Weyerhaeuser Company 2026 Q2 Earnings Call

Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's second quarter 2026 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer, and Davey Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported second quarter GAAP earnings of $162 million, or $0.23 per diluted share, on net sales of $1.9 billion. Excluding a special item, we earned $91 million, or $0.13 per diluted share. Adjusted EBITDA totaled $310 million for the quarter. Despite ongoing market challenges and inflationary pressures, we delivered solid results that underscore the resilience of our business and the strong operational performance of our teams. Turning now to our second quarter business results. I'll start with Timberlands on pages six through nine of our earnings slides. Excluding a special item, Timberlands contributed $59 million to second-quarter earnings. Adjusted EBITDA was $123 million, a slight improvement compared to the first quarter. In the West, Adjusted EBITDA was $67 million, a $9 million increase over the prior quarter. Starting with the Western domestic market.

Log demand and pricing improved in the second quarter as mills responded to a strengthening lumber market and built log inventories ahead of wildfire season. As a result, our domestic sales volumes and average realizations were higher compared to the first quarter. Given favorable operating conditions, our fee harvest volumes increased slightly, and forestry and road costs were seasonally higher. Our per-unit log and haul costs increased as we made the seasonal transition to higher elevation sites and in response to elevated fuel costs. Moving to our Western export business. Log markets in Japan were relatively stable in the second quarter, albeit at lower consumption levels, driven by ongoing headwinds in the Japanese housing market. That said, our customers remain well-positioned relative to imported lumber from Europe, which continues to face challenges in the Japanese market.

For the quarter, demand for our logs was steady, and our sales volumes to Japan were comparable to the first quarter. Our average sales realizations increased moderately. Turning briefly to China. Our log shipments remain limited as we continue to focus on the more profitable domestic market. For the quarter, we delivered one vessel to strategic customers in the region, and our average sales realizations were comparable to the prior quarter. Turning to the South. Adjusted EBITDA for Southern Timberlands was $58 million, a slight decrease compared to the first quarter. Southern sawlog markets improved slightly in the second quarter, supported by strengthening lumber prices and log supply constraints resulting from wetter than normal weather conditions, particularly in the second half of the quarter. That said, sawlog demand was somewhat tempered as many mills lowered production in response to elevated finished goods inventories that accumulated due to ongoing trucking constraints.

With respect to Southern fiber markets, demand and pricing softened in the second quarter as mills completed spring maintenance outages and continued to align log consumption with lower takeaway of finished goods. On balance, takeaway for our logs remained steady given our delivered programs across the region, and our average realizations increased slightly compared to the first quarter, largely due to a higher mix of grade logs. Given the wet weather conditions, our fee harvest volumes were comparable to the prior quarter and forestry and road costs were slightly lower. Per-unit log and haul costs increased moderately, largely due to increased fuel costs. In the North, adjusted EBITDA decreased slightly compared to the first quarter due to significantly lower sales volumes associated with seasonal spring breakup conditions. Before moving to Strategic Land Solutions, I'll comment briefly on a timberlands transaction we completed in the second quarter.

As we reported yesterday, we divested 29,000 acres of non-core timberlands in Oregon for $114 million. This transaction further demonstrates our ongoing commitment to active portfolio management and our disciplined approach to optimizing the quality and value of our timberlands over time. We'll continue to evaluate strategic opportunities that enhance the return profile of our timberlands while also balancing our broader growth strategy and other capital allocation priorities to drive long-term value for our shareholders. Turning now to Strategic Land Solutions on pages 10 and 11. In the second quarter, Strategic Land Solutions contributed $94 million to earnings. Adjusted EBITDA was $129 million, a $64 million decrease compared to the first quarter. The decrease was primarily attributable to lower Climate Solutions contributions following the sizable conservation easement transaction completed in the first quarter.

This was partially offset by strong results from our Real Estate business as both acres sold and average price per acre increased compared to the first quarter. It's worth noting that we continue to benefit from strong demand and pricing for real estate properties, resulting in high-value transactions with significant premiums to timber value. Turning to our Climate Solutions business, demand for large-scale solar development remains healthy, and we are well-positioned to capitalize on this opportunity as markets continue to expand. Notably, our second solar site commenced operations in the second quarter, and we have three additional solar developments currently under construction, with more expected to break ground later this year. Briefly on our new biocarbon business. We continue to advance the first facility adjacent to our lumber mill in McComb, Mississippi. We've received permits and are positioning to commence construction activity in the fourth quarter.

