Weyerhaeuser Company (WY) — Q3 2016 Earnings Call Transcript

Thank you, Ginger. Good morning, everyone, and thank you for joining us today to discuss Weyerhaeuser's third quarter 2016 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our press 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 to GAAP can be found in the earnings material on our website. On the call this morning are Doyle Simons, Chief Executive Officer; and Russell Hagen, Chief Financial Officer. I will now turn the call over to Doyle Simons.

Thank you, Beth, and welcome, everyone. This morning, Weyerhaeuser reported third quarter net earnings of $227 million or $0.30 per diluted share on net sales of $1.7 billion. Our third quarter results include after-tax earnings of $65 million from discontinued operations and $10 million of after-tax charges for merger-related expenses. Excluding these items, we earned $172 million or $0.23 per diluted share. This is an improvement of over 30% compared with the second quarter and over 40% compared with a year ago. Third quarter adjusted EBITDA totaled $434 million, an improvement of $21 million compared with the second quarter. Our employees delivered strong performance in the quarter as operating results improved across each of our businesses, with Timberlands driving increased EBITDA through merger synergies and Wood Products achieving its highest third quarter earnings in 12 years. However, these results reflect only some of our quarterly achievements as we also closed the sale of our liquid packaging board business, completed the move to our new corporate headquarters in Seattle, and completed our commitment to a $2 billion accelerated share repurchase. I'm proud of what our teams accomplished and the pace at which they continue to operate as we work together to be the world's premier timber, land, and forest products company. Before turning to our business results, let me make a few brief comments regarding the housing market. Third quarter housing activity was roughly in line with our expectations, and we are anticipating nearly 1.2 million housing starts for 2016 in line with consensus estimates. Although total housing starts for September were weaker than expected, the headline number was driven by the volatile multi-family sector. Single-family starts have continued to grow at a favorable pace. Through September, single-family starts are up approximately 10% compared with 2015 on a seasonally adjusted basis, and low inventories of homes for sale reflect continued steady demand. As we enter the seasonally weaker fourth quarter, we're encouraged by the strength of some timber permitting activity, new home sales, and continued solid builder confidence. Although constraints such as skilled labor, permit delays and fees, and rising costs for land and construction may be functioning as a governor on supply-side growth, rising employment and wages and favorable mortgage rates continue to drive improving housing demand. Let me now turn to our business segments. I will begin the discussion with Timberlands. Timberlands contributed $122 million to third quarter earnings and $223 million to adjusted EBITDA. Adjusted EBITDA increased about $3 million compared with the second quarter. Western Timberlands contributed $109 million to third quarter EBITDA compared with $114 million in the second quarter. Western fee harvest volumes decreased, and average log realizations were largely flat. Sales volumes to Japan improved moderately during the quarter as low mortgage rates continued to drive strong housing activity, and the effect of the delay in the consumption tax increase continued to fade. Average realizations for Japanese logs declined slightly early in the quarter but stabilized as the quarter progressed. Sales volumes to China decreased due to timing of shipments and a slight seasonal decline in demand, and average realizations decreased modestly. Log inventory at Chinese ports declined during the quarter and remains within a normalized range. Western domestic markets remained solid during the quarter and pricing for domestic logs improved marginally, as some markets were tensioned by fire-related harvest restrictions and increased mill demand. Western logging costs benefited from operational excellence initiatives during the quarter. Although we anticipated a seasonal increase in per unit logging cost due to the harvest on higher elevation stands, crews were able to mitigate this cost increase through new harvesting technology that improves productivity on steep slopes and reduces the need for the highest cost cable logging operations. Southern Timberlands contributed $108 million to third quarter EBITDA, $9 million more than the second quarter. Seasonally higher log sales volumes were partially offset by seasonally higher silviculture and forestry costs, and a 1% decrease in average log price realizations. This decline was partially attributable to the mix as third quarter harvest included a slightly higher proportion of pulp wood. Southern logging costs benefited from operational synergies with merger integration progress, enabling further optimization of logging and hauling activities across the combined ownership. Northern Timberlands' EBITDA improved $3 million compared with the second quarter. Seasonally higher volumes were partially offset by weaker realizations and seasonally higher road and forestry expenses. Subsequent to the end of the quarter, we announced a strategic review of our Uruguay operations. This review will enable us to ensure that we're best positioning the business for long-term success and maximizing value for our shareholders. We look forward to providing further information after the review is complete. The Timberlands business remains relentlessly focused on capturing operational excellence and synergies and is on track to achieve its $30 million to $50 million target for 2016. Internal benchmarking teams are rolling out their initial best practices that resulted from comparing a subset of high-value activities at each company. We are pleased with the progress to date and look forward to continuing to capture the benefits later this year and into 2017.

