Weyerhaeuser Company (WY) — Q1 2023 Earnings Call Transcript

Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser’s first quarter 2023 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 Devin Stockfish, Chief Executive Officer; and David Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported first quarter GAAP earnings of $151 million or $0.21 per diluted share on net sales of $1.9 million. Adjusted EBITDA was $395 million, a 7% increase over the fourth quarter of 2022. These are solid results, and I’m pleased with the operational and financial performance delivered by our team despite various market and weather-related challenges throughout the quarter. Turning now to our first quarter business results. I’ll begin with Timberlands on Pages 6 through 9 of our earnings slides. Timberlands contributed $120 million to first quarter earnings. Adjusted EBITDA was $188 million, a 25% increase compared to the fourth quarter. In the West, adjusted EBITDA increased $33 million compared to the fourth quarter, largely driven by increased sales volumes in domestic and Chinese markets and lower per unit log and haul costs. These favorable results were partially offset by lower sales realizations. Turning to the Western domestic market. Demand and pricing for domestic logs faced downward pressure at the start of the first quarter. Mills reduced consumption in response to lower pricing and takeaway of finished products, and we’re carrying elevated log inventories. As the quarter progressed, log consumption increased as end market demand improved, but log supply was constrained by consistent winter weather conditions. This dynamic drove log inventories to lower levels and caused log pricing to stabilize. For the quarter, our average domestic sales realizations were significantly lower than the fourth quarter. Our fee harvest and domestic sales volume as well as per unit log and haul costs improved in the first quarter as we returned to full run rate operations following the work stoppage in the fourth quarter. First quarter harvest activity included a portion of the deferred volume resulting from the work stoppage, and we remain on track to capture the majority of the deferred harvest volume in 2023. Forest and road costs were also seasonally lower. Moving to our Western export business. Log markets in Japan continued to soften in the first quarter in response to elevated inventories of European lumber imports as well as lower consumption driven by reduced post-and-beam housing activity. As a result, our average sales realizations for export volumes to Japan were moderately lower compared to the fourth quarter, and our sales volumes were comparable. In China, log inventories at the ports declined during the quarter and daily takeaway increased as construction activity improved following the Lunar New Year and in response to the recent lifting of pandemic-related restrictions. As a result, log demand from our customers remained solid in the first quarter. Our sales volumes increased significantly compared to the fourth quarter, and we intentionally flexed additional volumes to China to take advantage of improving market conditions in the first quarter. Our average sales realizations were slightly higher compared to the fourth quarter, aided by improved ocean freight rates and a favorable exchange rate. Turning to the South. Adjusted EBITDA for Southern Timberlands increased $4 million compared to the fourth quarter. Despite reduced log consumption in response to lower finished product pricing and demand, southern sawlog and fiber markets remain fairly balanced during the first quarter as log supply was constrained by wet weather conditions. As a result, our average sales realizations were comparable to the fourth quarter. Our fee harvest volumes increased slightly despite the adverse weather conditions. Per unit log and haul costs were slightly lower in the first quarter, and forestry and road costs were slightly higher. Adjusted EBITDA in the North was comparable to the fourth quarter. Turning to Real Estate, Energy and Natural Resources on Pages 10 and 11. Real estate and ENR contributed $53 million to first quarter earnings and $89 million to adjusted EBITDA. First quarter EBITDA was $43 million higher than the fourth quarter primarily due to a significant increase in real estate acres sold, partially offset by a decrease in royalty income from our Energy and Natural Resources business. Similar to prior years, our real estate activities in 2023 are more heavily weighted towards the first half of the year. Average price per acre decreased compared to the fourth quarter due to the mix of properties sold but remained elevated compared to historical levels, as we continue to benefit from steady demand for HBU properties. Despite broader macroeconomic headwinds, buyers continue to seek the safety of hard assets, resulting in high-value transactions with significant premiums to timber value. Moving to Wood Products on Pages 12 through 14. Wood Products generated $95 million of earnings in the first quarter and $148 million of adjusted EBITDA. First quarter adjusted EBITDA was a 25% reduction from the fourth quarter, largely driven by continued softening in wood products pricing. Regarding the lumber and OSB markets, benchmark prices for both products entered the first quarter showing signs of stabilization after receding in the back half of 2022. Pricing for both products increased slightly through early February in response to stronger-than-expected demand for housing and buyers replenishing lean inventories. The increase was more pronounced for lumber as supply concerns weighed on the market following a series of mill curtailment announcements, particularly in British Columbia. As the quarter progressed, overall buyer sentiment remained cautious. Adverse weather impacted homebuilding in several regions and ongoing concerns about inflation and the economy persisted. Despite lean inventories, orders were limited to necessity purchases through quarter-end, and benchmark prices for both products were generally range bound. I would note, however, that prices for both products have trended higher as we’ve moved into the second quarter. Adjusted EBITDA for our lumber business was comparable to the fourth quarter. Both the framing lumber composite pricing and our average sales realizations decreased 9% in the first quarter. Our sales and production volumes increased significantly versus the fourth quarter, which was impacted by the work stoppage at our Northwest mills. Reliability also improved across the system. With increased production in the quarter, unit manufacturing costs improved significantly. Log costs were comparable to the fourth quarter. OSB adjusted EBITDA decreased by $32 million compared to the fourth quarter, primarily due to the decrease in commodity pricing. Our average sales realizations decreased by 20% in the first quarter, largely in line with OSB composite pricing. Sales volumes were significantly higher as production volumes increased from less planned downtime for annual maintenance, and transportation networks improved following adverse weather conditions late in the fourth quarter. Unit manufacturing costs and fiber costs improved moderately during the quarter. Adjusted EBITDA for Engineered Wood Products decreased by $28 million compared to the fourth quarter due to softening demand for EWP products. As a result, our sales and production volumes and average sales realizations were lower for most products in the first quarter. That said, we have seen a recent uptick in our order activity, and our current realizations remain above pre-pandemic levels. Unit manufacturing costs were comparable to the fourth quarter, and raw material costs decreased primarily for OSB web stock. Adjusted EBITDA for distribution was comparable to the fourth quarter as higher volumes and lower operating costs were offset by a decrease in realizations for EWP and commodity products. With that, I’ll turn the call over to David to discuss some financial items and our second quarter outlook.

