Weyerhaeuser Company (WY) — Q2 2017 Earnings Call Transcript

Thank you, Dennis. Good morning, everyone, and thank you for joining us today to discuss Weyerhaeuser's second quarter 2017 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 of GAAP can be found in the earnings materials 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, Krista, and welcome, everyone. This morning, Weyerhaeuser reported second quarter net earnings of $24 million or $0.03 per diluted share on net sales of $1.8 billion. Excluding after-tax special items of $188 million, we earned $212 million or $0.28 per diluted share. This is more than 1.5 times the earnings from continuing operations we reported in second quarter 2016, and an increase of about 27% from first quarter 2017. After-tax special items for the quarter include a $147 million noncash impairment charge related to the sale of our Uruguay operations, a $31 million charge for Flak Jacket remediation, $8 million for softwood lumber duties and $2 million of merger-related costs. Adjusted EBITDA totaled $506 million, an improvement of 23% compared with second quarter 2016 and over 11% compared with first quarter 2017. Each of our businesses delivered strong second quarter operating results with Wood Products leveraging improving markets and ongoing operational excellence initiatives to achieve record adjusted EBITDA in the quarter. In addition, in the quarter, we announced the pending sale of the Uruguay operations, completed the asset value optimization process for our Western timberlands, and eliminated roughly two-thirds of the $35 million of costs formerly allocated to our Cellulose Fibers business, and continue to expect to eliminate the remaining cost by the end of the year. Before covering our business results, let me make a few brief comments regarding the housing market. Housing starts continue to move higher. After a robust start to the year, the pace of starts slowed early in the second quarter before picking back up again in June. Year-to-date, total housing starts are up approximately 4%, and single-family starts are up 8%. Leading market indicators remain favorable. Employment and wages are rising, consumer confidence continues to be strong, and mortgage rates decreased from first quarter levels. Single-family permits are up 9% compared to last year, and we are seeing especially strong single-family building activity in California and in the South. We expect total housing starts of approximately 1.25 million in 2017. Let me now turn to our business segments. I'll begin the discussion with Timberlands. Timberlands' contribution to earnings before special items was $135 million, $13 million less than the first quarter. Adjusted EBITDA was $222 million. Western Timberlands delivered $124 million of second quarter EBITDA, a decrease of $9 million compared with first quarter but an increase of $10 million compared to a year ago. The market for Western domestic logs remained strong in the second quarter, supported by robust building activity in the West and low mill inventories. Log supply remained tight as record rainfall in the Pacific Northwest continued throughout the second quarter. Domestic log sales volumes and realizations increased slightly compared with the first quarter and road and forestry costs increased seasonally even though we deferred some of the projects as a result of the wet weather. Turning now to our export markets, in Japan through May, total housing starts increased 2% compared to the prior year, while post-and-beam starts were up 4%. Our log sales volumes decreased slightly due to the timing of shipments and average realizations were comparable to the first quarter. In China, market conditions remain favorable and log sales volumes and average realizations increased compared to the first quarter. Log inventories at Chinese ports declined slightly again in June and remain within a normalized range. Moving to the South, Southern Timberlands contributed $91 million to second quarter EBITDA, $5 million lower than the first quarter which benefited from seasonal seedling sales. Fee harvest volumes increased slightly compared with the first quarter and average log realizations were unchanged. Northern Timberlands contributed $2 million to EBITDA, a decrease of $6 million compared with the first quarter as fee harvest volumes declined seasonally due to spring breakup. Average realizations were higher as a result of a mix shift to a greater percentage of hardwood. The Timberlands business made good progress on its operational excellence initiatives in the second quarter. Regional teams continue to implement best practices for harvesting and transportation. Optimizing wood flows over a larger footprint allows our teams to minimize cost and increase realizations. The business remains on track to achieve its $40 million to $50 million OpEx target for 2017. Real Estate, Energy & Natural Resources contributed $23 million to second quarter earnings and $37 million to