curve.

Speaker Change: Second, I think we can and should be black at the bottom, even at these prices in our southern operations and in Alberta.

Devin W. Stockfish: And I think, look, it's important to remember that, you know, pricing is not going to stay at levels where much of the industry is underwater forever. And so we're ultimately going to see a pickup in pricing for lumber, at which point, you know, certainly we'll be black in the bottom, back in the black as a system. But in the interim, we're going to keep focusing on costs and OPEX and running our operations efficiently to navigate the market dip and overcome some of these headwinds.

Speaker Change: And I think, look, it's important to remember that, you know, pricing is not going to stay at levels where much of the industry is underwater forever. And so we're ultimately going to see

Speaker Change: A pickup in pricing for lumber, at which point, you know, certainly we'll be black in the bottom, back in the black as a system. But in the interim,

Speaker Change: We're going to keep focusing on cost and OPEX and running our operations efficiencies efficiently to navigate the market dip and overcome some of these headwinds. In terms of our operating posture, as we said, we're going to be down 5 to 10 percent.

Devin W. Stockfish: In terms of, you know, our operating posture, as we said, we're going to be down 5 to 10 percent. That's where we think, just with our cost structure, our customer base, where we think that makes sense. And, you know, look, others will make decisions based on their operation and their cost structure. But ultimately, you know, you're not going to sit in a place where, you know, prices are below cash break even for most of the industry. Got it. No, that's a very helpful perspective.

Speaker Change: And that's where we think, just with our cost structure, our customer base.

Speaker Change: where we think that makes sense. And look, others will make decisions based on their operation and their cost structure. But ultimately, you're not going to sit in a place where prices are below cash break even for most of the industry.

Speaker Change: That's a very helpful perspective. Thanks, Devin. I'll jump back in the queue.

Ketan Mamtora: Thanks, Devin. I'll jump back in the queue. All right, thank you. Our next question is from Matthew McKellar with RBC Capital Markets. Please proceed with your question. Hi, good morning.

Speaker Change: Alright, thank you.

Speaker Change: Our next question is from Matthew McKellar with RBC Capital Markets. Please proceed with your question.

Matthew McKellar: Thanks for taking my questions. Just a couple on wood products. Maybe first, can you talk about your expectations for the OSB market for the rest of the year, with some new capacity coming on from a couple of your peers and ramping up the cautious buyer sentiment you noted? I think you also highlighted somewhat elevated inventory levels there. Yeah, so a couple things on that, you know, as we think about Q3 for us, we're expecting it to be essentially comparable to Q2 from a volume standpoint, sales volume standpoint, you know, from a realization standpoint.

Matthew McKellar: Hi, good morning. Thanks for taking my questions. Just a couple on wood products. Maybe first, can you talk about your expectations for the OSB market for the rest of the year?

Speaker Change: With some new capacity coming on from a couple of your peers and ramping up the cautious buyer sentiment you noted. I think you also highlighted somewhat elevated inventory levels there.

Matthew McKellar: You know, we'll see kind of how the quarter progresses, but things feel reasonably steady right now. When you look into Q4, as you mentioned, there is going to be some new capacity coming on. And so, you know, we'll see what that does to the market. But it is important to remember that when new capacity really comes on, it does take a while for them to get really fully into production. So the ramp-up period, you know, will take some time. I'd also note, you know, historically, Q3 and Q4 are times when much of the industry takes some of their annual maintenance downtime.

Speaker Change: Yeah, so a couple things on that, you know, as we think about Q3 for us, we're expecting, you know, essentially comparable to Q2 from a volume standpoint, sales volume standpoint, you know, from a...

Speaker Change: Realization standpoint, you know, we'll see kind of how the quarter progresses but things feel reasonably steady right now.

Speaker Change: When you look into Q4, as you mentioned, there is going to be some new capacity coming on and so, you know, we'll see what that does to the market. It is important to remember, when new capacity really comes on, it does take a while for them to get really fully into production, so the ramp-up period.

Devin W. Stockfish: So that may, you know, mitigate some of that new volume coming to market just from a Q4 standpoint. But overall, if we have more, you know, we have more volume hitting the market, and less demand picks up, that is going to put some downward pressure on price. Now the good news, at least from my standpoint, is that our base case is that rates are going to come down at some point. You know, when you look pretty much everywhere in the U.S. and North America, there are housing shortages everywhere.

Speaker Change: We'll take some time. I'd also note, historically, Q3 and Q4 are times where much of the industry takes some of their annual maintenance downtime, so that may mitigate some of that new volume coming to market, just from a Q4 standpoint.

