Q3 2024 Weyerhaeuser Co Earnings Call
Greetings and welcome to the Weyerhaeuser third quarter 2024 earnings Conference call. At this time all participants are in a listen only mode. After the Speakers' remarks, there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad.
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Speaker Change: Minder. This conference is being recorded it is now my pleasure to introduce Andy Taylor, Vice President of Investor Relations. Thank you. Mr. Taylor you may begin.
Thank you Rob good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's third quarter 2024 earnings. This call is being webcast at www Dot Weyerhaeuser Dot 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 press.
Speaker Change: <unk> 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 on the call. This morning are Devin Stockfish, Chief Executive Officer, and David would Chief Financial Officer.
Now I'll turn the call over to Devin Stockfish.
Devin Stockfish: Thanks, Andy.
Devin Stockfish: Everyone. Thank you for joining us yes.
Devin Stockfish: Yesterday, Weyerhaeuser reported third quarter GAAP earnings of $28 million or four cents per diluted share on net sales of $1 $7 billion.
Devin Stockfish: Excluding a special item, we earned $35 million or five cents per diluted share.
Devin Stockfish: Adjusted EBITDA totaled $236 million for the quarter.
Devin Stockfish: Our teams delivered solid operating performance in the third quarter against a challenging market backdrop.
Devin Stockfish: Notwithstanding recent headwinds we remain well positioned in the current environment, given our deeply ingrained opex culture and relative position on the cost curve.
Devin Stockfish: Our balance sheet is strong and we continue to demonstrate the durability of our portfolio and capital allocation framework across market cycles.
Looking forward were optimistic that market conditions will improve into 2025 and maintain a constructive outlook for the longer term demand fundamentals that support growth for our businesses.
Devin Stockfish: Before moving on to our business results I'd like to provide an update on the Alabama timberland acquisitions that we announced in July.
Devin Stockfish: As a reminder, the acquisitions totaled approximately 84000 acres for $244 million and were sourced through multiple transactions the first of which closed in the second quarter.
Devin Stockfish: I'm pleased to report that we completed the remaining transactions in the third quarter and earlier this month.
Devin Stockfish: These acquisitions represent an attractive opportunity to enhance our portfolio with high quality, well managed timberlands to generate solid returns for our shareholders in.
Devin Stockfish: In addition, they demonstrate meaningful progress toward our multi year timberlands growth target, including these transactions, we've deployed approximately $775 million against our target and are on track to reach $1 billion of strategic timberland acquisitions by the end of 2020 five.
Devin Stockfish: Turning now to our third quarter business results I'll begin with timberlands on pages six through nine of our earnings slides.
Devin Stockfish: <unk> contributed $57 million to third quarter earnings adjusted EBITDA was $122 million or $25 million decrease compared to the second quarter, largely driven by lower sales realizations and volumes in the west.
Devin Stockfish: Starting with the western domestic market.
Devin Stockfish: Log pricing face downward pressure in the third quarter as log supply remained ample and mills are those carried elevated log inventories and continued to navigate a very challenging lumber market.
Devin Stockfish: As a result, our average domestic sales realizations decreased compared to the second quarter.
Devin Stockfish: Our fee harvest volumes were moderately lower as we made the seasonal transition into higher elevation and lower productivity harvest operations. Additionally.
Devin Stockfish: Additionally, although wildfire activity was limited in our timberlands dry conditions across the Pacific Northwest resulted in additional operating restrictions in certain areas further reducing our harvest volumes in the third quarter.
Devin Stockfish: For unit log and haul costs, and forestry and road costs decreased compared to the second quarter.
Devin Stockfish: Moving to our western export business, starting with Japan.
Devin Stockfish: Log market softened in the third quarter, given ongoing consumption headwinds in the Japanese housing market and elevated inventories of finished products for our customers.
Devin Stockfish: In addition, there was a significant increase in European lumber imports into Japan. Following the resolution of a labor strike in Finland earlier this year.
This led to increased competition in the Japanese market.
Devin Stockfish: Given this dynamic demand from our strategic customers moderated in the third quarter as a result, our sales volumes and average realizations for export logs to Japan were lower compared to the second quarter.
Devin Stockfish: In China log market showing signs of moderation at the outset of the third quarter in response to lower consumption levels and elevated log inventories at the ports.
Devin Stockfish: As the quarter progressed consumption improve steadily and inventories fell to their lowest levels since January.
Devin Stockfish: On balance log demand was solid from our strategic customers and we shipped more volume to China than our initial plan for the quarter.
Devin Stockfish: That said, our sales volumes and average realizations were lower compared to the second quarter.
Devin Stockfish: Turning to the south.
Devin Stockfish: Adjusted EBITDA for southern Timberlands increased slightly compared to the second quarter Southern saw log markets continued to soften as log supply remained ample and mills further adjusted the lower pricing and takeaway of lumber.
Devin Stockfish: In contrast, southern fiber market, it's regeneracy stable.
Devin Stockfish: On balance takeaway for our logs remained steady given our delivered programs across the region. As a result, our average sales realizations were comparable to the second quarter.
Devin Stockfish: Our fee harvest volumes, and forestry and road costs were lower as multiple tropical weather systems impacted the region in the third quarter.
Devin Stockfish: It's worth noting that while our timberlands were largely and damaged by these storms wetter than normal conditions limited our operating activities in certain geographies.
Devin Stockfish: For unit log and haul costs were comparable to the prior quarter.
Devin Stockfish: In the north adjusted EBITDA decreased slightly compared to the second quarter sales realizations were moderately lower due to mix and fee harvest volumes were significantly higher resulting from the seasonal increase in harvest activity. That's typical in the third quarter.
Devin Stockfish: Turning now to real estate energy and natural resources on pages 10 and 11.
Devin Stockfish: Real estate and Ian are contributed $51 million to third quarter earnings adjusted EBITDA was $77 million or $25 million decrease compared to the second quarter, largely driven by the timing and mix of real estate sales.
It's worth noting that real estate markets have remained solid year to date, and we continue to capitalize on steady demand and pricing for HBU properties with significant premiums to timber value.
Devin Stockfish: I'll now make a few comments on our natural climate solutions business.
