Weyerhaeuser Company (WY) — Q3 2018 Earnings Call Transcript

Thank you, Dennis. Good morning, everyone, and thank you for joining us today to discuss Weyerhaeuser’s third quarter 2018 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; Russell Hagen, Chief Financial Officer; and Devin Stockfish, Senior Vice President of Timberlands. 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 $255 million or $0.34 per diluted share on net sales of $1.9 billion. Third quarter results include a $41 million tax benefit related to our previously announced U.S. pension plan contribution. Excluding this special item, we earned $214 million or $0.28 per diluted share. Adjusted EBITDA for the company totaled $505 million. Our third quarter results reflect solid operating performance in the face of challenging headwinds, including severe weather, certain Chinese trade policy, and unusually volatile markets for lumber and oriented strand board. Our business is adapting to changing conditions throughout the quarter, and we remain relentlessly focused on the things we can control, improving our relative performance versus the competition and delivering on our commitment to disciplined capital allocation. During the quarter, we demonstrated our discipline commitment to capital allocation by increasing our quarterly dividend by 6.3% to $0.34 per share, repurchasing $290 million of common shares, and announcing a series of actions to substantially reduce our pension liabilities. In August, we also announced my decision to retire in early 2019 and that Devin Stockfish, currently Senior Vice President of Timberlands, has been appointed President and Chief Executive Officer, effective January 01. Adrian Blocker, who leads our Wood Products business, will succeed Devin as Senior Vice President of Timberlands, and Keith O'Rear, who leads our Wood Products sales and marketing organization, will become Senior Vice President of Wood Products. As Beth mentioned, Devin is here in the room with us this morning. He will be participating in the Q&A and will make some remarks afterwards to close the call. Right now, let me give some more detail on our business results. I'll start with a few comments regarding the housing market. Significant discussion is occurring regarding the trajectory of the U.S. housing market. The market continues to grow. Total starts increased nearly 4% year-over-year in September, despite disruption from Hurricane Florence. On a year-to-date basis, single-family and total starts have risen 6%. Repair and remodeling activity, which drives about 40% of lumber demand, is up 7.5% compared to the year ago. However, recently monthly housing statistics have been volatile and in some cases softer than expected. We see no evidence of a change in underlying demand for housing. Employment and wages continue to rise, with unemployment at the lowest level since 1969. Consumer confidence began 2018 about previous session highs and has increased sharply as the year has progressed. Builders report strong demand at entry-level price points, and indexes of builder sentiment remain very positive. However, the rate of housing market growth appears to have moderated slightly, indicating a potential mismatch between demand and available supply. However, mortgage rates remain relatively low on a historical basis; continued increases in home prices and interest rates may be causing buyers at higher price points to recalibrate their expectations if they take affordability into account. We expect this will resolve as buyers and builders adjust to the changing market backdrop. For 2018, we anticipate total housing starts will be slightly less than 1.3 million, and we expect continued market growth in 2019. Let me now turn to our business segments. I will begin the discussion with Timberlands. Timberlands contributed $126 million to third quarter earnings and $206 million to adjusted EBITDA. Western Timberlands delivered $121 million of third quarter EBITDA, $31 million lower than the second quarter. Average log sales realizations declined, fee harvest volume decreased 2%, and road costs were seasonally higher. Unit logging and hauling costs also increased as we did more high elevation harvesting during the summer months. Compared with a year ago quarter, however, Western EBITDA increased $10 million due to higher domestic and export log price realizations. Western domestic log markets were highly tensioned throughout the first half of 2018. As we enter the third quarter, strong lumber pricing and fear of another challenging fire season drove many Western mills to build larger than normal log decks to avoid the risk of downtime. Although the Pacific