adjusted EBITDA. Adjusted EBITDA declined by $6 million compared with the first quarter but improved by $9 million compared with the second quarter of last year. During the second quarter, our real estate team completed the asset value optimization process review on our 2.9 million acres of Western timberlands. The process identified approximately 365,000 acres where we expect to capture our targeted premiums to the underlying timberland values. We will bring these properties to market over time, including some in the second half of this year. Wood Products contribution to earnings before special items was $238 million in the second quarter, an increase of 38% over the first quarter. Adjusted EBITDA improved by $67 million to $274 million, an increase of 32%. EBITDA for lumber totaled $127 million, $28 million more than the first quarter, due to a 7% increase in average sales realizations and a 5% increase in lumber sales volumes. EBITDA for OSB totaled $87 million, $21 million more than the first quarter and more than double the second quarter of 2016. Average sales realizations increased 12% and sales volumes were comparable to the first quarter. All of our OSB mills ran extremely well again in the second quarter. Engineered wood products contributed $52 million to EBITDA, an improvement of $15 million over the first quarter. Average sales realizations increased for all products during the second quarter. We also captured a larger percentage of the February price increase in the quarter than we initially anticipated. Distribution EBITDA totaled $13 million, an increase of $5 million compared with the first quarter and an increase of $4 million compared to the second quarter of last year. The distribution business remains focused on margin improvement and controlling operating and selling costs. Each of the Wood Products businesses is making good progress on their respective OpEx initiatives through the first half of the year. We continue to expect collective operational excellence benefits of $55 million to $75 million from this segment in 2017. I will wrap up the Wood Products discussion with a few comments on the Softwood Lumber Agreement. On June 26, the Department of Commerce announced preliminary antidumping duties on Canadian lumber producers. For most producers, the duty will be approximately 7%, and will also be assessed retroactively. The antidumping duties are additive to the countervailing duties which were announced at the end of April. Combined, these duties average between 25% to 30% for most producers. The government will continue its investigation through the remainder of the year as the Department of Commerce and International Trade Commission collect and evaluate additional information in support of final determinations of the duties and the level of material injury to U.S. producers. These determinations are expected later this year. The U.S. Coalition continues to work closely with the Department of Commerce, and we remain hopeful we will be able to reach a quota-based agreement. Before I turn it over to Russell to discuss some financial items and our third quarter outlook, let me touch on the Flak Jacket issue we disclosed last week, as well as an update on capital allocation. Regarding Flak Jacket, our top priority is to take care of our customers and their customers. We're working proactively to quickly implement solutions and remediation is already underway or completed in over 100 houses. We've halted all production sales and shipments of these products and we are collecting unused products from our customers. We are absolutely committed to doing the right thing and resolving this situation as quickly as possible. Finally, capital allocation. Since converting to a REIT in 2010, we have communicated a target payout ratio of 75% of our funds available for distribution over the cycle. Following the merger with Plum Creek and the divestiture of our Cellulose Fibers business, it is clear to us and to our board that Weyerhaeuser's cash flow profile is significantly different than it was in 2010. After divesting of our home building and Cellulose Fibers business, doubling our timberland holdings, and significantly improving the cost structure of our Wood Products operation, our cash flow is more stable and predictable. Considering these factors, we have determined that the company no longer requires the level of retained cash flow implied by a 75% pay-out ratio, and we have made the decision to increase our target pay-out ratio to 85% over a cycle. Going forward the board will continue to regularly review the dividend in light of a full range of external market conditions as well as internal improvements. We expect the biggest driver for a substantial dividend increase will be improving pricing for Southern saw logs, as that will generate a sustainable and growing earnings stream to provide strong support for the dividend over time. Now let me turn it over to Russell to discuss our third quarter outlook.