Thank you, Devin, and good morning, everyone. I’ll be covering key financial items and first quarter financial performance before moving into our second quarter outlook. I’ll begin with key financial items, which are summarized on Page 16. We ended the quarter with approximately $800 million of cash and cash equivalents and total debt of approximately $5 billion. Our balance sheet, liquidity position and financial flexibility remain exceptionally strong. We reinforced our flexibility in the first quarter by extending the maturity of our existing $1.5 billion revolving credit facility to 2028. In the first quarter, we generated $126 million of cash from operations. It’s worth noting that the first quarter is usually our lowest operating cash flow quarter due to seasonal inventory and other working capital build. Capital expenditures for the quarter were $71 million, which is a typical level for the first quarter. We returned $139 million to shareholders through the payment of our quarterly base dividend, which was increased by 5.6% to $0.19 per share during the quarter. This is in line with our commitment to grow our sustainable base dividend by 5% annually through 2025. During the quarter, we also returned $660 million to shareholders through the payment of our supplemental dividend, which was associated with our 2022 financial results. We returned $35 million to shareholders through share repurchase activity in the first quarter. These shares were repurchased at an average price of $31.25. And as of quarter end, we have completed nearly $660 million of repurchase under our $1 billion authorization. Looking forward, we will continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value. First quarter results for our unallocated items are summarized on Page 15. Adjusted EBITDA for this segment decreased by $6 million compared to the fourth quarter. This decrease was primarily attributable to changes in intersegment profit elimination and LIFO, as well as the absence of non-recurring healthcare and workers’ compensation items that were benefits in the fourth quarter. Looking forward, key outlook items for the second quarter are presented on Page 18. In our timberlands business, we expect second quarter earnings and adjusted EBITDA will be approximately $20 million lower than the first quarter of 2023. Beginning with our Western Timberlands operations, domestic log markets were fairly tensioned at the outset of the second quarter driven by improved pricing and takeaway of finished products, leaner than normal log inventories, and log supply constraints due to persistent winter weather conditions. As the quarter progresses, we expect further improvement in log demand and an increase in log supply as the weather improves seasonally. As a result, our domestic sales realizations are expected to remain fairly stable throughout the second quarter. That said, we anticipate the quarterly average will be lower compared to the first quarter as log prices have fallen since the beginning of the year. We anticipate our fee harvest volumes will be moderately higher given seasonally favorable operating conditions in the second quarter. Forestry and road costs are expected to be significantly higher as we enter the spring and summer months, and per unit log and haul costs are expected to be significantly lower, partly due to lower fuel prices. Moving to the export markets. Starting with Japan. As Devin mentioned, elevated inventories of European lumber imports and reduced consumption continue to weigh on log demand and pricing. We expect these conditions to persist through the second quarter. As a result, our Japanese sales volumes and realizations are expected to be lower compared to the first quarter. That said, we expect European lumber inventories to normalize as the year progresses, which should increase demand for our logs in the Japanese market. In the meantime, we are shifting a certain amount of logs to our internal mills to capitalize on domestic market conditions. In China, construction activity and log consumption continue to improve following the Lunar New Year and the lifting of pandemic-related restrictions. That said, log imports from New Zealand have increased significantly following the disruption in the first quarter due to cyclone activity. This dynamic is likely to put downward pressure on log pricing until excess inventories are cleared. As a result, our sales realizations into China are expected to be slightly lower compared to the first quarter. We anticipate our sales volumes will be significantly lower as we direct logs to domestic customers to capture higher margin opportunities. In the South, we expect sawlog markets to remain fairly balanced in the second quarter as log supply improves with drier weather conditions and mills bolster inventories in response to weather-related challenges in the first quarter. Southern fiber markets are expected to soften as a result of end-market demand and pricing. Despite improving weather conditions, our fee harvest volumes are expected to be comparable to the first quarter, largely driven by a higher mix of fiber logs as thinning activity increases following wet weather conditions earlier in the year. With a higher percentage of fiber logs, we expect our sales realizations to be slightly lower compared to the first quarter. Per unit log in haul costs are expected to decrease slightly as a result of lower fuel prices. And forestry and road costs are expected to increase seasonally. In the North, our sales realizations are expected to be slightly lower than the first quarter, and fee harvest volumes are expected to be significantly lower as we enter the spring breakup season. Turning to our Real Estate, Energy and Natural Resources segment. As Devin mentioned, we are still seeing steady demand for our real estate properties, and we continue to expect a consistent flow of HBU transactions with significant premiums to timber value. For the second quarter, we expect earnings to be comparable to an adjusted EBITDA will be approximately $20 million lower than the first quarter of 2023 due to the timing and mix of real estate sales. For the full year, we continue to anticipate adjusted EBITDA of approximately $300 million for the segment. For our Wood Products segment, we expect second quarter earnings and adjusted EBITDA will be slightly higher than the first quarter of 2023, excluding the effect of changes in average sales realizations for lumber and OSB. Benchmark prices for both lumber and OSB have been fairly stable quarter-to-date, but we are seeing signs of increased demand for Wood Products as we get further into the spring building season while channel inventories remain lean. As shown on Page 19, our current and quarter-to-date average sales realizations for lumber are moderately higher than the first quarter average. For OSB, our current and quarter-to-date average sales realizations are slightly higher than the first quarter average. For our lumber business, we expect higher production and sales volumes in the second quarter and moderately lower unit manufacturing costs as operating rates at our Northwest mills return to a more normalized level, reliability improves across the system, and inflationary pressures continue to ease. Log costs are expected to be moderately lower compared to the first quarter, primarily for Western and Southern logs. For our oriented strand board business, sales volumes are expected to be comparable to the first quarter. We expect slightly lower production volumes and moderately higher unit manufacturing costs due to more planned downtime for annual maintenance in the second quarter. Fiber costs are expected to be slightly lower. Turning to our engineered wood products business, as Devin mentioned, we have seen an uptick in order activity quarter-to-date, and we expect steady demand as the quarter progresses. As a result, we anticipate significantly higher sales volumes for most products compared to the first quarter. That said, sales realizations are expected to be moderately lower as supply and demand continue to rebalance across the broader EWP market. We anticipate moderately lower raw material costs for most products, including for OSB webstock. For our distribution business, we expect adjusted EBITDA to be slightly higher compared to the first quarter due to improved sales volumes. With that, I’ll now turn the call back to Devin and look forward to your questions.