Thank you, Doyle, and good morning. The outlook for the fourth quarter is presented in chart 14 of the earnings slides. In our Timberlands business, we expect fourth quarter adjusted EBITDA will increase slightly over the third quarter. In our western Timberland operations, we anticipate harvest volumes will be lower than third quarter levels. However, we expect sales realizations will increase modestly in each of our export markets as housing activity remains strong in Japan and Chinese demand remains solid. Domestic log sales volumes are expected to be comparable to the third quarter. We anticipate domestic sales realizations will increase slightly in the fourth quarter as a result of steady domestic demand and seasonally lower available log supply. Western logging costs will continue to benefit from the results of our operational excellence initiatives. Southern harvest volumes are expected to be slightly higher than third quarter. Minerals have adequate log inventories entering the fourth quarter, and average sales realizations are expected to be flat quarter-over-quarter. Silviculture and road spending will be seasonally lower in the South during the fourth quarter. In the North, fourth quarter harvest volumes will decrease seasonally from third quarter levels, as third quarter is typically the best operating quarter of the year. Real Estate and Energy and Natural Resources earnings for the fourth quarter are expected to be slightly higher than the third quarter, while adjusted EBITDA will be about double from third quarter results. It is important to note that the real estate sales include a mix of legacy Weyerhaeuser properties and Plum Creek properties, and that the Plum Creek properties have proportionally higher basis because they were marked to fair value in the purchase price allocation. This results in lower earnings when these properties are sold. For Wood Products, we expect lower demand due to a seasonal decline in building activity. Channel inventories remain lean as buyers purchase for immediate needs. We expect lumber sales realizations in the fourth quarter will be flat to slightly down compared to third quarter levels. We expect OSB prices will decrease, giving back much of the third quarter gains. Engineered Wood Products prices are expected to be similar to the third quarter. We anticipate seasonally lower sales volumes across all product lines in the fourth quarter, and a slight increase in manufacturing costs, as a result of the holiday season and scheduled downtime to complete maintenance and capital projects. Overall, we expect fourth quarter adjusted EBITDA and the earnings for the Wood Products segment to be seasonally lower than the third quarter. We do, however, expect adjusted EBITDA will be nearly double the fourth quarter of 2015.

I will now turn to discontinued operations. Discontinued operations, which was formerly our Cellulose Fibers segment, contributed $65 million to after-tax earnings in the third quarter. This includes an after-tax gain of $41 million on the sale of our liquid packaging board business, which closed on August 31 for gross proceeds of $285 million. Excluding this gain, net earnings from operations declined $14 million compared with the second quarter. Maintenance expenses increased significantly, and pulp production declined due to additional scheduled maintenance outage days. This was partially offset by higher average sales realizations for pulp, primarily due to mix. On October 4, we announced an agreement to sell our printing papers business to One Rock Capital Partners. This completes the strategic review of our Cellulose Fibers business announced in November 2015. I'm proud of the contribution our Cellulose Fibers employees have made to Weyerhaeuser, and I want to thank them for maintaining their focus on operating safely and delivering a superior customer experience throughout the strategic review process. I will now turn it over to Russell to discuss some financial items and our fourth quarter outlook.

Thank you, Doyle, and good morning. As I mentioned, in Timberlands, we expect fourth quarter adjusted EBITDA will increase slightly over the third quarter. In our Western Timberland operations, we anticipate harvest volumes will be lower than third quarter levels. However, we expect sales realizations will increase modestly in each of our export markets as housing activity remains strong in Japan and Chinese demand remains solid. Domestic log sales volumes are expected to be comparable to the third quarter. We anticipate domestic sales realizations will increase slightly in the fourth quarter due to steady domestic demand and seasonally lower available log supply. Western logging costs will continue to benefit from our operational excellence initiatives. In the South, Southern harvest volumes are expected to be slightly higher than third quarter levels, while the North will see a seasonal decrease.

