WY 2Q Lags Estimate

Weyerhaeuser Company ( WY - Analyst Report ) reported its financial results for the second quarter 2012 on July 27. Earnings per share were 9 cents and excluded 7 cents (or $37 million) after-tax gains from special items. Results surpassed the year-ago earnings of 6 cents but failed marginally to meet the Zacks Consensus Estimate of 10 cents.

Revenue

Net sales from continuing operations in the quarter improved roughly 11.4% year over year to $1,793 million and also surpassed the Zacks Consensus Estimate of $1,758 million.

In the second quarter, Timberland revenue decreased 9.0% year over year to $262 million and accounted for 14.6% of the total revenue. Revenue from Wood Products was up 28.3% to $776 million and represented 43.3% of total revenue.

Revenue generated from Cellulose Fibers, roughly 25.6% of total revenue, decreased 12.7% to $459 million, while Real Estate with about 16.5% of total revenue, increased 55% to $296 million.

Margins

Cost of goods sold increased 12.9% year over year and represented 84.6% of total revenue. Selling, general and administrative expenses were 7.9% of revenue and down 2.1% over the year-ago quarter. Research and development expenses were at $8 million as compared with $7 million in the year-ago quarter.

Operating income improved to $176 million versus $127 million in the second quarter of 2011. Margins in the quarter stood at 9.8%.

Balance Sheet

Exiting the second quarter, Weyerhaeuser had cash and cash equivalents (Forest Products and Real Estate) of approximately $861 million versus $728 million in the previous quarter. Long-term debt was approximately $4,288 million down from $4,309 million in the previous quarter.

Cash Flow

Net cash used by operating activities in the second quarter increased to $267 million from $114 million in the year-ago quarter. Capital expenditure jumped 74.4% year over year to $68 million. Cash dividends paid stood at $80 million while share repurchase activities were nil in the quarter.

Outlook: For the third quarter of 2012, management anticipates gains from sale of non-strategic timberland to be partially offset by lower domestic selling prices for western logs and lower price realizations for Southern logs.

For the Wood Products segment, earnings results are expected to be weak during the quarter characterized by comparable sales and lower lumber selling prices.

For the Cellulose Fibers segment, management anticipates lower selling pulp prices to be offset by improved productivity, lower annual maintenance expense, and reduced chemical, energy and fiber costs.

For the Real Estate segment, management anticipates higher earnings from single-family homebuilding operations. Higher home closings are expected to get offset by lower prices and higher expenses.

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.