Speaker Change: But overall, if we have more, you know, we have more volume hitting the market and less demand picks up, that is going to put some downward pressure on pricing.

Speaker Change: Now, the good news, at least from my standpoint, is, you know, our base case is that rates are going to come down at some point.

Speaker Change: You know, when you look pretty much everywhere in the U.S. and North America, there are housing shortages everywhere.

Matthew McKellar: And so, it's really just, you know, and I can't tell you exactly what the mortgage rate needs to be to kind of unleash that level of building activity, but it's going to come at some point, at which point, you know, I think the OSB market is going to need that extra support. So, you know, we'll see. There may be a moment in time where it gets a little out of balance, but over the longer term, you know, I think OSB should be pretty strong. Thanks, that's helpful.

Speaker Change: It's really just, you know, and I can't tell you exactly what the mortgage rate needs to be to kind of unleash that.

Speaker Change: that level of building activity, but it's gonna come at some point. At which point, I think the OSB market is gonna need that extra supply. So we'll see, there may be a moment in time where it gets a little out of balance, but over the longer term, I think OSB should be a pretty strong business.

Devin W. Stockfish: Evan, just switching over to the lumber business. Can you talk about your expectations around the impact of softwood lumber duty cash deposit rates moving higher in August for the Canadian industry? Do you expect that pricing can move higher and offset some of that? Or do you have any expectations around capacity that could come out? Yeah, I mean, obviously, we don't have visibility into our competitors' cost structure.

Speaker Change: Thanks, that's helpful. Evan, just switching over to the lumber business, can you talk about your expectations around the impact?

Speaker Change: of softwood lumber duty cash deposit rates moving higher in August for the Canadian industry. Do you expect that pricing can move higher and offset some of that? Or do you have any expectations around capacity that could come out?

Evan: Yeah, I mean, you know, obviously we don't have visibility into our competitors' cost structure, but, you know, if you raise the duty from 8% to 14%, that's just yet another headwind.

Matthew McKellar: But you know, if you raise the duty from 8% to 14%, that's just yet another headwind for producers that are moving lumber into the US market. So, you know, we'll see what happens in terms of, you know, whether that triggers additional capacity decisions or not. But, you know, directionally, that could ultimately be. Okay, thanks very much. I'll turn it back.

Evan: for producers that are moving lumber into the US market. So, you know, we'll see what what happens in terms of, you know, whether that triggers additional capacity decisions or not. But, you know, directionally, that that could ultimately be helpful.

Evan: But, you know, we'll see.

Speaker Change: Okay, thanks very much. I'll turn it back.

Matthew McKellar: Thanks. Our next question is from Mark Weintraub with Seaport Research, partners. Please proceed with your question. Thank you.

Speaker Change: Thanks.

Speaker Change: Our next question is from Mark Weintraub with Seaport Research Partners. Please proceed with your question.

Mark Adam Weintraub: Just maybe a little bit more on natural climate solutions. So you mentioned 70 solar projects, 130,000 acres. When do those, can you sense when those options expire?

Mark Adam Weintraub: Thank you. Just maybe a little bit more on natural climate solutions.

Mark Adam Weintraub: So, you mentioned 70 solar projects, 130,000 acres.

Devin W. Stockfish: When might you expect to start seeing more cash coming in related to those deals? Yeah, I mean, the nice thing about solar is there's a tremendous amount of demand. The flip side is it takes these solar projects a while to work through the system. So we're going to have solar development start coming online this year. The first one is back half of this year.

Mark Adam Weintraub: Can you give a sense when those options expire, when you might expect you to start seeing more cash coming in related to those deals?

Speaker Change: Yeah, I mean, the nice thing about solar is there's a tremendous amount of demand. The flip side is it takes these solar projects a while to work through the system, so.

Speaker Change: We're going to have solar development start coming online this year. First one is back half of this year, and then you add, you know, call it several a year. And they just continue to build. So the pipeline will grow over time, and you're going to start seeing that cash flow hit.

Devin W. Stockfish: And then you add, you know, call it several a year, and they just continue to build. And so the pipeline will grow over time. And you're going to start seeing that cash flow hit, you know, hit our income statement. But it's, you know, unfortunately, it's slow going just the process to move these things through the pipeline. Okay, and so now we're kind of a couple years into after you provided that $100 million eBit.target for natural climate solutions. How have things played out differently, better, worse than you expected? And maybe start there.

Speaker Change: hit our income statement. But it's, unfortunately, it's slow going, just the process to move these things through the pipeline.

Speaker Change: Okay, and so now we're kind of a couple years into after you're having provided that hundred million dollar EBITDA target for natural climate solutions. How have things played out differently, better, worse than you expected and maybe start there?

