I don't envy Steven Rogel's task. He's the CEO of Weyerhaeuser (NYSE: WY), that giant in paper, lumber, packaging and other assorted tree-derived products, and he's trying to get it running more efficiently and profitably. Large companies aren't noted for being particularly easy to fix, especially when almost every product is a commodity with its own cycle. Still, Weyerhaeuser did manage to beat expectations for the fourth quarter.
Sales were down in almost all of the company's operating units except real estate and pulp/paper, but Weyerhaeuser still beat the average estimate. Likewise for earnings. A sea of charges, related mostly to plant closures, pushed the published earnings-per-share figure deep into the red, but adding those back in produces a profit that was meaningfully better than the published average estimate.
Most of what went on at Weyerhaeuser will sound familiar. The high price of energy, freight, and raw materials increased costs, while pricing power was pretty limited. Looking at just some of the subsegments, softwood lumber revenue was down 10%, plywood revenue fell 17%, pulp revenue dropped 3%, and containerboard revenue was down 20%. On the more positive side, there was growth in businesses like paper, packaging, and OSB (oriented strandboard -- a popular form of wood panel used in construction).
For now, the company is saying and doing some of the right things. It's permanently closing facilities, and it's at least talking about positioning the businesses to generate positive economic return (that is, returns above the cost of capital). What's more, if you look at current timberland values, Weyerhaeuser's properties alone could be worth more than $10 billion -- no small chunk of change.
Even with an apparently good dividend and a reasonable valuation, I can't get too excited about this stock. If I were to invest in the paper/lumber industry, I'd prefer smaller companies like Packaging Corp. (NYSE: PKG), Plum Creek (NYSE: PCL), or maybe a stock like Smurfit-Stone Container (Nasdaq: SSCC) or Rock-Tenn (NYSE: RKT). After all, at least in the case of Packaging Corp, why not invest in the segments of the industry that look healthiest (containerboard) and sidestep the potential risks from a slowdown in pulp and/or residential construction?
Further fibrous Foolishness:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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