Weyerhaeuser Company

Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's fourth quarter 2021 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 press release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during the 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 Nancy Loewy, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Thanks, Andy. Good morning, everyone, and thank you for joining us today. This morning, Weyerhaeuser reported full-year GAAP earnings of $2.6 billion, or $3.47 per diluted share. on net sales of $10.2 billion. Excluding special items, our full-year 2021 earnings totaled $2.5 billion, or $3.37 per diluted share. Adjusted EBITDA was a record $4.1 billion, more than 86 percent increase over full-year 2020. For the fourth quarter, we reported gap earnings of $416 million, or 55 cents per diluted share, on net sales of $2.2 billion. Excluding a total after-tax benefit of $49 million for special items, we earned $367 million, or 49 cents per diluted share, for the quarter. Adjusted EBITDA was $674 million. I'll start this morning by thanking our employees for an exceptional year. Through their collective efforts, Weyerhaeuser delivered its strongest financial performance on record, Each of our businesses executed remarkably well. The teams maintained a safety focus and continued to serve our customers, all while navigating persistent operational and market challenges. I'm extremely proud of our accomplishments in 2021, which further positioned the company to drive superior long-term value for our shareholders. Notable 2021 highlights include delivering record adjusted EBITDA from our wood products business of $3.4 billion, a 120% increase over 2020, capturing more than $70 million of company-wide operational excellence improvements, optimizing our Timberlands holdings through strategic transactions in Alabama and Washington, launching our natural climate solutions business with a growth target to achieve $100 million of annual EBITDA by year-end 2025, publishing the company's inaugural peer-leading carbon record, Establishing a leadership position amongst our North American peers in setting a science-based greenhouse gas reduction target. Strengthening our balance sheet by paying down an additional $375 million of debt and increasing our share repurchase authorization to $1 billion. In addition, as highlighted on page 19 of our earnings slide, we generated more than $2.6 billion of adjusted FAD in 2021. further demonstrating the strong cash generation capability of our unmatched portfolio of assets and industry-leading operating performance. Based on our 2021 results, we announced this morning that our Board of Directors has declared a supplemental cash dividend of $1.45 per share payable on February 28th to holders of record on February 18th. This supplemental dividend represents the final installment of our cash return to shareholders based on 2021 results. When combined with our 2021 quarterly-based dividends of 68 cents per share and the one-time interim supplemental dividend of 50 cents per share that was paid in October, we are returning a total of $2.63 per share of dividends to shareholders based on 2021 results, which equates to a 75% of 2021 adjusted FAD. Including the $100 million of shares repurchased in 2021, Weyerhaeuser is returning more than $2 billion of total cash to shareholders based on 2021 results, or 79% of 2021 adjusted FAD, which is at the upper end of our commitment of returning 75% to 80% of FAD on an annual basis. Moving forward in 2022, we remain committed to returning a significant amount of cash to shareholders. This will continue to be supported by our sustainable quarterly base dividend, which as previously announced, we intend to grow by 5% annually through 2025. As outlined in our cash return framework on page 18, we will supplement our base dividend with an additional return of cash as appropriate to achieve our targeted annual payout of 75 to 80%. As demonstrated in 2021, we have the flexibility in our framework to return this additional cash in the form of a supplemental cash dividend or a combination of a supplemental dividend and opportunistic share repurchase. We continue to believe this flexible and sustainable cash return framework will enhance our ability to drive long-term shareholder value by returning meaningful and appropriate amounts of cash back to our shareholders across a variety of market conditions. Turning now to our fourth quarter business results, I'll begin the discussion with Timberlands on pages 7 through 10 of our earnings slides. Timberlands contributed $110 million to fourth quarter earnings. Adjusted EBITDA increased by $11 million compared to the third quarter. For the full year, Timberlands adjusted EBITDA increased by 14% compared to 2020. These strong results were delivered despite persistent weather, transportation, and pandemic-related challenges in 2021. And I would like to specifically recognize our Western Timberlands team for their exceptional work managing through the salvage operations resulting from the 2020 Oregon fires. As of year end, we've completed substantially all of the planned salvage harvest. In the West, adjusted EBITDA increased by $3 million compared to the third quarter. Western domestic log markets showed signs of improvement at the outset of the fourth quarter, following a brief softening in demand in September. As the fourth quarter progressed, log demand further improved as mills sought to capitalize on rapidly increasing lumber prices. While log supply in the western system was sufficient as the quarter began, it became constrained later in the quarter, particularly in Oregon, as a result of supply chain disruptions and adverse weather conditions. Despite this dynamic, our fee harvest volumes increased slightly compared to the third quarter, With lower log inventories and limited regional log supply as the quarter progressed, we increased the volume of our fee logs to our internal mills, resulting in modestly lower third-party domestic sales volumes compared to the third quarter. This is a great example of how we leverage our integrated business model to effectively navigate and capitalize on temporary market disruptions. Our average sales realizations in the West were comparable to the third quarter, but increased each month and ended the year at their highest levels of 2021. Per-unit log and haul costs decreased in the fourth quarter, as did forestry and road costs. Turning to our export markets, in Japan, demand for our logs remained strong in the fourth quarter as persistent global supply chain disruptions, a shortage of shipping containers, and strengthening U.S. domestic lumber markets reduced the availability of imported lumber into Japan. This dynamic continued to drive solid demand for locally produced Japanese lumber and for our imported logs to support that domestic production. As a result, our Japanese log realizations in the fourth quarter increased slightly compared to the third quarter. Sales volumes were modestly lower due to the timing of vessels. In China, in-market demand for our western logs remained favorable in the quarter, despite lower than expected overall Chinese consumption and elevated log inventories at the ports. Imports of lumber and logs into China continue to be impacted by global shipping container availability and the ban on Australian logs. As a result, our sales volumes to China increased significantly compared to the third quarter. Sales realizations for our China export logs decreased slightly, and ocean freight rates improved during the quarter. Moving to the south. Southern Timberlands adjusted EBITDA increased by $4 million compared to the third quarter. Southern saw log and fiber markets continued to strengthen in the fourth quarter, despite ample log supply resulting from drier weather conditions. Mill inventories returned to normal levels in most geographies during the quarter, but log demand remained strong across the south as mills sought to capitalize on rising lumber and panel pricing and focused on bolstering log inventories heading into the first quarter. As a result of these dynamics, our sales realizations increased slightly compared to the third quarter, and fee harvest volumes were modestly higher. Per unit log and haul costs increased slightly in the quarter, primarily for transportation costs. Turning now to southern export, which remains a small component of