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Weyerhaeuser Sells Michigan Timberlands, Optimizes Portfolio

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Weyerhaeuser Company WY announced the completion of the proposed sale of Michigan timberlands to Lyme Great Lakes Holding LLC, a subsidiary of The Lyme Timber Company LP. Weyerhaeuser will recognize a gain from this all-in cash transaction worth $300 million and anticipates no tax liability related to the same.

This divestiture, which includes 555k acres of timberlands in northern Michigan, is part of the company’s ongoing initiatives to strategically optimize the timberlands portfolio. Notably, the Northern region, which includes Michigan timberlands, encompasses a diverse mix of hardwood and softwood acres.

Weyerhaeuser, one of the world's largest private owners of timberlands, has been registering lower profits due to volatility in various markets served. Net sales declined 12.5% year over year in third-quarter 2019, primarily due to lower sales across the board. During the quarter, net sales in Timberlands (accounting for 23.8% of total net sales) declined 10.9% from the year-ago figure. Lower average sales realizations for domestic and export logs, as well as seasonally lower domestic sales volumes in the West led to the decline. Average sales realizations also decreased sequentially in the South. Again, Wood Products’ net sales declined 11.1% during the quarter.

Weyerhaeuser, which controls about 12 million acres of timberland across the United States and manages other lands in Canada, expects fourth-quarter earnings to be in line with the third-quarter figure at the Timberland segment. It anticipates adjusted EBITDA to slightly decline year over year at the segment.

Share Price Performance

Shares of Weyerhaeuser have gained 16.9% in the past three months, outperforming its industry’s 16.6% rally. Shares of the company have also fared better than the S&P 500’s 8.8% gain in the said period.

In addition to the portfolio optimization strategy, Weyerhaeuser remains focused on operational excellence initiatives that include merchandising for value, harvest and transportation efficiencies, along with flexing harvest to capture seasonal and short-term opportunities. Key focus areas include improving the productivity of harvesting and hauling operations, reducing road cost, optimizing forestry spending, along with maximizing revenues from every log Weyerhaeuser harvest.

The company had achieved $42 million of improvements in Timberlands in 2018, which was within the $40-$50 million target, for a cumulative total of $214 million since the initiation of the plan. For 2019, Weyerhaeuser anticipates $80-$100 million of additional operational excellence improvements.

Overall, the company's focus on operational excellence and improving housing market fundamentals is likely to drive its performance going forward.

Zacks Rank

Weyerhaeuser — which shares space with Universal Forest Products, Inc. UFPI, Louisiana-Pacific Corporation (LPX - Free Report) and Trex Company, Inc. TREX in the Zacks Building Products - Wood industry — currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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