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Hear that sound? [Cue the crickets.] That's what you hear when this company's operations take an abrupt nosedive as the market for their products gets whittled away to unprofitable levels.
A simple glance at Weyerhaeuser's (NYSE: WY ) third-quarter earnings will not suffice, since the sale of its containerboard, packaging, and recycling segments to International Paper (NYSE: IP ) helped lift net earnings to a 177% increase over prior-year levels. Excluding all one-time items, though, this 108-year-old company lost money on the quarter ... and things are only looking worse going forward.
Pre-tax earnings contracted across every operating segment, with the wood products and real estate divisions posting enormous losses. Lower sales volumes led the wood products segment to a $146 million loss. Heading into the typically slower fourth quarter, the company expressed no optimism for the near-term outlook, and expects even greater losses for the fourth quarter.
As for real estate, asset impairments of $235 million drove the segment to a $316 million loss for the third quarter. That news alone would be reason enough to steer clear of this company for a while, but management expects home prices to fall still further and anticipates more substantial losses in the fourth quarter.
There are only so many negative words in the English language, and I think most have already been used to describe the state of the housing market. Weyerhaeuser's outlook is weyery bad, but smaller competitor Louisiana-Pacific (NYSE: LPX ) posted an even wider loss of $111 million on this election day. Wallboard manufacturer USG (NYSE: USG ) faces a possible violation of a lending agreement as the housing slump has crushed earnings and dragged shares to 87% below their 52-week high. Shares of the once-mighty Cemex (NYSE: CX ) are down 75%, and Fitch recently downgraded the company's issuer default rating to junk status. Even as I write this, Fitch just announced a downgrade of Weyerhaeuser's rating to just above junk status, citing the likelihood of challenging business conditions into 2010.
The moral of the story is: Run as far away from the homebuilding and related materials sectors as fast as your Foolish feet will take you. Not even a move to REIT status as Rayonier (NYSE: RYN ) and Plum Creek Timber (NYSE: PCL ) have done would assuage my misgivings about Weyerhaeuser here. This is a fundamental bear market for housing, and the sector must be avoided until the trend reverses.