Change is like a toddler who won't sit still for a photo shoot. It's quite a challenge to measure the value of changes precisely until some identifiable result is achieved. Timber products conglomerate Weyerhaeuser
Weyerhaeuser's announcement last week that it will not convert to a real estate investment trust (REIT) in the near term was met with disappointment by investors and analysts alike. However, with the inclusion of the TREE Act in the 2008 farm bill, Weyerhaeuser's tax rate will be cut in half from 35% to 17%. With the company's tax burden eased, Weyerhaeuser has determined that a REIT conversion would not be an efficient move until at least 2010. For now at least, Weyerhaeuser will not follow the REIT trail blazed by competitors Rayonier
With the REIT issue resolved for now, investors can return to the admittedly subjective task of assessing changes in motion. Weyerhaeuser is actively shedding noncore assets and scaling back its lumber-related operations. The company has sold or suspended operations at 50 sawmills and related facilities, and by September plans to cut its workforce to one-half of prerestructuring levels.
After unloading its fine-paper business in 2007, and selling its packaging business to International Paper
In 2007, Weyerhaeuser's real estate business accounted for 14% of total revenue, but as the company trims down further, the potential exposure to weakness in the domestic real estate market appears to be rising. Although the real estate business must meet benchmarks to be spared from the chopping block, some might question why this segment was not among the first targets of the restructuring. Meanwhile, shedding a shipping business that serves Asian markets appears counterintuitive, impairing the company's ability to follow Brookfield Infrastructure's
This once-diversified conglomerate is starting to look more and more like a timberlands asset play with an unfortunate focus on the U.S. homebuilding sector.