Thank you, Russell. I'll wrap up with some brief comments on merger synergies and integration. We continue to implement the changes necessary to achieve our $100 million hard dollar cost synergy target. As of the end of the third quarter, we have achieved about two-thirds of these reductions on a run rate basis. I'm highly confident we will meet or exceed our $100 million run rate cost synergy target by the end of year one. We've also fully identified the sources of reductions for the $35 million of costs formally allocated to Cellulose Fibers and are on track to eliminate these costs within one year of closing the International Paper transaction. The integration with Plum Creek continues to progress well. Working together will be the foundation of our success, and I'm encouraged by the teamwork I see within and between the businesses and functions of our merged company. I'm excited by what we've achieved and where we're going, and I look forward to continuing to share our successes with you as we work together to drive value for shareholders through a focused portfolio, industry-leading performance, and disciplined capital allocation. And now with that, I'd like to open the floor for questions.

Hi. Good morning.

Good morning, Anthony.

Doyle, I had a question on the Softwood Lumber Agreement. Earlier this year there seemed to be some optimism that a new agreement would be negotiated. And over the past couple of weeks, we've had U.S. legislators and the Canadians issuing statements, saying the other side isn't serious. I was wondering if you were surprised by the lack of an agreement at this point and kind of where we stand here, and with the exploration of the standstill period, I guess the U.S. Lumber Coalition has talked about initiating trade cases and to the extent that you're able, I was wondering if you could give us any thoughts on that process.

Yes, Anthony, as we previously said, we're very actively involved with and fully supportive of the U.S. Coalition, and frankly, we would prefer the certainty of a negotiated agreement and are hopeful that one will be reached. And as you mentioned, the governments are having ongoing negotiations and those are pretty fluid right now. With that said, as we've said consistently, any agreement would need to be consistent with the objectives identified in the Obama-Trudeau joint statement, which is to maintain Canadian exports at or below an agreed U.S. market share to be negotiated. So, where we are now, I think is ongoing negotiations, but if no agreement is reached, we would expect a petition will be filed soon, and then we'll see how it plays out from that point forward. So that's kind of where we are in the approach we're taking.

Okay. That's helpful. And then just switching gears to Wood Products. I was wondering if you could talk a little bit about the pricing environment in engineered Wood Products? I think there were some price initiatives on the table earlier this year, and in third quarter, prices seem to be flattish, or maybe down a little bit. I was wondering if you could just talk about the forces that are impacting that market and kind of outlook for fourth quarter?

Yeah. So, there are a lot of moving pieces in the pricing for EWP currently. To get to your second part of your question, we anticipate EWP prices will be essentially flat in the fourth quarter versus the third quarter. Regarding the price increase, the price increase that went into place within the West in the second quarter and third quarter was successful but was offset by some pricing pressure in the East. As you know, Anthony, there's been a lot of dealer consolidation in the Eastern markets and a lot of jacking around has occurred in those markets. So, up in the West, down in the East, which has resulted in the net pricing that we saw in the third quarter. We think that's stabilized and anticipate essentially flat prices in the fourth quarter versus the third quarter.

Okay. That's helpful. I'll turn it over.

Hey. Good morning, everyone.

Good morning, Brian.

I just wanted to follow-up on the Wood Products. Obviously, a really strong quarter, like you highlighted in the prepared remarks year-on-year. But it seemed like it could have been maybe even a little bit better if lumber margins had been closer to where they were in the second quarter. I know you mentioned maybe some downtime and weather-related issues. But just wondering if you could dig into that a little bit more and talk about the margins in lumber and where they might be headed from here?