In addition, the partnership is working towards additional sites across Weyerhaeuser's footprint. These are important steps in scaling our biocarbon platform and creating new pathways for growth across our integrated portfolio. Now, moving to Wood Products on pages 12 through 14. Wood Products contributed $71 million to second-quarter earnings. Adjusted EBITDA was $129 million, a $58 million improvement compared to the first quarter. This was largely driven by an increase in lumber pricing and higher sales volumes across all business lines, partially offset by higher costs. Starting with lumber. Second-quarter Adjusted EBITDA was $73 million, a $46 million increase from the prior quarter. Benchmark prices for lumber strengthened in the second quarter, supported by a seasonal improvement in demand against a backdrop of supply constraints from previously enacted mill curtailments and closures. Lower European lumber imports have also contributed to tighter supply across the North American market.

Further, transportation constraints and elevated fuel costs put upward pressure on lumber pricing in the second quarter. This was particularly acute in southern lumber markets. For our lumber business, average sales realizations increased by 15% compared to the first quarter, largely in line with the framing lumber composite. Although production and sales volumes improved sequentially, our results were impacted by transportation challenges in the U.S. South. Specifically, limited trucking availability contributed to elevated finished goods inventories at several mills, prompting temporary production adjustments to rebalance inventories. Given this dynamic, our unit manufacturing costs increased compared to the first quarter. Log costs were slightly higher. It's worth noting that while transportation remains constrained in the U.S. South, we've taken steps to improve capacity across our operations and expect minimal transportation disruptions in the third quarter. Now, turning to OSB. Second-quarter Adjusted EBITDA was a $6 million loss and a $9 million decrease compared to the prior quarter.

This was largely driven by higher unit manufacturing costs resulting from planned annual maintenance, as well as elevated resin costs. With respect to the broader OSB market, buyer sentiment remained cautious in the second quarter, and supply continued to outpace demand. As a result, composite pricing decreased slightly in May and remained steady for the balance of the quarter, albeit at low levels. Our average sales realizations increased by 3% compared to the first quarter, which was favorable to the OSB composite, and this is largely due to the length of our order files, which result in a lag effect for OSB realizations. Our sales volumes increased slightly, and fiber costs were slightly higher.

Adjusted EBITDA for Engineered Wood Products was $54 million, a $15 million increase compared to the first quarter, largely driven by a seasonal increase in sales volumes for all products and higher sales realizations for most products. Our unit manufacturing costs increased slightly compared to the prior quarter, while raw material costs were slightly lower. In distribution, Adjusted EBITDA increased by $2 million compared to the first quarter, largely due to higher sales volumes. With that, I'll turn the call over to Davey to discuss some financial items and our third-quarter outlook.

Thanks, Devin. Good morning, everyone. I'll begin with key financial items, which are summarized on page 16. In the second quarter, we generated approximately $400 million of cash from operations. We ended the quarter with approximately $530 million of cash and total debt of $5.4 billion. During the quarter, we funded the repayment of our remaining $250 million 4.75% notes at maturity through our commercial paper program. In early July, we repaid an additional $122 million of debt maturities, which carried a weighted average rate of 7.59%, using cash on hand. Following these transactions, we have no remaining debt maturities in 2026. We have successfully navigated a number of financing transactions in recent years to smooth our maturity profile and lower our expense.

Despite the higher rate environment in recent years, we have reduced our overall weighted average interest rate by over 130 basis points since the beginning of 2022. We returned $152 million to shareholders through the payment of our quarterly-based dividend and approximately $10 million through share repurchase activity in the second quarter. Capital expenditures were $139 million in the second quarter, which includes $63 million related to the construction of our EWP facility in Arkansas. As we've previously communicated, we anticipate approximately $300 million of investments for Monticello in 2026. It's worth noting that cash proceeds received this year from recent portfolio management activities, including Timberlands divestitures in Virginia and Oregon, and the final proceeds from the sale of our Princeton Mill, more than cover our anticipated 2026 investment in Monticello.