Thanks, David. Before wrapping up this morning, I’ll make a few comments on the housing and repair and remodel markets. Our view on the housing market is largely unchanged, and we still anticipate a somewhat more challenging backdrop in 2023 compared to the last couple of years. We’ve clearly seen some softening from the peak levels of 2022 as homebuyer sentiment remains cautious. That being said, there have been some positive signs lately that the housing market is holding up better than we anticipated at the beginning of the year. Specifically, we’ve seen improvements in home builder sentiment, an increase in new home sales, and an uptick in single-family starts over the last couple of months. Additionally, the labor market and household balance sheets are generally in good shape, and inventory of existing homes for sale remains well below historical levels. Putting this all together, we continue to believe that underlying housing demand is solid. As we saw in the first quarter, there are buyers willing to step back into the market in response to lower mortgage rates and homebuilder incentives. Ultimately, we’ll need to see further rate reductions combined with a stable to improving U.S. economy before the housing market fully returns to the levels of the past few years. However, notwithstanding any near-term headwinds, we continue to maintain a positive and constructive longer-term view on housing fundamentals supported by strong demand, favorable demographic trends, and a significantly under-built housing stock. Turning to repair and remodel, where activity remained fairly stable in the first quarter and continued to be supported by steady demand from the professional segment. Demand from the do-it-yourself segment has largely normalized to pre-pandemic levels. Looking forward, we expect customer demand to be bolstered to some degree by prospective home buyers choosing to remodel in lieu of purchasing a new home in a higher mortgage rate environment. Lower commodity building product prices may also support repair and remodel activity in the near term. And in any event, we continue to have a bullish longer-term outlook for repair and remodel demand supported by strong home equity levels and an aging housing stock. In closing, we delivered solid operational and financial performance in the first quarter. We remain as focused as ever on operational excellence in supporting our customers to drive industry-leading margins. In addition, we remain committed to returning cash to shareholders. During the quarter, we increased our base dividend by 5.6% and returned more than $830 million to shareholders through base and supplemental dividend payments, as well as share repurchase activity. Looking forward, we remain constructive on the longer-term demand fundamentals that will drive growth for our business, notwithstanding the current macroeconomic headwinds. Our financial position is exceptionally strong, and we are focused on delivering superior operating performance across our unmatched portfolio of assets, as well as enhancing shareholder value through disciplined capital allocation. So with that, I think we can go ahead and open it up for questions.

