Q4 2024 Weyerhaeuser Co Earnings Call
Greetings, and welcome to the Weyerhaeuser Fourth Quarter 2024 Earnings Conference Call.
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Speaker Change: 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: Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's fourth 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.
Andy Taylor: 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 Stockfish: Thanks Andy. Good morning everyone and thank you for joining us.
Devin Stockfish: Yesterday, Weyerhaeuser reported full-year gap earnings of $396 million, or $0.54 per diluted share, on net sales of $7.1 billion.
Devin Stockfish: Excluding special items, full year 2024 earnings total $384 million, or $0.53 per diluted share. Adjusted EBITDA totaled $1.3 billion for the year.
Devin Stockfish: For the fourth quarter, we reported gap earnings of $81 million or $0.11 per diluted share on net sales of $1.7 billion.
Devin Stockfish: Adjusted EBITDA was $294 million, a 25% increase over the third quarter.
Devin Stockfish: I'll start this morning by expressing my sincere gratitude to our Weyerhaeuser employees for their solid execution and dedication in 2024.
and what was a very challenging market backdrop.
Devin Stockfish: Through their collective efforts, we continued to serve our customers, delivered industry-leading operating performance, and drove meaningful improvements across each of our value levers in the investment thesis.
Notably, we grew our Timberlands through acquisitions in Alabama,
Devin Stockfish: announced plans to expand our engineered wood products portfolio, advanced our natural climate solutions business, and captured additional operational excellence improvements.
Devin Stockfish: We also increased our base dividend by more than 5% and returned $735 million of cash to shareholders based on our 2024 results, including $153 million of share repurchase.
Devin Stockfish: I'm incredibly proud of these accomplishments, all of which support our growth strategy and drive long-term value for our shareholders.
Devin Stockfish: Before moving into the business segment results, I'd like to comment briefly on an exciting growth initiative within our EWP business.
which is summarized on page 24 of our earnings slides.
Devin Stockfish: As we announced in the fourth quarter, we plan to invest approximately $500 million to build a state-of-the-art timber strand facility in Arkansas.
Devin Stockfish: Timber Strand is a proprietary and versatile engineered wood product with applications in residential, industrial, and mass timber end markets.
Devin Stockfish: The new facility will address an underserved and growing market for the product in the U.S. South and showcases warehousers' innovation in wood products.
Devin Stockfish: Notably, we combined institutional expertise from our existing timber strand facility in Canada with extensive research and development to enable manufacturing of the product with Southern Yellow Pine as the primary feedstock.
Devin Stockfish: Given its location in Arkansas, the new facility will deliver seamless integration with our existing timberlands and distribution network.
Devin Stockfish: In fact, approximately 80 percent of the raw material sourcing for the facility will come from Weyerhaeuser fee timberlands, resulting in an excellent new outlet for our southern fiber logs in the region.
Devin Stockfish: Construction of the facility will begin this year with startup expected in 2027.
Devin Stockfish: Once fully operational, the facility will add 10 million cubic feet of production, doubling Weyerhaeuser's timber strand offering, and increasing total company EWP capacity by approximately 24 percent.
Devin Stockfish: In addition, the facility is expected to generate over $100 million of annual adjusted EBITDA, with additional upside from portfolio integration benefits.
Devin Stockfish: We're excited to bring this new facility online and look forward to expanding our footprint and workforce in Arkansas.
Devin Stockfish: With that, I'll now turn to our fourth quarter business results, starting with Timberlands on pages 7 through 10.
Devin Stockfish: Timberlands contributed $62 million dollars to fourth quarter earnings. Adjusted EBITDA was $126 million dollars, a slight increase compared to the third quarter.
Devin Stockfish: In the West, digested EBITDA was comparable to the third quarter.
Turning to the Western domestic market.
Devin Stockfish: Log demand improved in the fourth quarter, as mills responded to strengthening lumber prices and a seasonal reduction in log supply across the system.
Devin Stockfish: As a result, pricing for grade logs increased as the quarter progressed and moved substantially higher in December.
Devin Stockfish: That said, our average domestic sales realizations were comparable to the third quarter due to mix.
Devin Stockfish: Our sales volumes to domestic customers increased moderately as we reduce shipments to our customers Increased moderately as we reduce shipments to customers in China
Devin Stockfish: Per-unit log and haul costs were comparable to the third quarter, and forestry and road costs were seasonally lower.
Devin Stockfish: Our feed harvest volumes were slightly lower, largely due to fewer working days in the fourth quarter.
Moving to our Western export business.
Devin Stockfish: In Japan, log markets remain soft in the fourth quarter due to ongoing consumption headwinds and elevated inventories of finished products for our customers.
Devin Stockfish: As a result, our sales volumes and average realizations for export logs to Japan were slightly lower compared to the third quarter.
Devin Stockfish: However, inventories and shipments of European lumber imports decreased as the quarter progressed, allowing our customers to pick up market share. As a result, we expect stronger demand for our Japanese export logs in the first quarter.
Devin Stockfish: In China, despite ongoing consumption headwinds, log markets remained relatively stable in the fourth quarter and demand from our strategic customers was steady.
Devin Stockfish: That said, our sales volumes into China were significantly lower as we intentionally flexed logs to our domestic customers.
Our average sales realizations were comparable to the third quarter.
Devin Stockfish: Turning to the south. Adjusted EBITDA for Southern Timberlands increased by $2 million compared to the third quarter.
Devin Stockfish: Southern saw log markets remained muted in the fourth quarter as log supply was ample and mills continued to align capacity with lower takeaway of finished goods.
Devin Stockfish: This was partially driven by the seasonal reduction in lumber demand around the holidays.
In contrast, southern fiber markets were generally stable.
Devin Stockfish: On balance, takeaway for our logs remained steady, given our delivered programs across the region, and our average sales realizations increased slightly compared to the third quarter, largely driven by a higher mix of grade logs.