our overall operations. During the fourth quarter, Chinese regulators implemented new rules for imported pine logs to address potential phytosanitary concerns. These regulations imposed additional costs and administrative requirements. As a result, we paused our southern pine log exports to China. And consequently, our export log volumes to China decreased significantly compared to the third quarter. In response, we redirected logs to domestic mills and significantly increased our export log volumes to India in the fourth quarter. We are optimistic that this headwind for pine exports to China will be transitory and still maintain a constructive longer-term outlook for our southern export business. In the north, adjusted EBITDA increased by $2 million compared to the third quarter. Fee harvest volumes were significantly higher, resulting from favorable weather conditions and robust log demand as mills built inventory. Sales realizations increased slightly, primarily for hardwood logs. Turning to real estate energy and natural resources on pages 11 and 12. Real estate and EMR contributed $36 million to fourth quarter earnings and $49 million to adjusted EBITDA. Fourth quarter EBITDA was $11 million lower than the third quarter due to the timing of transactions. Similar to 2020, our real estate activity in 2021 was heavily weighted toward the first half of the year. For the full year, the segment generated $296 million of adjusted EBITDA. slightly higher than a revised full-year guidance, and 23% higher than 2020. Despite a year-over-year reduction in acres sold, full-year earnings increased by 144% compared to 2020 due to the mix of properties sold, and average sales prices increased by more than $2,000 per acre, a 120% increase. These results underscore the strength of the HBU market in 2021, the quality of our properties, and our team's ability to capitalize on these strong markets to deliver significant premiums to timber values. Now I'll make a few comments on our natural climate solutions business, which we launched in 2021. As shown on page 22, full year adjusted EBITDA from this business increased by 73% compared to 2020, driven primarily by growth from existing businesses in our portfolio, including mitigation and conservation, as well as renewable energy. Additionally, we continue to make progress on our forest carbon pilot project in Maine, and we continue to look to seek approval in 2022. We're also advancing discussions with high quality developers of solar, wind, and carbon capture and storage projects across our ownership. We continue to see multi-year growth potential from these businesses and maintain our target of reaching $100 million of annual EBITDA by the end of 2025. Moving to wood products, pages 13 through 15. Wood products contributed $466 million to fourth quarter earnings before special items and $517 million to adjusted EBITDA. Our EWP business established a new quarterly adjusted EBITDA record in the quarter, surpassing the prior record established just last quarter by 50%. For the full year, our lumber, OSB, and EWP businesses established new annual EBITDA records, and our distribution business generated the highest annual adjusted EBITDA in over 15 years. This is all notwithstanding ongoing challenges resulting from supply chain, transportation, weather, and pandemic related disruptions. This is truly exceptional performance, and I'm extremely proud of the resiliency, flexibility, and determination exhibited by our teams as they navigated multiple headwinds in 2021. In the fourth quarter, demand remained unseasonably strong across our wood products businesses, driven by continued strength in new residential home building and repair and remodel activity, as well as favorable weather conditions for construction for the majority of the quarter. Starting with the lumber and OSB markets, benchmark lumber prices entered the quarter on an upward trajectory, driven by strong home building and repair and remodel demand. In contrast, OSB markets remained fairly balanced for the first two months of the quarter, resulting in relatively flat composite pricing. Both lumber and OSB pricing increased at a rapid pace starting in December, as supply was disrupted by a myriad of factors, including major flooding in British Columbia that disrupted transportation and supply chain networks across Western Canada, labor challenges exacerbated by the Omicron variant, which impacted industry-wide mill operations, log supply and transportation carriers, and significant weather events that further impacted transportation and log supply in the Northwest and Canada in December. Channel inventories of both lumber and OSB ended the year in a lean position with continued strong demand. Adjusted EBITDA for our lumber business increased by $77 million compared to the third quarter. Our average sales realizations increased by 15% in the fourth quarter, while the framing lumber composite pricing increased by 40%. This relative difference was largely a result of extended order files that lagged surging lumber prices and shipping delays due to transportation disruptions. Our sales volumes decreased significantly in the fourth quarter, resulting from weather-related transportation challenges in Canada and lower inventory drawdown compared to the third quarter. Production volumes were modestly lower and unit manufacturing costs were moderately higher, resulting from weather-related events in the Northwest and Canada, including one week of downtime at our Princeton mill following the flooding event in British Columbia. Adjusted EBITDA for our OSB business decreased by $168 million compared to the third quarter. Despite a rapid increase in pricing in December, our average sales realizations decreased by 29% in the fourth quarter, while the OSB composite pricing decreased by 20%. Similar to lumber, this relative difference was largely a result of extended order files that lagged surging OSB prices and shipping delays due to transportation disruptions. Our sales volumes decreased slightly compared to the third quarter, resulting from weather-related transportation challenges in Canada. Production volumes and unit manufacturing costs improved in the quarter due to less downtime for planned maintenance. Fiber costs were moderately higher in the quarter. Engineered wood products adjusted EBITDA increased by $38 million compared to the third quarter, a 50% improvement. Raw material costs were significantly lower, primarily for OSB web stock. Sales realizations improved for most products, and we continued to benefit from previously increased prices for solid section and iJoyce. Sales and production volumes were lower for most products as a result of planned annual maintenance during the quarter and the impacts of COVID-related staffing shortages. In distribution, adjusted EBITDA increased by $18 million compared to the third quarter, an 82% improvement as the business captured improved margins, primarily for lumber and OSB, partially offset by seasonally lower sales volumes. I'd like to now turn to operational excellence. In 2021, our teams captured more than $70 million of margin improvements, meeting our $50 to $75 million target, while also making meaningful progress against our other OPEX priorities, including with respect to future value creation, cost avoidance, driving efficiencies, and cross-business synergies throughout the company. This was a remarkable accomplishment when considering the numerous challenges facing our business in 2021. Once again, our people demonstrated unwavering focus and exceptional teamwork to deliver innovative and creative solutions to overcome obstacles and drive OpEx across the company. In addition, I'm pleased with how well our employees continue to drive cross-business OpEx that improved margins in both timberlands and wood products. These efforts optimized internal log deliveries to warehouse or mills to maximize value and avoid out-of-log downtime. And our teams work together across our businesses to ensure that we maximize the recovery value from our salvage operations in Oregon. As we look forward to the future, We're targeting another $175 to $250 million of OpEx improvements across our businesses between 2022 and 2025. And I look forward to sharing more about our key initiatives and results in the years ahead. With that, I'll turn the call over to Nancy to discuss some financial items in our first quarter and 2022 outlook.