Northwest fire season arrived early, it was not severe, and logging conditions remained very favorable throughout the third quarter. By early August, momentum in the domestic log market had reversed. Strong log supply, declining lumber prices, and a pause in Chinese log demand due to the trade dispute put downward pressure on prices, leading to a decline in domestic log realizations through the remainder of the third quarter. Turning to our export markets, Chinese construction activity remained solid during the third quarter. Log inventories at Chinese ports continued to decline, ending the quarter at approximately 3.7 million cubic meters, 12% below second quarter levels. In early August, the Chinese government announced its intent to impose a tariff on Western logs. Our China export log volumes declined in response to the uncertainty regarding implementation. The tariffs were implemented on September 24, and our Hemlock and Douglas fir log exports to China are assessed at a 5% rate. Average realizations for the third quarter were off slightly compared with the second quarter as we adjusted pricing in response to the tariff. Compared with a year ago, China log sales volumes were lower due to the trade dispute, but average realizations were slightly higher. In Japan, demand for our logs remained solid, but log sales volumes declined modestly due to timing as typhoon activity delayed ships during the month of September. Average log sales realizations were comparable to the second quarter. Compared with the year-ago quarter, sales volumes to Japan were modestly lower, and realizations improved substantially. Moving to the South, Southern Timberlands contributed $80 million to third quarter EBITDA, $4 million less than the second quarter. Average realizations for southern saw logs increased slightly compared with the second quarter, and average pulpwood realizations were flat. Sales volumes declined compared with the second quarter as Hurricane Florence caused weather-related downtime for third-party customers as well as our own mills. Our operations along the Atlantic Coast curtailed harvesting for up to a week to ensure contractor safety during the slow-moving storm, and fee harvest declined 2% compared with the second quarter. Per-unit harvest and hauling costs increased as we harvested a greater mix of trees in the quarter and also incurred longer hauling distances as we adjusted harvesting operations to the available wet weather ground. Southern log export volumes increased compared with the second quarter, although demand eroded following China’s implementation of a 25% tariff on Southern panel logs on August 23. Average realizations for southern export logs declined as we adjusted pricing to offset a portion of the tariff. Export logs represent less than 2% of our southern fee harvest volume. Compared with the year-ago quarter, Southern Timberlands EBITDA declined due to lower harvest volumes associated with hurricanes and higher fuel costs. Northern Timberlands contributed $4 million to EBITDA, a $1 million more than the second quarter and comparable to a year ago. Fee harvest volumes improved seasonally in most areas and average realizations increased modestly due to mix. The Timberlands business continues to make good progress against its 2018 operational excellence initiatives and is on track to achieve its $40 million to $50 million operational excellence target for the year. Key focus areas include improving the productivity of harvesting and hauling operations, reducing road costs, optimizing forestry spending, and maximizing the revenue from every log we harvest. Real Estate, Energy, and Natural Resources contributed $36 million to third quarter earnings and $86 million to adjusted EBITDA. EBITDA increased by $39 million compared with the second quarter and compared with a year ago. Real estate sales increased significantly due to typical seasonality. The third quarter also included a large acreage transaction in Montana, which accounted for approximately half of the acres sold in the third quarter. Average price per acre declined due to the mix, as timberland prices in Montana are regionally lower. Average land basis on property sold was modestly higher than in the second quarter and significantly higher than the third quarter of 2017 due to the greater mix of Montana acres. As a result, the segment's third quarter contribution to earnings increased $14 million compared with the second quarter, but it was $11 million lower than a year ago. The real estate business is solidly on track to meet or exceed its targeted 30% premium to timber value for 2018. Wood Products contributed $213 million to third