Thank you, Doyle, and good morning. The outlook for the third quarter is presented in chart 12 of the earnings slides. In our Timberlands business, we expect third quarter earnings before special items and adjusted EBITDA will be slightly lower compared to the second quarter. In our Western Timberlands operations, we anticipate slightly higher average sales realizations, with fee harvest volumes expected to decrease modestly compared to the second quarter. Japanese export log volumes will increase, while average sales realizations are expected to be slightly higher compared to the second quarter, supported by continued strong demand in the Japanese housing market. Export log volumes to China are also expected to increase, with slightly higher average sales realizations. Third quarter domestic log sales realizations are expected to be comparable to the second quarter, with lower sales volumes. Western road spending was deferred due to record wet weather in the second quarter. Spending in the third quarter will increase as we expect to complete the deferred road work in addition to our typical summer road activities. Logging costs are expected to be slightly higher in the third quarter, because we tend to log in higher elevations during the summer. In the South, we expect higher harvest volumes if the weather improves from a very wet second quarter. We anticipate average sales realizations for the third quarter will be comparable to second quarter levels. Silviculture spending in the South is expected to increase due to seasonality as well as weather-related deferral of activities from the second quarter into the third quarter. In the North, we anticipate third quarter sales volumes to be significantly higher than the second quarter, as we move past the spring breakup season. Real Estate and Energy & Natural Resources earnings and adjusted EBITDA are expected to nearly double in the third quarter as compared to the second quarter and continue to ramp up in the fourth quarter, which is when we typically expect the largest portion of the real estate transactions to close. We continue to expect over $250 million of adjusted EBITDA from our Real Estate and Energy & Natural Resources business in 2017. Turning to Wood Products, we anticipate third quarter earnings before special items and adjusted EBITDA will be comparable to second quarter. Strong demand and low inventories throughout the supply chain have led to continued strong July pricing for lumber, OSB, and engineered wood products. Overall, we expect comparable quarter-over-quarter lumber sales realizations and slightly higher OSB and engineered wood product sales realizations. Sales volumes are expected to be consistent in lumber and engineered wood products, with a slight decrease in OSB. Looking at chart 10, unallocated items: The $26 million favorable variance in earnings before special items compared with the first quarter is primarily the result of a $14 million reduction in non-operating pension and other post-retirement benefit costs. In the second quarter of each year, we finalize prior year-end estimates. And as a result of this work, we now expect to record approximately $15 million per quarter of unallocated non-operating pension and post-retirement expense for a total of $60 million in 2017. Our total anticipated cash payments for pension and post-retirement remains unchanged at $70 million for all of 2017, with no funding required for our U.S. qualified pension plan. Chart 11 summarizes our key financial items. We ended the quarter with a cash balance of $701 million, an increase of $246 million from the first quarter. Cash from operations during the quarter was $489 million, an increase of $454 million over the first quarter, which is typically the lowest cash flow quarter of the year. Capital expenditures for the second quarter totaled $87 million. We continue to expect our full year capital expenditures to total approximately $435 million, with $300 million for Wood Products and $135 million for Timberlands. Moving on to debt. We ended the quarter with $6.6 billion. Earlier this week, we completed refinancing of our $550 million term loan, which was scheduled to mature in 2020, replacing it with a new $225 million term loan maturing in 2026, and pre-paying $325 million in cash. In addition to this refinancing, we also have a scheduled bond maturity of $281 million in August of 2017. Interest expense was $100 million in the quarter. The repayment of the August maturity, which has an interest rate of 6.95%, will reduce interest expense by approximately $20 million annually. We anticipate full year 2017 tax rate will be between 15% and 17% based on the forecasted mix of earnings from our REIT and taxable REIT subsidiary. Now, I'll turn the call back to Doyle, and look forward to your questions.

