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.