Q2 2025 Weyerhaeuser Co Earnings Call
Greetings and welcome to the warehouse of second quarter 2025 earnings conference call.
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Speaker Change: If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Andy Taylor, vice president of investor relations. Thank you, Mr. Taylor. You may begin.
Speaker Change: Today to discuss warehouser second quarter 2025 earnings. This call is being webcast at www.weather.com, our earnings release and presentation, materials can also be found on our website. Please review the warning statements in our earnings release. And on the presentation, slides concerning the risks associated with forward-looking statements as forward-looking statements will be made during this conference call. We will discuss non-gaap Financial measures and a Reconciliation of gaap can be found in the earnings materials on our website. On the call, this morning are Devon stockfish, chief executive officer and Davey Walt Chief Financial Officer. I will now turn the call over to Devon stockfish.
Devon Stockfish: Thanks Andy. Good morning, everyone. And thank you for joining us.
Devon Stockfish: Yesterday, warehouser reported second quarter Gap. Earnings of 87 million or 12 cents per diluted share on net sales of 1.9 billion.
Devon Stockfish: Adjusted ibaa. Total 336 million. A slight increase over the first quarter of 2025.
Devon Stockfish: These are solid results in light of the current challenging Market backdrop and I'm pleased with the operational performance delivered by our teams.
Before getting into the businesses, I'd like to comment briefly on an exciting growth opportunity within our Southern Timberlands portfolio.
Devon Stockfish: As we announced in May, we're acquiring 117,000 Acres of high-quality Timberlands in North Carolina and Virginia for 375 million.
Devon Stockfish: This acquisition represents a unique off-market opportunity to enhance our footprint in a strong and growing sawlog. And fiber Market in the US South
These Timberlands are strategically located proximate to existing warehouser Timberlands and Mill operations in the region.
Devon Stockfish: And are expected to deliver immediate and sustained portfolio leading cash flows within our Southern Timberland's business.
With an average annual free cash flow yield of 5.1% over the first 5 years and that's a Timber only number. In addition, we see significant optionality to capture upside from alternative value opportunities over time.
Devon Stockfish: The acquisition is expected to close in the third quarter and the cash outlay for the transaction is expected to be predominantly sourced from domestic churches of non-core Timberlands and we anticipate completing these transactions in a tax efficient manner.
Devon Stockfish: As we've demonstrated over the last several years, we are committed to active portfolio management. Across our Timber Holdings and have remained disciplined in our approach, to Growing the value of our Timberlands, including through targeted Acquisitions, as well, as desting of non-strategic acreage.
Devon Stockfish: Upon closing of our latest North Carolina and Virginia. Acquisition, we will have achieved the multi-year target to grow our Timberlands portfolio through 1 billion dollars of Investments by the end of 2025.
Devon Stockfish: We've also grown our lumber capacity and are moving forward with the compelling. Engineered wood. Products growth opportunity in Arkansas. All while maintaining a strong balance sheet.
Devon Stockfish: And importantly, we've returned a significant amount of cash back to shareholders through dividends and share, repurchase over this period.
Devon Stockfish: Looking forward, we will continue to evaluate strategic opportunities that enhance the return profile for our Timberlands and provide upside potential through our real estate and enr business.
And we'll balance these activities with other levers across our Capital, allocation framework to Drive Superior, long-term value for shareholders.
Devon Stockfish: Turning now to our second quarter business results, I'll begin with Timberlands on pages 5 through 8 of our earning slides.
Timberlands contributed 88 million to second quarter earnings adjusted IBA de was 152 million. A 15 million decrease compared to the first quarter. Largely driven by higher costs in our Western operations which are typical in the spring and summer months.
Devon Stockfish: turning to the Western domestic Market, log demand was healthy at the outset of the second quarter, given seasonally lower log Supply, and steady, takeaway of lumber
As the quarter progressed log Supply improved. Seasonally the demand waned as Mills responded, to a softening Lumber market and elevated log inventories.
As a result log, prices were strongest in April and trended lower for the balance of the quarter.
Devon Stockfish: Given these Dynamics, our average domestic sales realizations decrease slightly relative to the first quarter and fee Harvest volumes were comparable.
Devon Stockfish: Our per unit login Hall costs increased, as we made the seasonal transition to higher elevation sites and Forestry and Road costs were seasonally higher.
Devon Stockfish: Moving on to our export business to Japan.
Devon Stockfish: Lower shipments and inventories have imported European Lumber in the Japanese Market which is allowed our customers to take market share.
As a result, our average sales realizations for export logs to Japan. Increased moderately compared to the first quarter. However our sales volumes were moderately lower due to the timing of vessels.
Devon Stockfish: Turning to the South adjusted IBA for southern Timberlands with 69 million. A slight decrease compared to the prior quarter.
Devon Stockfish: Despite a reduction in log Supply resulting from wet weather conditions. Southern sawlog demand was muted in the second quarter as Mills continued, to align production with lower pricing and takeaway of lumber
Devon Stockfish: In contrast demand for our fiber logs improved as Mills transitioned from Spring maintenance, outages.
Devon Stockfish: In general, takeaway for our logs, remain steady. Given our delivered programs across the region and our average sales realizations, increase slightly compared to the first quarter.
Given the wetter than normal conditions, our forestry and Road costs and fee. Harvest volumes were lower than our initial expectations. That said our Harvest volumes increase slightly compared to the prior quarter.
per unit, login Hall costs, increased moderately
Devon Stockfish: in the north adjusted, ibaad decrease slightly due to lower sales, volumes associated with seasonal, spring breakup conditions,
Devon Stockfish: Turning now to our real estate energy and natural resources business on pages, 9 and 10.
Devon Stockfish: Real estate and enriched 106 million to second quarter earnings and 143 million, to adjust to debe de.