Devin Stockfish: Our feed harvest volumes and forestry and road costs increased in the fourth quarter, as operating activities in certain regions shifted from the prior quarter due to wet weather conditions.
Per-unit log-in haul costs were comparable to the third quarter.
Devin Stockfish: In the north, adjusted EBITDA increased slightly compared to the third quarter, largely driven by higher fee harvest and sales volumes given favorable weather conditions.
Devin Stockfish: Turning now to real estate, energy, and natural resources on pages 11 and 12.
Devin Stockfish: In the fourth quarter, real estate and E&R contributed $46 million to earnings.
Devin Stockfish: Adjusted EBITDA was $76 million and largely in line with third-quarter results.
Devin Stockfish: These results were largely driven by solid demand and pricing for HPU properties in our real estate business.
Resulting in high-value transactions with significant premiums to timber value.
Devin Stockfish: They also reflect a significant year-over-year increase in contributions from our natural climate solutions business.
Devin Stockfish: As shown on page 23, full year adjusted EBITDA for NCS was $84 million.
Devin Stockfish: A 79% increase compared to 2023, primarily driven by strong contributions from our conservation, mitigation banking, and renewables business, where we continue to see solid demand.
Devin Stockfish: In Forest Carbon, we achieved notable milestones in 2024, including the approval and credit issuance from our second project located in the U.S. South, and a new issuance of credits from our project in Maine.
Devin Stockfish: In the fourth quarter, we sold approximately 50,000 credits in the voluntary market. We continue to see strong demand and premium pricing for our credits given our commitment to developing projects that meet high standards for quality and integrity.
Devin Stockfish: Looking forward, our forest carbon pipeline is developing rapidly, and we currently have seven additional projects in progress.
Devin Stockfish: For 2025, we expect a significant increase in credit generation and sales relative to the last couple of years.
Devin Stockfish: In renewables, demand continues to increase for large-scale solar development, and we're well positioned to capitalize on opportunities as markets continue to expand.
Devin Stockfish: We've signed approximately 70 agreements for potential solar projects across our portfolio, and our first solar site commenced operations in the fourth quarter, and we have two additional sites currently under construction.
Devin Stockfish: With respect to wind, operations commenced on our seventh site in December, and we expect an additional project to come online in the coming months.
Turning briefly to our carbon capture and sequestration business.
Devin Stockfish: We continue to work closely with the developers on our three announced agreements and are in discussions with new counterparties for additional projects.
Devin Stockfish: While the timeline for CCS, and the permitting queue in particular, has extended beyond our initial expectations,
Devin Stockfish: We remain confident that projects will ultimately be developed and continue to expect CCS to be a meaningful contributor to our NCS growth strategy over time.
Devin Stockfish: So, in summary, we continue to make excellent progress in our natural climate solutions business.
Devin Stockfish: And we remain on track to reach 100 million dollars of adjusted EBITDA by the end of this year. As we've said all along, early growth has largely been supported by our existing businesses.
Devin Stockfish: That said, we expect 2025 NCS results to include a meaningful increase in contributions from forest carbon credits.
And as we look beyond 2025, we see additional upside.
across the carbon and renewables businesses.
Devin Stockfish: as those markets continue to develop. We built a world-class team with deep technical expertise and strong commercial focus, and we continue to believe there's no company in this space with the capabilities or asset base to deliver on this value creation opportunity at scale like Weyerhaeuser.
Now, moving to wood products on pages 13 through 15.
Wood Products contributed $106 million dollars to fourth quarter earnings.
Devin Stockfish: Adjusted EBITDA was $161 million, a 77% increase compared to the third quarter, largely driven by an increase in lumber and OSB pricing.
Devin Stockfish: Starting with lumber, fourth quarter adjusted EBITDA was 21 million dollars, a 50 million dollar improvement compared to the third quarter.
Devin Stockfish: Benchmark prices entered the fourth quarter on an upward trajectory, largely driven by supply constraints from recent curtailments and closures across the North American market, combined with a slight increase in demand as buyers replenished lean inventories.
Devin Stockfish: As the quarter progressed, demand signals moderated given typical seasonal slowdowns in building activity over the winter months.
Devin Stockfish: As a result, benchmark pricing declined slightly through year-end and has remained relatively stable in January.
Devin Stockfish: For our lumber business, production volumes were moderately higher in the fourth quarter as we returned to a more normal operating posture following market-related production adjustments in the prior quarter.
Our sales volumes were comparable to the third quarter.
Our average sales realizations increased by 9% in the quarter.
Devin Stockfish: Unit manufacturing costs were comparable and log costs were slightly lower.
Devin Stockfish: Turning to OSB, fourth quarter adjusted EBITDA was 63 million dollars, a 24 million dollar increase compared to the third quarter.
Devin Stockfish: Average benchmark pricing for OSB increased by 16% in the fourth quarter, primarily driven by resilient demand from single-family construction activity and limited open market supply.
Devin Stockfish: Our average sales realizations increased by 5% compared to the prior quarter, with the relative difference largely due to the length of our order files, which results in a lag effect for OSB realizations.
Devin Stockfish: Our sales volumes were moderately higher and unit manufacturing costs were moderately lower, as production levels increased given less downtime for planned annual maintenance.
Fiber costs were comparable to the prior quarter.
Devin Stockfish: Engineered Wood Products delivered $69 million of adjusted EBITDA, an increase of $8 million compared to the third quarter.
Devin Stockfish: Demand for EWP products was steady at the outset of the fourth quarter, given favorable weather conditions for home building activity, but softened seasonally as the quarter progressed.
Devin Stockfish: On balance, our sales volumes increased slightly compared to the third quarter, largely attributable to solid section products.
Devin Stockfish: Our average sales realizations decreased for most products as previously determined price adjustments took effect in certain markets.
