On Friday, wood products company Weyerhaeuser
To translate the $0.93 number from "analyst math" into real-world math:
- Add the company's one-time gain of $0.31 for sale of its interest in a joint venture,
- Add another $0.06 for an income tax benefit,
- Subtract $0.08 for a restructuring charge,
- And take out another $0.06 for costs related to an early debt repayment.
Total: $1.16, or the correct number under generally accepted accounting principles.
So the earnings miss was bombshell No. 1. Bombshell No. 2 was the company's announcement that it intends to repurchase as much as 7.4% of its shares outstanding -- 18 million in all. One suspects that it was this announcement, rather than the earnings miss, that accounts for the stock rising a hair on Friday, rather than imitating a felled oak.
But while the Street seemed enamored of Weyerhaeuser's buyback plan, this Fool isn't so sure. Right now, Weyerhaeuser carries less than $900 million in cash on its balance sheet, against nearly $9 billion in long-term debt. To acquire its full authorized amount of 18 million shares at anything near their $62 price per stub will cost the company another $1.1 billion.
Mind you, many other companies in this industry carry heavy debt loads. Georgia Pacific
Weyerhaeuser, however, justified its action by pointing to its "significant cash flows." But a glance at the bottom of the company's earnings release reveals that those cash flows aren't as strong as they used to be. By this time last year, Weyerhaeuser had generated $1 billion in free cash flow. Last week, the company acknowledged that the first three quarters of 2005 saw it generate just $400 million. To this Fool's ears, Weyerhaeuser's justification sounds hollow.
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Fool contributor Rich Smith owns no shares in any company mentioned here.