Devon Stockfish: Second quarter, Eva de was 61 million higher than the prior quarter. Largely driven by the timing and mix of real estate sales.
Devon Stockfish: We continue to benefit from healthy demand, for real estate, properties. Resulting in high-value transactions with significant premiums to Timber value,
Devon Stockfish: turning briefly to our natural climate Solutions business.
Devon Stockfish: During the second quarter, we received approval on our third Forest carbon project and currently have 6 additional projects in progress, we continue to see solid demand for our credits, given our commitment to delivering and developing projects that meet high standards for quality and integrity.
Devon Stockfish: For 2025, we still expect a significant increase in credit generation and sales relative to the last couple of years and we remain on track to reach. 100 million dollars of adjusted Eva de from our natural climate Solutions business by year end.
Devon Stockfish: Now, moving to Wood Products on pages, 11 through 13.
Devon Stockfish: Wood Products, contributed 46 million to second quarter earnings and 101 million to adjusted IBA. Do
Devon Stockfish: starting with Lumber.
Devon Stockfish: After a steady increase in the first quarter, the framing Lumber composite peaked in early April and trended lower through late June.
Devon Stockfish: This was driven by cautious buyer sentiment in response to elevated macroeconomic uncertainty and a softer than expected spring building season.
Devon Stockfish: Across the North American regions. Pricing for Western SPF. Lumber has steadily increased since mid-may largely, as a result of concerns around the upcoming increase in duties, on Canadian shipments to the US.
Devon Stockfish: Over the same period pricing for southern Yellow Pine. Lumber decreased significantly as Supply outpaced demand.
Devon Stockfish: This Dynamic was compounded by adverse weather conditions in certain Southern geographies, which impacted building activity in the second quarter.
Devon Stockfish: That said, Southern Lumber prices have shown signs of stabilization in recent weeks.
Devon Stockfish: For our lumber business second quarter adjusted IBA. De was 11 million, a 29 million dollar decrease compared to the first quarter, primarily driven by lower product pricing and slightly higher log costs.
Our average sales realizations, decreased by 2% in the second quarter which was largely in line with the framing Lumber composite.
Our sales volumes increased and unit manufacturing costs were comparable.
Devon Stockfish: Finally on Lumber, I'll make a few comments on the recent announcement to sell our Princeton Mill in British Columbia.
Devon Stockfish: While these decisions are never easy to make, we think this is the best outcome for our Princeton operations.
Devon Stockfish: The buyer is local with deep roots in the region and we expect a seamless transition that will position the facility for future success in a challenging operating environment.
Devon Stockfish: The purchase price is approximately 120 million Canadian and includes the mill. All Associated, Timber license Assets in British Columbia and the value of working capital, which will be subject to customary purchase price adjustments at closing.
We expect the mill portion of the transaction to close in the third quarter and the forest 10 years to follow over the ensuing months.
Devon Stockfish: A gain on the sale and incur a tax liability of approximately $15 million Canadian.
Devon Stockfish: I do want to express my deep appreciation to our dedicated employees, who contributed to the success of our Princeton operation, over the years and to the local community who has been incredibly supportive of our operations and people.
It's worth noting that our other operations in Canada will not be affected by this transaction, and we will continue to serve customers from our 2. Lumber Mills in Alberta
Devon Stockfish: so, now turning to OSB,
Devon Stockfish: Benchmark pricing for OSB decreased significantly. In the second quarter, largely driven by softening demand from new home, construction activity and ample Supply.
Devon Stockfish: Pricing did stabilize by quarter end and has remained steady through July.
Devon Stockfish: For our OSB business adjusted ibaa was $30 million, a 29 million decrease compared to the first quarter primarily due to lower product pricing.
Devon Stockfish: Our average sales realizations decreased by 12% which was favorable to the OSB composite. This is largely due to the length of our order files which result in a lag effect for OSB realizations.
Devon Stockfish: Our sales volumes and fiberglass were slightly higher compared to the prior quarter and unit, manufacturing cost increased due to additional downtime for Planned annual maintenance.
Devon Stockfish: Engineered wood, products adjusted. Ibaa was 57 million. A slight, increase compared to the first quarter.
Devon Stockfish: This was driven by a seasonal, increase in sales volumes across all products, and lower raw material and unit manufacturing costs.
Devon Stockfish: Notably our second quarter ewp results, reflect and Improvement in operating posture at our MDF facility in Montana, which experienced a multi-week outage in the first quarter.
Devon Stockfish: These favorable drivers were partially offset by lower average sales realizations across most ewp products as new home. Construction activity was softer than our initial expectations coming into the second quarter.
Devon Stockfish: In distribution adjusted, ibaa decrease slightly compared to the first quarter as seasonally. Higher sales volumes were offset by lower pricing for commodity and ewp products.
Devon Stockfish: with that, I'll turn the call over to Davey to discuss some Financial items and our third quarter Outlook
Devon Stockfish: Thanks, Devin and good morning everyone. I'll begin with key financial items which are summarized on page, 15.
Devon Stockfish: In the second quarter, we generated 396 million of cash from operations.
Devon Stockfish: We ended the quarter with the proximately dollars of cash and total debt of just under 5. 2.
Devon Stockfish: Share, we purchase activity totaled, 100 million in the second quarter representing. Our highest quarterly level since late 2022.
Devon Stockfish: These shares were repurchased at an average price of 25.74.
Devon Stockfish: In may, we completed our previous 1 billion, share repurchase program, which was authorized in September of 2021 and announced a new 1 billion Authority going forward.
Devon Stockfish: Reflecting on our cash return action since the beginning of 2021 including dividends and share repurchase. We've returned more than 5.7 billion dollars of cash back to shareholders.
Devon Stockfish: Over a similar period. We've continued investing in our businesses at a meaningful level deployed Capital towards strategic growth opportunities and improved our balance sheet.
