Timber REITs: Weyerhaeuser (WY) Above, Potlatch (PCH) Below Expectations for Q4 2010 Earnings

10 02 2011

From the desk of Neena Mishra, Director of Equity Research:

On February 4, 2011, Weyerhaeuser (WY) reported its Q4 2010 results. Net income for the quarter came in at $0.10 per share, a nickel ahead of street consensus.  Timberlands earnings declined $19 million due to lower sales of non-strategic timberlands and higher logging costs.  Western log prices rose 4%, but Southern log prices declined 4% during the quarter. WY continued to defer harvest, while increasing export volumes; its log exports to China increased by 10%. For Q1 2011, the company expects higher earnings from this segment due to higher log prices and seasonally higher volumes.  Wood Products lost $85 million during the quarter, versus a loss of $100 million in Q3 2010, mainly as a result of lower costs. Cellulose Fibers income declined $43 million from the previous quarter due to higher costs and annual maintenance outages. WY expects lower earnings from this segment during Q1 2011, due to a number of scheduled maintenance outages. Real Estate earnings increased $13 million from increased home sale closings and higher margins.

On February 8, 2011, Potlatch (PCH) reported its Q4 2010 net income (excluding special items) at $0.28 per share, below the consensus estimates of $0.33 per share. Forest Resource operating income was $12.8 million, compared with $24.3 million in the previous quarter, due to seasonally lower volumes. Real Estate operating income was $13.6 million compared to $9.8 million in Q3 2010. During the quarter, Potlatch completed a non-strategic timberland sale of ~29,000 acres in Wisconsin and 17,400 acres in Arkansas to RMK Timberland Group for $36.1 million. Wood Products lost $3.4 million in Q4 2010 from $0.6 million in Q3, mainly from a negative $2.9 million mark-to-market adjustment related to its lumber hedges.  While Potlatch does not provide earnings guidance, Management maintains its weak outlook for housing and expects harvest volumes to remain ~4.2 million tons for 2011.

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