Thank you, Russell. Looking forward, we are extremely well positioned to continue to capitalize on the improving housing market and remain relentlessly focused on driving value for our shareholders through operational excellence and disciplined capital allocation. And with that, I'd like to open up the floor for your questions.

Good morning.

Good morning, Anthony.

Southern log prices were flat quarter-over-quarter. I think that's the first quarter since 2015 that prices weren't down sequentially. I was just wondering if you could talk a little bit more about what you're seeing in Southern log markets, are you seeing price stabilization or improvement, or was that just mix? Any kind of additional color you could give there would be helpful.

Sure, Anthony. What we're seeing in the South is, just as you said, flat saw log pricing. At this point, we do not expect any significant improvement in saw log pricing in the third quarter. We would anticipate it would be flat with Q2. But as we move forward, we do see some potential for pricing traction as we enter into 2018. If housing demand continues to grow, as you very well know, there's more capacity being put in place in the South. The Canadian share of the U.S. lumber market, we believe, is going to decline due to either the duties or hopefully a negotiated agreement. And the other thing I would tell you that we're encouraged about is that the export markets out of the South are starting to grow and, in fact, we recently signed a contract for weekly shipments to India. We are also sending weekly shipments to an existing Western customer in China. So we think that has the potential to grow over time. So all of those things we think will ultimately lead to improvement in Southern saw log prices as we move forward.

Got it. And understood it's a probably very relatively small amount, but is it possible to quantify export shipments out of the South or maybe where you think they could be by the end of the year?

Yeah, so like I said, we're encouraged. It is a small amount at this point in time but we think over time it could grow to 400 to 500 containers a week, which would be equivalent to a small sawmill. So that will make a difference in the marketplace.

Okay. That's very helpful. And then just following up on the quota. There have been press reports that the DOC might be near a quota that would cap Canadian share at 27% or 28%. I was just wondering if you could give any more color about your preference for a quota versus continuation of duties, and just striking the right balance between resolving the issue quickly but also making sure that your concerns and the Lumber Coalition's concerns are adequately addressed?

Yeah, and as we've said, Anthony, the U.S. Coalition continues to work very closely with the Department of Commerce and we remain hopeful we'll be able to reach a quota-based agreement, and we like the certainty of a negotiated agreement. However, as we've also said, we want the right agreement. And if we don't get that, we'll let the process continue to play out in terms of the duties. So, again, a lot of discussions going on. We continue to be hopeful of a negotiated quota-based agreement, which we think would be the best outcome.

Okay, that's helpful. I'll turn it over.

Hey, good morning.

Good morning, Gail.

I guess just staying on the Softwood Lumber Agreement, I guess the preliminary duties phase out in August and there could be a gap between final duties, just how do you expect – any sense how customers might react to that?

That's a good question, Gail. As you very well know, we've seen an improvement in lumber prices. So let me say it this way, the overall trend in lumber prices that we've seen, we think has ultimately been driven by supply and demand. And that's due to the fact that inventories are lean and demand continues to be strong. On top of that, we've seen that exacerbated a little bit by the fires over the past few weeks. The way I see it, the uncertainty around the SLA has driven the volatility in pricing, but the overall pricing trend has been driven by the fundamentals of supply and demand. As the countervailing duty goes off in August, I think we'll continue to see volatility in pricing as that happens. Exactly how that will play out, we'll just have to wait and see, but again, we are encouraged by the underlying supply and demand dynamics. And we're just going to have to see how the SLA plays out going forward and specifically what impact that has at the end of August when the CVD lapses for a short period of time.

All right, thank you. And can you give a little bit of perspective, I guess Southern Yellow Pine was weaker than SPF, and just how you see that relationship building over the next couple of quarters?

Yeah, so you're exactly right, those kind of got out of sync during the quarter. I think there were a number of drivers of that, part of it was the duties that have come into place, part of it was the FX, and with the Canadian dollar strengthening versus the U.S. dollar. And then of course the fires that have impacted British Columbia over the past few weeks. So I think all of those things resulted in the relative change in SPF to Southern Yellow Pine. I think going forward, you'll see the normal gap that we've normally seen between those come back to normal as those factors play out.