Thank you, Devin. And good morning, everyone. I'll be covering key financial items in fourth quarter financial performance before moving into our first quarter and full year 2022 outlook. I'll begin with key financial items, which are summarized on page 17. We generated $494 million of cash from operations in the fourth quarter, bringing our total for the year to approximately $3.2 billion, our highest full year operating cash flow on record. As Devin mentioned, we're returning over $2 billion to shareholders based on 2021 results, which includes $100 million of share repurchases. Fourth quarter share repurchase activity totaled $74 million at an average price of $37.60. This leaves us with approximately $926 million of the remaining capacity as of year-end 2021 under the $1 billion program we announced in the third quarter. We will continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value. Turning to the balance sheet, we ended the year with approximately $1.9 billion of cash and cash equivalents, of which nearly $1.1 billion is earmarked for the supplemental dividend we announced this morning that will be paid in February. We ended the year with total gross debt of $5.1 billion, At the beginning of the fourth quarter, we repaid our $150 million 9% note at maturity, and we have no additional maturities until 2023. Fourth quarter results for our unallocated items are summarized on page 16. Fourth quarter unallocated adjusted EBITDA decreased by $24 million compared to the third quarter. This decline was primarily attributable to higher than expected healthcare expenses, partially due to pandemic-related deferrals of nonessential medical treatment from 2020 into 2021. Key outlook items for the first quarter and full year 2022 are presented now on pages 20 and 21. In our Timberlands business, we expect first quarter earnings and adjusted EBITDA will be significantly higher than the fourth quarter. Beginning with our Western Timberlands operations, domestic log demand continues to be favorable as mills capitalize on strong lumber pricing. We anticipate this dynamic continuing for most of the first quarter. As a result, our average domestic sales realizations are expected to be significantly higher than the fourth quarter. As Devin discussed, we have substantially completed our salvage harvest operations in Oregon. In addition, we have made the seasonal transition to lower elevation and lower cost harvest operations. As a result, we expect our first quarter fee harvest volumes will be significantly higher than the fourth quarter with lower per unit log and haul costs and seasonally lower forestry and road costs. Moving to the export markets, in Japan, log demand remains favorable and we anticipate our first quarter sales realizations will be moderately higher than the fourth quarter with comparable sales volumes. In China, despite elevated log inventories at the ports, demand for our logs is expected to remain favorable in the first quarter as imports of lumber and logs from other markets continue to be constrained. We expect our first quarter sales volumes to be comparable to the fourth quarter, partially offset by slightly lower sales realizations. In the south, despite log inventories near target levels, log demand continues to be strong as mills position to benefit from strong lumber and panel pricing and build inventory to avoid potential disruption from wet weather conditions that are typical in the first quarter. We anticipate comparable sales realizations and seasonally lower forestry and road costs. This is expected to be offset by slightly higher per unit log and haul costs and slightly lower fee harvest volumes due to seasonal wet weather patterns. In the north, sales realizations are expected to be slightly lower in the first quarter due to mix, with slightly lower fee harvest volumes resulting from a seasonal reduction in harvest activity. Turning to our full year harvest plan, for the full year 2022, We expect total company fee harvest volume to increase to approximately 34.5 million tons. In the west, we anticipate our harvest volumes will be slightly higher than 2021 as salvage harvest operations in Oregon are substantially complete. We expect our southern harvest volumes to increase moderately as we resume a more normalized level of activity following reduced harvest levels in 2021 resulting from persistent adverse weather conditions. Similar to 2021, we expect our northern harvest volumes will be moderately lower year over year due to softening fiber markets in New England. Turning to our real estate, energy, and natural resources segment. Demand for our real estate properties remains strong, and we continue to expect a consistent flow of transactions with significant premiums to timber value. We expect full year 2022 adjusted EBITDA of approximately $300 million for this segment, Similar to 2021, we anticipate our real estate activity will be heavily weighted towards the first half of the year. Basis as a percentage of real estate sales is expected to be approximately 35 to 45% for the year. First quarter earnings and adjusted EBITDA are expected to be slightly higher than the first quarter of 2021 due to an increase in real estate acres sold. For our wood product segment, demand remains favorable. supported by strong new residential home building and repair and remodel activity. As Devin mentioned, channel inventory started the year in a lean position, and supply continues to be constrained by persistent transportation, supply chain, and COVID-related labor challenges. This dynamic is expected to continue for most of the first quarter and has driven lumber and OSB benchmark pricing to unseasonably high levels quarter to date. Excluding the effect of changes in average sales realizations for lumber and oriented strandboard, we expect first quarter earnings and adjusted EBITDA will be comparable to the fourth quarter. For lumber, we expect improved production volumes and unit manufacturing costs in the first quarter, with slightly lower sales volumes resulting from ongoing transportation disruptions. Log costs are expected to be moderately higher than the fourth quarter, primarily for western logs. For oriented strandboard, we anticipate improved production volumes in the first quarter, driven by less planned maintenance and modestly higher sales volumes. We expect this will be partially offset by moderately higher fiber costs. As shown on page 23, our current and quarter-to-date sales realizations for lumber and oriented strandboard are both significantly higher than the fourth quarter average. For engineered wood products, we expect comparable sales realizations to the fourth quarter, and sales and production volumes will be higher, resulting from less planned maintenance in the first quarter. For our distribution business, we are expecting lower adjusted EBITDA in the first quarter due to moderately lower sales volumes. So I'll wrap up with some additional full-year outlook items highlighted on page 21. Our full-year 2021 interest expense was $313 million. Due to the additional debt reduction during 2021, We anticipate interest expense will be $305 million for the full year 2022. Turning to taxes, our full year 2021 effective tax rate was 21.5%, excluding special items, driven by the higher percentage of total income coming from our taxable REIT subsidiary. For first quarter and full year 2022, we expect our effective tax rate will be between 19% and 23% before special items. and based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary. For cash taxes, we paid a net $609 million for full year 2021, which included a $95 million tax refund received in the fourth quarter, which was associated with our 2018 voluntary pension contribution. Excluding this tax refund, our cash taxes were in line with our tax expense. Our 2021 cash taxes were slightly higher than our prior guidance, due to the timing of Canadian tax payments. We expect our 2022 cash taxes will be comparable to our overall tax expense. For pension and post-employment plans, the year end 2021 funded status improved by nearly $500 million as a result of favorable asset returns and higher discount rates compared to year end 2020. Discount rates increased by approximately 40 basis points for the U.S. plans and approximately 60 basis points for the Canadian plans. Our non-cash, non-operating pension and post-employment expense was $19 million in 2021. We expect to record approximately $60 million of expense in 2022. Cash paid for pension and post-employment plans in 2021 was $59 million. In 2022, we do not anticipate any cash contributions to our U.S. qualified pension plan. and our required cash payments for all other plans will be approximately $30 million. Turning now to capital expenditures, our full year 2021 capital expenditures totaled $441 million, which was slightly below our guidance due to supply chain and contract labor constraints experienced during the fourth quarter. We expect total capital expenditures for 2022 will be approximately $440 million, which includes $110 million for Timberlands, inclusive of reforestation costs, $320 million for wood products, and $10 million for planned corporate IT system investments. Now I'll turn the call back to Devin and look forward to your questions.

