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Weyerhaeuser Company’s (WY - Analyst Report) results for the fourth quarter and year 2012 were impressive. Earnings per share, before special items, in the quarter came in at 26 cents; way above the year-ago earnings of 14 cents and the Zacks Consensus Estimate of 19 cents.

In 2012, earnings before special items were 71 cents per share compared with 60 cents reported in 2011 and the Zacks Consensus Estimate of 51 cents.

Revenue

Net sales from continuing operations in the fourth quarter improved roughly 23.8% year over year to $2,000 million and also surpassed the Zacks Consensus Estimate of $1,768 million.

Considering the segments, Timberland revenue increased 8.8% year over year to $298 million and accounted for 14.9% of the total revenue. Revenue from Wood Products was up 53.5% to $832 million and represented 41.6% of total revenue.

Revenue generated from Cellulose Fibers, roughly 23.2% of total revenue, decreased 11.5% to $463 million, while Real Estate with about 20.4% of total revenue, increased 47.5% to $407 million.

In 2012, total revenue increased 13.6% to $7,059 million, above the Zacks Consensus Estimate of $6,834 million.
 
Margins

Cost of goods sold in the fourth quarter increased 20.0% year over year and represented 79.0% of total revenue. Selling, general and administrative expenses were 9.1% of revenue and increased 22.1% over the year-ago quarter. Research and development expenses were about $9 million, flat year over year.
 
Operating income improved to $256 million versus $131 million in the fourth quarter of 2011. Margins in the quarter stood at 12.8%.

Balance Sheet

Exiting the fourth quarter, Weyerhaeuser’s cash and cash equivalents (Forest Products and Real Estate) fell to $898 million from $608 million in the previous quarter. Long-term debt was approximately $3,951 million, flat sequentially.
 
Cash Flow

Net cash used by operating activities in the fourth quarter increased to $252 million from $147 million in the year-ago quarter. Capital expenditure went down 22.4% year over year to $59 million. Cash dividends paid in the quarter amounted to $92 million while share repurchase activities were nil in the quarter.

Outlook

For the first quarter of 2013, for the Timberlands segment, management anticipates comparable earnings. Selling prices for Western logs are expected to improve, offset by declines in Southern fee harvest volumes.
 
For the Wood Products segment, earnings are likely to be better sequentially, driven by improvement in sales realization for lumber and oriented strand board. Product volumes are also projected to be better and unit manufacturing costs would be low while raw material prices would be slightly higher.

For the Cellulose Fibers segment, management anticipates lower earnings due to higher maintenance expenses. Low earnings would be partially offset by higher selling prices for pulp.

For the Real Estate segment, management anticipates meager profits from single-family homebuilding operations. Home closings are expected to decline coupled with lower selling 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 stock currently carries a Zacks Rank #2 (Buy). Other stocks to watch out for in the industry are International Paper Co. (IP - Analyst Report), Louisiana-Pacific Corp. (LPX - Snapshot Report) and Potlatch Corporation (PCH - Snapshot Report), all bearing a Zacks Rank #1 (Strong Buy).

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