Yes, so I think there were three things that impacted our lumber results in the third quarter versus the second quarter. And as you mentioned, we had a strong second quarter in lumber, but three things in the third quarter. One was we had slightly lower sales volume. Two, as you mentioned, lower operating rates that was due to weather and some downtime for installation of some capital projects as we continue to invest capital in that business to drive down our overall cost structure. And then third and the most surprising one for us was that log cost increased in Canada, that was weather-related, and as you may know Canada has been very wet this year and as a result having to spend additional dollars to get wood to the mills, so that had an impact. And then also we had higher log costs in the West, that's consistent with what we reported in our Timberlands operation. So those both higher log costs in Canada and the West impacted our margins and results in the third quarter versus the second quarter. Going forward, we would anticipate as we said, lumber prices in the fourth quarter to be essentially flat to maybe down just a little bit in the fourth quarter versus third quarter.

Okay. Great. And then just a follow up one on the Real Estate segment in the fourth quarter. I know you said, you'll be about double in the EBITDA. Is that the start of maybe a trend higher here as you're getting through the process of evaluating everything, can we start to think about it being somewhere closer to that neighborhood and where you've been historically or is there just some lumpiness in it and then we're kind of back to lower levels in 2017?

Brian, this is Russell. On the Real Estate as we mentioned, we expect fourth quarter to be double the third quarter, and then we would expect that trend to continue as we work into 2017 and work through our AVO process, and really start bringing some of the Weyerhaeuser properties in through the Real Estate program. So as we've indicated, our target for the Real Estate and Energy and Natural Resource business is at 15% of total EBITDA, and so I would expect that in 2017 we will start moving towards that target.

Okay. Thanks very much.

Thank you.

Hi, everyone, good morning. Thanks for the details. I want to...

Good morning, George.

How are you doing, Doyle? I wanted to dig into Wood Products a bit further. Can you comment at all – maybe provide a few more details in terms of where you stand with being – as you've termed black at the bottom? I know we'll get more color probably in December on this, but what other initiatives do you have going on or where you stand in terms of being done on that project? And the related question was on operational excellence. You said, as you were talking about Wood, that you're generally on track. Now that's fine. But I kind of took your comments, as maybe there were some areas that weren't progressing quite as well as you'd like. If that was a correct assessment, where do you need to see some accelerated pick up? And then I had a couple of follow-ons either way.

Okay. So, George, to your point, we will be talking about both of those issues extensively in our December investor presentation, which we're looking forward to. But let me give you a sense on both of those. In terms of black at the bottom, as you know and we've talked about consistently over the past two to three years, that has been our focus in terms of our operational excellence initiatives, driving down our cost, the capital that we're spending, and we've made a lot of progress on that front. As you said, we're not there yet. But I would say we're 60% to 70% of where we need to be, maybe even a little more than that in terms of getting our cost structure where we're black at the bottom. And as we've said before, what we measure that against is what happened back during the recession in the 2007, 2008, 2009 type timeframe. So, a lot of progress made there, more work to do. In terms of generally on track, George, I wouldn't over-focus on the term “generally.” I would say we are on track in terms of our OpEx initiatives, still I guess, three months left in the year. So, didn't want to get over our sleeves, but again, we will give you a report on that in December. But I am very pleased with the progress we're making in our Wood Products operation, and frankly also in our Timberland operation, in terms of delivering against our OpEx targets for 2016.

All right. Thanks for that, Doyle. Two last ones and I'll turn it over. As we think about value return and the dividend, certainly the company has done a very, very good job of returning value to shareholders over the last couple of years, so this is not a complaint. As we think forward for the dividend, should we more or less think about it trending with the realizations that you can get in Timberland, in terms of what drives the next level of – if there’s anything left for that matter of a sustainable pickup in the dividend growth rate? And then, just Russell, on the term loan, should we expect that you will be paying that down pretty quickly from here on a going forward basis? Thanks, guys, and good luck on the quarter.

Thanks for those questions, George, and I'll address the dividend increase and then, I'll ask Russell to answer the term loan question. So, in terms of the dividend, again as we've said consistently, we are committed to a growing and sustainable dividend. 2016 is a very noisy year, as we all know as we do these various transactions, but looking into 2017, as we think about it, we're going to benefit from our cost – continue to benefit from our cost and operational synergies, continued OpEx improvements and what we believe will be stronger housing markets. To your point, we're also going to benefit from a portfolio perspective from a much more stable earnings stream for Timberland. And as we just talked about improvements made in Wood Products’ cost structure to eliminate some of the downside. So with all that said, we'll be working very closely with our board to determine the right level of dividend going forward. And Russell, if you'll address the term loan question.