quarter earnings compared with $329 million in the second quarter. Adjusted EBITDA totaled $250 million. EBITDA for lumber totaled $118 million, $77 million lower than the second quarter and comparable to a year ago. Lumber prices have experienced record volatility in 2018. The framing lumber composite hit record highs in the first week of June, peaking at $582 before decreasing due to improving logistics and seasonally slower lumber usage. Pricing continued to fall through the third quarter as hurricanes and general market volatility further dampened demand. From July through September, the composite lumber price dropped approximately $140 or 25%, the steepest quarterly decline on record. Our third quarter average sales realizations decreased 9% compared with the second quarter, while the framing lumber composite declined 13% compared with the second quarter average. Lumber sales volumes declined 6%, and manufacturing costs increased primarily due to lower operating rates. Although our lumber mills sustained no damage from Hurricane Florence, our North Carolina mills lost several dozen shipments as we took downtime to ensure the safety of our employees and equipment, and regional flooding limited access and operations at some locations. Canadian log costs were higher, especially in Alberta, where unusually wet weather has increased hauling costs and limited log availability. Third quarter EBITDA includes $6 million of charges for countervailing and anti-dumping duties on Canadian softwood lumber, comparable to the second quarter. Comparing our third quarter results with the year-ago quarter, higher average sales realizations for lumber were largely offset by higher log costs. Manufacturing costs were flat as we offset cost inflation with operational excellence improvements. Oriented Strand Board (OSB) contributed $77 million to EBITDA, $52 million less than the second quarter and $25 million less than a year ago. OSB prices began to fall at the beginning of the third quarter, with benchmark north-central pricing decreasing $110 or 25% from July through the end of September. Compared with the second quarter, our average sales realizations decreased 13%. Sales volumes decreased 11% due to an extended scheduled outage to replace the press at our Grayling, Michigan mill. Including log sales volumes and other project expenses, the outage reduced EBITDA by approximately $25 million. Compared with the second quarter, fiber costs also increased. Comparing our results to the year-ago quarter, average sales realizations for OSB decreased 2%, and sales volumes decreased 10% due to the Grayling outage. Excluding the $25 million outage cost, OSB EBITDA would have been comparable to the prior year, as operational excellence initiatives offset cost inflation. Engineered Wood Products contributed $48 million to EBITDA, $10 million less than the second quarter and comparable to a year ago. Average sales realizations improved approximately 2% compared with the second quarter and 89% compared with one year ago, as we continue to capture the benefit of our early 2018 price increase. Sales volumes decreased as hurricane activity and heavy rains in Texas slowed demand in what are usually strong growth markets. Distribution contributed $3 million to third quarter EBITDA, $9 million lower than the second quarter and $9 million lower than a year ago. Declining commodity pricing throughout the third quarter compressed margins, and our Southeast distribution centers lost multiple shipping days due to hurricane activity. The business also incurred $4 million of expenses from wildfire damage at its Redding, California, facility. Through its continued focus on operational excellence, our distribution business made money in the quarter, despite one of the largest quarterly commodity price declines ever recorded. The wood products business has made good operational excellence progress on its 2018 initiatives to improve fiber cost and recovery, reduce certain controllable costs, and capture the benefit of focused capital investments. However, efforts to improve mill reliability, which is our largest opportunity area, have been hampered by weather, as facilities have coped with unusual winter weather, flooding, and hurricanes this year. Our teams remain highly focused on reducing controllable costs, increasing fiber recovery, improving mill reliability, enhancing product margins, and maximizing the benefit of our capital investment. However, there is still significant work to do to achieve the segment's full-year target of $40 million to $60 million. I will now turn it over to Russell to discuss some financial items and our fourth quarter outlook.