Great. Thanks, Nancy. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets. U.S. housing activity continued at a strong pace in the fourth quarter, with total housing starts averaging more than 1.6 million units on a seasonally adjusted basis. and total permits averaging more than 1.7 million units. For the full year, total housing starts were nearly 1.6 million units, representing a 16% increase over 2020, and the highest annual level since 2006. These increased levels of housing activity are notable considering the persistent supply chain and labor challenges that homebuilders faced in 2021. Notwithstanding the recent uptick in mortgage rates and ongoing affordability concerns, Both our near-term and longer-term housing outlook remain optimistic and is supported by encouraging housing demand fundamentals, including favorable demographics, a decade of underbuilding, and historically low inventory for new and existing homes. Turning now to repair and remodel activity, which strengthened in the fourth quarter. Demand continued to be strong, bolstered by large professional R&R projects, which remained healthy for most of 2021. and a resurgence of smaller do-it-yourself activity following a period of temporary weakness in the summer months. As we enter 2022, our outlook for repair and remodel activity continues to be positive, with demand supported by an aging housing stock, rising home equity, and healthy household balance sheets. In closing, our 2021 financial performance was among the best in our company's history. and I'm incredibly proud of our employees and their efforts to achieve these outstanding results. Additionally, in 2021, we continued to drive improvements across each of the value levers of our investment thesis. We made great progress on upgrading our portfolio, improving our operating performance, building on our ESG leadership, and demonstrating a commitment to disciplined capital allocation. Looking forward, we've announced a series of multi-year targets that will drive additional growth and deliver superior value for our shareholders. With our unmatched portfolio of assets, industry-leading performance, strong balance sheet, and supportive macro tailwinds, we're well positioned to capitalize on favorable demand fundamentals, generate strong cash flows, grow our company, and return significant amounts of cash to shareholders. And now I'd like to open the floor for questions.

Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to withdraw your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from George Staples with Bank of America. Please proceed with your question.

Hi, thanks, operator. Good morning, everybody. Thanks for the details, Devin, and congratulations on the year. Thanks. And congratulations on everything that you're doing with OpEx. It's amazing what the company's done over the last number of years on that front. So quick questions. First, in the south, could you give us a bit more color in terms of the outlook for timber this year and what you're seeing in the first quarter? I would have expected maybe a bit more positive outlook for 1Q. You know, given obviously where lumber prices are, what you've discussed in the past about wood capacity going into the market, any thoughts there would be great. Second question, what are you seeing in terms of veneer supply and how are you set up relative to engineered wood? And what are the sort of commercial opportunities you see in EWP for maybe further realization improvement over this year? And then I had one follow-on, time allowing.

