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Weyerhaeuser (WY) Up 8.6% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Weyerhaeuser Company (WY - Free Report) . Shares have added about 8.6% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Fourth-Quarter 2016 Highlights

Weyerhaeuser Company reported weaker-than-expected fourth-quarter 2016 results.

Earnings and Revenues: Quarterly earnings, before special items came in at $0.14 per share, a penny lower than the Zacks Consensus Estimate. The bottom line also fell short of the year-ago tally of $0.16.

For full-year 2016, earnings, before special items, were $0.75 compared with $0.74 per share recorded in 2015.

Quarterly net sales were $1,596 million, lower than the Zacks Consensus Estimate of $1,626 million. However, the top line exceeded the year-earlier tally of $1,266 million.

For full-year 2016, net sales were $6,365 million versus $5,246 million recorded in the prior-year period.

Segmental Details: In the fourth quarter, Weyerhaeuser's discontinued Cellulose Fibers segment (pulp mills, a liquid packaging board facility, and a printing papers joint venture) generated revenues of $231 million.

Weyerhaeuser now operates through three business segments, results of which are provided below:

Timberlands: In the quarter, the segment's revenues (excluding intersegment sales) totaled $672 million, up 30% year over year.

Real Estate, Energy and Natural Resources: The segment's revenues were $102 million, soaring a whopping 218.8% from the year-ago tally.

Wood Products: The segment generated revenues (excluding intersegment sales) of $1,039 million, up 10.2% year over year.

Margins: In the quarter, Weyerhaeuser's cost of sales was $1,265 million, up 26.8% year over year. Gross margin contracted 50 basis points (bps) to 20.7%. Selling, general and administrative expenses were $106 million, up 5% year over year. Research and development expenses were $5 million compared with $6 million recorded in the year-earlier quarter.

Adjusted earnings before interest, tax, depreciation and amortization ("EBITDA") came in at $400 million compared with $248 million witnessed in the prior-year quarter.

Balance Sheet & Cash Flow: Exiting the fourth quarter, Weyerhaeuser's cash and cash equivalents were $676 million, down from $1,011 million recorded at the end of 2015. Long-term debt jumped 32.2% sequentially to $6,329 million.

In the quarter, Weyerhaeuser used net cash of $151 million from its operating activities, as against $339 million cash generated in the prior-year quarter. Capital spending climbed 14.4% to $191 million. During the quarter, the company paid dividends worth $232 million.

In addition, the company repurchased roughly 68 million shares to accomplish its $2 billion accelerated share repurchase commitment in 2016.

Outlook: For first-quarter 2017, Weyerhaeuser anticipates sequentially comparable earnings from the Timberland segment. While higher realizations and log sales volume will influence the results in the West, the impact of lower fee harvest volumes, flat log price realizations and higher silviculture expenses will impact results in the South.    

For Real Estate, Energy and Natural Resources segment, the company anticipates sequentially lower earnings due to lower real estate sales.
 
For the Wood Products segment, the company predicts sequentially higher earnings on the back of higher sales volumes, comparable sales realizations for lumber and oriented strand board, improvement in operating rates and manufacturing costs.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter. In the past month, the consensus estimate has shifted 28.89% downward due to these changes.

Weyerhaeuser Company Price and Consensus

 

Weyerhaeuser Company Price and Consensus | Weyerhaeuser Company Quote

VGM Scores

At this time, Weyerhaeuser's stock has a poor score of 'F' on both grade and momentum front. Following the exact same course, the stock was allocated also a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregte VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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