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Why Shares of Weyerhaeuser Were Up in April

By Lou Whiteman - May 4, 2020 at 10:23PM

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Investors (wrongly) bet the company could navigate the pandemic with the dividend intact.

What happened

Shares of Weyerhaeuser Co. (WY 2.60%) gained 29% in April, according to data provided by S&P Global Market Intelligence. Investors sent the shares tumbling in March due to the company's potential COVID-19 exposure as an exporter of logs to Asia, but then bought back the shares as conditions seemed to stabilize.

Unfortunately, the rally was short-lived, as Weyerhaeuser shareholder optimism proved to be premature.

So what

Weyerhaeuser, one of the world's largest owners of timberland, has been all over the place as the pandemic has spread. The stock fell 34% in March on concerns about the economic implications of the pandemic, but at the end of the month the company provided a business update that reassured investors that management had the situation under control.

Tree logs stacked after harvest.

Image source: Getty Images.

The timber REIT said it intended to cut capital spending by $70 million to $90 million and reduce lumber operating capacity by about 20% through a combination of temporary mill curtailments and reduced work hours. Weyerhaeuser said it had experienced "minor supply chain disruptions" related to the transport and delivery of logs to Asia, but noted forest products had been designated an "essential" workforce by the U.S. government so production would continue.

The announcement was enough to light a fire under the stock and allow it to recover much of what it lost in March. The momentum continued through the month as the broader stock market began to recover following the passage of the $2 trillion stimulus CARES Act.

Now what

The early days of May have not been nearly as kind to Weyerhaeuser holders. The company on May 1 reported first-quarter earnings and revenue that came in above expectations, but the company warned it expects to see the impact of the COVID-19 pandemic in the second quarter and was taking steps, including temporarily suspending its dividend, to preserve liquidity.

Weyerhaeuser said in late March market demand for logs began to decrease "significantly," lowering its full-year harvest forecast by 10%.

The company appears in no danger of running out of cash, issuing $750 million in new bonds in the quarter to go with its $700 million in cash on hand and $950 million in available revolver capacity. Weyerhaeuser also has 11 million acres of timberland to use as collateral in a pinch. But there are a lot of income investors who are in Weyerhaeuser for its dividend, and the stock has fallen 19% through May 4 following the earnings release and payout suspension.

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