Devin Stockfish: In distribution, Adjusted EBITDA decreased by $4 million compared to the third quarter, largely due to seasonally lower sales volumes, primarily in December.
Devin Stockfish: With that, I'll turn the call over to Davey to discuss some financial items in our first quarter and full year 2025 outlook.
Davey: Thank you, Devin, and good morning everyone. I'll begin with key financial items which are summarized on page 17.
Davey: We generated $218 million of cash from operations in the 4th quarter, bringing our total for the year to $1 billion.
Davey: We ended the year with just under $700 million of cash and gross debt of $5.1 billion.
Davey: Adjusted funds available for distribution totaled $567 million in 2024, and as summarized on page 19, we returned $735 million back to shareholders based on 2024 results and actions.
Davey: This includes our quarterly base dividends, which we increased by 5.3% in 2024, and $153 million of share repurchase activity during the year.
Davey: Fourth quarter share repurchase activity totaled $28 million and we have now completed approximately $900 million under our $1 billion share repurchase authorization.
Davey: Entering 2025, we will continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value.
Davey: It's worth noting that although our cash generation in 2024 was lower than the last couple of years due to challenging market conditions, we continue to demonstrate the durability of our portfolio and the flexibility of our capital allocation framework across market cycles.
Davey: In addition to returning a meaningful amount of cash back to shareholders in 2024, we continued investing in our businesses and deployed capital towards strategic growth opportunities.
Davey: These are notable achievements given the headwinds our industry faced in 2024 and a direct result of the actions we've taken over the last several years to make Weyerhaeuser a stronger and more valuable company.
Davey: Looking forward, our balance sheet, liquidity position, and financial flexibility remain strong, and we are well positioned to drive further advancements across all of our capital allocation levers.
Davey: Adjusted EBITDA for this segment decreased by $15 million compared to the third quarter.
Davey: This was primarily attributable to an increase in variable compensation expense and a charge in inter-segment profit elimination and LIFO, partially offset by a slight benefit in liability-classified share-based compensation.
Davey: Key Outlook items for the first quarter and full year 2025 are presented on pages 25 and 26.
Davey: In our Timberlands business, we expect first quarter earnings in adjusted EBITDA to be approximately $20 million higher compared to the fourth quarter of 2024, largely driven by higher sales volumes and realizations in the West.
Devin Stockfish: Turning to our Western Timberlands operations, as Devin mentioned, pricing for domestic grade logs increased substantially in December and we've seen additional upward momentum in January.
Devin Stockfish: This is being driven by healthy demand for logs in the domestic markets, as mills navigate seasonally lower log supply and the prospect of improving lumber takeaway ahead of the spring building season.
Devin Stockfish: Absent weather-related disruptions, we expect our fee harvest volumes to be slightly higher in the first quarter.
Devin Stockfish: Forestry and road costs are expected to be moderately lower due to the seasonal nature of these activities.
Devin Stockfish: And per unit log and haul costs are expected to be slightly higher.
Moving to the export markets, starting with Japan.
Devin Stockfish: As Devin mentioned, inventories and shipments of imported European lumber have decreased, allowing our customers to take market share.
Devin Stockfish: We expect this dynamic to continue through the first quarter. As a result, demand for our logs is expected to improve, and we anticipate higher sales volumes and realizations compared to the fourth quarter.
Devin Stockfish: In China, log demand is expected to moderate in the first quarter in response to reduced consumption during the Lunar New Year holiday.
Devin Stockfish: Given this dynamic, coupled with improving Western domestic market conditions, we expect to significantly decrease our sales volumes into China during the quarter.
Devin Stockfish: Our average sales realizations are expected to be comparable to the fourth quarter.
Devin Stockfish: Turning to the south, despite ample log inventories, southern saw log demand is expected to improve slightly as mills navigate the risk of log availability challenges resulting from wet weather conditions that are typical in the first quarter.
In contrast, we expect fiber markets to remain fairly stable.
Devin Stockfish: On balance, we expect our average sales realizations to be comparable to the fourth quarter.
Devin Stockfish: Our feed harvest volumes and forestry and road costs are also expected to be comparable.
Devin Stockfish: And we anticipate slightly higher per unit log and haul costs.
Devin Stockfish: In the north, our feed harvest volumes are expected to be slightly lower compared to the fourth quarter, and we anticipate moderately higher sales realizations.
Turning to our full-year harvest plan.
Devin Stockfish: For 2025, we expect total company fee harvest volumes of approximately 35.5 million tons, which is slightly higher than 2024. From a regional perspective, we anticipate the South and North will be slightly higher than last year, and the West will be comparable.
Devin Stockfish: Moving to our Real Estate, Energy, and Natural Resources segment, we anticipate steady demand for our real estate properties in 2025 and continue to expect a consistent flow of transactions with significant premiums to timber value.
Devin Stockfish: In our natural climate solutions business, we expect to reach $100 million of adjusted EBITDA by year-end. And, as Devin mentioned, we anticipate a meaningful increase in contributions from forest carbon credit sales in 2025.
Devin Stockfish: For the segment, we expect full year 2025 adjusted EBITDA of approximately $350 million.
Speaker Change: Basis as a percentage of real estate sales is expected to be between 35 and 45 percent for the year.
Speaker Change: First quarter earnings in Adjusted EBITDA are expected to be comparable to the fourth quarter of 2024.
Speaker Change: Turning to our wood product segment, excluding the effect of changes in average sales realizations for lumber and OSB, we expect first quarter earnings and adjusted EBITDA to be slightly higher compared to the fourth quarter of 2024.
Speaker Change: It's worth noting that adverse weather conditions in January resulted in temporary downtime at several of our wood products facilities.
Speaker Change: We have since resumed normal operations and expect to capture affected volumes as the quarter progresses.