All right. And just to go to the guidance, you mentioned, I think, that you expected a little bit of improvement in Japanese log prices in 3Q, is that correct? And I'm just curious because I thought log volumes showed a little bit of pressure in June. I'm just wondering if you could give a little more color on the competitive dynamics you're seeing in Japan?

Sure, and as we said in our comments, we continue to be encouraged by what we see overall in Western log markets, and domestic market demand continues to be strong, primarily driven by what we've seen in the California market. In Japan specifically, to your point, post-and-beam construction continues to grow at about 4%. And in the third quarter, we do anticipate steady demand and potentially slightly higher prices in the third quarter. So, that's how we see it in Japan. And then China, as you know, inventory continues to be in very good shape, at 3.5 million cubic meters, and there we expect higher volume and slightly higher prices in the third quarter as well. That's how we see the export markets.

Okay. One just really quickly one. You mentioned that you're doing weekly deliveries to a customer in China out of the South, is that cannibalizing the business that you have from the West at all?

Business out of the West is very strong right now, as I just indicated, and in fact, total log imports into China from the U.S. are up 35% year-to-date. So, the amount that we are sending into China is an existing customer, but it's both a growth in overall volume as well as displacing a little bit out of the West. But we're fine with displacing a little bit out of the West based on the strong markets that we see in China.

Okay. Thanks so much.

Thank you.

Thank you.

Good morning, Mark.

Good morning. Wanted to follow up a little bit on the change in the dividend policy and the tie in to Southern saw log pricing over the long term. Should we understand by that that there could be modest or moderate increases in the dividend prior to the recovery in Southern saw log pricing? And then you can get bigger ones when there is visibility on that recovery or is it that there really likely wouldn't be any dividend increases until you saw that recovery?

Mark, as we've said, the board is going to continue to review the dividend. It's going to consider all conditions, external market conditions as well as internal improvements and things we're doing. As you very well know, our largest asset is our Southern Timberlands, and very purposely, we've said we expect the biggest driver for a substantial dividend increase will be improving pricing for Southern saw logs. Because that's what's going to ultimately generate a sustainable and growing earnings stream that would provide additional strong support for the dividend over time. So that's the way we're looking at it and the board is looking at it.

Okay. And I realize this is a really tough one. But do you have any – what's your perspective on the potential timing of that recovery in Southern saw timber pricing now versus where your thought process would have been previously? And what drivers are – are there any meaningfully different drivers? And I realize you addressed this in some of your preliminary comments, but any additional color you could give would be welcomed.

Sure, Mark. And we continue to expect improvement in Southern saw log pricing as we move forward for all the reasons that I highlighted. Housing demand continuing to grow, we're encouraged by what we see there. Continued investment in the South and even yesterday or whatever it was, the announcement of an acquisition by one of our Canadian friends in the South and believe that they will spend additional capital to ramp up production there. We'll see whether we get a quota or if the duties stay in place, but that's going to be helpful. And then, again on the margin, we talked about in the export market. So, hard to tell exactly when, but we think as we move into 2018 as housing starts grow to north of 1.3 million, that we could reach the inflection point where we start to see some improvement in Southern saw log prices.

Okay. That's very helpful. And then, just lastly, curious why do you prefer quotas over duties?

So, Mark, the reason we like the quotas versus the duties is it's simple, it's effective, and we think it'll allow the U.S. industry to grow to its natural size. Now, with that said, if we can't get the right agreement in place, we can make the duties work as well. But we just like the certainty of having a duty in place. Everybody understands exactly what that is, and then go forward based on that.

Okay. Thank you.

Thank you.

Good morning, Doyle, good morning, Russell.

Good morning, Mark.

Good morning, Mark.

Doyle, let's just come back to that Softwood Lumber Agreement one more time. I'm just curious, if we don't get a deal in the next few weeks, and then we're in a point where we've reopened these NAFTA negotiations, is that going to kind of preclude getting a deal done on lumber until NAFTA is redone?