Good morning.

Good morning, Anthony.

Devin, as you look at Southern log prices, are you seeing any regional trends worth calling out? And I guess specifically, over the past few years as Southern log prices have seen some strength I think we saw maybe stronger price appreciation in some of these coastal regions versus inland regions. Now that log prices appear to be moderating a bit. I’m wondering, are you seeing those coastal regions holding price better or ultimately are they maybe giving up kind of more of the gains that they’ve had and maybe acting with a little bit more volatility? I don’t know if there’s any trend that you would call out. I’m just kind of curious what you’re seeing and maybe how your portfolio is positioned there.

Yes, Anthony, good question. As we think about the southern sawlog pricing dynamic, as you say, there are certainly regional differences, and we’ve seen that play out over a number of years. As you mentioned, the Atlantic coast, particularly from North Carolina down through Florida and Georgia, has certainly been a stronger market. I think there are a couple of factors at play there. To some extent, the sawlog market is also impacted by the pulpwood markets in the coastal region. As you think about a lot of these mills and where they source logs, if you’re next to the ocean, your sourcing radius is only about 180 degrees versus 360. That tightens up some of those markets and I think that influences sawlog prices. We’ll see if, with a little softening in the fiber markets, that wanes a little bit more. But I think more broadly, as you mentioned, we have seen some capacity coming into the south, and certainly that’s benefited us in some of the markets where we have large fee holdings, for instance, in Mississippi, southern Arkansas, and some spots in Louisiana. What we’ve observed is that as new capacity comes into a particular wood basket, we see an uplift in sawlog prices, and we expect that trend to continue as more capacity comes into that region. I think the other thing at play of late has been, and this is particularly true over the last 18 months, there’s just been a constraint on log and haul capacity, which has driven an uptick in sawlog prices, as mills wanted to maintain inventory to take advantage of the high lumber price opportunity. I would say that the haul capacity has likely improved as we’ve entered 2023. But, over the long term, I continue to think you’re going to have constraints on both log and haul capacity across the south, as labor will continue to be an issue. So, net-net, we are seeing regional differences. Might we see the Atlantic coast come down a bit more? Perhaps. But on balance, we still feel optimistic about the trajectory of southern sawlog prices in the coming years.