Devin Stockfish: As Devin mentioned, demand for wood products has softened into the winter months, which is typical for this time of year. That said, we expect market conditions and demand to improve from current levels as we head into the spring building season.
Devin Stockfish: Benchmark prices for lumber have been fairly stable since early December as supply and demand have approached a more balanced state.
Devin Stockfish: As for OSB, benchmark pricing entered the first quarter on a downward trajectory, largely due to elevated channel inventories and seasonally softer demand.
Devin Stockfish: As shown on page 27, our current and quarter-to-date average sales realizations for lumber are moderately higher than the fourth quarter average. For OSB, our current realizations are comparable to the fourth quarter average, while quarter-to-date realizations are moderately higher.
Devin Stockfish: For our lumber business, we expect higher production and sales volumes in the first quarter, and lower unit manufacturing costs.
Devin Stockfish: Log costs are expected to be slightly higher, primarily for western and southern logs.
Devin Stockfish: For our oriented strand board business we anticipate moderately higher sales volumes compared to the fourth quarter. Fiber costs and unit manufacturing costs are expected to be slightly higher.
Devin Stockfish: Turning to our engineered wood products business, we expect improving demand heading into the spring building season. As a result, we anticipate slightly higher sales volumes for most products in the first quarter.
Devin Stockfish: Our average sales realizations are expected to be comparable to the prior quarter, and raw material costs are expected to be slightly higher, primarily for OSB webstock.
Devin Stockfish: For our distribution business, we expect adjusted EBITDA to be slightly higher compared to the fourth quarter as demand improves into the building season.
Devin Stockfish: I'll wrap up with some additional Full Year Outlook items highlighted on page 26.
Devin Stockfish: In 2025, we expect our interest expense to be approximately $270 million.
Devin Stockfish: For taxes, we expect our first quarter and full year effective tax rate to be between 16 and 19 percent before special items, based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary.
Devin Stockfish: Additionally, we anticipate moderately lower cash taxes relative to our overall tax expense.
Devin Stockfish: For pension and post-employment plans, our non-cash, non-operating pension and post-employment expense is expected to be approximately $75 million.
Devin Stockfish: We do not anticipate any required cash contributions to our U.S. Qualified Pension Plan in 2025, but expect approximately $20 million of required cash payments for all other plans.
Devin Stockfish: As for capital expenditures, we expect our typical CapEx program to be approximately $440 million in 2025, which includes $120 million for timber loans, inclusive of reforestation costs,
Devin Stockfish: This excludes the investment required in 2025 for the construction of our new EWP facility in Arkansas.
Devin Stockfish: The total investment for this facility is expected to be approximately $500 million and will be incurred between 2025 and 2027.
Devin Stockfish: As we previously communicated, capital expenditures associated with this project will be excluded for purposes of calculating the company's annual adjusted FAD as used in our flexible cash return framework. With that, I'll now turn the call back to Devin and look forward to your questions.
Devin Stockfish: Thanks, Davey. I'll make a few comments on the housing and repair and remodel markets.
Starting with housing.
Devin Stockfish: Despite elevated mortgage rates for most of the year, single-family construction activity remained resilient in 2024, with starts increasing by 7% over the prior year.
Devin Stockfish: This was supported by healthy underlying demand for housing, a limited inventory of existing homes on the market, and incentives used by the homebuilders to offset affordability challenges.
Devin Stockfish: In contrast, multifamily starts decreased by approximately 25% in 2024, largely driven by higher interest rates and the wave of new units that came to market over the last 18 months.
Devin Stockfish: As we enter 2025, mortgage rates remain elevated. We'll likely continue to see some volatility with rates as the markets weigh potential impacts from policy decisions from the new administration as well as future Fed decisions on rates.
Devin Stockfish: Notwithstanding the rate environment, we're expecting new home construction to improve somewhat compared to last year. For the single family segment, there are a few underlying dynamics that support our view.
Devin Stockfish: First, from a buyer psychology perspective, mortgage rates in the 6-7% range are increasingly being viewed as the new normal, which is a different mindset from a few years ago.
Devin Stockfish: Single-family starts reached 1 million units in 2024, a respectable level given the rate environment.
second
Devin Stockfish: While we do expect to see more sales activity in the existing home market, the lock-in effect will largely remain in place, which will continue to support steady demand for new home construction.
Devin Stockfish: And finally, we believe the larger public builders will continue to navigate buyer affordability challenges and are well positioned to increase production to meet pent-up demand.
Devin Stockfish: With respect to multifamily construction, we expect headwinds to persist in the near term as the market digests the latest wave of supply. But we could see a modest increase in activity in the back half of the year.
which would be a tailwind for total housing starts.
Devin Stockfish: So, in summary, we should see some improvement in the housing market for 2025, assuming the economy and consumer remain healthy, and our longer-term view on housing fundamentals continues to be very favorable, supported by strong demographic trends and a vastly underbuilt housing stock.
Devin Stockfish: Turning to repair and remodel, activity was softer in 2024 compared to the last couple of years. This was largely driven by a significant reduction in the buying and selling of existing homes, which is normally a catalyst for R&R activity.
Devin Stockfish: In addition, inflationary pressures and elevated interest rates weighed on the consumer sentiment, particularly for lower-end do-it-yourself projects.
Devin Stockfish: As for 2025, we're expecting repair and remodel activity to improve slightly compared to last year. That's based on our view that we'll see an uptick in existing home sales, which should increase demand for repair and remodel projects over the course of 2025.
Devin Stockfish: In addition, I think we've now worked our way through the pull forward of projects that occurred during the pandemic, so this should be less of a headwind for R&R going forward.
Devin Stockfish: Looking further out, many of the key drivers supporting healthy repair and remodel demand remain firmly intact, including an aging housing stock.
Devin Stockfish: And I'd also note, there is a fairly significant amount of home equity that can be tapped for repair and remodel projects.