Devon Stockfish: These are notable achievements that underscore the durability of our portfolio and the flexibility of our Capital allocation framework across Market Cycles.
Devon Stockfish: Looking ahead, our new authorization provides capacity for future opportunistic, share, repurchase activity and represents an important ongoing lever for driving long-term value for our shareholders.
Devon Stockfish: Capital expenditures were 107 million in the second quarter which includes 22 million related to the construction of our ewp facility in monicello Arkansas.
Devon Stockfish: Specific to monicello, the project is on track and we broke ground on the facility in June.
As we previously communicated, the total investment for the facility is expected to be approximately 500 million which will be incurred through 2027.
For full year 2025 we anticipate approximately 130 million dollars of Investments for monicello.
Devon Stockfish: And as a reminder capex associated with this project will be excluded for purposes of calculating adjusted fad as used in our cash return framework.
Devon Stockfish: Excluding capex for monicello. We have lowered guidance for our typical capex program from 440 million to approximately 400 million in 2025.
Devon Stockfish: Conditions, alternate uses of cash and to fund growth opportunities.
Second quarter results for our unallocated items are summarized on page 14.
Devon Stockfish: Adjusted ibido for this segment, increased by 22 million compared to the first quarter primarily attributable to changes in in segment, profit, elimination and lifo.
Looking forward. Key Outlook items for the third quarter are presented on page, 17 and updates. To full year. Outlook items are presented on page 18.
Devon Stockfish: In our Timberland's business, we expect third quarter, earnings and adjusted ibida. To be approximately 10 million, lower compared to the second quarter of 2025 largely driven by lower sales realizations, and higher costs in the West
As a reminder results for our Timberland's. Business are generally at their lowest level in the third quarter, given seasonal Dynamics.
Devon Stockfish: Turning to the West.
Devon Stockfish: We expect domestic log demand and pricing to face downward pressure in the third quarter as Mills continued to carry elevated, login, inventories, and navigate a softer. Lumber Market as a result. We expect our domestic sales realizations to be moderately lower compared to the second quarter.
Devon Stockfish: However, limitations on log Supply during Wildfire season and the effect of increased duties on Canadian. Lumber Imports could drive more favorable pricing as the quarter progresses.
Devon Stockfish: We anticipate seasonally higher forestry and Road costs as we do a significant amount of this work over the summer months.
Devon Stockfish: And per unit, login Hall costs are expected to increase given higher elevation Harvest activity. That's typical this time of year.
Our fee Harvest volumes are expected to be slightly higher compared to the second quarter.
Devon Stockfish: Briefly on our log export program to Japan Imports of European. Lumber have been lower year to date relative to 2024 allowing our customers to take market share.
Devon Stockfish: As a result, we anticipate steady demand for our logs in the third quarter.
Devon Stockfish: Our sales volumes are expected to increase moderately, largely due to the timing of vessels and our average sales realizations are expected to increase slightly.
Devon Stockfish: Turning to the South.
Devon Stockfish: We expect sawlog markets to moderate somewhat in the third quarter as log Supply improves with drier weather conditions.
Devon Stockfish: in contrast, Southern fiber, markets are expected to remain relatively stable outside of a few localized regions with softer, demand, due to reduced capacity or elevated log inventories,
Devon Stockfish: On balance, takeaway for our logs, is expected to remain steady given our delivered programs across the region and we anticipate our saw log pricing to be comparable to the second quarter.
Devon Stockfish: That said, our average sales realizations are expected to decrease slightly largely due to a higher mix of fiber logs from increased thinning activity.
Given favorable weather conditions. We anticipate our fee. Harvest volumes will be slightly higher compared to the second quarter.
Devon Stockfish: Our forestry and Road costs are expected to increase as wetter than normal spring conditions resulted in certain activities, shifting to the third quarter.
And per unit, login Hall costs are expected to be comparable.
Devon Stockfish: In the north, our fee Harvest volumes are expected to be significantly higher. As we have fully transitioned from spring, break up conditions, and we anticipate moderately. Lower sales realizations due to mix.
Devon Stockfish: Moving to our real estate energy and natural resources segment.
Devon Stockfish: Real estate markets, have remained solid here to date and we continue to anticipate a consistent flow of transactions with significant premiums to Timber value.
Devon Stockfish: For the segment, we continue to expect full year 2025 adjusted ibida of approximately 350 million, which includes our Target to reach 100 million of ibida in our natural climate Solutions business.
Devon Stockfish: That said we expect third quarter, adjusted ibida will be approximately million dollars, lower and earnings will be approximately 60 million lower than the second quarter of 2025 due to the timing and mix of real estate sales.
Devon Stockfish: For context, it's common for our real estate results to be more heavily weighted toward the first half of the year.
In our wood product segment, we expect third quarter earnings before special items and adjusted ibida to be comparable to the second quarter of 2025. Excluding the effect of changes in average sales realizations for lumber and OSB.
Devon Stockfish: Given the softer than expected demand environment over the last several months composite pricing for lumber and OSB declined. Steadily during the second quarter,
Devon Stockfish: As a result our current and quarter to date average sales realizations, for both products are moderately lower than the second quarter averages.
Devon Stockfish: Weeks.
Devon Stockfish: Looking ahead. We expect demand for both products to remain at current levels into the third quarter that said duties on Canadian, Lumber shipments to the US are expected to increase meaningfully
this Dynamic along with lean Channel inventories could provide some support for North American. Lumber pricing in the coming months and potentially serve as a catalyst for incremental substitution towards Southern yellow. Pine,
Devon Stockfish: In addition on the demand side, we could see an increase in repair and remodel activity in the South as temperatures moderate into the fall and more broadly should the FED cut interest rates.
For our lumber and OSB businesses. We expect sales volumes and unit manufacturing costs to be comparable to the second quarter.
Devon Stockfish: Log in fiber costs are expected to be slightly lower.
