What happened

Shares of Weyerhaeuser (WY -0.40%) rallied 23.8% in July, according to data provided by S&P Global Market Intelligence. Driving up the timber REIT's stock were its better-than-expected second-quarter results. 

So what

Weyerhaeuser produced $0.11 per share of adjusted earnings during the second quarter, which blew past the analysts' consensus estimate of $0.01 per share. That surprisingly strong performance was driven by record low costs despite significant production curtailments in the face of unexpectedly strong demand. 

Trunks of trees cut and stacked in the foreground, green forest in the background with sun rays.

Image source: Getty Images.

The company curtailed some of its lumber production because it expected COVID-19 related shutdowns to impact demand. Instead, there was a surge in repair and remodel activity because people were stuck in their homes, which drove up demand and pricing for wood products. That helped offset weakness in its timberlands business where sales and volumes declined from the first quarter due to lower exports and reduced real estate sales because of COVID-19. 

Now what

Weyerhaeuser expects its third-quarter wood products earnings to be significantly higher than its stronger-than-expected second-quarter results thanks to higher lumber pricing and sales volumes. That should more than offset weaker timberland earnings and the expected stabilization of its real estate, energy, and natural resources business. If that outlook comes to fruition, Weyerhaeuser could reinstate a dividend, which it suspended earlier this year to shore up its balance sheet. These catalysts could give the stock the fuel to keep rallying.