Devin Stockfish: As rates come down, this could be a meaningful tailwind for the segment.
Devin Stockfish: Finally, I'll provide an update on the progress we've made against the multi-year targets we announced at our Investor Day in September of 2021.
Devin Stockfish: As highlighted on slide 21, we've made meaningful advancements on all fronts.
Devin Stockfish: Starting with our portfolio, following our recent acquisitions in Alabama, we're now more than three-quarters of the way through our $1 billion Timberlands growth target.
Devin Stockfish: We've grown our natural climate solutions business to 84 million dollars of adjusted EBITDA.
Devin Stockfish: In terms of our operating performance, we've captured $117 million of margin improvements over the last few years, a notable achievement given the inflationary and market-related headwinds we faced during this period.
Devin Stockfish: Additionally, through the third quarter of 2024, we delivered peer-leading EBITDA margins across all of our wood products manufacturing businesses.
Thanks for watching.
Devin Stockfish: On the ESG front, we remain committed to net zero by 2040 and have showcased leadership in carbon integrity by publishing our Carbon Credit and Greenhouse Gas Inventory Principles.
Thank you for joining us. I'm Andy Taylor.
Devin Stockfish: And finally, we continue to demonstrate our commitment to returning meaningful amounts of cash back to shareholders.
Devin Stockfish: by increasing our quarterly base dividend by more than 5% annually and returning more than $5.3 billion of cash back to shareholders from 2021 through 2024.
Devin Stockfish: I'm extremely proud of the progress we've made against our strategic targets.
Devin Stockfish: Looking forward, we're committed to further advancements across each of these areas and are well positioned to achieve our multi-year goals by year end.
Devin Stockfish: So, in closing, while 2024 was an extremely challenging year in many of our key markets, particularly lumber, I'm pleased with how the organization navigated this environment and executed well across our businesses.
Devin Stockfish: I believe this is a testament to our people and our strategy.
Devin Stockfish: Entering 2025, our balance sheet is strong, and we are well positioned to capitalize as market conditions improve. We remain focused on serving our customers and driving long-term value for shareholders.
Devin Stockfish: through our unmatched portfolio, industry-leading performance, strong ESG foundation, and disciplined capital allocation. With that, I think we can open it up for questions.
Thank you.
Speaker Change: 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 in the question queue.
Devin Stockfish: You may press star 2 if you'd like to withdraw your question.
Devin Stockfish: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment please while we poll for questions.
Speaker Change: Our first question comes from Susan MacLaurie with Goldman Sachs. Please proceed with your question.
Thank you. Good morning, everyone.
Good morning.
Speaker Change: Good morning. My first question is maybe digging in a bit to the commentary on demand around housing. I think, Devin, it was good to hear that you see a path to some growth there for both new homes and R&R. I guess, could you just give some more details on how you're thinking about inventories heading into the spring and the busy season there, and especially
Speaker Change: Siminflation in commodity prices against in a more uncertain macro backdrop.
Thanks for watching!
Speaker Change: Yeah. Sue, are you talking about inventories at the product level or housing specific?
Speaker Change: well inventories at the product level more more than the housing you know side of things yes
Sure
Speaker Change: Yeah, so it's differential by product. I'd say on the lumber side, generally inventories in the channel are relatively lean. That's certainly true for Southern Yellow Pine and Doug Fir, maybe a little less so with SPF. I think there's some angst about what's going to happen with tariffs there, and that may be impacting things.
Speaker Change: The Home Improvement Warehouse customers are working through a little of that.
on EWP, pretty normal for this time of year.
Speaker Change: You know, as we think about heading into the spring building season in general, you know, I think there's just more optimism in general across the board that we're going to see, you know, some level of improvement. That's certainly what we're hearing from most of our big
Speaker Change: Builder customers. On the retail side you know again I think you know for that part of our customer base there is some optimism that you're going to see some improvement in R&R this year.
Speaker Change: Last year was a pretty tough year on that front and I think we're seeing just a little bit more
Speaker Change: you know, optimism for how that's going to play out this year. It's always hard to tell when you're in the January time frame, particularly we saw a lot of weather, cold weather across the U.S. south here recently.
Speaker Change: You know, that's not atypical. You see a little bit of tick down in demand in the colder months. But ultimately, I think the general view is we're going to see a better year this year.
Speaker Change: Okay, that's helpful. And then following up, there's been obviously a lot of talk on tariffs or the potential for tariffs that could come through with the new administration. Can you talk about the implications across the various wood products and how that could potentially come in and what it could mean for your margins and business?
Speaker Change: Yeah, I mean, so look, at a high level, I'll just note that it's still somewhat unclear if the tariffs are going to happen, when they're going to be put in place, how they're going to be affected. And so there's still, I would say, a lot of unknown about how that's going to play out.
Speaker Change: But, if you were to have a 25% blanket tariff on products coming in from Canada, there will be some puts and takes. Obviously, we do have operations in Canada, but the majority of our manufacturing is in the U.S.
Speaker Change: you would expect capacity to come out of the system. So I think it would have some upward pricing pressure, you know, obviously lots of variables that go into that, including on the demand side, but directionally I think you would see that.
Speaker Change: Go up, I would just know you know for us on the lumber side
Speaker Change: You know, about 80% of our lumber manufacturing is in the US and our Canadian lumber, a relatively small percentage of that does go into the US, probably 20 to 30%. So not, not a terribly high percentage of our lumber production in Canada comes into the US.
Speaker Change: On the OSB and EWP side, you know, the majority of the volume we produce in Canada does come in the U.S., so that would obviously be subject. But again, the vast majority of our production is in the U.S.
Speaker Change: Okay, that's great, Culler. Thank you and good luck with everything. All right, thank you.
Speaker Change: Our next question is from Ketan Mamtora with BMO Capital Markets. Please proceed with your question.