Devon Stockfish: For our engineered wood products business. We continue to anticipate close alignment between product demand and single family home building activity, which has been softer than expected year to date as a result. We expect lower sales volumes for most products in the third quarter, and slightly lower average sales realizations as previously determined price adjustments. Take effect in certain markets.
Raw material costs are expected to decrease primarily for OSB webstock.
Devon Stockfish: For our distribution business. We expect adjusted ebida to be comparable to the second quarter.
Devon Stockfish: With that, I'll now turn the call back to Devon and look forward to your questions.
Devon Stockfish: Thanks Davey.
Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets.
Devon Stockfish: Starting with housing.
Devon Stockfish: After a reasonably solid first quarter housing starts have softened over the last few months. Total starts aaging 1.3 million units on a seasonally adjusted basis in the second quarter.
Devon Stockfish: And single family starts below 1 million units. While the broader economy appears to be holding up reasonably. Well, the combination of weaker consumer confidence and elevated. Mortgage rates has been a headwind for housing activity.
As a result, the spring building season was softer than we were expecting at the outset of the year. And I suspect, we'll continue to see some choppiness in the housing market in the near term.
Based on conversations with our home builder customers. The biggest issue right now is consumer confidence and general uncertainty around trade policy, inflation and unemployment
Devon Stockfish: That said there are potential catalysts for improvement in the second half of the year. For example we now have Clarity on the tax bill and we could see additional trade deals emerge in the coming days and weeks. Providing more certainty around trade trade and tariff policy.
We might also get some support from the FED on interest rates later this year.
Devon Stockfish: So, we'll have to see how these things play out, but Clarity in these areas could alleviate some of the uncertainty that's been weighing on consumers.
Devon Stockfish: But putting current market conditions aside the longer term, fundamentals, remain intact for a strong housing market supported by favorable demographic, tailwind and a vastly underbuilt housing stock.
Devon Stockfish: in addition, the inventory of existing homes for sale will likely remain below, historical levels, giving elevated rates
Devon Stockfish: And on a positive note there seems to be a growing appreciation that government policies need to better accommodate building activity to address housing shortages across the country. All of this will ultimately support healthy demand for housing in the years to come
Devon Stockfish: Turning to the repair and remodel Market activity has been softer year to date relative to 2024. Largely driven by many of the same factors impacting the residential construction Market.
Devon Stockfish: In addition, R&R, activity continues to be impacted by lower. Turnover of existing homes, given higher mortgage rates in the lock-in effect.
Devon Stockfish: In the near term, we'll likely continue to see more muted RNR, environment until consumer confidence, improves and interest rates move lower.
Devon Stockfish: I would note however that we typically see a seasonal uptake in repair and remodel activity in the South as temperatures moderate into the fall.
And looking further out, we continue to expect favorable demand fundamentals for R&R activity, including significantly increased levels of home equity and an aging housing stock.
Devon Stockfish: In addition, we've largely worked through the pull forward of projects that occurred during the pandemic. And in fact, are now seeing the furls of RNR projects. So this should be a Tailwind for repair and remodel activity as the macro environment improves.
In closing.
We delivered solid operating performance in the second quarter. Notwithstanding the challenging Market backdrop. We continue to demonstrate our commitment to returning meaningful amounts of cash back to shareholders while also capitalizing on strategic portfolio opportunities.
Devon Stockfish: Looking forward. We're well positioned to navigate a range of market conditions in the near term and we remain confident in the longer term demand fundamentals that support our businesses.
Devon Stockfish: Our balance sheet is strong and we continue to focus on driving operational, excellence serving our customers enhancing our unmatched portfolio, and creating long-term value for shareholders through our disciplined and flexible Capital. Allocation framework with that. I think we can open it up for questions.
Thank you.
We will now be conducting a question and answer session. If you like to ask a question, please press star 1 on your telephone keypad.
And Confirmation tone will indicate your line is in the question queue? You may press Start 2. If you'd like to remove your question from the queue, for participants use, the speaker equipment. It may be necessary to pick up your handset, before pressing the authorities 1 moment, please while we Poll for questions.
Speaker Change: Our first question comes from Susan McLaren with Goldman Sachs. Please proceed with your question.
Thank you. Good morning everyone.
Speaker Change: Good morning, how are you? Good question.
Speaker Change: Good morning. My first question is on the wood product segment when you think about the Outlook and what the builders are telling us, in terms of guiding to the lower end of their closings range for this year, talking about, perhaps going into 2026 with less inventory on the ground as well. How are you thinking about balancing Your Capacity across the wood products space? And how are you also? Thinking about any incremental opportunities, in terms of Opex 2.0 to perhaps improve versus staying the profitability in that part of the business?
Speaker Change: Yeah, great question Sue. Maybe I'll start with the Opex piece and then get to the broader question you know, for us operational. Excellence is just deeply.
Built into the DNA of the organization at this point. And so that's something that we're focused on really across Market Cycles, it becomes particularly important when you're in a softer, demand environment, uh, to make sure that you stay in the right spot on the cost curve. And so we're very focused on that. I think you can see that, you know, over the last handful of years with our relative operating performance, really being industry-leading, across our manufacturing, businesses super important, we're going to stay focused on that. And I do think that that gives us a lot more flexibility to operate through the down cycle. You know, as we think about the rest of the year and into 2026, certainly, you know, at present, uh, you can see this in the Builder sentiment numbers, you know, there's not as much
Speaker Change: Much optimism as we had hoped coming into the year, certainly, the, the housing market has been softer than we had expected and so you can see builders that are adjusting to that. So, to the extent that that holds on for a while longer, I think we're well positioned to, to serve that market. You know, we'll always keep an eye on what our production is versus the demand. But again, given where we are on the cost curve, I think that gives us the opportunity to really run more during a down Market than perhaps Others May. So, we're going to continue to keep focused on that. You know, I think obviously in these down markets, a lot of the things that we've been doing over the last handful of years with the balance sheet, with cost control with the Opex, the things that we've been doing to just make sure that we're in a good position in the down Market. It gives us the opportunity to do things opportunistically whether it's Sherry purchase or Acquisitions Etc. And so you know we'll we'll see how long this lasts but we're well positioned to navigate it and importantly to take
Speaker Change: Advantage of those opportunities in a down Market, when we see those, that's how you, that's how you drive value in cyclical businesses.