Sure. Well, let's start with the southern markets. And, you know, just as we think back to what happened in 2021, obviously we did see some pricing improvement for southern logs. That's both with respect to pulp logs and saw logs. I think, you know, several drivers behind the pricing improvement that we've seen lately. You know, first, obviously on the supply side, you know, some of that price improvement was driven by the persistent wet weather that we saw across many regions in the south. You know, I think certainly That reduced the flow of logs to the system, tensioned the market to some extent. I think COVID, transportation, other supply chain issues had some effect on log availability as well, which, you know, I think pushed up pricing a bit. But then on the demand side, you know, we did have very strong wood products markets across the South, and that supported healthy log demand. Mills certainly didn't want to run out of logs and miss out the opportunity to capture the benefits of higher lumber and OSB prices. And then lastly, and, you know, you alluded to this, Just the continued pace of new capacity coming online in the south, I think, certainly has helped tension the market in certain wood baskets. But in any event, demand was strong, pricing improved, and we certainly do anticipate that to continue to be the case in the first quarter. Really, across the south, inventory levels right now, I'd say, range from normal to even a bit lean, depending on geography. Customers are going to want to protect inventory levels to make sure that they're fully wooded to avoid out-of-lock downtime in these stronger wood products markets. I do think we continue to see some challenges for logging and trucking availability in certain geographies, and so that can have some tensioning effect, particularly if we see additional weather. So, look, for the balance of the year, we're expecting solid demand for logs across the South. perhaps not as much pricing appreciation as we saw last year. Some of that, I think, was driven by weather. You know, certainly there's still plenty of regions where there's excess inventory in the forest. But as we've been saying for a number of years, with each year that we have more capacity coming into the region, which we've certainly had plenty of that over the last several years, we continue to see that continuing into the future. You know, that tensions things up woodbasket by woodbasket. So, You know, we're optimistic about the trajectory in the south and we think we'll have a solid year this year in 2022. You know, moving to your second question around veneer supply, that's certainly a challenge. That is one of the constraints for EWP production. That's a Weyerhaeuser statement for sure, but I think it's a broader industry statement. And, you know, that's an area that we're really focused on, both with our internal veneer supply. We have some veneer manufacturing within our EWP business, and certainly as we partner to source veneer for our EWP products. You know, I think that's an area that we're seeing very, very strong demand. Our order files are quite extended from an EWP standpoint, and so we're doing everything we can to make sure that we're meeting customer needs. You know, in terms of the pricing environment, we obviously did raise prices a number of times for EWP products last year. As of now, we've substantially captured all of those price improvements. And so a strong environment, you know, in terms of the pricing for the remainder of the year, not in a position today to talk about any sort of price increases. We'll continue to monitor the market in that respect. But overall, very strong market for EWP right now.

All right, Devin. Thanks for that. You know what, I'll turn it over, and if there's time, I'll come back and cue. Thanks, Devin. Thanks, Nancy. Great. Thank you.

Our next question comes from Anthony Pettinari with Citi. Please proceed with your question.

Good morning. Good morning, Anthony. Hey, you know, we've seen a fairly sharp jump in mortgage rates this month and, you know, maybe a view on a more hawkish Fed. And, you know, obviously this is just a few weeks, but, you know, have you seen any impact to, you know, customer discussions or maybe even, you know, order patterns or activity? And then just maybe from a bigger picture perspective, You know, is there anything you could say about how you'd expect the business to perform kind of longer term in a rising rate environment? You know, given timber obviously has a role as an inflation hedge, but you obviously have exposure to housing. Just kind of how you think about that and how it's worked historically.

Yeah, sure. No, that's a great question. You know, I think with respect to the rising interest rates, you know, certainly I think there is some angst among many about what rising mortgage rates are going to do to housing demand. And, you know, I think that's a fair thing to give consideration to. I can tell you as of today, we are not hearing any sort of change in tone from our home builder customers. You know, I think from where we sit, and this is based both on our own internal view, but also the conversations that we have with folks really across our customer universe, You know, we're still sitting at a place where we're relatively low in terms of mortgage rates by any historical context. I think, you know, even if we assume that mortgage rates are going to go up over the next 12 to 24 months, which we do think that they will, you know, we still have a ways to go, I think, between where we are today and where you're going to see a material amount of demand drop off from a mortgage rate standpoint. And I think it's also important just to remember the context of what we've got going on in the market right now. And we've talked about this before, but just the underbuilding that we've done in the U.S. over the last decade has left a real shortfall for housing. And we think about the demographic trends with millennials coming into the market, and you've certainly seen some data to support that. I think the price increases that we've seen, that's largely a function of there just not being enough housing supply for for the demand out there. And so, you know, from our standpoint, we're certainly looking to a strong year of housing in 2022. Our customers, when we go out and talk to the home builders, they're telling us that they're expecting a, you know, a good strong year. We're certainly starting off from a good spot when you think about, you know, the home builder confidence levels, when you think about the home sales numbers that we just saw, the number of sold not yet started. There's a big backlog there. So, you know, notwithstanding, you know, obviously there can be some headwinds at times with housing, whether it's, you know, product availability, labor demand, or, you know, rising mortgage rates, but I think the demand levels out there is just, you know, very strong and should support, you know, I think a strong home building year in 2022. As we think about, you know, interest rates and inflation, you know, there are puts and takes there, obviously, as you see Inflation, you know, that's an issue that we have to deal with in our business. And, you know, we're very focused on that. A big part of our OpEx program is trying to make sure that we're very focused on cost. I think that will serve us well if we're in an inflationary environment. But again, as you mentioned, historically, timber has been a pretty good inflation hedge. And so, you know, there are, you know, there are puts and takes there. I do think, you know, from an interest rate standpoint and how you value timber and discount rates, generally speaking, people take a pretty long-term view. So we're not seeing any sort of big impact from higher interest rates in terms of timber valuation. So, you know, notwithstanding that it does create some challenges here and there on balance, I think we'll manage it pretty well. And, you know, again, we're looking forward to a strong 2020, even in a slightly higher inflationary environment and with interest rates rising somewhat.

Okay, okay, that's very helpful. And then just maybe a very quick follow-up on timberlands. You talked about pausing, I think, southern pine log exports to China, given maybe some regulatory changes there, and you talked about, you know, that headwind potentially lifting. I was wondering if you could, is there any sort of timeline, or if you can talk about what causes that pause or that headwind to lift, and are there any sort of costs associated with that? Just any further color on that.