Ketan Mamtora: It's been going on for a little while where builders are providing more incentives to customers. How is the competitive dynamics there on the pricing side?
Speaker Change: Yeah, I mean, so as we said previously, during the pandemic, when EWP supply was difficult for many of the builders, out of necessity, there was some conversion to open web trusses.
Speaker Change: We've seen that a little bit slower to convert back to EWP largely as a result just of the
Speaker Change: Certainly be supported as lumber prices get back to what we would consider a more normalized level But ultimately there are a lot of advantages in using EWP In the in the home, and so you know we would expect to recapture that market share over time
understood and then on the
Speaker Change: NCS side, Devin, you talked about, you know, pretty nice uptake coming in 2025 in forest carbon.
Speaker Change: Can you give us some sense as to kind of, you know, how much did you, you know, credits did you sell in 24 and what do you expect in 2025 and roughly sort of the price expectation there?
Speaker Change: Yeah, so in 2024, we sold right around 50,000 credits. Those were also at a premium price, slightly up from what we sold last year.
Speaker Change: When we think about 2025, the pipeline is filling up. So as we mentioned, we have seven additional projects that are working their way through the process.
Speaker Change: You know, the timing on some of those is always a little challenging to predict. We've got our ducks in a row, but you still have to go through third-party audits and there's a whole process.
Speaker Change: year over year increase in our carbon sales for 2025. And, you know, obviously we have more coming behind those seven that we're currently in development. So, you know, we're just continuing to build out the pipeline and that will continue to grow over time. We're just, we're really pleased with the work our team's doing.
Speaker Change: I think we're starting to see that progress come to fruition.
Devin Stockfish: That is a big jump, Devin. Congrats on all the progress you've made there. I'll jump back in the queue.
Alright, thank you.
Speaker Change: Our next question is from George Staphos with Bank of America. Please proceed with your question.
George Staphos: Thanks so much everyone. Good morning, Devin, David, Andy. Congrats on the progress during the year. I guess I want to come back to lumber and Devin you were saying that from your vantage point inventories are relatively lean in the channel.
Speaker Change: We also read in here that there's uncertainty about the tariffs, but as you were commenting a few minutes ago Yeah, you know certainly the tariff does go in place. It's probably more inflationary than deflationary, right?
Speaker Change: And so, why are we not seeing, in your view or what you're hearing from the field, more uplift in lumber pricing right now?
You know, it would seem like...
Speaker Change: We have some supply constraints. We have inventories lean. We have the potential optionality, but that's probably more up than down in terms of the optionality from tariffs. Why aren't we seeing more of an uplift? Does it give us any worry perhaps about the overall demand outlook for this year? How would you have us think about that?
Speaker Change: Yeah, I think there are two things that I would highlight, George. First of all, is I do think the weather here recently, particularly the cold stretch across the U.S. South, did impact demand to some degree. So that's a portion of it. But I think with respect to the tariffs,
Speaker Change: On balance, there has been skepticism in the market that the tariffs are in fact going to go into effect, and so we haven't seen people that are putting a lot of pre-buy orders out to get ahead of the tariffs.
Speaker Change: and I just I think that there has been you know a disbelief that that will actually happen or if it does come into effect maybe there's some delay in the effective date so people will still have time.
Speaker Change: I mean, I think that's the answer. You know, the latest that we've heard is we'll get a little bit more clarity on that tomorrow. And so, you know, perhaps that will provide a little bit more insight into, you know, how this is going to come in effect in the timeline.
how, you know, how quickly it will come into effect.
Okay.
Speaker Change: Thank you for that. Next question is really around capital allocation.
Speaker Change: certainly the company going back to its goals that it set out back in 2020 has been hitting or exceeding its capital return goals.
Speaker Change: The Value Return to Shareholders has been in excess of FAD. How should we think about your priorities in the next couple of years?
Speaker Change: In terms of the dividend, should we continue to expect it grows at 5% or better?
Speaker Change: You know, you certainly have, you know, the maturities coming up in 2026, not that Weyerhaeuser can't handle that given its asset base, but nonetheless, should we expect a little bit more focus on deleveraging relative to dividend, relative value return to shareholders given that construct? Thank you.
Speaker Change: Yeah, well, George, there's a lot in there, so I'll try to take them component by component. I think on the base dividend, obviously, that's a board decision, but the ability to increase that base dividend is supported by all the work we've been doing over the last few years to increase sustainable cash flow generation. So all the work we've been doing on Timberlands acquisitions, the growth in the natural climate solution space, improvements in OPEX, all of those things are things that give us confidence
to increase the base dividend amidst challenging market conditions.
Speaker Change: So as we think about the debt maturities, yeah, we do have a billion dollars of maturities come in due in 2026.
Speaker Change: There's also some smaller maturities that are a lot older that have a much higher rate. So all in, we're looking at a rate average in the mid-fives on all the debt come and due next year. So we should be able to refinance those at comparable rates.
Speaker Change: But I think just reflecting on what we've accomplished over the course of 2024, this is exactly what the cash return framework was designed to accomplish. We essentially covered our base dividend through adjusted FAD, even in what was probably the most challenging lumber market in about 15 years or so. So we're quite pleased about how this played out over the course of the year, being able to continue to have that exceptionally strong balance sheet, making progress towards our strategic growth initiatives.
Speaker Change: such as the Alabama acquisitions, the announcement on the new timber strand facility, while also being able to maintain our program out of CapEx.
Speaker Change: at Meaningful Levels and being active in share repurchase. So, again, looking at all of those things, I think it demonstrates the power of our cash return framework, why it works so well for us, and it's going to allow us to create value through the cycle for our shareholders.
Thank you very much.
Speaker Change: Our next question comes from Hamir Patel with CIBC Capital Markets. Please proceed with your question.
Hamir Patel: Hi, good morning. Devin, can you speak to your operating rates in lumber and OSB in the quarter, and how would that compare between the US and Canadian operations?