Devin Stockfish: We remain on track to receive approval for two forest carbon projects in the U S south in the coming months.
Between the initial credits from these projects in the next issuance from our main pilot project, we expect to generate over 100000 credits.
Devin Stockfish: Looking forward, we have several additional projects in the development pipeline and are encouraged by the increasing demand for high quality credits and growing support for voluntary carbon markets.
Devin Stockfish: Turning to renewables, we continue to see strong demand for large scale solar development and are well positioned to capitalize on this opportunity as markets continue to expand.
Devin Stockfish: In total we signed approximately 70 agreements for potential solar projects, notably we have three solar developments currently under construction one of which is expected to be operational by year end.
Devin Stockfish: Additionally, we are expecting two new wind projects to come online in the coming months, which will increase our wind portfolio from six active sites to eight active sites.
Devin Stockfish: Moving now to wood products on pages 12 through 14.
Devin Stockfish: Excluding a special item wood products contributed $37 million to third quarter earnings adjusted.
Devin Stockfish: EBITDA was $91 million, a $134 million decrease compared to the second quarter, largely driven by lower product pricing, particularly in OSB as well as lower sales volumes and higher unit manufacturing costs across our wood products segment.
Devin Stockfish: Starting with lumber third quarter, adjusted EBITDA was $29 million loss as significant headwinds persisted across the north American market.
Devin Stockfish: Benchmark pricing for lumber reached historically low levels at the outset of the third quarter, particularly in the U S South.
This was driven by several ongoing dynamics, including cautious buyer sentiment ample supply and soft end market demand.
As the quarter progressed supply and demand began trending towards a more balanced state and benchmark pricing improved slightly.
Devin Stockfish: It's worth noting that lumber prices in the U S. South have steadily increased in October as inventories remain lean and buyers navigate supply constraints. Following recent tropical weather events and in response to a series of mill curtailments and closures across the region.
Devin Stockfish: In addition, we've started to see an improvement in repair and remodel demand in the U S South, particularly from the Treater segment.
Devin Stockfish: For our lumber business production volumes decreased in the third quarter as we reduced our operating posture in response to a softer demand environment.
This took place across our mill set and included the previously announced curtailment of our newborn sawmill.
Devin Stockfish: As a result, our sales volumes were moderately lower than the third quarter and unit manufacturing costs were moderately higher.
Devin Stockfish: Our average sales realizations decreased by 4% compared to the second quarter and log costs were slightly lower.
Devin Stockfish: For the fourth quarter, we plan to return our lumber business to a more normal operating posture. We're encouraged by recent improvements in the southern lumber market and given our opex focus and relative position on the cost curve, we're better positioned to operate through the commodity cycle compared to much of the industry.
Devin Stockfish: Turning to OSP.
Third quarter, adjusted EBITDA was $39 million and $83 million decrease compared to the second quarter, primarily due to lower product pricing.
Devin Stockfish: Client demand were relatively balanced across the north American OSB market in the third quarter and benchmark pricing was stable, albeit at a much lower level than our second quarter average.
Devin Stockfish: For our OSB business average sales realizations decreased by 25% compared to the second quarter.
Devin Stockfish: Our sales volumes were moderately lower and unit manufacturing costs were moderately higher due to planned annual maintenance outages that are typical in the third quarter.
Devin Stockfish: Fiber costs were slightly lower in the quarter I would note that we've seen OSB prices trend up in recent weeks and our order files are now extended out through November.
Devin Stockfish: Engineered wood products adjusted EBITDA was $61 million at $31 million decrease compared to the second quarter.
Devin Stockfish: This was largely driven by lower sales volumes and higher unit manufacturing cost as we aligned our production to match customer demand customer demand and to keep inventories at appropriate levels in light of weaker July housing activity.
Devin Stockfish: Notably our average sales realizations for solid section and I joists products were comparable to the second quarter.
Devin Stockfish: Looking forward demand for AWP products will remain closely aligned with new home construction activity, particularly in the single family segment.
Devin Stockfish: Given this dynamic we expect a slightly softer demand environment in the fourth quarter as housing activity typically decreases into the winter months.
That being said, we do have a favorable outlook for housing and AWP demand as we transition into next year's spring building season.
Speaker Change: In distribution adjusted EBITDA decreased by $4 million compared to the second quarter largely due to a decrease in sales volumes and commodity margins with that I'll turn the call over to the baby to discuss some financial items and our fourth quarter outlook.
Speaker Change: Thanks, Devin and good morning, everyone I'll be covering key financial items in third quarter financial performance before moving into our fourth quarter outlook.
Speaker Change: I'll begin with key financial items, which are summarized on page 16.
Speaker Change: We ended the quarter with just under $900 million of cash of which $114 million was earmarked for the final tranche of the Alabama Timberland acquisitions, we closed earlier this month.
Speaker Change: Our balance sheet liquidity position and financial flexibility remains strong.
Speaker Change: In the third quarter, we generated $234 million of cash from operations and capital expenditures were $97 million. We now expect approximately $420 million of capital expenditures in 2024, which is at the lower end of our multiyear targeted range of 420 to 440.
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Speaker Change: It's worth noting that we're always evaluating our capital allocation levers and have the flexibility within our framework to make adjustments in response to market conditions alternative uses of cash and the capacity to successfully execute on our annual Capex program. Importantly, we are committed to investing in our businesses across market cycles.
And are pleased to remain within our multi year capex range. Despite the challenging market conditions in 2024.
Speaker Change: We returned $145 million to shareholders through the payment of our quarterly base dividend and approximately $25 million through share repurchase activity in the third quarter.
Speaker Change: These shares were repurchased at an average price of $30.64 and as of quarter end, we had completed approximately $875 million of repurchase under our $1 billion authorization.
Speaker Change: As demonstrated by the recent timberland transactions the increases to our base dividend, our continued share repurchase activity and our commitment to investing in our businesses, we remain well positioned to navigate a range of market conditions and take advantage of compelling capital allocation opportunities that generate solid returns for shareholders.
Speaker Change: Third quarter results for our unallocated items are summarized on page 15.
Speaker Change: Adjusted EBITDA for this segment increased by $10 million compared to the second quarter, partially attributable to lower corporate function and variable compensation expenses.
Speaker Change: Okay.