Thank you, Doyle, and good morning. The outlook for the fourth quarter is presented in Chart 13 of the earnings slides. In our Timberlands business, we expect our fourth quarter earnings and adjusted EBITDA will be approximately $15 million to $20 million lower than the third quarter. In our Western Timberland operations, we expect fourth quarter average sales realizations for domestic and export logs to be lower than the third quarter average, while log sales volumes are expected to be slightly higher. Larger than normal domestic log decks built in anticipation of a challenging fire season, which did not materialize, are expected to come down. We also typically see a seasonal reduction in supply from nonindustrial landowners in the fourth quarter due to less favorable weather. We anticipate that overall domestic supply in the West will come back into balance with demand by year-end. Japanese export log sales volumes are expected to be moderately higher in the fourth quarter, for some shipments scheduled for the third quarter were delayed due to typhoon activity. Fourth quarter average sales realizations will be lower. Chinese export volumes are expected to be comparable to the third quarter, while average sales realizations will be lower. We remain optimistic on Chinese demand for Western logs despite near-term volatility caused by uncertainty with tariffs and trade policy. We expect slightly higher unit logging costs in the West, while road and forestry spending will decline modestly. In the South, we anticipate fourth quarter average sales realizations will be comparable to the third quarter, and fee harvest volumes are expected to be slightly higher as we return to normal production after third quarter hurricane activity. We own very little timberland in Florida affected by Hurricane Michael and experienced minimal infrastructure and resource damage due to that storm. Silviculture and forestry spending in the South is expected to increase slightly as we deferred activities from the third quarter into the fourth quarter due to severe weather. In the North, we anticipate higher fourth quarter harvest volumes, and average sales realizations are expected to be comparable to the third quarter. Real Estate and Energy and Natural Resources earnings and adjusted EBITDA for the fourth quarter are expected to be comparable to the third quarter. Markets remain active across our ownership, and we continue to see strong interest in higher and better-used properties. We now expect EBITDA for our Real Estate and Energy and Natural Resources segment to be approximately $260 million for the full year 2018. In the third quarter, land basis as a percentage of real estate sales was higher than our full year guidance of 40% to 50% due to the mix of acres sold. We now anticipate that land basis will be approximately 55% for the full year 2018. Wood products market prices for lumber and oriented strand board have continued to decline in the fourth quarter. Logistical challenges improved over the summer, allowing supply to reach the market as seasonal demand moderated. In addition, hurricanes and general market volatility have continued to dampen demand. We expect fourth quarter earnings and adjusted EBITDA to be significantly lower than the third quarter. For the fourth quarter to date, our lumber realizations are $80 lower than the third quarter average, and current realizations are approximately $100 lower. For oriented strand board, our quarter-to-date realizations are $35 lower than the third quarter average, and current realizations are approximately $50 lower. As a reminder, every $10 change in lumber realizations represents approximately $11 million of EBITDA on a quarterly basis. Every $10 change in oriented strand board realizations equates to approximately $8 million of EBITDA on a quarterly basis. Western and Canadian log costs are expected to be lower in the third quarter, and we anticipate improved unit manufacturing costs for lumber due to less weather-related downtime. Our Dierks sawmill was commissioned in mid-October and will begin ramping up to full capacity throughout 2019. We restarted our Grayling, Michigan-oriented strand board mill on October 21, following the completion of the scheduled press replacement. We will be ramping up to existing capacity through the end of the year. We anticipate higher operating rates and increased sales volume through oriented strand board in the fourth quarter. Sales volumes for engineered wood products are expected to decline seasonally compared with the third quarter. Chart 11 outlines the major components of our unallocated items. Contribution to earnings decreased $4 million in the third quarter, primarily due to an expected increase in our unallocated pension and postretirement benefit costs. The second quarter included a favorable true-up to finalize prior year-end estimates for pension plan assets and liabilities. We expect non-operating pension and postretirement expense of $17 million for the fourth quarter. Now I'd like to turn to an update on our key financial items, which are summarized on Chart 12. Capital expenditures totaled $105 million from the third quarter. We continue to expect total CapEx for the full year 2018 will be approximately $420 million, with $300 million for wood products and $120 million for Timberlands. As a reminder, the fourth quarter is historically the highest quarter of capital spending. Moving on to debt, we ended the quarter with approximately $5.9 billion of debt outstanding. We have no remaining maturities in 2018 and expect fourth quarter interest expense to be comparable to the third quarter. For taxes, we continue to expect our 2018 effective tax rate to be between 11% and 13%, based on the forecasted mix of earnings, excluding the third quarter special tax benefit. In August, we announced a series of actions intended to reduce the liabilities of our U.S. qualified pension plan while maintaining its current funded status. As previously disclosed, we made a $300 million cash contribution to the plan in the third quarter. We also offered certain plan participants the opportunity to elect an immediate lump-sum distribution of their pension benefits. Upon completion of this lump-sum offer in the fourth quarter, we expect to record a one-time non-cash settlement charge. We currently estimate this non-cash charge will be approximately $200 million pretax based on current actuarial assumptions. Cash from operations during the third quarter was $87 million. Excluding the $300 million pension contribution, cash flow from operations would be $387 million. During the quarter, we repurchased approximately 8.6 million shares of common stock for $290 million. We ended the quarter with a cash balance of $348 million. As of the end of the third quarter, we had $210 million remaining on our share repurchase authorization. Now I'll turn the call back to Doyle and look forward to your questions.