Hamir Patel: Operating rates in Q4 are in the low 80% range for lumber.
Speaker Change: Okay, great. Thanks. And just the last question I had, if we do end up seeing tariffs driving maybe a larger uplift in U.S. industry production,
Speaker Change: How much flexibility do you have to increase your harvest levels in the South and West to meet perhaps a window of higher U.S. output?
Speaker Change: Yeah, I mean, we do have some flexibility in harvest levels, you know.
Speaker Change: You're not going to see dramatic changes. That being said, we do have a little bit of flexibility. And certainly, I think, in the South,
Speaker Change: There is adequate fiber availability to support increased manufacturing across the U.S. South at present. So, I don't think that is going to be the bottleneck for ramping up production in the South if that needs to happen.
Great. Thanks, Paul. I'll turn it over.
Alright, thank you.
Speaker Change: Our next question is from Mark Weintraub with Seaport Research Partners. Please proceed with your question.
Mark Weintraub: Thank you. Devin, thanks for the the color on both potential impact from tariffs and then also when you're talking about the operating rates in the different businesses.
Mark Weintraub: So I sort of want to put those two things together. It sounds like in lumber, you actually have a fair bit of flexibility. Maybe you could make a little more wood in the U.S. if need be. As you noted, you're actually not making that much in Canada that you're shipping to the U.S. to begin with.
Mark Weintraub: And it sounds like OSB, though, you wouldn't necessarily have that type of flexibility.
Mark Weintraub: thinking on how it might, within the business, where you'd have flexibility to adjust versus not so much.
Mark Weintraub: Yeah, I mean, I would just point out on OSB, so we'll talk about EWP as well, on OSB, I mean, certainly, you know, we don't have a whole lot of upside.
Mark Weintraub: potential because you typically are running full out in the OSB operating posture. And so it's not as though you can really flex up meaningfully with your U.S. OSB production. But I would also keep in mind, however, you know, ultimately
Mark Weintraub: OSB is going to come in from Canada. The industry needs it and so there's going to be OSB coming into the U.S. and that's where our focus on having low-cost manufacturing comes into play.
Mark Weintraub: On EWP, you're right, we have some different products. So Timber Strand and Paralamb are up in Canada.
Mark Weintraub: And so to the extent that there are tariffs that are applied to those projects, products will have to manage that. But, you know, the good news is both of those products are
Mark Weintraub: products that are very well received in the market our customers like those products and need them and so we'll just have to work with our customers to navigate it but ultimately I don't see the demand for either of those products being meaningfully impacted it it will likely have some impact on price over time
Speaker Change: Gotcha, thank you. And then maybe just a quick follow-up on harvests. It looks like you're probably up...
3-4% in the U.S. South.
Speaker Change: in 2025 versus 2024, maybe tell me if that's about right. Yeah, that's about right. Yeah. And then is that just a function of the acquisitions that you've made? And is this fairly reflective of, you know, what we should think about as the sustainable harvest level?
Speaker Change: Yeah, we're within the range of sustainable harvest, you know, part of it is acquisitions that we've made part of it is
Speaker Change: You know, we were down a little bit in 24 versus our original plan, largely just due to some weather events in Q3.
Speaker Change: which we would normally be able to make up in Q4. But just given the dynamic with lumber last year, that was a little bit more challenging. So some of that volume will roll into 2025. But that's generally speaking, you know, within the range of what we consider our sustainable harvest levels.
Speaker Change: with the caveat that we're obviously continuing to grow the business and so as we continue to buy more timber that will Move the harvest level levels up over time
Understood. Thank you.
Yep, thank you.
Speaker Change: Our next question comes from Matthew McKellar with RBC Capital Markets. Please proceed with your question.
Matthew Mckellar: Hi, good morning. Thanks for all the detail and for taking my questions. Looking at OSB, you're expecting moderately higher sales volume in Q1, but also slightly higher unit manufacturing costs. I was wondering if you could just please expand on what's driving expectations on cost there.
Matthew Mckellar: Sure, Matt. Yeah, we had a really nice quarter in the fourth quarter from a cost perspective and the OSB business ran really well, increased that production volume. As we look out in the first quarter, we think we'll have another good quarter from a production perspective, but we are seeing a little bit of an uptick in some of the other costs, things like energy and resins that are going to go into that. So on the whole, that's going to be up slightly, but we continue to be very pleased with the overall operating performance in that business and the continued focus on maintaining the right.
Thank you for your time. Have a great day.
Speaker Change: I think just on the LSL facility, you talked about $100 million in EBITDA there before portfolio integration benefits.
Speaker Change: How do you think about what those portfolio integration benefits look like? Is that mostly tightening that pulpwood market in the area, which benefits Timberland's business?
Speaker Change: for being able to serve that demand in a more logical way.
Speaker Change: Yeah, I mean, so without giving you a specific number, you got the main ones right. So, you know, when you're talking about a market that could use a little bit more fiber demand to tension up that market, that's exactly right. That is a component. And as we said, you know, 80% of the
Speaker Change: Feedstock is going to be from our Timberlands. So that will be a nice uplift just in demand for pulpwood in that region
Speaker Change: Also, you're exactly right, the logistics savings on having that right in the middle of a significant fee timberland ownership.
Speaker Change: provides benefits as well. So it really just gives us the opportunity within that particular wood basket to optimize the log flow, which comes with op-ex savings and synergies between those two businesses. So exactly what?
Speaker Change: You know what we're trying to do with the business everywhere we have manufacturing in Timberlands.
Okay, thanks for the color. We'll turn it back.
Speaker Change: Our next question is from Mike Roxland with Truist Securities. Please proceed with your question.
Mike Roxland: Yeah thank you Devin, Davey and Andy for taking my questions and congrats on all the progress.
Thank you.