Yeah, yeah, sure. And so really, it just it relates to a new rule that the Chinese government put into place. There was a nematode issue that was discovered on some exports into China, not warehouse or exports, but that was a new rule set they put in place. And, you know, it adds administrative burden, some additional costs around fumigation and, you know, channeling into different ports. And so, you know, it's relatively new. At this point, it doesn't make a lot of sense for us to continue the export in to China out of our southern business in the near term. You know, ultimately, our view is China needs fiber supply. The U.S. South is a woodbasket that's healthy and can support that over time, particularly as you think about the Russian log ban, the Australian log ban. some of the challenges over time, I think, with the European supply going down as they work through their beetle issue. You know, I think net-net China is going to need fiber supply. And so our hope is that, you know, as these rules, you know, kind of get figured out over time, some of those burdens in sourcing wood from pine regions into China will ease a little bit and will resume our activity. But as I noted earlier, You know, in the meantime, we've got a very active program going on into India that we're continuing to look to grow, Vietnam, Pakistan, Turkey. So, you know, we're going to continue to look to grow our export business regardless of what happens in China, and we do think that ultimately we'll be back in that market, and that will just be another increment to support our growth of the export program.

Okay, that's helpful.

I'll turn it over. Thanks. Our next question is from Susan McLaurie with Goldman Sachs. Please proceed with your question.

Thank you. Good morning, everyone, and congratulations on a great quarter and year.

Thank you. Good morning.

My first question is, you know, just turning to get a little bit more details on the operational backdrop and the outlook as it relates to your forecast. Can you talk a little bit about, you know, supply chain and COVID related disruptions that you are seeing or sort of, you know, expect that you could see in the near term? And then does your outlook, you know, sort of assume any level of improvement related to some of those disruptions? And how should we be thinking about the labor force and your ability to sort of ramp up there?

Yeah, well, you know, I'll start with what we saw in Q4 and what we're seeing so far in Q1 around transportation and COVID. Candidly, it's been a challenging environment, starting with transportation. You know, we've had some challenges as an industry with transportation, as most other industries are also having challenges. Trucker availability is very, very tight. I'm sure you've heard about that numerous times. When we get into the winter months, particularly up in Canada with some of the cold weather and weather events, the rail becomes pretty challenging. And so when you think about just the overall transportation infrastructure right now, it's pretty tight and it's pretty challenging. And so we've done, I think, a reasonably good job of navigating that, but it's nevertheless a tough situation to get product moved. I don't necessarily anticipate that getting dramatically better here in the very near term. Now, hopefully as the weather improves, improves and Omicron starts to trend down, maybe we'll get a little bit better. But transportation has been a challenge, you know, even before the last few quarters. I'd say on Omicron, you know, we, like pretty much every other company, have been struggling through just keeping our mills and our operations staffed with the high levels of COVID outbreaks with Omicron. We haven't lost a significant number of shifts, but it certainly has impacted our operations. And in many respects, it's prevented us from running extra shifts where we otherwise might have done so. I do think we're either at or starting to come down off of the peak. As we look at daily quarantine levels, it does look like we're starting to see that break a little bit. So we're optimistic that Over the next several weeks, we'll really start to get past this wave of COVID, and hopefully that will ease things up a bit. I don't know on balance as we think about the overall supply chain, other than Omicron getting better, labor availability being tight, I don't see that really easing here in the near term, hopefully as the year progresses, but certainly not in the first half. And I'd say similarly with transportation, I'm not sure we see that getting dramatically better in the first half of this year. We are hopeful that over time as more people return to the workforce that some of these will start to ease, but it doesn't feel like a first half of the year issue for us.

Yeah, okay, I hear you. That's helpful. And then my second question is, you know, kind of focusing a little bit more on the DIY and the consumer side As we think about the move up in commodity prices that we've seen sort of post Labor Day, can you talk a little bit about how you're thinking about that market's ability to continue to absorb that level of inflation? You know, when you go back to last summer, you think about the fact that that was sort of the piece that really kind of drove the relative supply-demand dynamics and the impacts of pricing that had. So as we do go into the spring here, Can you talk a little bit about what you're hearing in terms of the home improvement retailers, inventories in that channel, and the order rates that you're seeing there as we do go into the busier season?

Yeah, sure. Well, I'll start with the second half of your question and then get specifically to the DIY segment. In terms of what we're seeing today from repair and remodel, You know, the pro segment has been strong really across 2021. You didn't really see the dip like you saw in the DIY segment. And that's certainly the case as we head into Q1. We're seeing good takeaway, good demand from big box as well as just the R&R segment generally. And so feeling pretty good about where that is, particularly for this time of year. I think you asked a great question with respect to the DIY segment as you see pricing trend up. No question, I think last year as we got into the summertime and you saw $1,000 lumber prices were in the news every day, no question that caused a pullback in the DIY segment. Now, how much of that was just coming out of a COVID wave where it was the first time people could go out and really go to concerts, movies, ball games, as opposed to do repair and remodel? Some of that's a little hard to tell, but I think certainly Just the level of press that we saw around high lumber prices probably caused some people to pause on those smaller do-it-yourself projects. Now, whether we see that same demand impact now that we're back up in that range, we're not seeing it yet, but I think it's an open question whether you'll see a little bit of a tick down. Now, the flip side of that may be people may ultimately become more accustomed to $1,000 lumber prices. I can tell you just in terms of the level of press coverage, that you're seeing from $1,000 lumber prices today versus last summer, it's a little less. So, you know, maybe people become a little bit more accustomed, but that's something we'll certainly be watching closely. But again, as we think about where we are in the year with pricing where they are, we've got long order files, inventories across the channel are, you know, moderate to lean for lumber, and I'd say pretty darn lean for OSB and EWP. heading into the building season, it does feel like it's a pretty good setup for market dynamics.

Okay. I appreciate all that color. Thank you, and good luck.

Thank you.

Our next question is from Mark Weindraut with Seaport Research Partners. Please proceed with your question.

Thank you, Devin. Congrats on a very good year. You just mentioned order files being long. Could you give us more specificity in terms of how long they are in Lumber and OSB for you?