Okay. That’s super helpful. And then just on Natural Climate Solutions, I don’t know if there’s any kind of update you can give us in terms of level of interest and engagement and maybe how you’re tracking towards that $100 million EBITDA target for 2025. Or if there’s any kind of specific projects or workstreams that you feel like are moving faster or slower than expected.

Yes. I think the good news is that there continues to be an increasing level of interest across really all parts of that Natural Climate Solutions business. That’s true with renewables—solar, wind—there’s a lot of interest and activity. It’s also true with mitigation banking. We’ve seen significant interest in carbon capture and storage in the forest carbon markets. So I think we’re as optimistic as ever about the trajectory of growth over time with that business. That’s really, as I mentioned, true across every component of that Natural Climate Solutions business. I think the challenge continues to be managing the timeline to get these projects to fruition. Unfortunately, that’s the case across each of those different businesses, whether it’s the permitting and getting tied into the grid in the renewable sector or just the timeline to have our carbon projects go through the process of a third-party audit. I think that timing will improve over time as more resources are added to the system. But it really is a question of timing more than magnitude, and we remain optimistic about the long-term opportunities across each of those businesses within Natural Climate Solutions.

Okay, that’s very helpful. I’ll turn it over.

Thanks.

Thank you. Good morning, Devin and David.

Good morning.

Good morning.

First question just related to Anthony’s earlier question. Devin, any update on the main carbon offset project, how that’s coming along and when do you anticipate kind of incremental information around that?

Yes. I feel like we’re right at the goal line. We’ve had all our materials and responses into the third-party auditor for quite some time. One thing we’ve come to appreciate in this space is that there are not enough third-party auditors to manage the scale of carbon credits coming to market. I do think that will be resolved over time. But that’s really been the bottleneck for us as we’ve tried to push that through to completion. I think we should have something here shortly, and we anticipate in the very near future getting those credits issued and then hopefully start selling those carbon credits. However, we’ve also learned some things through the process that can help us scale this program going forward, so more to come on that, hopefully, in the very near future.

Got it. And Devin, when you say very near future, I would still assume that to be kind of 2023, is that fair?

Absolutely.

Got it. And then just switching to capital allocation. I’m curious kind of your approach towards share purchases, especially in the context of broader capital allocation. In a year like 2023 where cash generation will be kind of hit by lower product prices. Obviously, you guys have laid out the base and the supplemental portion. I’m just curious kind of how do you approach share purchases here?

Yes, sure. Thanks. We have, as we’ve said for a while now, we believe share repurchases are a useful tool in the right circumstances, and certainly we’re fortunate to have multiple capital allocation levers, including M&A, investing in our business, and adjustments to our capital structure. Given the current share price, share repurchase is an attractive lever, but we’re constantly weighing that in light of all the alternatives and the overall backdrop. We’ve been quite active in repurchasing shares since we announced our increase to our authority in fall 2021, making our way through about two-thirds of that $1 billion authorization, including about $550 million last year. So as we moved into 2023, the process really remains the same, but to your point with the cash return framework, the amount of cash committed to be returned to shareholders is going to flex up or down year-to-year based on the adjusted FAD generated. So in light of the economic environment we saw to start the year with relative choppiness in housing, it’s important to be disciplined and balanced as we deploy our cash over time, weighing all the market conditions and those available levers and ultimately allocating cash in a way that creates the most shareholder value. So in summary, I’d say the evaluation process remains consistent. We’ll continue to assess share repurchases along with all the other capital allocation options and report our activity quarterly.

All right. Now that’s helpful perspective, I’ll turn it over. Good luck.

Thank you.

Thank you.

Thank you. Good morning, everyone.

Good morning.

Good morning.

Our first question is on the DIY segment of the R&R market. Devin, I know you gave some comments there on the activity that you’re seeing. But as we get into the spring, what’s the tone from your customers there, and how are you thinking about the spring playing out?

