Weyerhaeuser Company

Greetings and welcome to Weyerhaeuser first quarter 2023 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during this conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may now begin.

Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's first quarter 2023 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our websites. 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 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 first quarter gap earnings of $151 million, or 21 cents per diluted share, on net sales of $1.9 million. Adjusted EBITDA was $395 million, a 7% increase over the fourth quarter of 2022. These are solid results, and I am pleased with the operational and financial performance delivered by our team, despite various market and weather-related challenges throughout the quarter. Turning now to our first quarter business results, I'll begin with Timberlands on pages six through nine of our earnings slides. Timberlands contributed $120 million to first quarter earnings. Adjusted EBITDA was $188 million, a 25% increase compared to the fourth quarter. In the West, Adjusted EBITDA increased $33 million compared to the fourth quarter, largely driven by increased sales volumes in domestic and Chinese markets and lower per-unit log and haul costs. These favorable results were partially offset by lower sales realizations. Turning to the Western domestic market, demand and pricing for domestic logs faced downward pressure at the start of the first quarter. Mills reduced consumption in response to lower pricing and takeaway of finished products and were carrying elevated log inventories. As the quarter progressed, Log consumption increased as in-market demand improved, but log supply was constrained by consistent winter weather conditions. This dynamic drove log inventories to lower levels and caused log pricing to stabilize. For the quarter, our average domestic sales realizations were significantly lower than the fourth quarter. Our fee harvest and domestic sales volume, as well as per-unit log and haul costs, improved in the first quarter, as we return to full run rate operations following the work stoppage in the fourth quarter. First quarter harvest activity included a portion of the deferred volume resulting from the work stoppage, and we remain on track to capture the majority of the deferred harvest volume in 2023. Forest and road costs were also seasonally lower. Moving to our western export business. Log markets in Japan continued to soften in the first quarter, in response to elevated inventories of European lumber imports, as well as lower consumption driven by reduced post and beam housing activity. As a result, our average sales realizations for export volumes to Japan were moderately lower compared to the fourth quarter, and our sales volumes were comparable. In China, log inventories at the ports declined during the quarter, and daily takeaway increased as construction activity improved following the Lunar New Year and in response to the recent lifting of pandemic-related restrictions. As a result, log demand from our customers remained solid in the first quarter. Our sales volumes increased significantly compared to the fourth quarter, and we intentionally flexed additional volumes to China to take advantage of improving market conditions in the first quarter. Our average sales realizations were slightly higher compared to the fourth quarter, aided by improved ocean freight rates and a favorable exchange rate. Turning to the south, adjusted EBITDA for southern Timberlands increased $4 million compared to the fourth quarter. Despite reduced log consumption in response to lower finished product pricing and demand, southern saw log and fiber markets remained fairly balanced during the first quarter, as log supply was constrained by wet weather conditions. As a result, our average sales realizations were comparable to the fourth quarter. Our fee harvest volumes increased slightly despite the adverse weather conditions, Per-unit log and haul costs were slightly lower in the first quarter, and forestry and road costs were slightly higher. Adjusted EBITDA in the north was comparable to the fourth quarter. Turning to real estate, energy, and natural resources on pages 10 and 11. Real estate and E&R contributed $53 million to first quarter earnings and $89 million to adjusted EBITDA. First quarter EBITDA was $43 million higher than the fourth quarter, primarily due to a significant increase in real estate acres sold, partially offset by a decrease in royalty income from our energy and natural resources business. Similar to prior years, our real estate activities in 2023 are more heavily weighted towards the first half of the year. Average price per acre decreased compared to the fourth quarter due to the mix of properties sold, but remained elevated compared to historical levels, as we continue to benefit from steady demand for HBU properties. Despite broader macroeconomic headwinds, buyers continue to seek the safety of hard assets, resulting in high-value transactions with significant premiums to timber value. Moving to wood products on pages 12 through 14. Wood products generated $95 million of earnings in the first quarter and $148 million of adjusted EBITDA. First quarter adjusted EBITDA was a 25% reduction from the fourth quarter, largely driven by continued softening in wood products pricing. Regarding the lumber and OSB markets, benchmark prices for both products entered the first quarter showing signs of stabilization after receding in the back half of 2022. Pricing for both products increased slightly through early February in response to stronger than expected demand for housing and buyers replenishing lean inventories. The increase was more pronounced for lumber as supply concerns weighed on the market following a series of mill curtailment announcements, particularly in British Columbia. As the quarter progressed, overall buyer sentiment remained cautious as adverse weather impacted home building in several regions and in response to ongoing concerns about inflation and the economy. Despite lead inventories, orders were limited to necessity purchases through quarter end, and benchmark prices for both products were generally range-bound. I would note, however, that prices for both products have trended higher as we've moved into the second quarter. Adjusted EBITDA for our lumber business was comparable to the fourth quarter. Both the framing lumber composite pricing and our average sales realizations decreased 9% in the first quarter. Our sales and production volumes increased significantly versus the fourth quarter, which was impacted by the work stoppage at our Northwest mills. Reliability also improved across the system. With increased production in the quarter, unit manufacturing costs improved significantly. Log costs were comparable to the fourth quarter. OSB adjusted EBITDA decreased by $32 million compared to the fourth quarter, primarily due to the decrease in commodity pricing. Our average sales realizations decreased by 20% in the first quarter, largely in line with OSB composite pricing. Sales volumes were significantly higher as production volumes increased from less planned downtime for annual maintenance, and transportation networks improved following adverse weather conditions late in the fourth quarter. Unit manufacturing costs and fiber costs improved moderately during the quarter. Adjusted EBITDA for engineered wood products decreased by $28 million compared to the fourth quarter due to softening demand for EWP products. As a result, Our sales and production volumes and average sales realizations were lower for most products in the first quarter. That said, we have seen a recent uptick in our order activity, and our current realizations remain above pre-pandemic levels. Unit manufacturing costs were comparable to the fourth quarter, and raw material costs decreased, primarily for OSB web stock. Adjusted EBITDA for distribution was comparable to the fourth quarter, as higher volumes and lower operating costs were offset by a decrease in realizations for EWP and commodity products. With that, I'll turn the call over to Davey to discuss some financial items and our second quarter outlook.