George, as I mentioned, we have $1.7 billion drawn on the term loan. As we start closing on the Cellulose Fibers transactions, we'll start paying that down, so we would expect that to be paid down hopefully by year-end or soon around that time.

Thank you very much.

Yes. Good morning, Doyle and Russell.

Good morning, Chip.

Good morning.

First question is, I might be mistaken, but I think you're earning maybe more than 100% of the cumulative profits in the engineered wood business. That's quite a turnaround. And I really seriously wanted to ask you about, with these kind of some numbers and looking at the rest of the industry and it looks like you're not necessarily transferring raw materials in low, so how are you doing it? Is it because of the distinctiveness of some of your products or would you say that maybe it is being vertically integrated or maybe there is something else that we're missing?

Yeah. I would not attribute much of it, Chip, to being vertically integrated. I would attribute it to all the things that we've been working on now for two to three years starting to fall to the bottom line in terms of log recovery, controllable spend, preventive maintenance. Chip, you've heard us talk ad nauseam about it. It's the basic blocking and tackling. And I think we're starting to see the benefit of that hitting the bottom line. And the other part of it, as you mentioned, is kind of the products that we bring to market and the additional value that we give for some of those products. So I think it's a combination of both, but I think really the reason for the improvement that we've seen over the last two to three years have primarily been driven by just basic blocking and tackling in that business.

And I suppose it's safe to say, it's no longer sort of in the category that you put it in when you had first Investor Meeting with us?

Chip, I'm happy to say that it is no longer in that category. I think that business has proven its right to be part of our portfolio on an ongoing basis. Now you constantly got to earn that right, but that business, as you highlighted, and I appreciate you saying it, has made a dramatic turnaround in terms of bottom line performance.

And then just a couple of quick ones before turning it over—could you update on what you—and you might have mentioned this—what you see CapEx at this year? And I know it's early, but directionally where should it go next year? And then lastly for Russell, I know there is roughly a $600 million tax bill tied to the sale of the Cellulose business; does that tax actually get paid in cash sometime in 2017?

So the first question on CapEx, as we've indicated, we're focused on about $425 million CapEx this year, $125 million in Timberlands and $300 million in Wood Products. I think next year we expect around that general amount maybe just a little more in Timberlands as we bring in the combined Plum Creek and Weyerhaeuser properties. As far as the tax bill on CF, we would expect that to be paid hopefully again by year-end but possibly in the first quarter.

Okay. Thank you.

Hi. Good morning.

Good morning, Gail.

I assume this is baked into your guidance. But can you talk about any impact you had from Hurricane Matthew either in terms of your operating facilities or your timber operations?

Yeah. So, yeah, we’re fortunate, Gail, from the hurricane perspective that we had minimal damage to our Timberlands operations due to the hurricane. A couple of days or maybe a few more that we were kind of out of the woods in the Atlantic region, but very minimal damage. In terms of from a Wood Products perspective, we had some production loss as you would expect at our Atlantic mills; we had some minor water damage to some finished lumber, but nothing that’s financially significant.

Okay. And going back to Softwood Lumber Agreement, can you just give a little bit of color on how it's affecting your conversations with customers, and how they may be preparing forward as they look out into the building season next year?

I mean clearly, there's some uncertainty regarding the Softwood Lumber Agreement and how it plays out, Gail. But I wouldn't say it's affecting the way our customers are thinking about their ongoing business. And, in fact, customers continue to be especially homebuilders continue to be very optimistic about the demand that's out there in terms of new home sales and just underlying demand for new houses. So, it's a minor part of our conversation, it's not a major part, but our customers continue to be optimistic for the balance of 2016 and into 2017.

Okay. And just one last one. Can you give any sort of color on the export markets, particularly maybe some of the competitive dynamics in terms of logs from Russia, and New Zealand, or even some finished Wood Products from Europe going into Japan, just what you're seeing, and how that's been trending?

