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Weyerhaeuser Company (WY - Analyst Report) reported impressive third quarter 2012 results with its earnings per share, before special items, coming in at 22 cents, way above 12 cents recorded in the year-ago quarter. Results also surpassed the Zacks Consensus Estimate of 17 cents.

Revenue

Net sales from continuing operations in the quarter improved roughly 12.9% year over year to $1,772 million. However, revenue failed to meet the Zacks Consensus Estimate of $1,785 million and also recorded sequential decline of 1.2%.

In the third quarter, Timberland revenue increased 6.0% year over year to $267 million and accounted for 15.1% of the total revenue. Revenue from Wood Products was up 35.3% to $816 million and represented 46.0% of total revenue.

Revenue generated from Cellulose Fibers, roughly 25.9% of total revenue, decreased 8.7% to $459 million, while Real Estate with about 13.0% of total revenue, increased 9% to $230 million.

Margins

Cost of goods sold increased 11.0% year over year and represented 80.4% of total revenue. Selling, general and administrative expenses were 8.8% of revenue and increased 15.6% over the year-ago quarter. Research and development expenses were at $8 million compared with $7 million in the year-ago quarter.
 
Operating income improved to $202 million versus $100 million in the third quarter of 2011. Margins in the quarter stood at 11.4%.

Balance Sheet

Exiting the third quarter, Weyerhaeuser’s cash and cash equivalents (Forest Products and Real Estate) fell to $608 million from $861 million in the previous quarter. Long-term debt was approximately $3,951 million  compared with $4,288 million in the previous quarter.
 
Cash Flow

Net cash used by operating activities in the third quarter increased to $122 million from $117 million in the year-ago quarter. Capital expenditure jumped 21.0% year over year to $75 million. Cash dividends paid stood at $81 million while share repurchase activities were nil in the quarter.

Outlook

For the fourth quarter of 2012, for the Timberlands segment, management looks forward to improved selling prices for Western logs and higher fee harvest volumes,  which may be offset by rising silviculture costs.
 
For the Wood Products segment, weak demands and lower prices are likely to lead to soft quarter results.


For the Cellulose Fibers segment, management anticipates comparable sequential results as lower selling pulp prices get offset by increased sales volume and lower maintenance expenses.  

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

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