Speaker Change: Yeah. Okay, that that's great color, Devon, thank you and then maybe, you know, turning to Timberlands. It's exciting to see the deal. The 2 announced in North Carolina and Virginia. Um, can you talk a bit about just the overall environment for Timberland Acquisitions and anything that you're also seeing? Perhaps on the divestiture side, just how that is uh, coming together.
Speaker Change: Recent Timberland transaction acquisition that we would be funding that through the destitute of non-core Timberlands. Uh, so we generally don't comment on transactions that are not yet at a definitive agreement. Uh, but what I can say, as, as I just mentioned, there's strong interest out there in the market for this asset class. Uh, and so we expect to be able to deliver strong value on those, uh, destitutes, uh, and we'll update you as appropriate, moving forward.
Okay, thank you both and good luck with the quarter.
Speaker Change: Our next question comes from George stefos with Bank of America. Please proceed with your question.
Hey, good morning. Devon. And Dave this is Brad Barton for George
Morning morning.
Speaker Change: Um, you know, just quickly when we, when we look at ewp prices, you know, there is there seems to been a trend downward for for some time now and, you know, your guiding Q3 lower again. So just wondering what your thoughts on, um, what you think the catalyst is that ultimately slows and then reverse that Trend. So we can see prices inflect higher and, um, you know, I guess, when do you think that happens?
Speaker Change: Yeah, I mean, so as you know, ewp is largely driven by what's going on in residential construction and in particular single family. And, you know, I think the big Catalyst here for why you've seen some pressure on pricing is just really been. We've seen a Slowdown in single family construction here you know really over the last 18 to 24 months and so that
Speaker Change: Has put some pressure on pricing. I think you combine that with just the, the overall concern, with the home builders on margin. You know, there's pressure, uh, to keep those prices in check and so you, you've seen that the big Catalyst to move that move that back in the other direction really are twofold. You know, obviously to the extent that single family, housing activity, picks up, that will be a catalyst uh, around the margins RNR activity as well. I think the other piece that can help with that and you know, we're actively working on this during the pandemic. There was some conversion from E, ewp over to open web and that has been a little bit more challenging to convert back to ewp. The the lower lumber prices have not helped that, but that's something that we're actively pursuing, uh, that could have some benefit to the upside in the interim and look, you know, housing activity is going to return to a better place. We know that the timeline is always a question.
Speaker Change: But directionally we know the fundamental drivers for strong housing still remain in place and so that market is going to return to a better place. But in the interim, you know, we're going to be out there supporting our customers, we have. I believe the best product line in the industry. We have a great service model, we have a good cost structure. So we're positioned to navigate this and we'll be out working on taking market share, converting markets, and all of those things that you would expect. Uh, and you know, at some point we'll see pricing start to pick up on the other
Speaker Change: Side.
Great. Thank you. Um, and and just a quick follow-up, uh, on the real estate side. Um, you know, prices per acre, they they seem to have been appreciating over the last 5 quarters or so. So, is, is that just simply due to mix and timing or is, is there something larger at play? Maybe like the optionality on climate Solutions, related, businesses, and um, I guess maybe related to that question. If you know, we look out over the next year or so, where where do you estimate the uh, appropriate price break or be?
Speaker Change: Sure. Brad you know that is uh you know as we've said we do have a high degree of conviction, the value of of Timberlands is going to increase over time. Uh based on the appreciation of all those things that you just laid out you know what it is though is it is a lot of time and in mix there um we're going to see that move around based on the particular composition of the packages. That any 1 quarter. There were a few more Western Acres this quarter compared to some of the other quarters of late. So that's going to drive up the the price per acre there. So I wouldn't I wouldn't read too much into that other than again over time, we do expect uh, increasing interest in the asset class.
Speaker Change: Okay, great. Appreciate the time, guys.
Speaker Change: Our next question comes from Anthony pinari with City. Please proceed with your question.
Uh, good morning.
Anthony Pinari: Morning. Um, good morning. Uh, Devon, do you see the 1, big beautiful, Bill impacting, your natural, climate Solutions, business? Uh,
And I guess I'm thinking specifically about sort of solar and wind projects, you have any, you know, projects at risk or does the uh the bill impact your expectations for future growth for natural climate Solutions.
Anthony Pinari: All I think the the big beautiful bill was a net positive for warehouser and you know I'll let maybe Davey speak to a couple of the specific tax items here in a moment.
Anthony Pinari: But when you look at the impact to our natural, climate Solutions business that they're going to be puts and takes and you know as we've said before the the tone the rhetoric around climate is obviously different in this Administration than it was under the PRI prior Administration But ultimately this business, the foundation of it is built on an expectation that over time. Companies governments Etc, are going to have to do things to mitigate the effects of climate change. And so our underlying conviction around that hasn't changed at all.
