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Port hiccups, dollar strength dent Weyerhaeuser profits

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Weyerhaeuser reported a bigger-than-expected drop in earnings, despite a strong start to 2015 for many lumber markets, as the timber giant grappled with mill hiccups and the port hold-ups.

The US-based group - which controls nearly 7m acres of timberland, an area bigger than Israel – reported a halving to $90m in earnings for the January-to-March quarter.

Underlying earnings per share came in at $0.19, below the $0.25-per-share result that Wall Street had expected.

The group blamed the weaker result, on revenues down 0.8% at $1.72bn, on factors including the strong dollar, the labour dispute which hampered exports from US west coast ports for much of the period, and a shutdown at a mill making fluff, a timber product used in the likes of diapers.

"Weaker market conditions"

"Our cellulose fibres business was challenged by a strengthening dollar, West Coast port disruptions, and a slower-than-expected restart of our largest fluff mill after a scheduled maintenance outage in the quarter," said Doyle Simons, the Weyerhaeuser chief executive.

The division contributed $33m to earnings, down 39% year on year.

Contributions from other two major divisions, wood products, affected by lower product prices, and timberlands, showed more marginal declines.

Mr Simons flagged "weaker market conditions" in both divisions.

Maintenance shutdown

And Weyerhaeuser forecast further headwinds for its fibres division, which will see earnings fall thanks to lower pulp takings, and an "extended" maintenance shutdown at one of its mills.

The timberlands division will also see earnings drop, quarter on quarter, in the April-to-June period, undermined by lower log prices in Western US operations.

However, the wood products business will achieve "significantly higher earnings", boosted by "seasonally higher sales volumes across all product lines", and the benefit of lower Western US log costs.

Wood products earnings to rise

However, the group remained upbeat prospects, seeing the domestic wood products market.

The cost of unprocessed logs in western America is expected to fall, while lumber, which is wood processed into planks and beams, is forecast to see demand rise.

The group expects to "significantly higher earnings" from its wood products business in the next quarter, helped by domestic lumber demand, while falling west coast log prices sends its timberland earnings down.

"The company anticipates seasonally higher sales volumes across all product lines and average sales realizations for lumber and oriented strand board comparable to the first quarter," Weyerhaeuser said in a statement.

Weyerhaeuser expects earnings from its wood pulp division to fall further, in part due to foreign currency depreciation, as well as scheduled facility maintenance.

Fibre costs rise

The comments follow a caution by Wood Resources International of rising fibre costs for US pulp mills, although with some regional differences.

"Wood fibre costs for pulp mills in the Western US have increased substantially over the past year," the analysis group said.

In the North East, heavy snowfall spurred concerns for transportation at a time of "short" fibre inventories, "resulting in concerns over having sufficient supplies on hand to carry through the spring".

Data released on April 27 by the National Council of Real Estate Investment Fiduciaries (Ncreif), showed returns of 1.75% on investment-grade timberland, including returns and land appreciation, outperforming investment grade farmland, in the first three months of 2015.

By Agrimoney.com

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