Speaker Change: Looking forward key outlook items for the fourth quarter are presented on page 18, and updates to several full year outlook items are presented on page 19.
Speaker Change: In our timberlands business, we expect fourth quarter earnings and adjusted EBITDA to be comparable to the third quarter of 2024.
Speaker Change: Turning to our western Timberlands operations we.
Speaker Change: We expect the domestic log market to be relatively stable in the fourth quarter and anticipate steady demand for our logs as a result pricing for our gray box is expected to be comparable to the third quarter.
Speaker Change: That said, we anticipate a slight decrease in our average domestic sales realizations largely driven by a lower mix of gray box.
Speaker Change: Our sales volumes to domestic customers are expected to increase in the fourth quarter as we reduced shipments to our customers in China.
Speaker Change: Forestry and road costs and per unit log and haul costs are expected to be slightly lower.
Speaker Change: And we anticipate moderately lower fee harvest volumes, given fewer working days in the fourth quarter.
Speaker Change: Moving to the export markets in Japan, we expect log markets to remain soft in the fourth quarter due to ongoing consumption headwinds and elevated inventories of finished products. As a result, we anticipate slightly lower sales volumes compared to the third quarter.
Speaker Change: That said our average sales realizations are expected to be comparable.
Speaker Change: Turning to China, despite ongoing consumption challenges Chinese log markets are expected to be relatively stable in the fourth quarter, and we anticipate steady demand from our strategic customers.
Speaker Change: That said, we anticipate a decrease in sales volumes to China compared to the third quarter as we flex logs to domestic customers are.
Speaker Change: Our average sales realizations are expected to increase slightly.
Speaker Change: In the South we expect stable solid demand in the fourth quarter as mills increase operating rates in response to the recent improvement in lumber pricing.
Speaker Change: Regarding fiber logs supply and demand were relatively balanced at the outset of the fourth quarter.
Speaker Change: That said, we could see an increase in regional supply as logging capacity shifts to fiber salvage activity following hurricane Helene.
Speaker Change: As Devin mentioned, although our timberland sustained minimal damage from the tropical weather systems in the third quarter wet conditions limited our operating activities in certain geographies.
As a result, we now expect our full year fee harvest volumes in the south to be slightly lower than 2023, and we plan to make these volumes up over the next several quarters.
Speaker Change: On that note, we anticipate slightly higher fee harvest volumes in the fourth quarter.
Speaker Change: Our first street and road costs are also expected to increase as some of this activity shifted from the third quarter.
Speaker Change: Our average sales realizations are expected to be comparable to the third quarter and per unit log and haul costs are expected to increase slightly.
Speaker Change: In the north our fee harvest volumes are expected to be moderately higher compared to the third quarter and our sales realizations are expected to be slightly higher due to mix.
Speaker Change: Turning to our real estate energy and natural resources segment.
Real estate markets have remained solid year to date, and we've capitalized on steady demand and pricing for HBU properties.
Speaker Change: As a result, we are increasing our guidance for full year 2024, adjusted EBITDA to approximately $340 million, an increase of $10 million from our prior guidance and a $20 million increase from our initial outlook for the segment.
Speaker Change: We now expect basis as a percentage of real estate sales to be 40% to 45% for the year and we remain on track for a sizeable increase in contributions from our natural climate solutions business as we continue to advance toward our $100 million EBITDA target by year end 2025.
For the fourth quarter, we expect earnings and adjusted EBITDA to be approximately $10 million lower compared to the third quarter due to the timing and mix of real estate sales.
Speaker Change: For our wood products segment, we expect fourth quarter earnings before special items, and adjusted EBITDA to be slightly higher compared to the third quarter. Excluding the effects of changes in average sales realizations for lumber and OSB.
Speaker Change: Benchmark prices for lumber entered the fourth quarter on an upward trajectory as supply and demand have approached a more balanced state for.
Speaker Change: For OSB benchmark prices were stable for the entire third quarter, but have increased into October.
Speaker Change: As shown on page 20, our current in quarter to date average sales realizations for lumber are moderately higher than the third quarter average.
Speaker Change: For OSB are current in quarter to date average sales realizations are slightly lower than the third quarter average largely due to the length of our order files, which result in a lag effect for OSB realizations.
For our lumber business as Devin mentioned, we plan to return to a more normal operating posture in the fourth quarter.
Speaker Change: As a result, we anticipate higher sales volumes and lower unit manufacturing costs, our log costs are expected to be slightly lower than the third quarter.
Speaker Change: For our OSB business, we expect moderately higher sales volumes and moderately lower unit manufacturing costs compared to the third quarter given less downtime for planned annual maintenance our fiber costs are expected to be slightly higher.
Speaker Change: In our engineered wood products business, we continue to anticipate close alignment between product demand in single family homebuilding activity and as Devin mentioned, we expect a slightly softer housing environment in the fourth quarter given seasonal dynamics over the winter months as a result, we anticipate lower sales volumes and realizations compared to the third.
Speaker Change: Third quarter and raw material costs are expected to decrease.
Speaker Change: For our distribution business, we expect adjusted EBITDA to be slightly lower compared to the third quarter, largely driven by seasonally lower sales volumes.
Speaker Change: With that I'll now turn the call back to Devin and look forward to your questions.
Thanks, David before wrapping up this morning, I'll make a few brief comments on the housing and repair and remodel markets starting with housing.
On balance our macro view on the housing market is largely unchanged despite softer than expected activity in July the single family Homebuilding segment has held up reasonably well this year and continues to be supported by healthy underlying demand for housing limited inventory of existing homes on the market and actions taken.
Speaker Change: By the larger public homebuilders to offset affordability challenges.
Speaker Change: In contrast, the multifamily segment remains challenged given excess supply and the impact of higher interest rates on new projects and we expect this dynamic to remain in place into 2025.
Speaker Change: In the near term, we expect single family construction activity to follow a typical seasonal pattern through the winter months and assuming the macro environment and consumer sentiment remained healthy we'd expect a stronger single family building activity in 2025 compared to this year.
That said, although mortgage rates have come down from recent highs the housing market could face some near term choppiness as certain buyers remain on the sidelines in anticipation of lower mortgage rates and improving affordability.