Thank you, Russell. After the Q&A, we'll make a few comments on our succession to close the call, but at this time, I'd like to open the floor for questions.

Good morning and congratulations Doyle and Devin. Congratulations to you and Devin on the transition. I am wondering if you could talk more about the cost inflation that you're seeing in Timberlands. I think your outlook indicates Western log prices will fall sequentially in 4Q, but even with that, it seems like Western prices are still going to be significantly above where they were say at the end of '16, but I think the segment EBITDA guidance is expected to be down maybe 10%, 15% versus where you were at the end of '16. I guess this is cost-driven. So is there a lag in terms of passing through these costs? Is there a reason to think that maybe some of them will roll off next year? Just kind of any color you could give on costs in Timberland would be helpful?

Yes sure, and so I guess just at a high level, certainly we are seeing some inflationary headwinds in the Western business. I would say on a year-over-year basis, if you think about the logging side, it’s probably around 3% cost inflation year-over-year. On the trucking side, and this is more across the business as a whole, it's closer to 7% or 8%, and that's largely driven just by contractor and trucking availability and some fuel price inflation as well. I would say we're doing everything we can to combat that inflationary headwind with our operational excellence initiatives, and certainly that's a big part of how we are operating really business-wide, not just in the West.

Okay. In terms of a timeline for recovering those costs, would that be in the first half of next year or do you have any thoughts on the timing?

So if you think about passing those through, really it ties back to what we're seeing on log prices and generally it’s less specific to cost inflation and really just market dynamics with log prices. Certainly, as Doyle and Russell mentioned, I do think some of the supply-demand dynamics that we've seen in the Western market are going to come back into balance as we get into Q4, and I would expect to get back up to more normalized pricing in the West as we get into the back half of Q4 and into 2019.

Okay. That's very helpful, and then just kind of a question on whether I think you identified that as an impact in the South for both the Timberlands business and the wood product business. Is it possible to quantify for the two segments how much of a hit weather was in the quarter?

Sure. And we think the total impact of weather on the quarter, Anthony, was approximately $15 million, and that includes from the hurricane, the Japan typhoon, the Redding fire at our distribution facility, and higher Canadian log costs because of very wet weather. If you take that $15 million and break it down, about $5 million of it was in Timberlands, half of that from the hurricane, half of it from the typhoon, and approximately $10 million of it was in wood products. So that's how we would break that down.

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

Thanks, everyone. Good morning. Thanks for the details, and Doyle, congratulations to you and Devin and Adrian and Keith on the transition and the best of luck to everyone. I guess my first question on wood products: can you comment at all in terms of how production might run relative to shipments in the fourth quarter? Do you anticipate having to take inventory down a bit further? Is that something we need to consider in terms of our models beyond pricing and shipments and broadly where to say inventories are right now within wood products?

I think generally in wood products across the system, I would say inventories are normal to slightly elevated, but headed in the right direction. What I would tell you, George, in the fourth quarter versus the third quarter, I would actually anticipate our volumes would improve. In lumber, for example, our operating rates in the third quarter were in the high 80s versus where they were in the second quarter, which was the mid-90s. That was a result of all the disruptions we saw from weather, primarily in the South in the third quarter. So as we move into the fourth quarter, I would anticipate operating rates returning to more normalized levels. So that’s how we're currently thinking about it.

Okay. So ultimately, it doesn’t sound like you have to take any production downtime to get the inventories balanced; you just think demand will more or less take care of it from what we could see?

That is correct. We have no current plan for downtime, and part of our overall velocities, George, has been to focus on cost. Our current cost position allows us to continue to run our mills when it may not make sense for some others to do so. So that's how we're thinking about it at this point in time.

Okay. Thanks for that Doyle. I appreciate the comments on the West in terms of Timberland. Those are very helpful. If it's possible, could you give us a bit more granularity on how Chinese log realizations trended in the quarter versus your expectations? I know you said they are up year-on-year, and you said they were down in this quarter. Where do they wind up maybe in absolute levels and relative to your expectations? I had one more question to follow up after that?

Yes, so just a little bit of context around China. When you think about the Chinese export program out of the West, really, as I mentioned, when the trade dispute started picking up steam mid to late summer timeframe, that really put a little bit of a pause into that market as people were trying to react and figure out how that was going to be implemented. You saw a little bit of a slowdown in the China market. I would say that is beginning to normalize. At this point, if you think about a 5% tariff, that’s not enough to meaningfully impact the volume that we're going to flow into China in the short to mid-term. One thing to remember about China pricing, however, is that there is a strong correlation to domestic markets in terms of how we price the China wood, and that can really swing one direction or the other depending on what's going on in the domestic market and the Chinese demand. I will say just on the demand side, we're still seeing strong activity in China; the inventory levels at the port are coming down. According to our folks in China, there's still good take away from the ports, and so we can certainly expect as we get into the back half of the quarter that we're going to continue to see good demand out of China.

So, Devin, it would be fair to say that the trend in the quarter was driven more by domestic market and less in terms of export trends and trade issues; would that be fair for Timberlands?