Anthony Pinari: In the near-term. You know, we have a couple of things that went on with the bill. So first 45 Q which is the tax incentive that supports carbon capture and sequestration. There was some discussion around that that did make it through, ultimately and was preserved, the the biggest impact, probably at least in the near term is around the incentives on Renewables. And so, as I'm sure you've seen a lot of discussion around that, they did provide a cut off here that, uh, was pulled forward perhaps a little bit earlier than we had expected. And so it's really to get the incentives. You have to have projects started by July of 2026 and there's some discussion with an executive order about exactly how that's going to play out. But as I think about that, in the context of our business, we
Anthony Pinari: We have 1 operating solar site today. We have 2 more that are under construction and a handful that I would expect to get, you know, uh, you know, Under The Wire, by the time that deadline hits. And so, you know, in the near term, we've got a whole host of projects, I think to some degree, this might even expedite some of the projects that were maybe midterm that it'll go uh, a little faster to try to meet that deadline. But look ultimately there's an issue Countrywide from a power and energy perspective. The level of Supply is not going to keep up with Demand with data centers and AI Etc. And so there's really only 1 solution to that in the near term is and that's going to be renewable. So these things are going to get built out. We've aligned ourselves with sophisticated counterparties that largely saw this coming and have mitigation strategies in place to take care of this. Uh, but ultimately, these are going to get built. It may mean that the customer has to pay a higher, electric bill. But ultimately, I don't see this meaningfully over the mid to long term slowing down.
Anthony Pinari: Solar much.
Anthony Pinari: Anthony. I just add a couple of other positives uh for warehouser on the tax legislation uh the bill did increase the the portion of a Reit that can be held in a taxable rate, subsidiary from 20 to 25%. So that does give us additional capacity over time to grow our our wood products businesses without jeopardizing Rhee status. Uh there are also some other adjustments to reinstating 100% bonus depreciation, other qualifying.
Anthony Pinari: production uh, deductions that we expect to to be beneficial to our manufacturing business as a whole over time and they'll also apply to our Monella facility
Okay, that, that that's very helpful. Um, and then just Switching gears, you know, Lumber does seem to have stabilized a little bit in in recent weeks and I'm wondering if you had any, you know, additional thoughts on what might be driving that or what you're seeing. Uh, in terms of, you know, our dealers buying ahead of import duties, or, or 232, or are you seeing curtailment and Canada, or elsewhere or is, is demand picking up? I'm just curious. If you had any additional color on, kind of current market conditions, especially in Lumber.
Anthony Pinari: Yeah, I I mean on the lumber side, there's a lot going on right now. Uh, I would say when you talk about the lumber market right now, you, you really have to talk about it in SPF terms, and then Southern yellow pine terms, because we've seen, uh, diverging Dynamic there and a lot of this is driven. I think by, you know, just anticipation of the higher, Lumber duties and perhaps to some degree that the outcome of a 232 investigation. When you look at Southern yellow pine, I think the reason that it's stabilized is because it got down to a position where a lot of the industries, bouncing around, you know the the cash flow break even and perhaps some even below that. And so I think you know what you're seeing is people are dialing back a little bit on production at
Anthony Pinari: Works have significant Lumber inventories at present. Uh, and so you see kind of those diverging Dynamics at play. We're going to have the new duties coming out very soon. Uh, those should be announced, you know in the in the coming days in terms of when they're going to go in effect uh I think that will cause uh you know some some volatility probably in pricing here in the near term until that stabilizes but ultimately I would expect you know from a pricing standpoint you would expect that pricing should go up over the course of the Fall, given all these different Dynamics, even even in a stable, demand environment.
Okay, that that's very helpful. I'll turn it over.
Speaker Change: Our next question comes from Mark wein trout with C Port research Partners, please proceed with your question.
Thank you. Um, so maybe a couple of follow-ups. Um, 1 would be on Lumber and um, you know, with the duties coming Etc. And at at the same time, um, kind of looking at the second quarter, you guys, I think we're like 11 million in ebit done. If you look at where prices are today, um, you presumably would be fairly negative in ebit da in Lumber. And, and um, you know, you've certainly indicated in the past and, and, and margins, and things like that with suggests that that you have, you know, a better system lower cost system than most. I mean, are you surprised or haven't been hasn't been more response on the capacity side?
Speaker Change: To date. Or do you think? That's just it's going to come but soon and just waiting for the duties and any thoughts. There would be helpful.
Speaker Change: Yeah, I mean, so look. It's always hard to know what other companies you know are, are thinking about behind, you know, behind the scenes. So I won't necessarily speculate on that. What I would say is, you know, high level. It's hard to know exactly what's going to happen with pricing until we see these duties come in to effect. And so, you know, to some degree, there's probably a logic to waiting until the duties. Come uh seeing what that does to pricing. If the general expectation is that you're going to see at least from a US Lumber perspective. Uh see pricing go up here in this in the next several months.
You'd probably wait to see how that shakes out before you start making meaningful operating decisions at least in terms of long-term curtailment Etc. You might dial back.
Speaker Change: Production around the margins. Certainly probably not run, extra overtime, those kinds of things. But I would, I would guess that, you know, probably folks are thinking about, let's, let's see what happens with pricing. After these duties, come into play, we'll see what happens with the 232 investigation. See where prices settle out before we make any sort of big operating decisions. That would be my guess.
Understood and just just, but is there any reason why that, the window we get on sort of costs, looking at, uh, what you're doing, like, the 11 million again, if you put in where prices are, would seem to be fairly negative? Why that wouldn't be? Um, a, a good visual on on just, you know, how distressed um, you would think most other manufacturers would be at this juncture.
Speaker Change: Yeah. I mean, our view and and I think we've seen this over time is from a cost structure standpoint. We're in a pretty good place on the cost curve. So I still believe that to be the case and so you can
Speaker Change: you can take that assumption and and do what you will and apply that to other manufacturers, but that's certain we view ourselves to be low cost producers and
And, you know, from a overall cost standpoint efficiency standpoint. We feel like we're in pretty good shape relative to most of the industry. Okay. And then lastly, um, so just on the section 232, uh, first any, uh, any Intelligence on, you know, how how you think that might play out and then 1, um, point of clarification. Um, so I I believe that, you know, tariffs for instance, on European Lumber are are not being applied. While a section 232 is in process is, is that accurate so that when the section 232 investigation is concluded? Uh, do then do at least European does European would uh start uh having a tariff on it.
