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Weyerhaeuser (WY) Q2 Earnings Beat, Up Y/Y on Sales Growth

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Weyerhaeuser Company (WY - Free Report) reported better-than-expected bottom-line results for second-quarter 2017.

Earnings from continuing operations before special items came in at 28 cents per share, topping the Zacks Consensus Estimate of 27 cents by 3.7%. Also, the bottom line surged 64.7% from the year-ago quarter’s tally of 17 cents.

Net sales were $1,808 million, increasing 9.2% year over year. However, the top line lagged the Zacks Consensus Estimate of $1.82 billion by 0.7%.

Segmental Details

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

Timberlands: The segment’s revenues (excluding intersegment sales) totaled $469 million, down 0.4% year over year. It accounted for 25.9% of net sales.

Real Estate, Energy and Natural Resources: The segment’s revenues, accounting for 2.5% of net sales, were $46 million, up 21.1% from the year-ago tally.

Wood Products: The segment generated revenues (excluding intersegment sales) of $1,293 million, accounting for 71.5% of net sales. Compared with the year-ago quarter, the figure was up 12.8%.

Margins

Weyerhaeuser’s gross margin in the quarter improved on the back of impressive net sales growth, partially offset by 5.1% year-over-year increase in costs of sales. As a percentage of net sales, cost of sales represented 73.9% versus 76.8% in the year-ago quarter. Gross margin grew 290 basis points (bps) to 26.1%.

Selling, general and administrative expenses comprised 5.4% of net sales, down from 7% in the year-ago quarter. Research and development expenses were flat at $4 million.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased 22.5% year over year to $506 million. Adjusted EBITDA margin was roughly 28% versus 25% in the year-ago quarter.

Balance Sheet & Cash Flow

Exiting the second quarter, Weyerhaeuser’s cash and cash equivalents improved to $701 million from $455 million in the preceding quarter. Long-term debt dipped 5.2% sequentially to $5,936 million.

In the quarter, the company generated net cash of $489 million from its operating activities, down 0.6% year over year. Capital spending totaled $74 million, down from $83 million in the year-ago quarter.

During the quarter, the company paid dividends worth $233 million.

Outlook

For third-quarter 2017, Weyerhaeuser anticipates Timberland segment’s earnings and adjusted EBITDA to be slightly below the previous quarter. While results in the West will be influenced by sequentially higher realizations, lower fee harvest volume and higher road spending, sequentially higher silviculture expenses, higher fee harvest volumes and flat log sales realization will impact results in the South.

For Real Estate, Energy and Natural Resources segment, the company anticipates sequentially higher earnings and adjusted EBITDA in the third quarter. It predicts adjusted EBITDA to exceed $250 million in 2017.

For the Wood Products segment, the company predicts sequentially comparable earnings and adjusted EBITDA. Average sales realizations and increased lumber sales volume will be comparable sequentially while higher sales realizations and lower volumes will influence oriented strand board businesses.

Zacks Rank & Other Stocks to Consider

With a market capitalization of $25.7 billion, Weyerhaeuser currently carries a Zacks Rank #2 (Buy). Some other stocks worth considering in the industry include JELD-WEN Holding, Inc. (JELD - Free Report) , Potlatch Corporation (PCH - Free Report) and Trex Co. Inc. (TREX - Free Report) . While JELD-WEN Holding and Potlatch Corporation sport a Zacks Rank #1 (Strong Buy), Trex Co. carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

JELD-WEN Holding’s earnings estimates for 2017 were revised upward over the last 30 days. Also, its earnings are anticipated to grow 9% in the next three to five years.

Potlatch Corporation pulled off an average positive earnings surprise of 41.16% over the trailing four quarters. Also, its earnings are anticipated to grow 5% in the next three to five years.

Trex Co. performed well in the last four quarters, with an average positive earnings surprise of 7.45%. Also, its earnings estimates for 2017 and 2018 improved in the last 60 days.

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