Weyerhaeuser (WY) Down 12.4% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Weyerhaeuser (WY). Shares have lost about 12.4% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Weyerhaeuser due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Weyerhaeuser's (WY) Q1 Earnings In Line, Sales Lag, Down Y/Y

Weyerhaeuser Company reported first-quarter 2019 results, wherein earnings met the Zacks Consensus Estimate, while net sales missed the same. Adjusted earnings (before special items) of 11 cents were in line with the consensus mark but decreased 69.4% from the year-ago figure of 36 cents. The company has been witnessing unfavorable average sales realizations for oriented strand board, domestic and export logs, and lower volumes.

Revenue Discussion

In the quarter under review, Weyerhaeuser’s net sales of $1,643 million missed the consensus mark of $1,733 million by 5.2%. Also, the reported figure was down 11.9% from $1,865 million in the prior-year quarter.

The company currently operates through three business segments, namely Timberlands, Real Estate, Energy and Natural Resources, and Wood Products.

Net sales in Timberlands (accounting for 26.2% of total net sales) during the first quarter were $556 million, declining 12% from the year-ago figure of $632 million. Adjusted earnings before interest, tax, depreciation and amortization (Adjusted EBITDA) came in at $193 million versus $268 million a year ago, reflecting a decline of 28%.

Real Estate, Energy and Natural Resources’ net sales (7.2%) were $118 million. The reported figure increased 131.4% from the year-ago period. Adjusted EBITDA also grew 158.5% to $106 million from $41 million a year ago.

In the Wood Products segment, net sales of $1,094 million (66.6%) decreased 17.4% on a year-over-year basis. Adjusted EBITDA came in at $115 million, decreasing 59.8% from the year-ago figure of $286 million.

Operating Highlights

Gross profit declined to $321 million from $517 million a year ago.

Selling expenses, as a percentage of net sales, grew 100 basis points year over year to 1.3%. General and administrative expenses, accounting for 5.4% of net sales, also increased 14.1% year over year to $89 million. However, research and development expenses were $1 million, lower than the prior-year level of $2 million.

Adjusted EBITDA was $365 million in the quarter, decreasing from $544 million a year ago.

Financial Highlights

At the end of the first quarter, Weyerhaeuser had cash and cash equivalents of $259 million, down from $334 million in the comparable period of 2018. Long-term debt was $6,156 million versus $5,419 million at 2018-end.

In the reported quarter, the company’s cash used for operating activities was $14 million versus cash provided from operating activities of $136 million a year ago. During fourth-quarter 2018, it repurchased approximately $60 million of its common stock.

Q2 Guidance

For second-quarter 2019, Weyerhaeuser expects sequentially lower earnings and adjusted EBITDA at the Timberland segment. In the West, lower export sales volumes will likely impact results, due to the timing of vessel sailings. This will partly be offset by favorable domestic log sales realizations. Average Southern log sales realizations are expected to be same as the first quarter. Western and Southern silviculture activity and related costs are expected to increase seasonally. In the North, fee harvest volumes will decrease significantly due to spring break-up.

In the Real Estate, Energy and Natural Resources segment, the company anticipates sequentially lower but annually higher earnings and adjusted EBITDA in the second quarter due to the timing of favorable Real Estate transactions. The segment’s adjusted EBITDA for full-year 2019 will be roughly $270 million.

For the Wood Products segment, it predicts significantly higher earnings and adjusted EBITDA on a sequential basis. The upside will be mainly driven by seasonally higher volumes and operating rates across all its product lines.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -39.65% due to these changes.

VGM Scores

At this time, Weyerhaeuser has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Weyerhaeuser has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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