Speaker Change: Regardless our longer term view on housing fundamentals continues to be favorable supported by strong demographic trends and a vastly under build housing stock.
Turning to the repair and remodel market.
Speaker Change: While activity was generally stable in the third quarter repair and remodel demand has been softer this year compared to the last several years largely driven by cautious consumer sentiment and response to invade inflationary pressures and fewer existing home sales and an elevated rate environment.
Speaker Change: In general the Pro segment has outperformed the do it yourself segment in 2024.
Speaker Change: As we enter the fourth quarter, we're encouraged by a recent uptick in demand from our home improvement warehouse customers and from the treater or segment.
Speaker Change: While we do expect a seasonal moderation in repair and remodel activity around the holidays, we're optimistic that demand will recover as 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: <unk>.
Speaker Change: So in closing despite a challenging third quarter, we continue to execute against our strategy and demonstrate the resilience of our people and our portfolio.
Our financial position is strong and our capital allocation framework is both sustainable and appropriate for the cash flows that we generate across market cycles.
Speaker Change: <unk> remained focused on achieving our multi year growth targets delivering peer leading performance, serving our customers and driving long term value for our shareholders and finally, we are encouraged by recent improvements in the lumber market and we're optimistic that we're going to see a stronger demand environment for our products in 2025.
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 one on your telephone keypad.
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Speaker Change: Our first question comes from Susan Mcclary with Goldman Sachs. Please proceed with your question.
Susan Mcclary: Good morning, everyone.
Speaker Change: Good morning, good morning.
Susan Mcclary: The first question is on lumber and focusing in on the improving supply demand dynamics that you talked to you in your comments can you just give us some more color on how youre seeing that building as we think about not just the fourth quarter, but then going into 2025.
Susan Mcclary: Thinking about the ability for yourselves and for the industry in general to respond if we do see that demand recovery coming through over the next couple of quarters. How quickly do you think you'll ramp production and what will that look like across the next several quarters.
Speaker Change: Sure. Good question Sue, Yes, I mean, when we when we look at what's happening in the lumber market right now it's really a combination of two things there's a supply dynamic and there is a demand dynamic I think on the supply side. Obviously this year, we've seen a fairly significant amount of capacity come out of the system much of that you know maybe three.
Susan Mcclary: 5 billion board feet or.
Or somewhere in that that realm, that's coming out either permanently or indefinite curtailments would suggest it's not coming back in the near term. There's also been a lot of softer supply reductions in terms of people dialing back production within their existing mill set so a fairly significant amount of supply has come out of the system I E.
Susan Mcclary: It usually takes a little while from the time an announcement is made until the time that the lumber starts shipping from that mill and I think we're starting to really see the impacts from some of those closures. So that's a component in that comes on top of by the way. Some mill closures that we saw last year in 2023, so it's been a pretty significant period of reduction in capacity.
Susan Mcclary: <unk> on the demand side as we mentioned you know single family housing is holding up reasonably well, we expect that to continue we're encouraged that we're seeing some pickup in demand from the R&R side, we're seeing treater buying activity picking up in and even a little of increased activity from the big box stores. So that's positive.
Susan Mcclary: As we roll into 2025, our expectation is that we're going to see a better housing environment, particularly on the single family side, and we expect R&R to pick up as well and the challenge there from an industry standpoint is.
Susan Mcclary: There's a little bit of latent capacity in terms of maybe people could operate at a slightly higher operating rate, but all of that capacity. That's come out of the system is really not going to come back I think in a in the near term if at all so you know if you get a meaningful uptick in demand I think that put some upward pressure on pricing as we roll into the spring building season next.
Susan Mcclary: Year.
Speaker Change: Okay. That's very helpful color and then maybe focusing on the other side of that which is the cost piece of it can you talk a little bit about the Opex has obviously been very effective here. How are you seeing that coming through over the course of 'twenty five the opportunities there and what that could mean for your margins as things do tighten up.
Speaker Change: Yeah, I mean, clearly the last few years have have been challenging with the inflationary pressures that we've seen and that's not unique to us by the way that's pretty much every industry.
So that's been a headwind no question you know I think we're going to continue to stay focused on cost as we always do we've got a lot of initiatives underway.
Speaker Change: Now, whether it's reliability, whether it's automation, whether it's just pulling controllable costs out of the system. That's something we're working on every day every week every year.
Speaker Change: I think the big opportunity for us as we roll into next year. If we're in a more normalized demand environment and we can ramp our production up to the capacity levels.
Speaker Change: Get the higher operating rates, we get a lot of benefit to unit costs, and so that could be a pretty significant tailwind for us next year in our production environment from an opex standpoint, and a margin standpoint.
Speaker Change: Okay. Thank you for the color and good luck with everything.
Devin Stockfish: Thanks Sue.
Speaker Change: Our next question is from George Staphos with Bank of America. Please proceed with your question.
Hi, Thank you good morning, Thanks for all the detail and hope you can hear me. Okay. Good morning, guys. I guess, we can first perfect first question and recognizing the color you gave on the fourth quarter for timberlands in the west and in particular export markets.
Speaker Change: And there are no guarantees in life, we get it but what are your contacts in the field, saying what are your partners, saying about the outlook for exports.
Speaker Change: In the first half of 'twenty five.
Speaker Change: As we mixed the macro I don't know if there's any trade policy consideration, we need to have but what's your view on on western exports in particular first half.
Speaker Change: Yeah, So I'll speak to Japan, and first you know one of the dynamics. That's at play right now in Japan. As we mentioned there was a pretty significant amount of volume that came into Europe in Q3, and so that put some competitive pressures in that market I do think a lot of that would you know at current pricing in Japan.
Speaker Change: It's probably margin negative so my expectation is youre going to see some of that European flow into Japan dialed back as we get into next year.
And work through some of the existing inventory our customers are.
Speaker Change: Very competitive and I expect that they will go out and regain that market share. So I think next year you know as we think about the first half into Japan that should be solid demand environment there.
Some correlation on the pricing side to what happens with western domestic log markets those things typically move in tandem.
Speaker Change: But our expectation is Japan should be fine as we move into next year I think China is a little bit of a wildcard I mean theres always.
