The U.S. economy is undoubtedly in trouble, and this is affecting almost every sector within the market. Even core materials like lumber and packaging are suffering. Case in point, lumber producer Weyerhaeuser (NYSE:WY) reported a net loss for its fourth quarter of $63 million (30 cents per share) on February 8. This is a mammoth disappointment over the profit of $507 million ($2.12 per share) reported in the same quarter last year.

Investors were obviously disappointed, as seen in the nearly 4% decline in the share price on the day of the earnings announcement. Wall Street is now left wondering if Weyerhauser can stave off lackluster demand for its products and, dare I say, return to profitability?

Those Numbers are Ugly!
The company's fourth quarter numbers proved to be nothing less than dismal. In total, Weyerhaeuser has six divisions: Timberlands, Wood Products, Cellulose Fibers, Fine Paper, Containerboard Packaging and Recycling, and Real Estate. With the exception of Cellulose Fibers and Containerboard Packaging and Recycling, the other four divisions experienced decelerated earnings in the fourth quarter over the previous year. During the fourth quarter, Weyerhaeuser's Real Estate segment's earnings declined 93% year-over-year! The good news is the division did post a $22 million profit during the quarter, the bad news is executives have said the segment could easily go red in the first quarter of 2008. (To learn more, see The Importance Of Segment Data.)

Cards On The TableThe company issued a 2008 outlook for each division, something that is fairly bold, especially in this market. And, in every one of the individual outlooks, the tone is very clear: Expect a rough road ahead and lower earnings in the first quarter. This honesty is exactly why Weyerhaeuser is a standout! The company is good at what it does, and given the whopping "smack-down" in the housing market right now, and overall economy for that matter, it has actually weathered the storm very well. Many homebuilders are taking hundred million-dollar-plus charges to write down inventory!The management at Weyerhaeuser is absolutely rock solid, and in the quarter's earnings report, management told it like it is. Many companies on Wall Street try to sugarcoat bad news, however, Weyerhaeuser laid it all on the table, which demands market respect. Quiet Strength Better than Empty PromisesIt's important to note that even with the economy devastating the company's fourth quarter 2007 and probably first quarter 2008 earnings, the stock is still fundamentally healthy. The simple fact is, even with the market downturn, the company's annual sales will still likely top $15 billion for the year. The stock could suffer over the next quarter, or two, as housing markets continue to implode; however, Weyerhaeuser has management that is not hiding from present economic issues. At the end of the day, the company has decided to make its problems abundantly clear and is making no attempt to over-promise for the first quarter, or 2008. The Bottom LineI think honesty is the best way to approach the difficult conditions at hand. After all, when Wall Street is fully aware of a company's hardships, it opens the door for extremely positive news in future quarters when business turns around. Under-promise, over-deliver: this is a strategy patient investors may profit from in the final quarters of 2008 and in 2009.

Related Articles
  1. Stock Analysis

    Starbucks: Profiting One Cup at a Time (SBUX)

    Starbucks is everywhere. But is it a worthwhile business? Ask the shareholders who've made it one of the world's most successful companies.
  2. Stock Analysis

    How Medtronic Makes Money (MDT)

    Here's the story of an American medical device firm that covers almost every segment in medicine and recently moved to Ireland to pay less in taxes.
  3. Investing News

    Latest Labor Numbers: Good News for the Market?

    Some economic numbers are indicating that the labor market is outperforming the stock market. Should investors be bullish?
  4. Investing News

    Stocks with Big Dividend Yields: 'It's a Trap!'

    Should you seek high yielding-dividend stocks in the current investment environment?
  5. Investing News

    Should You Be Betting with Buffett Right Now?

    Following Warren Buffett's stock picks has historically been a good strategy. Is considering his biggest holdings in 2016 a good idea?
  6. Products and Investments

    Cash vs. Stocks: How to Decide Which is Best

    Is it better to keep your money in cash or is a down market a good time to buy stocks at a lower cost?
  7. Investing News

    Who Does Cheap Oil Benefit? See This Stock (DG)

    Cheap oil won't benefit most companies, but this retailer might buck that trend.
  8. Investing

    How to Ballast a Portfolio with Bonds

    If January and early February performance is any guide, there’s a new normal in financial markets today: Heightened volatility.
  9. Stock Analysis

    Performance Review: Emerging Markets Equities in 2015

    Find out why emerging markets struggled in 2015 and why a half-decade long trend of poor returns is proving optimistic growth investors wrong.
  10. Investing News

    Today's Sell-off: Are We in a Margin Liquidation?

    If we're in market liquidation, is it good news or bad news? That party depends on your timeframe.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center