It's a little bit of both, really. If you think about what happened in the West in the quarter, it was really a perfect storm of events. You think about the fire season that the mills across the West were expecting and really, they were putting that in the context of 2017 when we had a severe fire season in the West. So across Washington and Oregon, everybody was planning for that in 2018, which never materialized. Then you saw a lot of volume being built up at the mills and so there were very heavy large log decks. Additionally, with the high pricing that you saw in the West for the first half of the year, that brought a lot of the marginal players bringing wood to the market, which increased supply. Then you overlay that with the trade disputes as some of the logs that would have otherwise gone to China stayed in the domestic market. That caused a little bit of a supply-demand dynamic that was a little out of balance. As all of the things begin to normalize, we head into the winter weather, where you're going to see less volume flowing into the market, that will all normalize, and I think you’ll get back into balance.

Okay. I'll turn it over. Thanks for the time, guys, and good luck in the quarter.

Thank you, George.

Hey, good morning, everyone. I'll also add my congratulations, Doyle, on a great run, and best of luck to Devin in the new role here.

Thank you.

Just following on from George's questions, I think, based on Russell's commentary around the pricing sensitivity, it seems like lumber for you guys will be close to breakeven in 4Q, maybe a little bit positive. Given you guys are one of the lower-cost producers at this point, what do you think that kind of signals around current economics for, call it, marginal producers in the industry? Do you think we're more likely to see any capacity curtailments, or is that just sort of normal fourth quarter seasonality? And if we can get a little bit of rebound in pricing, would you expect nobody to really be thinking about taking an extended downtime?

I don't want to speculate on what others may do. As you probably know, there already have been some announcements of downtime in the quarter. As I said, our focus on cost and cost position puts us in a good position to continue to run our mills when maybe it didn't make sense for some others to do so. I do think that the pricing scenario we're currently in will correct itself. Our best guess is that by the end of the quarter, it will be headed back in the right direction. So we'll have to see how that plays out from a pricing perspective. That's kind of how we think about it.

Okay. Just thinking about if prices don't recover, if they actually continue to slide in a worst-case scenario, you're just thinking about the cash flow and the CapEx in particular. I know it's been elevated the last couple of years; there just been announcement on some wood products, but could you maybe give us a sense of where that CapEx number could go if we do get into more of an extended downturn here?

Sure. We have been spending approximately $300 million a year in CapEx in our wood products operation. We would anticipate that type of number in 2019 and then falling off to $250 million or so on a go-forward basis. We've always said that maintenance CapEx is probably $150 million to $200 million, and I'm not suggesting this at all, but you could lower it down to that price or to that level in the event that you made the decision that was the right thing to do. Again, I’d go back to what we're seeing is a confluence of events that have led to this significant fall in pricing, including, as Russell mentioned, a slug of supply coming in from Canada, improving seasonal demand, hurricanes, a lot of events that we think will level out over time. So we're not predicting a precipitous fall in lumber prices for any extended basis, but in response to your question, we could lower CapEx significantly if we made a determination that we needed to do that.

Okay. Just trying to stress the model. I know you guys have set the dividend at a level where you think it's supported regardless of the environment, and do you think that's probably one of those components that would factor in there? Just last one for me, if lumber price is down, just wondering how you think that might impact either EWP prices. I know there is not a direct correlation per se there, but they did sort of compete with each other in some applications. So just wondering what your outlook is for either EWP prices the rest of this year and into 2019?

EWP prices were slightly higher in the quarter due to a price increase we implemented earlier this year. There isn't a direct correlation between EWP prices and lumber prices, as EWP price adjustments are made annually, while lumber prices fluctuate daily. If there were a significant change in the overall demand for lumber or EWP, it could influence pricing. However, we currently expect EWP prices to remain stable for the rest of this year and into next year.

Okay. I'll leave it there. Thanks again, Doyle.

Thank you.

Hey, good morning.

Good morning, Collin.

First question for me just on the share repurchases; over half the authorization was used in 3Q. I don't know if you can update us on how much has been purchased here in 4Q today and maybe just more broadly update us on the appetite for repurchase activity, just given the near-term cash generation isn’t what it was a couple of months ago.

Collin, as mentioned, we did repurchase $290 million in the third quarter. As we always do, we will report the amount that we repurchased in the fourth quarter when we do the fourth quarter earnings call. So we still had $210 million under the current authorization, and we of course will be working with our Board as we always do on capital allocation as we move forward.

Okay. And then just going back to your comments as part of the sensitivity, just running some quick math, would it be fair to say if pricing stabilizes at this level that wood products' EBITDA generation would be maybe somewhere around the $100 million number? Are there some other moving pieces we should consider in that or just some guideposts? Would that be a fair way to think about it?