Speaker Change: Demand from our customers for Pacific Northwest logs into China in generally speaking, we have the ability to move more volume into China. If we so desire. It's usually just a question of what does the margin opportunity look like and I think there you know there are some real unknowns as we head into next year, we've obviously seen fiscal policy in China.
Speaker Change: I try to spur the economy they.
Speaker Change: They are making some strides to try to repair the real estate market in China, if that gets legs.
Speaker Change: Could see some upside there and Theres always the question about volume flowing in from New Zealand and Australia and some of these other supply regions I will say in.
Speaker Change: In China, one thing that I do expect to continue to be a tailwind as we've seen the volumes of logs coming in from Europe drop off dramatically as they've worked through that salvage volume. So I don't think it takes a whole lot of pickup in demand for us to see that China market improve but.
Speaker Change: As I say a lot of variables that go into that market.
Speaker Change: Okay I appreciate it so it sounds like with that provides a sounds like it's.
Probably getting better from from second half of the year.
Speaker Change: Into Japan, certainly I wanted.
Speaker Change: Okay. Thank you for that.
Speaker Change: For wood and.
Speaker Change: Mrs.
Speaker Change: Up there with what have you done for me lately right in quotes.
Weyerhaeuser has done a tremendous job on on margins and the lumber business with Opex with black at the bottom. It's a question that comes up periodically.
Speaker Change: Will you be able to if you hold the market constant.
Speaker Change: Can you get to breakeven at EBITDA.
Speaker Change: Whatever program you have in place for Opex and 25.
Speaker Change: Recognizing it's a very challenging market and the like or if there is no improvement hopefully there will be but assuming there is no improvement do we need to resign ourselves to moderate modest EBITDA losses in lumber.
Speaker Change: For the foreseeable future how would you have us think about that.
Speaker Change: Yeah, I mean, I'm certainly a lot more optimistic about 2025 for a couple of reasons first of all I do think the demand environment is going to pick up so that's our house view, but putting that aside you know when you look at our lumber portfolio.
Speaker Change: We are well positioned on the cost curve notwithstanding that this has been one of the most challenging lumber markets. We've seen in a very long time on an inflation adjusted basis. These lumber prices are kind of great recession type dynamic.
Speaker Change: Dynamic right certainly we're not we're not pleased we're not satisfied with losing money in lumber we've got a whole lot of work.
Speaker Change: In place to make sure that we continue to take costs out of the system and we're doing that but what I would say is it's just not sustainable as an industry to have everybody cash flow negative across across the market. So we've seen the results of that with a significant amount of capacity coming out of the system you've seen that just eat.
Speaker Change: Then here very recently, that's that's tightened things up you're seeing prices come up so.
Over the long term, we will make money in lumber I think again, we got to put this in context, the challenging market we've been in.
Speaker Change: It's been difficult, but I think brighter days are ahead, and we will certainly navigate it better than most and I expect our businesses to make money and.
Speaker Change: Frankly earn a profit well above our cost of capital in all of our manufacturing businesses. So that would be my expectations for 2025.
Speaker Change: Hey, George and I'll just add yes go ahead, David George I'd just add this is daily at current lumber prices, we would expect to be EBITDA positive.
Speaker Change: Okay.
Speaker Change: Where prices have gone over the last.
Speaker Change: Understood understood and should we expect OSB kind of flat up based on current prices and EW repeat would be down sequentially <unk> to <unk>. Thank you and I'll turn it over.
Speaker Change: Yeah, I mean, you know obviously, we've seen a pickup in OSB prices here over the last few weeks when you look at our earnings materials, that's not fully reflected in our quarter to date, just because there's a time lag with the length of our order files.
Speaker Change: But if you project that out over the course of the quarter and like I said, our order files him have now pushed out a little bit further than normal for this time of year. So I think directionally, that's positive where were expecting more volume in OSB. Since we don't have annual maintenance outages. So I think directionally, you're right there and similarly on AWP.
Speaker Change: Given our expectations around <unk> around pricing and volume.
Speaker Change: Thank you so much.
Speaker Change: Yes. Thank you.
Speaker Change: Okay.
Speaker Change: Our next question is from Kurt Yinger with D. A Davidson. Please proceed with your question.
Kurt Yinger: Great. Thanks, and good morning, everyone.
Speaker Change: Good morning Debbie.
Kurt Yinger: And then you touched a couple of times on kind of the improved demand in the south specifically from the traders does that improvement Buck typical seasonal trends at this stage and maybe even seen a positive inflection on a year over year basis.
Speaker Change: Secondarily.
Speaker Change: Do you think that's an indication of better take away from the end consumer or perhaps some inventory positioning.
Speaker Change: It looks like attractive price levels.
Speaker Change: Yeah, I mean, you know the historical buying patterns for the treaters it wouldn't be unusual for them to build a little inventory in Q4, if they saw prices hit a point, where they thought that could be advantageous over the last several years I would say buying patterns from treaters, who has been a little different than prior history and so are they.
Speaker Change: Been more opportunistic throughout the year.
Speaker Change: In terms of you know is this building inventory for next year or a pickup in customer demand I suspect, it's probably a little bit of both.
Speaker Change: I do think that we just because we've seen that in a couple of different channels. I think we're seeing a little bit of a pickup in R&R activity right now and so that's I think that's a component as well it's hard to say exactly how much of one versus the other but I think it's a little a bull.
Speaker Change: Got it okay that makes sense.
Speaker Change: And moving to AWP.
Speaker Change: A lot of discussion in the past couple of years around shifts and floor systems I joist versus open Web trust.
Speaker Change: Part of that certainly seemed to stem from availability, but.
If I look at I joist volumes this year, it looks like theyre going to be down about 25% from peak starts will be down maybe mid teens percentage I'm curious how you would reconcile that difference and how you think about AWP demand relative to starts going forward and the potential for maybe some share recapture.
Speaker Change: Okay.
Speaker Change: Yeah, I mean, I think you're exactly right during the peak of the pandemic years, the availability of I joists and engineered wood products in general was pretty stretched and so builders had to switch over to whatever products that they could find to keep building homes my expectation is that ultimate.
Speaker Change: <unk>, we will be able to recapture most of that market from open web. The challenge at present, just has been that lumber prices have been so low that's been a little bit more difficult in today's pricing environment I do think as pricing for lumber hits, a more normalized level.