Devin W. Stockfish: Yeah, that's a good question. You know, I think when we look at the overall market, I think the opportunity that we see in the future is probably larger than when we first set out that target, which is natural to some extent as these things continue to mature. I think the timeline for several of these different businesses has probably been a little longer than we expected, and that's particularly true around carbon capture and storage.

Speaker Change: Yeah, that's a good question. You know, I think when we look at the overall market, I think the opportunity that we see in the future is probably larger than back when we first set out that target, which is natural to some extent as these things continue to mature.

Speaker Change: I think the timeline on several of these different businesses has probably been a little longer than we expected and that's particularly true

Devin W. Stockfish: I think that's going to be a big business, but the process to get through all of the permitting... That's just taken a little bit longer than we would have expected. I still have a lot of confidence that, ultimately, those are going to be a nice revenue generator. Solar, probably, there's been more demand than we had expected. I think the timeline, unfortunately, hasn't dramatically shortened relative to when we kick this off.

Speaker Change: around carbon capture and storage. I think that's going to be a big business, but the process to get through all of the permitting

Speaker Change: That's just taken a little bit longer than we would have expected. I still have a lot of confidence that ultimately those are going to be a nice revenue generator.

Speaker Change: solar probably there's been more demand than we had expected and I think the timeline unfortunately hasn't

Devin W. Stockfish: And I do think, just from an overall public policy standpoint, we do need to figure out a way to get these solar projects through the pipeline. But the demand level is extremely high, so we feel good about that.

Speaker Change: dramatically shortened relative to when we kick this off and I do think just from an overall public policy standpoint we do need to figure out a way to get these solar projects through the pipeline quicker but the demand level is is extremely high so we feel good about that.

Devin W. Stockfish: I think mitigation banking is another area where we've seen probably a little bit more demand than we had originally anticipated. So that might be a bigger component of that initial 100 million than we originally anticipated. And I think for us, carbon is, you know, we're seeing growing levels of support. You know, we had the Biden administration that came out in support.

Speaker Change: I think mitigation banking is another area where we've seen probably a little bit more demand than we had originally anticipated. So that might be a bigger component of that initial $100 million than we originally anticipated.

Speaker Change: And I think Forrest Carbon is, you know, we're seeing growing levels of support, you know, we had the Biden administration that came out in support.

Devin W. Stockfish: Voluntary Carbon Markets, SBTI came out talking about voluntary credits for scope three emissions, you know, you've seen a variety of common commentary from the environmental community and support. So I feel like that's, you know, that's growing in momentum. And when we talk to customers for forest carbon, there's a significant amount of demand as long as you can get over that credibility hurdle. And I feel like we're making good progress there. So, you know, I think that's another market that we're pretty excited about.

Speaker Change: of Voluntary Carbon Markets, SBTI came out talking about voluntary credits for

Speaker Change: Scope 3 emissions, you know, you've seen a variety of common commentary from the environmental community in support. So I feel like that's...

Speaker Change: You know, that's growing in momentum. And when we talk to customers for Forrest Carbon, there's a significant amount of demand as long as you can get over that credibility hurdle, and I feel like we're making good progress there. So.

Devin W. Stockfish: You're going to really start to see that hit in a more material way next year in terms of the income stream coming off. So overall, there are always puts and takes. Some things are going a little slower, but sitting here today in 2024, I'm pretty optimistic about the overall opportunity set in natural climate solutions. Thanks, Devin, super helpful. Maybe just shifting gears real quick.

Speaker Change: I think that's another market that we're pretty excited about. And you're gonna really start to see that hit in a more material way next year in terms of the income stream coming off of Forest Garden.

Speaker Change: [inaudible]

Mark Adam Weintraub: On OSB, it's kind of interesting, even if I take a look at, you know, current prices, knock off $100 from where they were on average, it still comes out quite a bit higher than where the random length is posting the price. And that's not unusual. Your price has frequently been higher. Not always, but frequently.

Speaker Change: Thanks Devin, super helpful. Maybe just shifting gears real quick, on OSB, it's kind of interesting, even if I take a look at, you know, you're talking about current prices, you know, knock off a hundred bucks from where they were on average, it still comes out quite a bit higher than where the random lengths are.

Speaker Change: is posting the price. And that's not unusual. Your price has frequently been higher. Not always, but frequently. Can you maybe explain why your price is, I don't know if it's just an accounting thing or whether or not it's a mix, or why does your price tend to be higher than what we see in random lengths?

