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Weyerhaeuser Cut Down To Size
About a year ago, forest-product firm Weyerhaeuser (NYSE:WY) announced it was selling its containerboard, packaging and recycling businesses to rival International Paper (NYSE:IP). The move was timely as it shored up Weyerhaeuser's capital position while exacerbating its exposure to the struggling homebuilding industry. The long-term investment appeal remains in the 5.7 million owned acres of timberland, but is this enough to offset wood product and real estate exposure?
IN PICTURES: Top 10 Forex Trading Rules
Recent Results Illustrate Near-Term Difficulties
Weyerhaeuser reported full-year results last week that only served to illustrate the near-term difficulties it is facing. Management billed it as an "upheaval in financial markets ... accompanied by accelerated deterioration of housing markets", which came through as a 26% fall in net sales from continuing operations to $8 billion. Namesake sales - which consist of timberland log sales, wood products used in residential and commercial construction, and cellulose fiber consisting of pulp sales for carton and food packaging - reported a 22% decrease and accounted for 82% of sales. The real estate segment, which consists of single-family housing and land development activities, accounted for the rest of sales and experienced a serious 40% drop.
Numerous one-time charges to write down goodwill and impair real estate values sent net income well into negative territory – the full-year loss was $1.2 billion, or $5.57 per share as compared to positive earnings per share of $3.60 in 2007. The going is expected to remain tough as analysts are calling for negative earnings in each of the next two years, according to Thomson Financial Networks, as end construction markets are expected to remain weak. (Learn how this key metric is calculated and how it is used to judge market performance; check out Earnings Forecasts: A Primer.)
Bottom Line
Weyerhaeuser appears to have the liquidity to ride out any extended industry turmoil. It ended the year with $2.4 billion in cash and short-term assets and $4.2 billion in timber and timberland assets at cost against $5.2 billion in long-term debt. Still, the bulk of sales stem from wood product and real estate activities, as timberland sales made up only 11% of full-year revenues.
Final Thoughts
The timberland assets are obviously of a long-term nature for Weyerhaeuser, and although the firm is among the world's largest private owners of timber acreage, its other activities will continue to have the biggest influence on its fortunes. I was initially drawn to these assets, but at this time I must conclude that rivals like Plum Creek Timber (NYSE:PCL) and Potlatch (NYSE:PCH) are more appealing given their purer exposure to the growing and harvesting of timber. Again, their businesses are suffering as customer demand remains weak, but their share prices have held up much better than Weyerhaeuser and International Paper, whose businesses are much more dependent on day-to-day, forest-product activity.
Timber's low correlation to other asset classes can enhance your portfolio's growth; check out Timber Investments Cut Down Portfolio Risk.
IN PICTURES: Top 10 Forex Trading Rules
Recent Results Illustrate Near-Term Difficulties
Weyerhaeuser reported full-year results last week that only served to illustrate the near-term difficulties it is facing. Management billed it as an "upheaval in financial markets ... accompanied by accelerated deterioration of housing markets", which came through as a 26% fall in net sales from continuing operations to $8 billion. Namesake sales - which consist of timberland log sales, wood products used in residential and commercial construction, and cellulose fiber consisting of pulp sales for carton and food packaging - reported a 22% decrease and accounted for 82% of sales. The real estate segment, which consists of single-family housing and land development activities, accounted for the rest of sales and experienced a serious 40% drop.
Bottom Line
Weyerhaeuser appears to have the liquidity to ride out any extended industry turmoil. It ended the year with $2.4 billion in cash and short-term assets and $4.2 billion in timber and timberland assets at cost against $5.2 billion in long-term debt. Still, the bulk of sales stem from wood product and real estate activities, as timberland sales made up only 11% of full-year revenues.
Final Thoughts
The timberland assets are obviously of a long-term nature for Weyerhaeuser, and although the firm is among the world's largest private owners of timber acreage, its other activities will continue to have the biggest influence on its fortunes. I was initially drawn to these assets, but at this time I must conclude that rivals like Plum Creek Timber (NYSE:PCL) and Potlatch (NYSE:PCH) are more appealing given their purer exposure to the growing and harvesting of timber. Again, their businesses are suffering as customer demand remains weak, but their share prices have held up much better than Weyerhaeuser and International Paper, whose businesses are much more dependent on day-to-day, forest-product activity.
Timber's low correlation to other asset classes can enhance your portfolio's growth; check out Timber Investments Cut Down Portfolio Risk.
by
Ryan C. Fuhrmann
Ryan C. Fuhrmann, CFA, has a background in portfolio management, overseeing assets for high-net-worth individuals and covering a broad array of industries from a generalist perspective. An active student of investing, he focuses on communicating his ideas as an investment writer and learning from the financial community. Ryan is also actively involved with the CFA Institute. Feel free to visit his website at www.rationalanalyst.com.
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