Mark, it's hard to answer that question because we don't know exactly how that's going to play out. I do think if the SLA gets drawn into NAFTA, that could prolong our ability to reach a negotiated agreement, but there's just a lot of uncertainty exactly how the SLA will interplay with NAFTA at this point.

You have a guess on your side? I mean, I think we're all kind of scratching our heads.

I don't. Yeah, and I wish I could provide more clarity, Mark, but we're kind of scratching our heads too just because it's just an unknown.

Okay. The second question I had, Doyle, I know you guys have been very focused on kind of integrating Plum Creek. I'm curious as to whether you think you're at a point where you might start to look at some meaningful acquisitions. There is a lot of timberland that's potentially in the market over the next year or two.

Mark, as we've consistently said, our priorities number one, two, and three have been the integration of Plum Creek. We've made very good progress on that, and I'm pleased with where we are. As we move forward, we would potentially look at timberland acquisitions but, as we've also said, the beauty of our portfolio is we are very well-positioned and we don't have to grow anywhere. So with that said, we can be very, very disciplined in looking at potential timberland acquisitions. If we find opportunities that we think will drive shareholder value, that's something we would consider. Otherwise, we'll just continue to focus on what we can do internally to continue to drive improvements in our overall performance and shareholder value.

All right. That's fair. Last question I had, Doyle. Just any more color on options around fireproofing on the I-joists, the thing that I think Flak Jacket was an attempt to deal with?

Mark, right now – I'm sorry, go ahead.

Well, I was just going to say, and I'd also like to get a sense if I could about how big, how many markets that that really is an issue in right now, because I think a lot of this is state-by-state regulation?

It is state-by-state regulation, Mark. And our focus right now, as you would anticipate, is making sure we're doing everything we can with our customers to resolve the situation with Flak Jacket. As we move forward, we'll be determining how we want to proceed on any future product that would have this fire retardant material.

Okay, fair enough. Good luck in the second half of the year, Doyle.

Thank you very much.

Hi, good morning, Doyle.

Good morning, Chip.

Yeah, I had a question just on – first question is, a few weeks ago, we saw that one of the large privately held wood products companies is announcing an engineered wood facility in South Carolina. And I know you've seen a great improvement in your results in that business, but my perception is that's mostly internally driven, not really market-driven. So what are your thoughts about that? Do you think the market can handle that addition to capacity?

You know, Chip, and thanks for making your comment on the internal improvements, and clearly part of the improved performance in Wood Products has been internal improvements. But with that said, those markets are also improving. As you very well know, we put in a price increase. That was in February. We saw a significant benefit of that in second quarter. We'll see a little bit more benefit from that in the third quarter. And I just give that background to say as housing continues to improve, we as an industry will need some additional capacity. Now, how that matches up when this mill comes online, and it will take a while to get this mill online, as you very well know, startup takes a while. How that meshes with where we are exactly on housing starts remains to be seen, but as housing continues to improve and gets to 1.4 million, 1.5 million, 1.6 million, whatever the number is, there will be additional capacity that will be needed in engineered wood products.

Okay. And I don't know, either you or Russell, what are your thoughts about the – you mentioned that obviously the board is going to think about how to approach the dividend in terms of the ongoing rate. But you know it's interesting, obviously the saw timber tie-in in the South makes total sense because saw timber prices of course tend to be a lot more stable than wood products. But you still have this great Wood Products business that's doing very well. I know other companies, one specifically for years has practiced sort of a variable dividend. And there is another one who yesterday said that they are considering that just because that is obviously more appropriate given the volatility you have there. Would that be something that you personally would consider or recommend to the board as an override to the ongoing quarterly dividend in years or periods where the wood business is particularly strong?

Yeah, this is Russell. As Doyle said, our objective is a growing and sustainable dividend over time. Clearly, the Wood Products business is performing well. We are pinned on Southern saw log as being the catalyst. However, we would take into consideration depending on where the market is at, but our primary focus is growing a steady dividend over time.