Speaker Change: That will be a little easier to recapture share and certainly that's our expectation over time.
Speaker Change: Okay, and then just one more quick one on capital returns.
Speaker Change: Year to date base dividends and share repurchases have outpaced F&D and I'm curious how that factors into the thought process or potential for a supplemental dividend in Q1, and how important having at least some level of supplemental dividend is kind of within that variable returns framework that you have.
Speaker Change: Yeah, you bet, Kurt I mean, I would just say we've still got some time left in the year to see how commodity pricing plays out as we mentioned pricing has ticked up here over the past several weeks, particularly southern yellow pine.
Speaker Change: So at this point I would.
Speaker Change: I'd expect we'll be in the ballpark of covering the base dividend with adjusted F. A D. Even if that pricing momentum doesn't continue and so yeah. It's possible that we wouldn't have a substantial amount under our framework above and beyond that but there's nothing in our framework that would preclude us from doing a supplemental dividend above and beyond that 75.
Speaker Change: 80, or even thinking about share repurchase above and beyond that 75 to 80 as we talked about in the past, but regardless of all that I would point out that despite the challenging markets. This is exactly the type of year, we had in mind. When we designed this framework we have been able to be active in share repurchase we've been able to continue to invest in the growth of our.
Speaker Change: Our business both through the timberland acquisitions organic Capex, we've increased the base dividend and ultimately all of those things are going to leave us very well positioned when the market when markets inevitably improve so really to us. It just demonstrates the power of our flexible cash return framework and action and allows us to allocate our cash in a way that creates.
Speaker Change: Most value for shareholders over time.
Speaker Change: Right. Okay makes sense I appreciate the color guys. Thank you.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Anthony Pettinari with Citi. Please proceed with your question.
Anthony Pettinari: Hi, good morning.
Good morning, just following hey, just following up on George's question on Timberlands, you know looking at the outlook for <unk> suggest 24 might end up being kind of one of the lowest EBITDA years for timberland since the Plum Creek merger and I'm. Just wondering you talked about kind of potential improvement drivers next year.
Anthony Pettinari: In the west in export markets I'm, just wondering if you could talk about what youre seeing potential.
Anthony Pettinari: Potentially driving improvement in.
Anthony Pettinari: In the U S south.
Speaker Change: Yeah, I mean, so as we think about the timberlands business as a whole, it's really mostly a function of what's happening with western log prices and.
Speaker Change: It's a really challenging market to drive log prices up even in a tension wood basket when lumber prices are at the levels that they have been most of this year. So I would just say as an outset timberlands as a whole.
Speaker Change: As lumber prices on the West coast improve which we believe they will and they have to some extent already you'll see log prices followed that.
Speaker Change: In the South you know we've had a little less volume this year than we had expected that's largely a function of some weather events.
Speaker Change: About timberlands volume is if you don't get it now you'll always get it later and so we will roll that volume into future quarters.
Speaker Change: We do think that over time in a more normalized environment.
Speaker Change: Many of those markets that have seen additional capacity come in we will get some pricing pressure and we've seen that over the years as the new capacity is rolled into the south.
Speaker Change: We're continuing to look for export opportunities out of the U S. South that should help tension some of those markets as well.
Speaker Change: So you know we're going to continue working at that and ultimately we think over the long term you will see price improvement in the south obviously, that's been slow to come.
Speaker Change: But as a timberlands business more holistically.
I think as you see lumber prices in the west pick up youre going to see log prices in the west returned to a more normalized level.
Speaker Change: Which has a pretty meaningful impact on our overall earnings in the Timberlands segment.
Speaker Change: Okay, that's very helpful.
Speaker Change: And then for the Hurricanes and I'm, sorry, if I missed this but is there sort of an all in estimate on the impact of the hurricanes in terms of tons or EBITDA, or however, you'd kind of measure it.
Speaker Change: And then just piggybacking on that when you see kind.
These hurricanes typically is is demand for lumber OSB your AWP as it is.
Speaker Change: Destroyed deferred maybe some incremental demand has created just how are you kind of characterize the impact.
Yeah, I mean, so first and foremost we were very fortunate because the path of the hurricane really traveled in between a lot of our timberlands. So we didn't really have any meaningful impact in terms of damage to our timberland. So you know the real impact was we weren't able to move.
Speaker Change: As much volume in the south.
Speaker Change: As we had planned and so you know call. It maybe 1%, 2% in terms of volume impact in the quarter in the south much of that frankly was on the fiber side, so not as much of a margin impact as if it was impacting.
Speaker Change: Impacting grade you know the impact on overall market dynamics it really.
Speaker Change: It depends on the specific storm right because as that moves through its going to have some impact on mill operations. So on the demand side. It typically hurts and obviously people are not out building houses.
Speaker Change: During the storm and have to work through some of the you know the wet weather there and now the flip side of that is you also often times see a pick up in wood demand as the reconstruction happens and so it really just depends there are puts and takes on both the demand and the supply side I think in this one at least for us at <unk>.
Speaker Change: Didn't have a meaningful impact on the markets youll see in certain geographies, you'll see a little bit of excess fiber flowing into the market as people that did have damage to their timberlands go out and start that salvage activity that usually hits the fiber market is a little bit heavier than the grade markets. So we may see a little bit of that in Q4, but I'm not.
Speaker Change: Sure that's gonna be material on the whole to us.
Speaker Change: Yeah.
Speaker Change: Okay. That's very helpful I'll turn it over.
Speaker Change: Thanks.
Speaker Change: Our next question comes from Mark Weintraub with Seaport Research Partners. Please proceed with your question.
Mark Weintraub: Thank you since we've covered a lot on wood products in timber I thought I'd ask some NCS questions, maybe starting with <unk>.
Speaker Change: Can you can you give us.
Mark Weintraub: Sense of how much acreage are tied to the three solar development projects that are under construction.
Speaker Change: You know Mark I don't have that at the tip of my fingers I mean, the total.
Speaker Change: Acreage covered by our solar agreements is about 130000 acres I don't have the specifics on these individuals' projects at my fingertips, but we can follow up with you and great and but I really I was trying to get to what type of economics might be forthcoming with the projects under development I know that's something you can speak to.