Collin, I think as you look, clearly the pricing is pretty dynamic right now. As Doyle indicated, we would expect pricing to start improving coming into the latter part of the quarter, but as we stated in the prepared remarks, it will be significantly down quarter-over-quarter.

Okay. To follow up on Anthony's earlier question, I am somewhat surprised by the Timberland guidance for the fourth quarter, considering it has contributed at a low level for multiple years. I understand your optimism regarding pricing recovery on the log front as we progress through Q4, but can you provide insight on what you're seeing in real time? Is pricing stabilizing or is there still further deterioration? Please discuss this in terms of both domestic and export markets.

Yeah, so what I would say is that we still have reasonably high levels of inventory across the mill set in the West, and so we're really just at the point now where we're starting to move into the rainy season here in the West. That's going to take a little time for that to work its way through. I would expect you're going to continue to see the inventories at high levels for the next several weeks, and then as we get into the back half of Q4, I think you’ll start to see that normalize. We're still at a point where that's working its way through the supply-demand dynamic and getting back into balance. That will improve, I think, over the back half of the quarter. That domestic pricing is certainly correlated to the export pricing as well, so those things typically move more or less in tandem.

Okay. One last one for me, and I'll turn it over. Just going back to some of the disruptions on the export market, a lot has been made up over the last couple of years really about the export opportunities out of the U.S. Clearly some disruptions near term, recognizing again that the overall contribution from that is pretty de minimis for you guys. But just long term, how do you think about that business? Are you actively exporting outside or out of the U.S. right now?

Yeah, so obviously there's a difference between the 5% tariff that we're seeing in the West and a 25% tariff on the South. The 25% tariff is certainly more meaningful to that business. As you said, for context, it is a relatively small part of our overall business both in the South and then certainly Timberlands wide. We're continuing to ship out of the U.S. South to China and India; that has gone down somewhat and certainly we're not ramping that up at the same pace that we had anticipated pre-trade dispute. But if you kind of step back and look at the opportunity over the long term, we're still very optimistic that that's going to be a good business for us. We've been on the ground talking to customers in China. I think Southern Yellow Pine is a market that will ultimately be developed in a much more meaningful way in China. I think the demand is there. Really, I think in the short term, we're going to have to just work our way through until this trade dispute gets resolved, but I would expect that it will get resolved as they always do, and then there will be a bigger opportunity for us exporting out of the South.

Okay. I appreciate the color, and again, Doyle, congratulations on your retirement and compliments at Weyerhaeuser and congratulations, Devin, on the new role.

Thank you, Collin.

Good morning, Doyle, Devin, Russ.

Good morning.

Doyle, it's been about 25 years of earnings calls; I think you're probably happy to see them come to an end.

I would absolutely agree with you.

We must be in the same boat with you. Three questions I want to ask about; first, there have been a couple of articles in the Wall Street Journal over the last couple weeks about supply issues on Southern Timberland, and I wondered if you would want to offer any thoughts on the substance of those articles, really had to do with subsidies over the last 30 years for Timberland planting?

Yes, sure, Mark. This is Devin. Really, that was getting to the Conservation Reserve Program that's been in place for a number of years, and so really, that's nothing new. We've all been aware of that program for a long time, and it's just one factor that plays into the overall supply-demand dynamic going on in the South. It has certainly added some additional acreage over the years, but once again, I think our optimism over the long-term is really about just the continued capacity coming online, the export opportunities over time, the diminishing supply from Canadian lumber, and the underlying continued improvement in housing. So it's a piece of the puzzle; it’s certainly not anything that everybody wasn’t aware of already in terms of how they think about inventory levels across the South. So I guess that’s how we would speak to that.

Okay. Fair enough. Second question I had, I think we've all been surprised for the last 10 years about what's going on in the housing market. I think the notion that we're topping out here around 1.3 million starts is a big shock to a lot of us. I'm just curious, if we are topping out here, can you talk about the sustainability of the dividend if we don't see further improvement in the housing market?

Mark, first I would say I am not sure we agree with the premise, and then I'll answer your question, go ahead.

No, I was just going to say, Doyle, I think a lot of us have kind of been assuming we’d at least get to 1.5 or 1.6 million, but if you look at the data over the last three or four months, that's not what it's showing us. So I am just saying if we're indeed topping out, and I'm not arguing that we are, let's just talk about the dividend on that basis?