Yeah. So, let's talk about that, and bottom line is we're encouraged by what we see in the export market currently. From a Weyerhaeuser perspective, we anticipate that – from – in Japan, which as you know is our most important market, that pricing will be up in the fourth quarter versus the third quarter due to steady demand and lower log supply that always happens in the fourth quarter. We think volume may be down a little bit, but that's just going to be due to timing and the way the shipping worked. In China, we continue to see solid demand and anticipate higher prices in China in the fourth quarter, and encouragingly inventories actually came down a little bit in third quarter versus the second quarter. They are currently at 3.38 million cubic meters, which is down from where they ended at the second quarter. In terms of just overall views on it, we've seen a slight increase in imports into China from Russia, but nothing significant, and New Zealand seems to have kind of stabilized. So, that's what we're seeing overall in export markets.

Okay. And in terms of European competition in Japan with finished goods?

Yeah. So, that's the challenge that our customers face is Glulam that comes in from Europe, currencies have not been helpful from that perspective. But the good news in Japan is housing is growing 6%, 7%, 8%, and our customers continue to have very good demand for our Doug Fir which is used of course to build houses. And these solid logs or solid lumber is a preferred building material for post-and-beam construction.

Thank you.

Thank you.

Good morning, Doyle. Good morning, Russell.

Good morning, Mark.

Doyle, first question. It sounded from your comments like maybe the AVO process was going a little bit slower than expected. You said you expected to have it substantially done by the end of the first half of next year. I think initially we'd been talking about it sort of by late this year, very early next year?

No, Mark, I wouldn’t say it's slipped. Our focus has been on the South. And as I said, we are in the process of wrapping that up. Currently, we're in the latter stages of it. We'll then be moving to the West, and it may take us into the second quarter to complete it in the West. But I would actually tell you it's going very well. Our biggest opportunities, as we've said all along, are in the South, so we're pleased that we're wrapping that up. And as Russell mentioned, I think we're going to start to really see the benefit of that in early 2017 as we move forward with this process. So I would categorize it as right on track.

Okay. All right. That's helpful. And Doyle, can you give us a little bit more color, background on the Uruguay announcement? And then, if you were to dispose of that, what would you likely do with the capital?

Yeah. So Mark, as we previously mentioned, as part of this merger integration, we've been in a review of all 13-plus million acres of our timberland. As you know, Uruguay is a project that was started from the ground up back in the mid-1990s and is just now really coming into maturity. Our focus going forward is going to be primarily domestic, and we think there may be an opportunity to position Uruguay with what I would call a more natural sponsor that may be more focused on those markets going forward. In terms of what we'll do with the cash, as you would anticipate, Mark, we'll run that through our capital allocation priorities as we do everything and figure out the best use of that cash to drive value for our shareholders long-term.

All Right. And Doyle, just if I could, the one other kind of block of land that seems like a little bit of an outlier is these kind of Northern Timberlands in New England and the Great Lakes. They're not plantations. It's a little different business than what you have in the South or the West. Any thoughts there?

Mark, I would answer that this way and consistent with what we've said before. We're in the midst of a review of our overall timberland portfolio with 13-plus million acres that we now have, and we have lots of flexibility as to how to create the most value for our shareholders, so we'll be factoring all that in as we move forward.

Okay. Last question I had, Doyle, is just back on the SLA one more time. I am just curious, from your perspective it seems to me that we're likely to have a more protectionist administration, no matter who is elected come January. And I am just curious about whether you share that view? And whether you think that's having any effect on sort of the negotiations right now? In other words, are the Canadians perhaps more interested in getting something done with this administration rather than waiting to see what they get come January?

Yeah. Mark, I would say I don't think the election is currently having much effect on the negotiations. In terms of predicting what in the heck may happen in this election or what the implications of that may be is probably not somewhere that I should go or I'm qualified to go. So we'll see how the election plays out, but we are encouraged, Mark, at this point about the negotiations that are going on between the government. We'll just have to wait and see how this plays forward.

Okay. All right. Sounds good. Good luck in the fourth quarter and into next year, guys.

Thank you, Mark.

Thank you. Doyle, two things. Obviously, the step up in basis affects the real estate profit that you report. But it doesn't mean that the sales are any less attractive. Can you give us a sense of whether these were higher or lower than average quality sales?

Mark, this is Russell. I think on the call, as we mentioned, a lot of those transactions were in the Northern properties; it's not that they weren't lower quality, it's just lower price per acre than you would see in the West or in the South.