Speaker Change: Off the cuff.
Yeah, I mean, I'll tell you we're intentionally not getting into the economics of these projects Mark and the reason is we're out signing up new deals every day and we're always trying to improve the economics for new deals and so we're trying to be pretty thoughtful about how much specific information. We gave on these projects I mean, I think overall, if you kind of step.
Speaker Change: Back you know we had in the neighborhood of $10 million of EBITDA coming from our renewables program and that was primarily just the lease payments as people assess these deals and the wind projects. We've got two new wind projects coming online next year, we've got three solar projects that will be online over the next.
Speaker Change: You know call it one of them beyond line here shortly and the other two in the next six to nine months with a whole wave behind that so I mean on balance it's going to pick up over time and it will become a more material component of our overall NCS business.
Right.
Speaker Change: Yeah.
Speaker Change: Any color you can give us on maybe the number of contracts that are options that are expiring in 2025 and does that heightened the possibility that those start moving forward or is that not necessarily the way to think about and solar specifically.
Speaker Change: Yeah, I mean in solar typically you'll have a few that expire every year and we replace those in the pipeline. So what you've seen is you know really over the last several years the number of new agreements that we're signing and putting into the pipeline and far exceeds the numbers that are expiring and so.
Speaker Change: Right now we're somewhere in the neighborhood of 70, Youll see a few roll off but we've got a whole bunch of them in the pipeline for new agreements. So I would expect that number to increase over time.
Speaker Change: Okay. So a lot of demand a lot of activity on the solar side right. So it sounds like though that.
Speaker Change: The hit ratio recognizing you are refilling isn't necessarily super high yet in terms of people actually moving forward as the projects are expiring.
Speaker Change: Yeah, I wouldn't necessarily characterize it in that way just because you know these projects typically take four to five years.
Speaker Change: From the time, you sign up an agreement to the time that it ultimately comes to fruition.
Speaker Change: The industry conversion rates are somewhere around 35% in that general vicinity, I think we're going to be meaningfully higher than that but certainly.
Speaker Change: Certainly not every agreement that you sign up will result in a solar project coming to fruition, but I think we will be on the high end because we're choosing to coordinate.
Speaker Change: Coordinate with partners that have a higher success rate and are a little bigger and more sophisticated in general.
Speaker Change: For color and then lastly, just on CCF.
Any progress on permits any update on.
Speaker Change: The timeframe for how that might be moving forward.
Speaker Change: Yeah, I'd say broadly speaking with with the carbon capture and sequestration. The timelines on these are just they're they're shockingly slow and frankly, the permitting process is just taking a lot longer than anyone had initially expected. So.
Speaker Change: We think about how this is progressing I'm thinking at this point, we're probably looking now at delays between one to two years versus what we had previously thought so where we had originally anticipated seeing injections into 25 or 26, that's probably going to be pushed out a bit.
Speaker Change: We really need to get permitting reform in place to get these projects through the pipeline more quickly, but it is going much slower than we expected that being said, it's still I think the opportunity set there is fairly large and ultimately still have a lot of confidence that these things ultimately come to fruition, but just the timeline is.
Speaker Change: Extended relative to where we had initially thought they would be okay and you mentioned just I'd just add more broadly speaking across these these NCS spaces I mean, while we have had some some expanded timeframes in some circumstances, we're really pleased with the overall progress, we're making towards that 100 million target by the end of.
Speaker Change: <unk> 2025, continuing to work towards that and we may see a little bit more than some of the legacy businesses like mitigation banking and conservation, but really pleased with the longer term trends here in this space.
Speaker Change: Alright, and you you already you've mentioned you got approval on the traditional forest carbon projects and anything else that sort of we should be thinking about in terms of the details.
Speaker Change: <unk> and NCS that are meaningful impactful.
Speaker Change: Yeah, I would just say on the forest carbon specifically I.
Speaker Change: I'm really encouraged by the trajectory that we're seeing there the demand for these projects the high quality projects in particular is really seeing a meaningful uptick and so we've got we've got projects. The three projects are the <unk>.
Speaker Change: And the two in the south that should have approval here. Shortly we've got three or four that are in the pipeline behind that and then a whole bunch more that are in the earlier stages of development. So we're building out a nice pipeline, it's important to remember that.
Speaker Change: With each of these projects there will be an incremental issuance year after year, so like the solar like the wind they build.
Speaker Change: And I think the pricing that we're expecting should be pretty solid.
Speaker Change: And we're seeing a good level of demand from some some high quality customers. So we're feeling pretty good and I think next year, you'll see a pretty meaningful uptick in the forests carbon revenues and EBITDA that will be generating.
Speaker Change: Great and obviously, it's got magnificent cash conversion. So that's all good too. Thanks, so much that's right yep. Thank you.
Speaker Change: Our next question comes from Matthew Mckellar with RBC capital markets. Please proceed with your question.
Matthew Mckellar: Good morning, Thanks for taking my questions first wondering what role do you think European lumber imports play if we see an uptick in lumber demand and pricing in 2025, particularly if European demand remains soft.
Speaker Change: Yeah, I mean, I think that's always a variable you have to take into consideration we've seen that come down pretty meaningfully here over the last you know call. It 18 months, that's largely I think a function just of the pricing dynamic that we've seen in the U S.
Speaker Change: If you have continued softness in Europe.
To the extent that there is a meaningful margin to be achieved that could see an uptick in European supply.
Speaker Change: The one thing, though I would say is if you look at Europe as a whole there are a couple of dynamics that will remain in play first of which is you're certainly not going to see that your that Russian lumber coming into Europe in the near term. So there is a component of supply that's just going to be gone for the foreseeable future and then the other dynamic.
Speaker Change: MC is with all of the salvage activity.
Speaker Change: From the beetle infestation in Central Europe, I mean that salvage wood is is really you know dialing back pretty significantly. So it's not as though theyre going to have really really cheap fiber to convert and send over here. So even in a in an improved.
Pricing environment in the U S I'm not sure you're necessarily going to see the magnitude of European volume coming into the U S that maybe we saw during the pandemic years, but around the margins. It's certainly possible you could see a pick up there.