Got you. Understood. Thank you.

Thanks, good morning.

Good morning.

Good morning, Steve.

I recognize it was a wet spring here in the West, but it sure has been hot and dry in the last month, so are any of your Western lands now operating under harvest restrictions? And is that incorporated into your Timberlands guidance?

It's a good question, and you're right, it was a very wet spring and now, at least where we live, we haven't seen rain in a month or so. So, at this point in terms of Washington and Oregon, nothing is under a fire restriction at this point in time, but as we all know, that could change quickly as we move forward. So basically, what's incorporated, Steve, in our guidance is kind of what I would call a normal fire season, if there is such a thing. If that changes, you could see further restriction or further tightening, I would say, of log markets in the Pacific Northwest. I would mention in Montana, we do have restrictions in place and no logging at this point in time is allowed after 1 PM.

Yeah, I kind of thought we might be going to Hoot here soon. Okay.

Yeah.

Thank you very much.

Thank you.

Good morning.

Good morning.

Good morning.

The first question I have is as land sales pick up in the back half of the year, will there be much change in the mix or will realizations per acre be similar to the first half of the year? Just I noticed that realizations were up nicely in the first half.

James, this is Russell. As Doyle mentioned, we completed the Western analysis for our AVO or asset value optimization. And we're very pleased with those results and so we'll see some of those acres coming into the market in the second half of the year. As we indicated, the third quarter will be double that of the second and then we'll see a ramp-up in the fourth quarter. Those properties will have a higher value than the Southern or the Northern properties. So you may see a change in the average per acre value coming through the program.

Okay, that helps. And then on EWP, switching gears, you mentioned that you had more price realization in the second quarter than you expected, could you comment on how much you expect to get remaining in the third quarter? And will that be it for the February price increase or will some bleed into the fourth quarter?

Yeah, so in the second quarter, we realized about 70% of the price increase, which, as we mentioned, was higher than we originally anticipated. In the third quarter, we would anticipate an additional 20% and then the balance, the 10%, to show up in the fourth quarter. So that's kind of how we see it playing out.

Perfect. Thank you very much.

Thank you.

Hi, good morning, guys.

Good morning, Brian.

Just following up on the use of cash line of questions. Looks like you have a balance sheet that's up to about $700 million of cash, and you should get some proceeds from the Uruguay sale soon. Just wondering how share repurchases might fit into the capital reallocation strategy? And as you're contemplating where to move the dividend in a sustainable way, if share repurchases could be a solution to – a little bit of a release valve for some of that cash that's building up on the balance sheet?

Sure. And as we've consistently said in terms of our priorities for capital allocation, first and foremost is returning cash to shareholders. That'll be primarily through a growing and sustainable dividend. But Brian, as we've indicated, we're also open to share repurchase where appropriate and, as you know, we currently have an authorization of $500 million in terms of share repurchase.

Okay. And then one – I see you chose to exclude the $11 million duties from the Wood Products adjusted EBITDA. I just wonder in the thought process there, if you guys are viewing that as a one-time thing in nature, maybe because they'll lapse at the end of August or they'll eventually be replaced by a quota? And then maybe could you clarify, is that $11 million tied to the actual lumber sales in the quarter or was there some impact from first quarter sales due to the retroactive nature of the duties?

So, Brian, you're correct, we did put that as a special item and there are two components. One is the retroactive countervailing duties and then the go-forward countervailing and antidumping duties. And so we do view those as pretty unique relative to the overall lumber operations and that's why we put it in the special items. And then you're correct, it will drop off on August 28, until there is an actual final determination and then the duties are reinstated. So it will be a little lumpy coming through if we put it into the operations.

Okay. And if we were to think about what an actual, theoretically if the duties did stay at the current levels, an actual expense in the quarter would have been something closer to $6 million or $7 million instead of the $11 million?

