Supply and demand drive timberland values, and sluggish demand is bedeviling forest products purveyor
Weyerhaeuser (WY). The stock has sunk 10.8 percent so far this year as sales and profits slip. Lately, though, some upbeat analysts are saying that the timberland bottom may be near.
Weyerhaeuser's forte is growing and harvesting timber on 20.5 million acres of prime forestland in the U.S. and Canada. Its wood products, which are mostly used in new homes, accounted for 41 percent of 2010 sales.
Weyerhaeuser also produces cellulose fibers, lumber and other products. The real estate unit, 15 percent of sales, develops single-family housing.
But soft U.S. housing markets and slipping sales in China are eating away at Weyerhaeuser’s bottom line. Third-quarter revenue slipped to $1.65 billion, compared to $1.66 billion a year ago. Profits plunged to 29 cents per share.
Last year, they were $3.50, when earnings benefited from a $1.04 billion tax adjustment. “All of our businesses faced challenging markets,” observed Weyerhaeuser CEO Dan Fulton. The company predicts further losses this year.
Recently, the Washington company became a real estate investment trust (REIT). Now it’s required to pay out 90 percent of its taxable income to investors, and the dividend is a hefty 3.6 percent.
Tax treatment
Of the 15 analysts followed by Thomson/First Call, three have strong buy recommendations on Weyerhaeuser and one has a buy, with eight holds and three underperforms.
Odlum Brown analysts see Weyerhaeuser as buy, though, citing its high quality timberlands and favorable tax treatment as a REIT.
The company reports next on Jan. 27.
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