Okay.

But Mark, you're exactly right on your first comment that – yeah, that doesn't mean they're not quality sales just because they were written up. So thank you for making that point; that's exactly right.

Yeah. Russell, what I was really trying to get at is relative to what you do in the North, was this pretty typical stuff?

Yes, I think those are typical transactions that you'd see in the North.

Okay. That's helpful. And then just one simple question. How much of higher OSP prices that we saw in the quarter actually hit engineered Wood Products in the quarter? I'm just trying to get a sense of how fast that flows through.

About a $2 million impact in the quarter, Mark.

Perfect. That's all I need. Thank you very much.

Thank you.

Good morning, Doyle. Good morning, Russell.

Good morning, Collin.

I guess, just first one, just recognizing you're taking a pause right now. The Cellulose Fibers sale is being finalized. Just maybe update us on how you're thinking about the remaining $500 million under the share purchase reauthorization, again, especially here with the stock at 30 bucks or so, not too terribly different than kind of the average repurchase prices of 2 billion that you completed this year?

Yeah, Collin, as you'll recall when we announced the merger with Plum Creek, we said at that point in time that we were going to do $2 billion of the $2.5 billion on an accelerated basis. And as you just alluded to, we completed that actually in a little less than six months. We also said at that point in time when we announced it, that subsequent to that, we would take a pause and work closely with our board to determine the timing of the additional $500 million, see where we were on our Cellulose Fibers transaction and a lot of other factors. So we're in that pause period, we will work closely with our board to determine what the timing is going to be on the additional amount. And as you alluded to, where our stock is trading will be an important component of that decision.

Okay. And then just following up on the commentary as far as the outlook for Q4. Just on Timberlands, you indicated that it would be up modestly relative to 3Q, but could it actually be higher year-over-year relative to 4Q 2015, or is it likely to fall somewhere in between?

Yeah. I’d have to go back and look at the 4Q 2015 numbers because, as you very well know, Collin, there are lots of moving parts with 4Q of 2015. We didn't have Plum Creek as part of the company. So, we'll have to get back with you on exactly that. But what I would say, as we said in the guidance, we do think it will be up in the fourth quarter versus the third quarter, and a big driver of that, as I mentioned earlier, is what we're seeing in export markets.

Okay. And then, just one last one from me. Just as you're budgeting for 2017 and given kind of the lack of momentum clearly in log pricing in the U.S. South this year, I mean just curious how you're thinking about shaping up harvest activity for next year. Again recognizing you're not providing guidance on harvest volumes at this point. But just how does that factor in, Doyle? This is as you've referred to before, just a stubbornly low log pricing in the U.S. South as you think about harvest plans?

Yeah. Well, we are working on our harvest plans right now, Collin. As we put the two companies together, we think we're going to have the opportunity to maximize the harvest plan on a go-forward basis. As part of that, we will factor in what we think is going to happen with Southern sawlog prices. We do remain convinced that we are going to reach the inflection point where Southern sawlog prices are no longer stubbornly low but start to head in the right direction. We're encouraged by what we see, as I mentioned earlier, about continued growth in housing and are also encouraged by some of the announcements we've seen regarding additional capacity coming online in 2017 in the South. So all of that will be factored in, and we'll be providing more color on that as we move forward.

All right. Thanks, Doyle. See you in December.

All right. Thank you.

Thanks. Good morning, everyone. I was hoping you could recap the dissolution of the timber joint venture, if I'm not mistaken, the counterparty was The Campbell Group, and I think you said the debt in the note will negate one another. But is there any kind of capital call? And then, I had a second question.

Sure. So this is Russell. As I mentioned, we did dissolve that at the end of August. And when we did that, if you recall that was 450,000 acres in six states. It was a joint venture with The Campbell Group. They redeemed their interest and so we received the note back, distributed to Timberlands. There is a small gain in recognition at about $6 million, but there is no additional capital call and there is no continuing ongoing obligation.

Okay. Well, that's good news. And then I thought—and hopefully this is just a red herring—that the IRS was challenging the structure and there was some discussion or litigation with them?