Say with respect to that is this does seem to a large degree to be prefaced on the administration's desire to see more Manufacturing in the US. And so you know, to the degree that you can read into that. Uh, what happens with 232 I would, you know, I would guess there's some chance that you see some additional tariffs but again, we don't have anything specific to provide at this point.
Speaker Change: Thanks man. Appreciate it.
Speaker Change: Yep, thank you.
Our next question comes from, Kurt Jinger with da Davidson please proceed with your question.
Speaker Change: Great. Thanks and good morning everyone.
Kurt Jinger: I just wanted to um Circle back around on on the destitutes, you know, understanding or not getting to get into specifics of transactions that haven't been announced, but from an expectation standpoint, I guess how much of the Rono acquisition would you expect to be kind of funded with devest? And is there a reasonable kind of timeline for us to think about um at least when you hope to to maybe have those deals completed by?
Speaker Change: Yeah, Kurt so not sure. I can give you a whole bunch more specifics as, as you know. But um, you know, we've said we're going to fund that transaction through the destitute of of non-core Timberlands. So, you know, I would expect that to be the, the vast majority, if not all of it, um, you know, with respect to timing again, that's something we're focused on we'll report back as appropriate. Uh, I, I can offer up that, you know, as you look at the requirements, under the IRS code section 1031, those exchanges have to be completed within 180 day timelines. So, we're certainly cognizant of that. And, and looking forward to to moving forward on these transactions,
Kurt Jinger: Okay, got it. That's helpful. And then
Kurt Jinger: You know, just kind of looking at the balance sheet if if we don't factor in the destitutes it seems like Leverage could maybe pick up into the mid fours by year end, I guess in that context, how should we think about your appetite for for Cherry purchases? At least here in the near term and how are you thinking about overall flexibility just giving what we know is coming in terms of monicello spending next year as well?
Yeah, look Kurt. I mean, we feel really good about the strength of our balance sheet. We've been working hard for the last, you know, several years, the number of years to get our operating posture and profile in the right position to get our balance sheet in the right place. So you know, as we navigate whatever market conditions may arise, we feel really good about how we're positioned a lot of flexibility.
Um, feel really good. As we as we think about our our balance sheet and opportunities there. And I think more broadly speaking on share repurchase, uh, we're pleased to have been very active in that space over the course of the second quarter, completing a hundred million dollars in the quarter. Our our highest level, uh, that we've done in several years. So I think that's an indication that we view it as a very attractive lever. Uh, you know, for us, I think we'll continue to weigh the opportunities available in that space moving forward and not just in Cherry purchase, but other opportunities that may arise. And so, part of part of that evaluation process, and what we're weighing, as we're focusing on that is ensuring, we maintain a strong balance sheet, have the right capacity for future growth opportunity opportunities. So as always, we're going to look at all that and focus on allocating cash in the way that creates the most long-term value for shareholders.
Kurt Jinger: Our next question comes from K10 Moura with BMO Capital markets, please proceed with your question.
Speaker Change: Thank you. Good morning and thanks for taking my question. Um perhaps uh to start with Devin. I am hearing anything from your customers around, you know, kind of substitution of FBF for syv. When these duties, you know, go into place, is there a price differential, you know, where where this sort of really starts to pick up
Speaker Change: You know, as as you know, there's, you know, there's some historical views, uh, in certain markets around, you know, using Southern yellow pine versus SPF, I do think to some degree, you know, some of that is a little outdated around warp Etc with the way that we dry, Lumber these days that's much less of an issue than it used to be, uh, you know, warehouser actually has a lot of warp stable products that I think can fit squarely. So, that's an area that we're, we're really focused on. This is an opportunity, I think for southern yellow, pine producers to, to go out and, and take market share, uh, just given this price Dynamic, which I think will be in, uh, in place to some degree for, for a while here.
Speaker Change: Yeah, that's that's helpful. And then, um, just as a follow up your operating rate in Q2 for lumber osc and ewp plays
Speaker Change: Yeah in Q2 uh we were kind of in the high 80s on Lumber mid 90s on OSB and high 70s in ewp.
Speaker Change: Got it. That's very helpful. I'll get it over. Thank you.
Thanks.
Speaker Change: Our next question comes from Matthew McKellar with RBC Capital markets, please receive with your question.
Speaker Change: Good morning. Thanks for taking my question. Um, 1 big, beautiful bill. And the increase in the size of the taxable re subsidiary that could be held in reeds.
Speaker Change: You know, just recognizing you've expressed a bullish view on Timberland valuations here. Is it appropriate or attractive to allocated additional Capital to Wood Products with uh what makes sense for your business? Thanks.
Matt: Yeah. You bet Matt? I mean, absolutely. We would have interest in in Wood Products m&a, as you referenced. We've been focused on the Timberland side with that billion dollar Target. Uh, We've also been investing in our wood products business though through our capex program. Uh, really that's been a focus on working to reduce cost and and grow volume organically over time. Uh, we announced the the new Timber strand facility last fall and and monicello Arkansas making great progress on that. As we mentioned we really like the opportunity to grow our ewp business. Create that creates value across our our whole portfolio. And yeah, we certainly remain open to Acquisitions on the wood product space. If we found the right asset at the right price that aligns well with our portfolio creates clear value for shareholders. We've looked at a handful of deals over the past few years and we'll continue to look at opportunities as they come available. But of course it's always got to meet our strategic and financial criteria.
Speaker Change: Great, that's helpful. Thank you. And then last 1 for me, um, just around Forest carbon credits, I think you mentioned 6, additional projects under developments. Could you just clarify, are those all tracking to 2026 in terms of registration and sales and, and just made more broadly. What is what is the pipeline for for 26? Look like compared to how we're thinking about 25 here. Thank you.