Speaker Change: The first question I had, Devin, I'd love to get your thoughts on what the new administration and what they're doing in terms of suspending the Inflation Reduction Act funding, suspending funding for the Infrastructure Investment and Jobs Act. So long story short, the new administration
Thank you.
Speaker Change: Cutting funding for, let's say, offshore wind power, trying to minimize wind, there probably are negative read-throughs for CCS.
Thank you for joining us.
Sure
Speaker Change: how they're going to put some of these policies into effect, how this is going to run through the budget, the reconciliation bill. I think there's still a lot of unknowns, but I'll tell you from our perspective how we think about it. You know, we're obviously not in offshore wind. Certainly that does seem to be an area where there's some risk.
Speaker Change: For us, as we've said, we've got a number of operating wind sites, we've got another one that's pretty close to being done. I don't think any of this impacts the existing or soon-to-be existing wind sites.
Speaker Change: On solar, you know, the economics for solar feel pretty good. I don't know that you necessarily need significant government expenditures to make that economically competitive. There are obviously tax incentives that are built into the code.
Speaker Change: and I think, you know, you'd have to, by and large, see the IRA fully, you know, fully
Speaker Change: I am skeptical that you're going to see the IRA repealed or meaningfully.
amended.
Speaker Change: And that's really based on a couple of things. You know, first of all, a lot of the money from that program and from the IRA in general is flowing into southern red states. And so, you know, certainly I think as the administration and Congress try to dial in how this is going to play out.
Speaker Change: That will be a factor. And so we'll see how this all progresses. But look, in any event, these things ultimately, we believe, are all going to happen. The trajectory points towards the need for all of these things over time.
Speaker Change: Mayne, maybe we'll see less outward vocal support for some of these things here in the near term But our view is that the ultimate trajectory and the momentum behind these things is going to carry these projects and these businesses Forward and we still believe there's plenty of growth left
across these sub-businesses.
Speaker Change: Got it. I appreciate the call. And then just for my second question, in terms of the new EWP capacity in Arkansas,
Speaker Change: Obviously, you currently produce timber stranding in Canada using hardwood, you could be using sawn yellow pine in the south. Can you just comment about how the testing has gone, using that furnish, how has it performed?
Speaker Change: You anticipate any issues as you roll it out or a larger scale because assuming that the testing was done You know on a smaller scale and then lastly go just you know your expectations for the EWP operating rate in one cue Thanks very much
Yeah, sure.
Speaker Change: Well, you know, we've been working on this for a couple of years. We have some of the best wood scientists in all of North America.
in-house. And so they've been doing a lot of testing.
Speaker Change: to help facilitate some of the testing to get everything dialed in. But, you know, we obviously have a lot of confidence that this is going to work, work well and provide a product that the market wants. So we feel very good about it.
Speaker Change: We've done lots of testing, as you would expect, before we rolled out an investment of this size. Feel very good. Should be well-received in the market.
Speaker Change: to go off of a softwood furnish. So feel very good about that. In terms of operating rates for EWP in Q1, we're expecting those to be up relative to Q4. And again, Q4, we were kind of in that low 70s rate. So you'll see that move up in Q1.
Speaker Change: Our last question will come from George Staphos at Bank of America. Please proceed with your question.
George Staphos: Thanks so much. Just a quick follow-on on the timber strand project and piggybacking on what Mike was talking about.
George Staphos: to run the facility. How do you feel about your ability to staff on R&D and the like related to what you're going to need to build the facility? And then separately, perhaps you've mentioned this before if you have, apologies,
George Staphos: Do you have a figure that we should pencil in for the CapEx related to that project in 2025, what the cadence might look like, recognizing it's $500 million?
George Staphos: and then maybe philosophically just why not include that CAPEX in your FAD. Thanks guys and good luck in the quarter and the year.
Speaker Change: Yeah, maybe I'll take the first part and then Davey can cover off on the CAPEX component
Speaker Change: Obviously, as you would expect, we looked at a lot of different sites as we were thinking about where to put this facility and workforce availability was a key component of that. We are fortunate that the mill manager from our Kenora facility is going to move down to Arkansas and manage the startup.
Speaker Change: So we have good resources in place. We're going to be putting some of our top people on getting this mill built and started up.
Speaker Change: We have a really strong internal R&D resources already, so there's nothing we need to do incremental to where we are on that front. So, you know, look, I'm not underestimating, you know, you still have to go out and hire quite a few people, and so that's a process.
Speaker Change: I feel very good about our plan and how we've got this lined out to make that happen. So we'll be on track and I'm sure we'll have this started up and it'll go well like our other recent big capital projects.
Speaker Change: Yeah, George from a from a CapEx perspective on timber strand We've said it's going to be five hundred million dollars over the course of the construction period through 2027 It's a little bit fluid on the timing of all of that I think you know how I would think about it is this year we're going to start to ramp up go through the permitting and initial construction phases as we get towards the end of this year and into 2026
Speaker Change: We'll start to receive more substantial pieces of equipment and get deeper into the construction process. So we'd expect spending to ramp up in 2026 compared to 2025 and then taper off as we get to completion in 2027.
Speaker Change: And so, as we think about that spend as it relates to our cash return framework and adjusted FAD, our intention, again, is to exclude that CapEx.
from the Programatic CapEx.
Speaker Change: The reason being, we're going to treat this like we would our other strategic investments, like investments in Timberlands and other things of that nature, if we included it alongside our programmatic CapEx.
Speaker Change: We'd otherwise be reducing the amount of cash we're going to return to shareholders and so that's not our intention so as you'd expect over the course of this year we'll report out on the CapEx that we're expanding for this project separately and you'll be able to see that track along the way as well. Thank you very much.
Okay, thank you so much.
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.
Speaker Change: Alright, well thanks everyone for joining us this morning and thank you for your continued interest in Weyerhaeuser. Have a wonderful day.
Speaker Change: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.