Weyerhaeuser Co. (WY) is slated to release its third quarter 2010 results on Friday October 29. The current Zacks Consensus Estimate for the third quarter earnings per share (EPS) is 11 cents, representing an annualized growth of 204.82%.
Weyerhaeuser had outperformed the Zacks Consensus Estimate in three of the four trailing quarters, and lagged behind in one quarter. The average earnings surprise was a positive 32.87%, implying that the company has outdone the Zacks Consensus Estimate by the same magnitude over the last four quarters.
Second Quarter Highlights
Weyerhaeuser’s second quarter net income was $42.0 million, or 20 cents per share, compared with a net loss of $125.0 million, or 59 cents per share in the second quarter of 2009. Earnings per share surpassed the Zacks Consensus Estimate of 13 cents.
Earnings per share of second quarter 2010 excluded approximately $33 million, or 16 cents of after-tax charge related to an early extinguishment of debt and an after-tax gain of $5 million, or 3 cents on sale of Wood Products asset.
Net sales rose 29.8% year over year to $1,805 million compared with $1,391 million reported in the second quarter of 2009 based on stronger forest products and real estate revenues.
Detailed discussion on second quarter results can be found here: Weyerhaeuser Beats Zacks Estimate
Agreement of Estimate Revisions
In the last 30 days, out of the 15 analysts providing estimates, one analyst raised earnings per share estimate for 2010, while 2 analysts revised down their estimates. Revisions for 2011 were negative as 3 analysts lowered their earnings estimates. For the third quarter of 2010, sentiments are mixed as one analyst increased while another analyst lowered the earnings estimates.
The downside earnings revision incorporates the impact from the increase in the company’s shares outstanding resulting from the payment of special dividend of $5.6 billion. The dividend payment, mostly in stock, increased the share base by 324 million to 536 million.
Magnitude of Estimate Revisions
Earnings estimate for 2010 increased by a cent, going up to 24 cents, while that for 2011 plummeted 5 cents to 63 cents. Estimate for 2010 registered growth of 128.05% on a year-over-year basis and 167.99% for 2011.
The third quarter estimate increased by a cent to reach 11 cents, representing growth of 204.82%.
Our Take
Weyerhaeuser is one of the leading U.S. forest product companies, primarily engaged in growing and harvesting timber. It has roughly 6.5 million acres of timberland worldwide with approximately 94% in the U.S. The company primarily focuses on growing saw timber, extensively used in construction, remodel and repair of housing when converted into structural wood products.
Apart from the opportunities expected from the saw timber, extensive mineral rights also enable revenue generation, primarily from oil, gas and mining royalties. Moreover, vast land ownership worldwide will strengthen the company’s timberland business.
Going forward, the demand for timber in the U.S would probably soar with the gradual recovery in the U.S. housing starts and shortfall in Canadian harvest levels.
The company recently paid $5.6 billion in special dividend, which was a major step toward its conversion into a Real Estate Investment Trust (REIT). The conversion will reduce WY’s tax liabilities due to lower taxes on REIT qualifying timberland income and increased competitiveness in managing its timber portfolio. Also, reversal of certain tax liabilities is expected to benefit its third quarter 2010 financial results by $1 billion.
On the flip side, the shares issued as part of the special dividend increased the company’s shares outstanding for the period after special distribution. The increased shares will result in lower EPS in the quarters ahead.
We currently maintain a Neutral recommendation on the stock.
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