The Key to Weyerhaeuser's Growth Spurt

On Friday, Weyerhaeuser (WY -1.30%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise. That way, you'll be less likely to make an uninformed knee-jerk reaction to news that turns out to be exactly the wrong move.

Weyerhaeuser is a huge player in the forest products industry, providing building materials for home and commercial construction as well as paper products for consumer and industrial use. Let's take an early look at what's been happening with Weyerhaeuser over the past quarter and what we're likely to see in its quarterly report.

Stats on Weyerhaeuser

Source: Yahoo! Finance.

Will Weyerhaeuser grow money on trees this quarter?
In recent months, analysts have had mixed views on Weyerhaeuser's earnings prospects. They've cut their estimates for the just-ended quarter by a penny per share, but they've boosted their full-year 2013 consensus earnings-per-share call by nearly a dime. The stock has barely budged, rising about 2% since mid-January.

The good news for Weyerhaeuser lately has been the huge increase in prevailing lumber prices, which have been a primary contributor to the company's strong revenue growth. A combination of idled sawmills and other production facilities and pine-beetle infestation in Canada has sent wood prices up 11% just since the beginning of the year, adding to a longer-term trend that has seen the price of lumber more than double since 2009. In fact, as Motley Fool analyst Blake Bos recently observed, lumber prices have risen beyond levels from the housing boom, boding well for Weyerhaeuser's margins and profitability.

Ordinarily, price pressure might lead to decreased demand for housing, which could send Weyerhaeuser's cyclical prospects downward. But so far, that hasn't materialized, and Plum Creek Timber (PCL.DL) has seen greater investment in mills as well as expanded work-shifts at existing facilities. Furthermore, logging capacity has been under pressure, which could continue to support prices.

One promising sign of the potential for sustained growth was Weyerhaeuser's decision to boost its dividend by 18%. As a real-estate investment trust, Weyerhaeuser has to pay out the bulk of its profits in dividends, but comments from the company show its belief that those higher profits will last for a while.

In Weyerhaeuser's report, watch for the company to discuss any plans for potential buyout activity. With tight supplies, smaller rivals Louisiana-Pacific (LPX -0.33%) or Potlatch (PCH 0.02%) might make good targets for the larger Weyerhaeuser or Plum Creek to look at for expansion. Even though those companies have seen their shares rise dramatically as well, it might be worth paying up in order to secure long-term assets that could produce strong growth for Weyerhaeuser.

Click here to add Weyerhaeuser to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.