Sure, so let's assume for a minute that we are topping out in housing as we currently are. I think clearly that's a sensitivity we ran when we were coming over the dividend. We make dividend decisions for the long term. We all have to remember that just last quarter we had record EBITDA in our wood products operation and in very high levels of EBITDA across the company, and housing starts at one point to something. So clearly, wood product prices have fallen. Again, I think that's a confluence of events that just happen to coincide to push prices down in the third quarter into the fourth quarter. But under your assumption of 1.3 million housing starts, I think this company, the way we're positioned and our focus on cost can generate a significant amount of cash flow, and I would be very comfortable with the dividend level on a going-forward basis.

Okay. All right. That's good. That's what I wanted. Last thing I wanted to ask about is just Northern Timberlands. We generated $13 million in EBITDA this year around 2.5 million acres. I'm wondering how you think about that piece of the portfolio, and I'm particularly wondering if this is just a kind of valuation arbitrage between where Weyerhaeuser trades on an EBITDA basis and what you might be able to do with that Timberland generating a relatively modest amount of EBITDA?

So Mark, this is Russell. As we stated when we first completed the merger with Plum Creek, we are going to look at all of the components of the portfolio, and that's the Northern operations kind of as part of that review, and then we continue to look at the portfolio really in all regions and determine which timberlands make sense on a long-term basis, which are strategic and where we want to grow and where we might want to divest. Again, that's an ongoing process. The one thing I will say about the North is there are very low input costs; so it's very low-cost type operations. But again, we'll continue to review the portfolio, and if it makes economic sense, we'll act on them.

Okay. Fair enough. Doyle, enjoy your retirement.

Thanks, Mark.

Thanks. Just skidded under the wire here. Maybe just a question on whether you've noticed anything in the Timberland markets themselves in terms of valuations, whether they've come down at all due to the market drop in lumber and OSB prices over the year?

Paul, this is Russell. We really haven't seen a change in the overall market dynamics. It's actually been pretty busy in the second half of the year. As far as valuations, we're still seeing, as Doyle mentioned, strong valuations, and high-quality timberlands are in demand, and we're seeing those trade at good prices. So the short-term dynamic that we're experiencing in the second half of the year, we haven't seen it impact Timberland values.

All right. That's all I had. Congrats, Doyle.

Thank you very much. So as I understand, that was our final question. As I mentioned earlier, as we close the call this morning, we want to make a few comments on succession, and I wanted to personally thank all of you for your support over the last five years. For many of you, it's been 20 or 25 years. I will say, it's been an absolute honor to lead Weyerhaeuser for the past five years. When I accepted the job, I told our Board that I would stay for five years, and every day I would be relentlessly focused on five things: portfolio, performance, capital allocation, culture, and people development. I'm very proud of the progress we've made to position Weyerhaeuser to drive value for shareholders, and I couldn't be any more excited about the energy and vision Devin, Adrian, and Keith will bring to their new roles as they continue to drive improved operational and financial performance. Those of you who know Devin, he is extremely smart, driven and dedicated. He shares my passion for developing people and getting results, and he is also an outstanding role model for our core values. And with that, I'd like to turn it over to Devin for a few closing remarks.

All right. Well, thanks, Doyle. First, I want to take a moment just to thank Doyle for his tremendous leadership and contributions to Weyerhaeuser. During his time leading this company, we focused on and enhanced our portfolio of assets, improved our operating performance, and delivered on a commitment to disciplined capital allocation. It's been a real privilege to work with Doyle over the last five years, and I certainly wish him all the best in his retirement. I am personally truly honored to be assuming the leadership of this great company. Our assets are world-class. Our employees are incredibly talented. Our strategy is sound, and I'm privileged to be working with a terrific senior leadership team. In the coming months and years, we're going to build on this strong foundation to make Weyerhaeuser the world's premier timberland and forest products company. I am very excited about the opportunities in front of us as we continue working together to drive value for shareholders through a relentless focus on industry-leading performance and disciplined capital allocation. I've had the chance to meet many of you in person already, and I certainly look forward to getting to know the rest of you better as I assume the role. So for now, thanks everyone for joining us this morning, and thank you for your interest in Weyerhaeuser. And with that, I think we'll close the call.