Speaker Change: Yeah. So in addition to the 3 that we have approved we have 6 more that are currently under develop development, some of those we do expect to be issued in 2025 and with the remainder kind of early 2026 and then we're building out additional projects to put into the pipeline after that. So you know, we're just going to continue to grow this pipeline over time, we have a long list of potential properties that I think would be good carbon opportunities. And so, uh, we would expect this pipeline to just continue to grow year after year.
Speaker Change: Thanks very much. I'll turn it back.
Speaker Change: Thank you.
Our next question comes from Hong Hong with JP Morgan. Please proceed with your question.
Speaker Change: Yeah hey hey good morning everybody. Um I morning
Speaker Change: Good morning. I I guess on Japan, you've talked about gaining some market share in the country this quarter. Do you think that's sustainable or is, is there an expedition for that to kind of reverse later this year?
Speaker Change: In Japan. And so overall, you know, you would expect housing to decline over time. But that being said, we do think that just by virtue of gaining market. Share taking a bigger piece of the pie together with our customers, that business should be strong and healthy for the foreseeable future.
Speaker Change: Got it and I guess on China is, is the, is it safe to just say the expectation? Is that Imports won't resume until the entire trade War? Resolves itself,
Speaker Change: I mean, I think that's probably a, a reasonable assumption uh, I think, you know, obviously there's a lot going on there. In terms of trade with China, there are discussions ongoing, we've made our position, very clear to the administration Commerce, USR Etc, that we would like, to open that market back up. They understand that, but certainly, there are bigger issues of play. So I think that's probably a reasonable expectation. We're of course, going to continue to push from our end uh to try to open that market back up. But I would say Silver Lining, there is in the interim you know that has allowed us particularly out of the US South to Pivot our Focus to India and I think that's going to be a nice growth opportunity as we expand our export business out of the South, so we'll we'll see it come back eventually. I'm sure the timing is still TBD.
Speaker Change: Got thanks. Have a great weekend.
Speaker Change: Thank you. Thank you.
Our next question comes from Amir Patel with CIBC Capital markets, please proceed with your question.
Amir Patel: Hi uh, good morning Devin. This is uh some uh reports in in Canada that the federal and provincial governments uh are um more open to exploring a quota. As a potential solution to the the software Lumber dispute. Do you see any, um, kind of movement on the on the US side there and any prospects that uh that may uh be a path forward.
Amir Patel: Yeah, I mean, so look at a high level. There are a lot of discussions going on between the US and Canadian government right now. Uh, I'm sure that at least from the Canadian side. There's been some discussion from the the governmental uh, negotiators around Lumber uh and would I'm not sure I have any particular Insight on to what extent those conversations are progressing. I I would just say, you know, over time obviously this will get resolved is that going to happen in the very near term. I think that's very hard to say whether that includes a quota or some other mechanism, you know, obviously the devil is in the details and there's a lot that goes into you know, what would be acceptable from the US side, there are lots of parties as you know that are involved in these discussions. And so you know I think it's hard to say how quickly
This will all get resolved, lots of conversation. Uh, ultimately, I'm sure there will be a resolution at some point in the future, um, but I'm not sure I think that's necessarily going to happen in the very near term.
Yeah, fair enough. Uh thanks that's all I had. I'll turn it over.
Our next question comes comes from Mike roxland with truist Securities. Please proceed with your question.
Mike Roxland: Yeah, thank you, uh, Devon Davies. Andy for taking my questions. Um, just the first 1 I had in terms of the ewp, um, Devin. What's your expectation for SQ operating rate, uh, given your outlook on for lower sales volume?
Yeah, I mean so we are we are going to see lower operating rates in Q3 relative to Q2 and that's really just a reflection on the market Dynamic, you know, we can, we can dial that up if we see the demand environment improve over the quarter, but just given where, where things are today, we've dialed that back. Just a little bit around the margins. You know, we do have I, I think a high quality product. And so, you know, we've got good customer demand, uh, from our long-term customers, and we're always looking to take market share and those kinds of things, but at today's present, building level, I think it's prudent for us to dial that back just a little bit until we start to see some pickup in construction activity.
Speaker Change: Thought it makes sense and then just 1 1 quick uh question on your 3Q, what product? How look overall, you know, based on your guidance, calling for 3Q would cost to be comparable to 2q and give them our lumber and OSB prices stand today versus the QQ average. Is it fair to say that EBA and would possibly be down you know 50 60 million dollars sequentially.
Speaker Change: Yeah, I mean so, you know, we we obviously provide the, you know, the the spread on for every ten dollars it's 50 million annually in Lumber and 32 million on OSB. So, you know, you you can do the math as we progress the quarter.
Speaker Change: But we, we find it very difficult to predict what's going to happen with commodity prices. Which is how, you know, why we do our Outlook that way, providing guidance on the things that we have a little bit more control and visibility into. So we'll see what happens with pricing over the course of the quarter. As I said you know at least from a lumber standpoint, there's going to be a lot of volatility here in the near term as these duties come into place. You know, over time you wouldn't expect the industry to continue to operate below cash flow, break even. And if you look back over history, you can see lots of examples of what happens in that instance. And so our, our expectation is obviously ultimately you should see some upward movement on on lumber pricing OSB. You know, similar story. Um, sometimes that takes a little bit longer to play out, but ultimately, you know the industry you would assume is going to operate at a level that's profitable and so we'll see how long that takes. But just in terms of, you know, specific Lumber and OSB, you know, you you can sort of do that math based on the sensitivities that we
Provide on overall ibida.
Thank you very much.
Speaker Change: All right, thank you. I think that was our final question.
Speaker Change: Yes, it was. There are no further questions at this time. I'd like to turn the floor. Back over to Devon stockfish for closing comments.
Speaker Change: All right. Well, thanks everyone for joining us this morning and thank you for your continued interest in warehouser. Have a great day.
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