Yeah, probably $6 million to $7 million.

Okay. And the one last one from me, we've seen a big move in the Canadian dollar in the last couple of weeks and months. Could you remind us the impact to your earnings, every $0.01 or so move in the dollar might have? And then thinking beyond just the translation impact, any impact you might expect on trade flows from that? And historically have you seen Canadian imports of lumber dry up a little bit and a little bit more production shift to the U.S. when this has happened?

Yeah, we noted that the change in the relationship on the FX for the Canadian dollar and the U.S. dollar, but we've been operating in a relatively strong dollar environment and we don't really see material impacts on those interquarter shifts. So we really don't look at what is the impact on a per $0.01 shift on that. So we don't think there'll be a material change in the inflows, it'll really be primarily driven by the SLA and then also some of the restrictions resulting from fires up in Canada.

Okay. Thanks very much.

Thank you.

Yeah, thanks very much. Morning, Russell and morning, Doyle.

Good morning, Paul.

Morning, Paul.

Just thanks for the updated pay-out ratio that you targeted $0.85, I understand the catalyst is on Southern log price movement. Just on that question, we had a lot of deferrals in the U.S. South following the recession in 2008 to probably 2014, just wondering what your assessment is of the current growth versus drain in the overall South? Are we harvesting more than the trees are growing down there, and when do you think we'll start to see some tension in the market?

Paul, this is Russell. As we look in the South, again as Doyle mentioned, with continued strength in the housing market and continued increase in production, we're definitely seeing some rebalancing in some wood baskets. And I expect that as we continue to see the housing market recover and less Canadian volume coming into the U.S. market, we'll see those tensions over time. But it's not consistent across the entire South, but we're definitely seeing some benefits, particularly in the Atlantic South where those markets are starting to tension.

Okay. And then just on the guidance, when you guys for Q3 when you're guiding for Timberlands to be slightly down, is that like a 5% number and then one of the things that surprised me was the lower fee harvest volumes expected in the West and what's the result of that?

So, in terms of the guidance, we said slightly, so I would say that 5% or less in terms of what that would mean in terms of dollars. And then in terms of the lower harvest in the West that's primarily due just to timing. As you know, a lot of what we call farmed wood comes on the market in the quarter, which can have a negative impact on pricing. We tend to back off during that period of time and then capitalize when pricing tends to be a little bit better.

Okay. That's helpful. And then just lastly, just on this potential Softwood Lumber deal, I'm pretty aware of what happens in Canada on this side. Just it seems like a black box in terms of the Coalition's acceptance of the deal. Maybe you could give us some broad strokes, is that a two-thirds vote requirement and is that on a volume weighted basis for lumber producers in the U.S.?

So, Paul, what I would tell you is the Lumber Coalition continues to be very united in terms of the approach on the Softwood Lumber Agreement and is united behind, as we mentioned earlier, a quota-based agreement. So, I think if a deal can be negotiated that works for both sides, that's something that the U.S. Lumber Coalition would in fact support.

Hi, everyone. Good morning. Thanks for taking my question.

Good morning, George.

How're you doing? If I had one last quick one on SLA, recognizing that it might not be something you really want to get into. But just for the record, what do you think the odds are that, as there has been some speculation, that there might be an agreement before the NAFTA discussions begin middle of next month? And to the extent that you can comment at all, has there been a significant narrowing in your view of the bid-ask spread in terms of the quotas that both sides have seemingly wanted to apply?

George, as you know, there have been a lot of discussions and negotiations between the parties, and what I would tell you is we do remain hopeful that some type of framework can be agreed on before we get into this NAFTA issue. Trying to handicap it would be just pure speculation. But again, we do remain hopeful, and we think some progress has been made.

George, I'd say the basis is probably 40% to 50% for the full year.

Thank you, everyone. That does conclude Weyerhaeuser's second quarter 2017 earnings conference call. You may now disconnect.