Yeah, sure. Well, thanks, Mark. So when we talk about Lumber, you know, that's bumping up against three-week order files, which for us is on the long end of where we typically would see those. On OSB, we're out three to five weeks, which again is pretty much on the outside of where we like that to be. You didn't ask about EWP. EWP is essentially on allocation through the second quarter. So pretty long order files for this time of year.

Okay, thank you. Question for you on demand, on lumber in particular. But actually structural panels as well. If we look at industry data last year, It looked like apparent consumption for structural panels is up about 5%. If you look for lumber, I guess I've only seen it through October, but it was up 3.5% or so, quite a bit lower than what housing starts were up, which, you know, more on the order of 15%, a little less than that single family, but close to it. Do you have a perspective as to what might be driving that variance, be it Is it reductions in inventory channel? Is it economizing on the use of lumber and or OSB? Is it that fluctuations in repair remodel? Or is it something else?

Yeah, there's probably a little bit of all of that in there, Mark. But I also think on some level, You know, there are houses that are started that have not been completed. And so there's probably a little bit of gap there that will catch up over time as well. You know, if I had to say what I think the biggest driver is, I think that's probably it. But there's a little bit of the other items you mentioned as well.

Okay. That's helpful. And then lastly, kind of a similar type of question, and maybe it's trying to quantify the comments you were making on COVID and and supply chain and how that's impacting production for you and also for the industry in general. I mean, interestingly enough, again, and maybe the data we get is not fully accurate, but it suggests that production of lumber in the U.S. South actually is only up like 1.6%, at least through the first 10 months of the year, which seems surprising given the level of demand and given the capacity. Do you think that there's a... is there the capability for there to be a significant ramp in production? And obviously that has implications for lumber markets, but it also has implications potentially for your timber sales in the South. So any thoughts on that, please?

Yeah, there's no question that COVID and supply chain disruptions impacted overall production in the South. We saw that, obviously, we sell logs to a number of customers and we saw that In terms of our customer base, we also saw that in our own operations, just in terms of an inability to get people for extra shifts for a good portion of the year because we had people out with quarantine. But it also, I think, even goes beyond the mill, and it goes to some of the labor shortage issues that you have, you know, to staff mills, higher turnover levels, the ability to get trucks and transportation, even, you know, I think in some geographies, the ability to get logging contractors. And so all of those things together, I think, is the reason why you saw that production volume increase being so, you know, so minimal over the course of last year. I'm not sure I see anything that's going to be dramatically different here in the near term, you know, even as we get through Omicron, which will certainly help. There's a real challenge in finding labor, and that's across the system. It's not just our industry, but our industry is certainly affected. Finding truck drivers, logging contractors, finding employees to work in the mills, really across the supply chain, I think that makes it challenging to really dramatically ramp up that production.

Great. I appreciate your insights.

Mark, I'll just add that for the fourth quarter, to help quantify it, there was probably about a $25 million impact in the quarter from those COVID-related issues and supply chain disruptions.

Thank you. And that presumably includes Canada as well? Correct.

Yes.

Great. Thanks a lot.

Our next question is from Mark Wild with Bank of Montreal. Please proceed with your question.

Thanks. Good morning, Devin. Good morning, Nancy. Good morning, Mark. Let me just start off. Oh. I wanted to just follow on Mark Weintraub's question. Do you think it's fair to say that approximately 60% to 65% of your first quarter shipment volume has been sold at this point? Just kind of taking what you said about the order book.

Yeah, I don't have the specific percentage number right off the top of my head, Mark, so I don't want to misquote that. We can certainly follow up, but there's no question as we think about those extended order files, that's certainly pushing out a, you know, a pretty healthy percentage of our, our Q1 volume, uh, you know, that's been sold and not shipped.

Yeah. Okay. And then to this question we were just talking about the impact of COVID and not only on just people being out, but on increased labor turnover, has that had a material effect? Do you think on just productivity across your operations?

Yeah, there's no question that's had an impact. As you think about running a sawmill, running an OSB mill, as you have higher levels of turnover, that impacts just the expertise running the equipment. It impacts reliability. It impacts safety. All of the things that make you a top-notch producer are When you have higher levels of turnover with new folks, all of those things become, you know, more difficult. And so, you know, that's been something that we've really been working on and making sure that we, you know, institutionalize a lot of the OpEx innovation reliability things so that we make it easier for people to get up to speed quicker. But it does have an impact. There's no question.

Yeah. And just more broadly, you know, we did have some nice improvement in kind of southern log prices and uh 2021 do you think we're beginning to see a sustained recovery in the region or do you view this as you know more cyclical than uh you know kind of a trend structural pickup in uh in southern log markets particularly for saw logs yeah i think as you think about the south as a whole i i do think some of it was driven by weather events some of it was driven by the covid labor all those all those challenges

That had an impact. There's no question. Now, you know, there also is no question there are certain geographies where you're seeing that new capacity tensioning things up. So, you know, Arkansas, north central Louisiana, North Carolina. I mean, there are spots where we've seen the mills come in, ramp up to full production, where you see a tighter wood basket. And so that's also having an impact. We still have several billion board feet of new capacity that's been announced that's not up and running yet. And I think we'll continue to see as those new mills come in, get up and running, get to full production, that will continue to have an upward impact on pricing. But if the question is, do we think that we've hit the point now where southern saw log recovery across the south has happened, I'm not sure that's going to be the case. But we do think that we're on the right path, that we'll continue to see improvements, you know, albeit slower in some areas than others. But the trajectory is right. But I do want, you know, to – I don't want to leave anyone with the impression that 2021 was all just new capacity. Some of that was weather. Some of it was supply chain disruption.

Yeah, all right. I think that's true. Finally, can you just give us any color on the perspective – solar project in the South, whether this is a land sale or this is a long-term lease, which it sounds like is more common in other people's discussions?