Yes. On balance, we’ve seen pretty solid demand. I would say, just for context, Q1 is always a little bit softer from the DIY segment just because people aren’t doing R&R projects in the northern regions this time of year. I would say in the south we’ve actually seen activity rise a bit year-over-year as we feed into the big-box retailers. It’s been a little lagging in the west, but that’s starting to pick up. So, on balance, we’re still expecting a very solid year from the DIY segment. I don’t think it’s going to be at the same levels that we saw during the peak of the pandemic, but certainly very strong relative to pre-pandemic levels.

Okay, that’s helpful. And then looking at the EBITDA margin in lumber and OSB, it was really impressive given what you’re seeing from a pricing perspective. And it does seem like it reflects some of the benefits of the productivity initiatives that you have put in place in the last couple of years. How are you thinking about the production cost going forward, just given the various puts and takes there? And with that, is there any update generally on OpEx 2.0? Any thoughts on how you’re progressing against the $175 million, $200 million target for 2025?

Sure. Well, at a high level, I think the benefits of this OpEx program that we’ve been undertaking for a number of years are reflected in the Q1 numbers as you said. In a very challenging market, we were still able to deliver positive margins across all our businesses. From a relative operating performance standpoint, that’s really served us well and has been a core part of our operating strategy for quite some time. We are progressing, I think, quite well towards that $175 million to $250 million target. I’m particularly pleased with the progress we made last year, generating $40 million of OpEx in an environment with historically high levels of inflation. This year, as we see turnover returning to a more normal level and inflation coming down, I feel optimistic about the tailwinds we’ll have from an OpEx standpoint. It’s a testament to the teams that we have across the organization who are focused on improving how we operate daily, innovating where we can, and serving our customers to maintain and grow our industry-leading margins.

And any thoughts just on those production costs for lumber and OSB as we get into the spring?

Sure. As we look across the key cost elements of each of those businesses, the labor piece has remained elevated. I don’t think it’s increasing at the rate we’ve seen over the last several years, but it still remains at an elevated level. Beyond labor, on balance, we are seeing some progress in having inflationary pressure ease a bit, whether it’s fuel, energy, or resins. We’ve seen some fiber costs come down. So we are seeing some of those inflationary pressures starting to subside, which will be a tailwind for us as we move through the year.

Okay, great. Thank you for all the color and good luck.

Sure. Thank you.

Great. Thanks and good morning everyone.

Good morning.

I wanted to start out on the EWP business. I mean, it’s been a really nice source of stability despite volatility in commodity markets. Realizations there held in better than we expected. Looks like you’re expecting some additional pressure in Q2, but could you talk about how you’re thinking about profitability there over the next couple of quarters and maybe give a little more color on what you’re seeing on the volume side after some destocking issues the last couple of quarters?

Well, not surprisingly, given that EWP’s primary market is single-family construction, we did see softening in EWP demand as we entered Q4 last year, which flowed into Q1. I think, to a large extent, the housing market softened last fall, leading to inventory levels across the channel building up a bit more than expected. In Q1, many of our customers had to work through their existing inventory. Thus, we adjusted our operating posture to reflect the demand environment. That said, as we look at this business from a high level, we’re still seeing pricing well above historical pre-pandemic levels. As we get deeper into spring, we’ve seen our order files start to build. The recent improvements in single-family construction make us more optimistic about how that’s going to play out in the coming months. We plan to increase our production in Q2, as Davie mentioned. While we aren’t back at full capacity yet, we certainly expect improvement compared to Q4 and Q1. We feel good about the business; it’s a quality product, with great service and solid customer loyalty. As single-family housing continues to recover, that business will be in excellent shape for us moving forward.

Got it. That makes sense. And then just second on southern log pricing. I guess as you look over the next year, do you think we’re in a situation where maybe you see a slow bleed in realizations absent a real inflection in demand? Or from where you sit today, any confidence that things could really level out in the near-term?

I think our view is that it’s going to stay fairly stable for most of this year, absent a material change in market dynamics. That’s our perspective from a saw log viewpoint. There may be some risk with respect to fiber logs as market softening in the pulp and paper space could lead to adjustments until that stabilizes and firms up. However, for saw log prices, we believe they’ll remain consistent throughout the year. As the market improves overall, a lot of the same drivers for log price appreciation we’ve seen over the last couple of years should kick back in, and we remain optimistic long-term that we will see gradual price increases across the saw log portfolio.