Devin W. Stockfish: Can you maybe explain why your price is, I don't know if it's just an accounting thing, or whether or not it's a mix, or why does your price tend to be higher than what we see in random length? Yeah, I think it's a few things. One, oftentimes, it's going to be the length of the order file. So you're going to have a delay in terms of when those price moves hit our realizations.

Devin W. Stockfish: Number two, we do sell a decent amount of our OSB internally as web stock as part of our iJoy platform, so that flows through at a slightly higher price than, you know, just kind of commodity OSB. And then lastly, we typically have a higher mix of high-value products relative to sheathing, which helps our overall realizations relative to, I think it's really those three.

Speaker Change: Yeah, I think it's a few things, you know. One, oftentimes it's going to be the length of the order file, so you're going to have a delay in terms of when those price moves hit our realizations. Number two, we do sell a decent amount of our OSB internally as web stock as part of our iJoy, so that flows through.

Speaker Change: typically at a little bit higher price than you know just kind of commodity OSB and then lastly we typically have a higher mix of high-value product relative to sheathing which helps our our overall realizations relative to random links

Mark Adam Weintraub: That's helpful. Maybe just relatedly, so when we think about the EWP business, we've got OSB prices coming down, or at least the commodity price is coming down very substantially. Does that flow through into higher margins for your EWP business, or not necessarily as much as you would think? Yeah, absolutely. I mean, that OSB web stock, I mean, typically, because it is all supplied internally, it's on a 13 week rolling average, 13 week rolling average, so it does roll through, but absolutely, that is a tailwind for margins as you see OSB prices come down for the EW. Super. Thanks so much.

Speaker Change: I think it's really those three things typically.

Speaker Change: [inaudible]

Speaker Change: Yeah, absolutely. I mean, that that OSB web stock, I mean, it typically because it is all supplied internally, it's on a 13 week rolling average, 13 week rolling average, so it does roll through but absolutely that that is

Speaker Change: A tailwind for margins as you see OSB prices come down for the EWP business.

Speaker Change: Okay, super. Thanks so much.

Mark Adam Weintraub: Thank you. Our last question is from Anthony Pettinari with Citi. Please proceed with your question. Good morning. Thanks for taking my question. Hey, I just wonder, is there any way to quantify the fixed cost reduction you might see from new burn?

Speaker Change: Thank you.

Speaker Change: Our last question is from Anthony Pettinari with Citi. Please proceed with your question.

Anthony James Pettinari: And then with the outlook for lumber for 3Q, I guess there are a few moving pieces with lower volumes, a little lower log costs, and higher unit manufacturing costs. I mean, if prices kind of stay where they are now through 3Q, would your Womber Ebbidaw maybe be kind of directionally similar to 2Q, or do you think that you could break even with some of the actions you've taken, or just any color? Yeah, Anthony, just starting on the new burn. Again, I'd remind you that that's a relatively small mill, 100 million board feet in capacity.

Anthony James Pettinari: Good morning. Thanks for taking my question. Morning. Hey, I just wonder, is there any way to quantify the fixed cost reduction you might see from New Bern? And then with the outlook for lumber for 3Q, I guess there's a few moving pieces with...

Speaker Change: Lower volumes, a little lower log costs, higher unit manufacturing costs. I mean, if prices kind of stay where they are now through 3Q...

Speaker Change: Would your Womber Ebbidaw maybe be kind of directionally similar to 2Q, or do you think that you could break even with some of the actions you've taken, or just any color you can give there?

Speaker Change #101: Yeah, Anthony, just starting on the new burn, again, I'd remind you that that's relatively small mill, 100 million board feet in capacity, so there are some fixed costs coming out, but it's going to be relatively immaterial in the broader context.

Anthony James Pettinari: So there are some fixed costs coming out, but they're going to be relatively immaterial in the broader context. So that's what I would say there. In regard to lumber as a whole, you know, I think that's probably a fair statement in terms of if pricing holds where it is today, probably relatively comparable. But, of course, I do think that there's some reason to think that prices could come down as the quarter progresses.

Speaker Change: So, that's what I would say there. In regard to lumber as a whole, you know, I think that's probably a fair statement in terms of if pricing holds where it's at today, probably relatively comparable. But of course, I do think that there's some reason to think that prices could come up as the quarter progresses.

Devin W. Stockfish: Okay, that's helpful. I'll turn it over. There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing.

Speaker Change #100: Okay, that's helpful. I'll turn it over. Thank you.

Speaker Change #100: There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments.

Devin W. Stockfish: All right. Well, thanks, everyone, for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day. This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your...

Devin W. Stockfish: Alright, well thanks everyone for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day.

Speaker Change #102: This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.