Speaker Change: And we'll see if that's offset by lower volumes coming in from Canada, given the duty.
Speaker Change: Situation.
Thanks, that's helpful and then just.
Speaker Change: Last for me.
Are you seeing a potential longer term revenue stream opportunity related to lithium mining as it relates to your land in the U S South maybe around Texas, Arkansas, maybe Louisiana in particular.
Speaker Change: If so how would you think how do I think about the potential size and timeline of those opportunities.
Speaker Change: Yeah, I mean, I think at this point are the timing and magnitude are it's a little early.
Speaker Change: To quantify that but.
Speaker Change: If you look at where those big lithium deposits are and you overlay that against our land base. I think you can see there's some pretty significant overlaps. So we do think that is an opportunity and I can say you know we've had some conversations around that but beyond that probably not much else that I think we should share at this <unk>.
Speaker Change: <unk>.
Speaker Change: Okay Fair enough that's all for me. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the Katana Ventura with BMO capital markets. Please proceed with your question.
Speaker Change: Good morning, and thanks for taking my question.
Speaker Change: Maybe to start with on the engineered wood.
Speaker Change: Can you just help me understand a little better in terms of just the sequential pressure in the engineered wood business.
Speaker Change: Given that prices were flat quarter over quarter, and I would imagine some modest benefit.
Speaker Change: Cost side from from lower OSB prices.
Speaker Change: Two or three key.
Speaker Change: Hum.
Key challenges in the quarter.
Speaker Change: Yeah, I mean, it's really volume I mean, if you sort of just at a very high level, we rolled into the quarter with certain expectations around what it was going to happen in the summer building.
Speaker Change: So I would say inventories were maybe a little bit above normal not not significant but a little bit above normal and then you saw July housing market that was pretty weak and so.
Speaker Change: No we dialed back our production.
We have a general philosophy that if there's not a market for the would you know you want to be really thoughtful about keeping production levels up and building up significant inventories because youre going to have to move that which typically comes at a price.
Speaker Change: We were thoughtful to matching our production to the demand environment right. Now obviously housing picked up as the quarter went on but you know as you look about look at the quarter over quarter impact. It was primarily related to just we lowered our production volume, 19% and solid section, 25% in I joist.
Speaker Change: Over the quarter, which obviously comes with some lost volume, but you also have with the lower volume you have higher unit costs, because you're spreading your fixed costs across a lower volume and so really it comes down to just you know we produce less volume given the dynamic in the market now as that picks up we can ramp up production.
Speaker Change: <unk> fairly easily to match the demand environment. Obviously, you know at this point in the year typically you see a little bit of a slowdown in building activity as you get into the colder months and so we're mindful of that.
Speaker Change: But as we think about 2025 and what we think is going to happen with housing. The spring building season, I would fully expect that business to be back on track and reflect kind of what you've seen.
Speaker Change: You know in prior years.
Speaker Change: Got it that's helpful and then.
Speaker Change: Can you walk where you are operating rates and AWP in lumber and OSB in Q3.
Speaker Change: Yeah. So.
Speaker Change: In lumber you were talking somewhere in the mid to high seventies in OSB high Eighty's.
Speaker Change: N E W. P kind of mid sixties.
Speaker Change: Got it Okay and then just one last one from me.
Speaker Change: Anything going on.
Speaker Change: In terms of log exports out of U S doubt at this point is anything happening on that front.
Speaker Change: It is yeah as a matter of fact, we're excited about some of the opportunities I mean, it's still for context relatively small compared to the overall harvest volumes, but.
Speaker Change: The silver lining with what's happening with China, and obviously, we would like that China market to open up again at some point, but the silver lining with the challenges that we've seen there is it's given us the time and latitude to really focus on some other market opportunities and so we've been growing our export business into India.
Speaker Change: I think there is a lot more demand for our logs in India. Then we're able to ship currently and so we're looking at building out additional export facilities in the U S south to serve that market.
Speaker Change: We are growing our volumes into Vietnam, we'd come across some really interesting customers there that value the high quality logs that we can send out of the south so we're looking at that as well.
Speaker Change: And I think there are a host of other opportunities in Turkey, and Pakistan and some other markets as well and so that's a focus area for us and certainly at some point, we still believe that the China opportunity will come back.
So we're focused on that it's something I think with our supply chain expertise and our low cost business.
Speaker Change: It's a market that we can serve from our U S holdings in the South and so we're pretty excited about how that's going to grow over time.
Speaker Change: That's very helpful. Thank you, David and I'll turn it over good luck.
Speaker Change: Thank you.
Speaker Change: Our next question is from Michael Rock Flynn with Truest Securities. Please proceed with your question.
Speaker Change: Hi, guys. This is Nick <unk> on for Mike.
My questions really.
Speaker Change: Just one.
Speaker Change: Follow up to AWP operating great.
Speaker Change: Question I thought I heard mid sixties, I guess just.
Speaker Change: <unk> and <unk> in light of seasonally lower demand and maybe matching your production jet demand do you expect that to stay the same or seasonally maybe go lower and then.
Speaker Change: Four we entered the spring season next year, how does that kind of the.
Speaker Change: We're looking at kind of maybe uptick in <unk>.
Speaker Change: Yeah, I mean, I think as we think about Q4 is going to be up slightly but you know as we think about the.
Speaker Change: The posture as we roll into next year, I think that would be more typical of what you see for us in Q1 normally so.
Speaker Change: To some extent youre going to see in normal years, youre going to see that Q4 volumes come down just a little bit given the dynamic at play and seasonality, but I would expect that to ramp back up in Q1 for our normal operating posture.
Speaker Change: Got it. Thank you and then just that normal operating in <unk> like <unk>.
Speaker Change: Okay.
Speaker Change: Yeah, I mean in AWP, I think ordinarily you'd see high Seventy's low eighty's would be a good way to think about that under normal conditions.
Speaker Change: Got it thank you I'll turn it over.
Speaker Change: Yes.
Speaker Change: There are no further questions at this time I'd like to turn the floor back over to Devin stockfish for closing comments.
Devin Stockfish: Alright terrific well thanks, everyone for joining us this morning, and thank you for your continued interest in Weyerhaeuser have a great day.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time and we thank you for your participation.