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Weyerhaeuser Company (WY - Analyst Report) reported its financial results for the first quarter 2012 on April 27. Earnings per share were 2 cents and excluded 6 cents (or $32 million) after-tax gains from special items. Results surpassed both the year-ago results and the Zacks Consensus Estimate, that stood at a break-even level.

Revenue

Net sales from continuing operations in the quarter improved roughly 5.1% year over year to $1,494 million. Revenue, however, failed to meet the Zacks Consensus Estimate of $1,532 million.

In the first quarter, Timberland revenue increased 8.7% year over year to $250 million and accounted for 16.7% of the total revenue. Revenue from Wood Products was up 20.5% to $634 million and represented 42.4% of total revenue.

Revenue generated from Cellulose Fibers, roughly 31.7% of total revenue, decreased 6.5% to $473 million, while Real Estate with about 9.1% of total revenue, decreased 14.4% to $137 million.

Margins

Cost of goods sold increased 9.6% year over year and represented 86.3% of total revenue. Selling, general and administrative expenses were 10.0% of revenue and down 12.8% over the year-ago quarter. Research and development expenses were flat year over year at $7.0 million.

Operating income plummeted drastically to $101 million from $236 million in the year-ago quarter. Margins in the quarter stood at 6.8%.

Balance Sheet

Exiting the first quarter, Weyerhaeuser had cash and cash equivalents (Forest Products and Real Estate) of approximately $728 million versus $953 million in the previous quarter. Long-term debt was approximately $4,309 million down compared with $4,466 million in the previous quarter.

Cash Flow

Net cash used by operating activities in the first quarter decreased to $60 million from $87 million in the year-ago quarter. Capital expenditure jumped 54.3% year over year to $54 million. Cash dividends paid stood at $81 million while share repurchase activities were nil in the quarter.

Outlook: For the second quarter of 2012, management anticipates that Timberlands earnings would be higher sequentially, attributable to higher domestic prices for western logs and higher sales. However, fuel costs and silviculture expenses are expected to be higher in the quarter.

For the Wood Products segment, break-even results are anticipated along with selling prices improvement for lumber and higher volumes for all product lines.

For the Cellulose Fibers segment, management expects higher selling prices for pulp, offset slightly by higher maintenance costs to result in sequential improvement in earnings. For the Real Estate segment, management anticipates that there could be  small loss from single-family homebuilding operations while expecting slight profits to be generated in the segment.

Weyerhaeuser is one of the leading U.S. forest product companies, primarily engaged in growing and harvesting timber; manufacture, distribution, and sale of forest products; besides real estate development and construction.The company faces competition from International Paper Co. (IP - Analyst Report) and Louisiana-Pacific Corp. (LPX - Snapshot Report).

We are currently maintaining a Neutral recommendation on Weyerhaeuser.

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