Got it. Okay. Appreciate all the detail, Devin, and good luck here in Q2, guys.

All right, thank you.

Thanks, Kurt.

Yes. Thanks very much. Good morning, guys. Just following up on this real estate, energy, natural resources, especially the natural climate solutions looking for extra color on the carbon project. But where are we at with the two deals related to carbon storage? Just wondering how that permitting is going for those companies you’re involved with?

Yes, I think it’s progressing as expected. As we said before, there’s a fair amount of work to do between signing a deal and actual first injection, including proving out the data, which has been underway and progressing well. The permitting process and building out the infrastructure includes a significant amount of work. However, I believe from a timeline standpoint, things are on track. We continue to anticipate the first injection in late 2025 or into 2026. A big part of why we chose those two partners is their capability in managing through the process and timeline. Thus, I believe everything is progressing as planned.

Okay, thanks for that. And then just switching over to wood products. If I look at 2023 whole year, what are we tracking for lumber volumes? Is this—last year was down; are we going to go back to 2021 levels? And especially on the OSB side as well, it looks like you’re tracking at record levels for 2023.

Yes. For lumber, we will definitely see an increase year-over-year. Right now, sitting here today, it’s looking like a mid-single-digit to high-single-digit percentage improvement year-over-year. Remember, last year there were impacts from the strike in the Pacific Northwest and labor issues that probably contributed to lower production levels. Thus, we should see an improvement in 2023. From an OSB standpoint, that should also be up slightly as well.

All right, that’s all I had. Best of luck.

All right. Thank you.

Thank you. Real quick on the OSB pricing; you show current up $5 versus the 1Q average. And by my math, when I look at the Random Lengths pricing, it’s up more like $45 or $50. Is that just because what you’re showing is really where prices were three or four weeks ago given your order files? Or is there something else that might be going on that would depress the uptick you would expect to see in OSB pricing?

No. You hit on it exactly, Mark. It’s just a function of the timing within our order files; we have a three to five week lag. It takes time for current prices reflected in Random Lengths to flow through to realization. So, there’s a lag on the way up, but there’s also a lag on the way down, so it nets out to be the same; it’s just a timing issue.

Got it. Okay. And then a question on the U.S. South, a couple of questions on the timber markets and where they may be going. Of course, you don’t just grow trees; you also consume logs to make lumber. So I was hoping to get a sense of what your net position on saw logs might be, and if there’s a difference regionally if you are net more long in the Carolinas or the Atlantic Coast versus in some of the Mississippi, Arkansas, and Louisiana baskets. That would be super helpful.

That’s a good question, Mark. Our company has 7 million acres across the major markets in the south, giving us unparalleled diversification. I think generally speaking, we have peer-leading scale in every market. In terms of our position, we are a net seller of logs. Typically, we sell between 40% to 50% of our grade fee logs in the south to our internal mills, meaning the remainder of those logs go to third-party customers. Higher saw log prices in the south will benefit our bottom line on third-party logs. However, higher log prices also impact our wood products manufacturing as they are a key input cost. Nevertheless, our integrated model is advantageous. As saw log prices increase over time, the logistics and efficiency benefits of our manufacturing operations utilizing our fee timber will become even more important in maintaining industry-leading margins. You can just look to the Pacific Northwest as an example of that. On balance, we feel very good about our position going forward, and while regional differences exist, we have manufacturing operations in every other wood basket.

Okay. That’s super helpful. Just one follow-up: you mentioned that you use about 40% to 50% of your logs go to your own mills. Do you buy much from the outside for your sawmills?

Yes, we do. Generally speaking, our internal mills are going to source 50% of their logs from our fee timber, and then they’ll buy the remaining 50% from third parties.

Okay. So you’re kind of moderately net long. Is that fair? If I do the math in my head, it would suggest you’re moderately net long saw timber in the U.S. South. Is that fair?

Correct.

Okay, super. Thank you.

Hey, thanks. Good morning. Quick question on the lumber markets and just kind of one of the wild cards that’s affected prices this year. I’m wondering if you could help us characterize what’s happening with the European wood imports that have hit domestically and/or impacted international markets. Do you see a peak of some of that European wood out there? Or how long will it take to work through some of that inventory that’s hitting the domestic market?

