EUR 850.00 For Business Accounts Only

Morningstar | Weyerhaeuser's Profits Will Remain Steady, With Rising Housing Starts and Less Canadian Competition

Weyerhaeuser's timberland holdings and lumber and panel business give the firm considerable leverage to U.S. housing. We expect housing starts to rise over the next several years as favorable demographics and fading financial constraints catalyze stronger household formation. U.S. lumber consumption will rise accordingly. With lumber imports from Canada unlikely to return to historical norms due to the mountain pine beetle's devastation of British Columbia's forests, U.S. lumber production will need to rise faster than U.S. lumber demand, supporting domestic log and lumber prices. Weyerhaeuser's 2016 acquisition of Plum Creek roughly doubled the size of its U.S. timberland holdings to 13.2 million acres, but diminished its exposure to housing. Holdings in the Rocky Mountain and North regions accounted for roughly 40% of Plum Creek's acreage. These are the least productive timberland geographies in the continental United States and have heavy exposure to secularly challenged paper end-markets. By contrast, Weyerhaeuser's legacy holdings were concentrated in the Pacific Northwest and South, a lumber-focused footprint that made its timberland portfolio the most productive and profitable among timber REITs. Over the past decade, we estimate Weyerhaeuser generated roughly twice as much EBITDA per acre as Plum Creek. Weyerhaeuser's massive wood product segment struggled mightily in the depth of the housing slump, but operational improvements and a recovery in pricing have put the business back in the black. We expect moderate profits in the years to come as rising housing starts drive lumber demand higher, despite the ongoing capacity expansions throughout the Southeastern U.S.Management sold its pulp business to International Paper in 2016. This business, which makes mostly "fluff pulp" destined for diapers and other absorbent products, was a strong performer in the housing slump. Profitability has since waned, reflecting the supply-side response to heady prices. The deal capped a decade of divestitures and acquisitions that have narrowed Weyerhaeuser's focus to timberland and wood products.