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Weyerhaeuser Co. Talks Chinese Trade Policy, Headwinds

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Doyle Simons, Chief Executive Officer of Weyerhaeuser Co., recently 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 the company’s previously revealed 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.

On the call, Simons pointed out that the REIT’s third quarter results reflect solid operating performance in the face of challenging headwinds, including severe weather and certain Chinese trade policy and unusually volatile markets for lumber and oriented strand board.

“Our business is adapting 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, he added that the company “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.”

He also commented about the trajectory of the U.S. housing market, noting that it “continues to grow.”

“Total start 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 with 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 continues to rise — employment and wages continue to rise with unemployment at the lowest level since 1969.”

As for consumer confidence, he said that it has increased sharply as the year has progressed. “Builders reports strong demand at entry-level price points and indexes of builder sentiment remained very positive. However, the rate of housing market growth appears to have moderated slightly, indicating a potential mismatch between demand and available supply.”

Turning to its export markets, Chinese construction activity remained solid during the third quarter, he said. “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, he said, “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 the company adjusted pricing in response to the tariff, he said. “Compared with a year ago China log sales volumes were lower due to the trade dispute, but average realizations were slightly higher.”