Yeah. So if you're referring to the APEX deal that we just announced, that's really the relationship that is going to cover a number of different potential projects over the time. And it's a continuation of an existing relationship. So we've done other work with APEX. Now, assuming that all of the projects that we've got under this agreement move from the exploration stage to final development, you know, the number of acres is going to vary depending on project, physical characteristics. But we would retain the fee ownership. You would get milestone payments as the projects move through various stages of development. And then once it's operational... you'd have an annual lease payment for each acre in the footprint. So again, we keep the fee, we have the timber economics, and then we get paid a lease payment over time.

Okay. All right. Sounds good. I'll turn it over.

All right. Thanks, Mark.

Our next question is from Paul Quinn with RBC Capital Markets. Proceed with your question, please.

Yeah, thanks very much. Good morning. Yeah, I know, as others have, that lumber production was up less than a percent in 21. Just wondering if we're still on track for a 5% gain in 22 as per your investor day. And then on the CapEx budget of $320 million in wood products, besides the Holden, Louisiana project, any other major CapEx projects on the lumber side?

Yeah. So with respect to your first question, yep, we're still on track for the 5% a year. You know, year to year, that may vary by a little bit, but that is the trajectory. Still on track for that. Feeling good about the momentum we've got within our CapEx and our organic growth programs. You know, in terms of the big projects, really, you know, Holden, obviously, big project, you know, it's on track. The rest of it is really just a series of capital projects, nothing of the Holden magnitude, but each of our mills, as we've said before, has a multi-year roadmap, and so it's de-bottlenecking, it's driving improved reliability, and it really cuts across all of the different machine centers, you know, merchandisers, sorter stackers, planers, CDKs, really each mill has capital projects that really just take away the constraints to let us grow volume. So, Nothing, you know, nothing big to call out other than Holden. Largely, these are all projects that are being replicated that we've already done in some other mill, which is why we have such a high level of confidence in the organic growth story.

Okay, and then just on the OSB side, shipments were down 8.5% in 21 years. So just wondering if 22 we can expect to get closer to the 3 billion square foot capacity.

Yep, that's a safe assumption.

Okay, and then just maybe just squeaking a last one. Just on capacity ads in 22 overall industry, it's looking like about $2.75 billion board fee, which is about 4%. What kind of pricing impact or do you think that's really going to impact the market in this year?

Yeah, just a couple of observations I'd offer there. First of all, there's a lot of announced capacity that we have coming on over the next few years. We certainly think people are going to continue to invest in the U.S. South. It's a great place to make lumber. But that being said, a few things to keep in mind. Number one, and we've certainly seen this to some extent, the timeline for some of those projects may get extended to the extent you're not already in the queue for equipment. We've seen the timeline for getting equipment pushed out a bit, the labor to install some of this equipment pushed out a bit. Not clear to me all of that actually will come to fruition in 2021. The other thing I would say, you know, over a multi-year period to keep in mind, and I know you're all very well familiar with this, some of that new capacity that's coming in in the south is going to ultimately be offset by capacity coming out of other regions, British Columbia in particular. And so net-net across North America, I'm not sure all of that's going to really, you know, come to pass in 2022. But even if it does, as we think about, and our view is we are going to see year-over-year growth in residential construction. We think we're going to see maybe low single-digit growth in repair and remodel. So the market as a whole, we feel pretty good about the demand signal. So even as we do see some of that new capacity being added on, we're going to need that really to keep overall the North American market in balance. So I think the capacity that we see coming online shouldn't have a material impact overall other than just to keep things balanced. Thanks, Devin. Best of luck. All right. Thank you.

Our next question is from Kurt Yinger with DA Davidson. Please proceed with your question.

Great. Thanks, and good morning, everyone. I just wanted to start off on Western log realizations and Is there any way to maybe bucket how much of the kind of price improvement that's anticipated in Q1 is kind of underlying price improvement versus maybe some mixed benefits as you move fully past the salvage harvest?

Yeah, well, just a couple comments on Western markets. Generally, we have seen really strong demand in the Western system. That's a comment both on domestic demand as well as export demand. You know, sitting here end of January, I'd say log inventories are generally at or slightly below normal levels. And so, you know, we're feeling pretty good about the dynamic that we've got going on in the West. You know, most of the realization improvement, there's a little bit of mix, but most of it is really just driven off strong levels of demand and balancing that against the available supply. And as you think about, you know, just to kind of dimension that for you as you think about the quarter over quarter EBITDA guidance. You know, we talked about being up significantly. Most of that is in the West, you know, and we're thinking probably in that 30 to 40 million dollar range in terms of kind of how that should look in the first quarter. So really setting up to have a strong quarter in the West.

All right. All right. That's helpful. Thank you. And then just my second on Timberland's M&A. I mean, it seems like there's been a nice general uplift in deal activity, but curious what you're seeing in terms of return profiles relative to your own kind of near-term cash yield targets.

Yeah, there's no question there has been an uptick in activity on Timberland's M&A. I think last year we probably came in somewhere in the $3.5 billion range in terms of total transactions. That's our estimate for where we're going to come in again as an industry in 2022. So definitely a pickup. I think the big differences that we've noticed is people are being a little bit more aggressive with their underwriting and discount rates for, I would call it maybe more challenged properties. The underwriting for the high quality properties, that's always been competitive. That never really changed and that continues today. So You know, for us, as we think about our return profiles, you got to be disciplined. For us, as we think about it, you know, when we look at deals and we look at a lot of deals, you know, we bid on a smaller number just in, you know, making sure that we think it's going to meet our return profile. We do have some advantages. I think some of the analytics tools that Russell and his team are developing are helpful in that respect. The scale, the operational synergy, some of the other things that we can bring to the table. as we mentioned on our investor day, can help us boost our returns maybe a little bit more. But again, it's always been a competitive market for high quality property, and we anticipate that remaining the case. And so you just have to be very smart about how you do Timberland deals.

Got it. Okay. Well, appreciate the color and good luck here in the new year.

All right. Terrific. Well, I think that was our final question. So Just want to thank everyone for joining us this morning and thank you for your continued interest in Weyerhaeuser. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time and we thank you for your participation.