Turnaround Letter Buy-rated Weyerhaeuser (WY) reported revenues that were down 16% from a year ago and slightly below consensus estimates. Adjusted earnings of $0.08/share were 72% below a year ago and 20% below consensus estimates. EBITDA of $308 million was down 39% from last year’s 3rd quarter but in-line with estimates.
Weyerhaeuser continues to struggle with weak profits in its Timberlands segment. While EBITDA in its South operations have remains steady in the $85-$90 million range, its West operations EBITDA of $59 million in the quarter showed a steady decay from over $165 million in early 2018. Weak log demand and weak pricing have both contributed to the profit decline. However, these profits may be stabilizing around current levels.
Wood Products’ EBITDA appears to have stabilized around $120 million per quarter, but this is less than half its typical quarterly EBITDA in 2018. Profits from its lumber and oriented strand board operations have driven the decline.
Steady economic growth in the U.S. and Asia (where WY’s products are often exported to) would likely boost volumes and pricing, leading to higher profits.
While not inexpensive at 20x estimated EBITDA for 2019, WY is under-earning. With rising profits, the shares will likely continue to rise toward our $40 price target.
Weyerhaeuser Press Release: 3Q 2019 Earnings
We continue to rate WY shares a Buy with a $40 price target.
Disclosure Note: One or more employees of the Publisher own WY shares.