We’ve definitely seen an increase in European lumber hitting the U.S. market. This is due to several factors. The lumber pricing dynamic in the U.S. in years past made it attractive to send wood here, so overcoming logistics and transportation costs, it was a margin-positive move. Even as lumber prices have come down in the U.S. somewhat, I still believe it’s the best margin opportunity for some lumber, with European demand having softened due to a number of dynamics. I think we’ll see European imports decrease a bit in 2023, though likely not dramatically until the European economy and demand get back on solid footing. Additionally, we noticed a significant amount of European lumber hitting Japan at the end of 2022, which has put some pressure on the Japanese market for our customers and log deliveries. However, we have started to see more European volume flow into Japan. We expect that excess inventory of European lumber will be cleared out in the second quarter, leading to a more normalized position by the third quarter. Long term, with the beetle infestation in Central Europe, that lumber is rapidly becoming less viable, and Russian imports of lumber into Europe may not return significantly. This means Europe will have to keep more lumber domestically in a normalized situation. Thus, I think this is a short-term issue that will resolve itself not too far down the road.

Very helpful color. I appreciate that. And then shifting to—you mentioned capacity that’s come into the U.S. South in terms of mill production. Can you help us characterize how quickly some of that capacity is coming online in the U.S. South? Is the growth rate you’re seeing faster? Are we bringing in more lumber capacity in the U.S. South than we’re replacing that’s being curtailed in Canada? How do you see that dynamic in terms of what’s being added domestically versus what’s coming out in Canada?

Yes. A significant amount of new capacity has come into the South, while we’ve also observed considerable capacity being lost in BC. I expect that trend to continue. Over the last several years, if you look at the overall amount of new lumber capacity entering the U.S., it hasn’t been significant. We are still seeing new mills come in and announcements being made, although that’s likely slowed down over the past six to nine months due to broader economic conditions. A good way to think about it is that you’ll probably see 1 billion to 1.5 billion board feet come into the South each year for the foreseeable future. However, I believe you will see a comparable amount come out of British Columbia as well, given ongoing dynamics there. So, as far as net North American lumber additions, I’m not certain they will be dramatic.

Very helpful. Appreciate that. Thanks, guys.

Yes. Thank you.

Thanks, Buck.

Hi, guys. Thank you. Thanks for getting me in late. Just a couple of quick questions here. Number one, Devin, Davie, can you remind us or call out what the headwind factors were—the strikes, the weather—that might have taken away from fourth quarter and perhaps aided operations specifically in wood products during the first quarter? And similarly, were there any particular aspects that performed well for you in operations within the wood segments during the first quarter, given that performance was ahead of our forecast even with the decline in realizations?

Yes, George. Let me take China first, then I will comment on the lumber piece. With respect to China, the latest published numbers indicate that inventories are down. However, we have observed some delays in ships from New Zealand bringing wood that was postponed due to cyclone activity. I suspect the next published inventory numbers will show an uptick. Additionally, we’ve seen lower quality European logs entering the market at fire sale prices. These factors may contribute to a softer environment until excess inventory is addressed. That being said, takeaway has begun to improve post-Lunar New Year. Once we work through this inventory, we feel optimistic regarding the landscape in the latter half of the year. I believe that holds promise for us out of the Pacific Northwest. Looking back to the lumber side, as Davie may have particular numbers, I can say that beyond the labor strike impact in Q4, our overall business ran better in Q1. The trends indicate that turnover is stabilizing to a more predictable level while our transportation networks improve.

Yes, George. I would just add that the headwinds in Q4 were not particularly significant based on where margins stood at that time due to the work stoppage—all in all, it had a marginal impact on income. The primary driver of positive performance in Q1 was our continued commitment to operational excellence across our business, helping us navigate a challenging environment.

So, Davie, on a going-forward basis, obviously, there’s going to be seasonality. But if we hold pricing constant, is this pretty much a good baseline for operations and for our own margin forecast moving forward, would that be fair?

Yes, I’d agree with that. As Devin referenced earlier, we are witnessing some relief from inflationary pressures in general, with labor remaining solid. Overall, I’d describe this as a reasonable baseline moving forward.

Understood. Very good performance. Thanks, guys. Good luck in the quarter.

Thanks, George.

Okay. Well, thanks to everyone for joining us this morning. Thank you for your continued interest in Weyerhaeuser. Have a great day.