So you're correct. So our 2008—Plum Creek's 2008 income tax return is currently being audited. And as you recall Plum Creek, we appealed that to the IRS, but we could not reach a resolution. And so recently Weyerhaeuser filed a petition in the U.S. Tax Court, and as you are aware, this will take a number of years to resolve, but we remain confident in our position, and we do expect a favorable outcome from the U.S. Tax Court.

And I assume that Weyerhaeuser didn't put out a filing because it's not material, but can you tell us in a worst-case scenario what the financial impact might be?

Yeah. We're not going to—we won't do that. But we will say, I'll reiterate, we're very confident in our position and expect we'll get a favorable outcome.

Thank you. A couple of follow-ons. First, going back to the dividend, the fact that there hasn't been an increase in 2016, you mentioned a lot of moving parts and there was also the question on share repurchase and you mentioned wanting to have the Cellulose Fiber sale done as well. Should one read the fact that there hasn't been a dividend increase so far this year? Is that because of the way fundamentals have played out or is that because you would want to wait to see to get the asset sales done before that would even be contemplated?

Mark, as you would expect, we factor all of what you just outlined into a dividend decision and will, as I mentioned, continue to work with the board to figure out what the right timing and what the right level is for a dividend increase as we move forward.

Okay. And then in terms of the AVO process, you indicated that the Southern analysis would be done well before the Western analysis relatively soon. Will you—when that part of the analysis is done, will that be shared with the investment community, or is the intent to wait until the whole analysis is concluded?

Mark, as you would expect, we will be providing a significant update on that at our December Investor Meeting. So we'll tell you where we are, how we're thinking about it and how the South is playing out and maybe even preliminary kind of how we're thinking generally about the West. So all those details are still being fleshed out, but we will be giving a significant update at our December Investor Meeting.

Okay. Great. And then lastly, a real small one. But on the Uruguay, if you were to go forward with a sale, would that potentially be taxable or would that not be a taxable event?

So the Uruguay assets—this is Russell, the Uruguay assets are held in a combination of in the REIT and the TRS, and so we would have some minor tax leakage. We really haven't gone into that point yet, but we would expect probably some tax leakage because of the TRS held those assets.

Okay, great. Thanks a lot.

Thank you, Mark.

Yeah. Thanks very much and good morning.

Morning, Paul.

Just a question on Wood Products. It looks like you did a very good job on the OSB segment. A little bit—I don't know, a little bit off versus our numbers on the lumber side. It looks like costs were up. I think you cited weather and capital projects; maybe you could just outline what the capital projects you had in the quarter and how much of that was an effect on lumber cost?

Yeah. So, as we mentioned, lumber was off basically for three reasons. One was this slightly lower sales volume. Two, as you just alluded to, was lower operating rates due to weather and downtime for installation of capital projects. And then the third and the largest to try to quantify this, which I think is where you're headed, Paul, was the log cost increase primarily in Canada, but also in the West as we mentioned earlier. The downtime for installation of capital projects went for any one big project as you know we're spending roughly $300 million a year in capital in our Wood Products operations. Some of that is maintenance capital, but some of it's also capital that we're putting in to drive down our overall cost structure, and we just had a couple of those projects that hit in the third quarter, and there will be more of those in the fourth quarter.

Okay. And then I just had a question on Softwood Lumber, just trying to understand Weyerhaeuser's position on this. Without knowing quota levels or any kind of levels of taxation under CVD or AD duties, from a theoretical standpoint, what's better for Weyerhaeuser, a quota or a combined duty?

Well, I would say ultimately a quota is the best for all parties involved because it's simpler, it establishes what the level is, and there's a certain level of certainty. So what we would like to end up with, Paul, as we have said along is an agreement rather than having to go through the legal system and having a quota in place—a very simple quota in place that sets forth the amount of imports from Canada into the U.S.

Well, thanks. That's all I had. Best of luck.

Thank you. All right. Thank you.

Yes. Let me make a couple of closing remarks. As I've already alluded to, I just wanted to remind everybody that we will be holding our Investor Day on December 13, at the New York Palace Hotel. We look forward to that, and we look forward to seeing many of you there. And I would just conclude by thanking everybody for joining us this morning, and thank you for your interest in Weyerhaeuser.