Weyerhaeuser Company

Greetings and welcome to the Weyerhaeuser First Quarter 2024 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 to indicate your line is in the question queue. If anyone should require operator assistance during the conference, please press star 0. As a reminder, this conference is being recorded. It is now my pleasure to introduce Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin.

Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's first quarter 2024 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 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 $114 million, or 16 cents per diluted share, on net sales of $1.8 billion. Adjusted EBITDA was $352 million, a 10% increase over the fourth quarter of 2023. These are solid results, and I'm pleased with the operational and financial performance delivered by our teams. Turning now to our first quarter business results. I'll begin with Timberlands on pages six through nine of our earnings slides. Timberlands contributed $80 million to first quarter earnings. Adjusted EBITDA was $144 million, which was comparable to the fourth quarter. In the west, adjusted EBITDA increased by $3 million compared to the prior quarter. Starting with the western domestic market, adverse weather conditions in January temporarily impacted log supply and demand across the region. As the quarter progressed, log supply in the system increased as weather conditions improved. Several recent mill curtailments, primarily in Oregon, also added to log availability in the region. Despite this dynamic, the market remained fairly balanced due to healthy log demand and improvements in lumber pricing. As a result, pricing for our logs was comparable to the fourth quarter. That said, our average domestic sales realizations decreased slightly, largely driven by a lower percentage of grade logs in our mix. For the quarter, our domestic sales volumes were significantly higher as we strategically shifted logs to domestic customers. Fee harvest volumes were moderately higher and per unit log and haul costs were significantly lower as we made the seasonal transition to lower elevation and lower cost harvest operations. Forestry and road costs were seasonally lower. Moving to our western export business, Log markets in Japan were stable in the first quarter. Despite ongoing consumption headwinds, demand for our logs remained steady as our customers benefited from lower volumes of competing European lumber imports. As a result, our average sales realizations for export volumes to Japan were comparable to the fourth quarter. Our sales volumes were moderately lower due to the timing of vessels. In China, log inventories at the ports grew in the first quarter as a result of reduced consumption during the Lunar New Year holiday and increased log imports from New Zealand. However, log takeaway improved as the quarter progressed. Despite steady demand for our logs, our sales volumes into China were significantly lower in the first quarter as we intentionally flexed log sales to the domestic market. Our average sales realizations were slightly higher compared to the fourth quarter. Turning to the south, adjusted EBITDA for southern Timberlands decreased by $4 million compared to the fourth quarter. Southern saw log markets moderated somewhat in the first quarter, largely in response to elevated mill inventories and ample log supply. In contrast, southern fiber markets were stable in the first quarter as supply and demand trended to a more balanced state. Given these dynamics, our average sales realizations were comparable to the fourth quarter. Per-unit log and haul costs were also comparable, and forestry and road costs were seasonally lower. Our fee harvest volumes decreased slightly in the first quarter. In the north, adjusted EBITDA increased by $1 million compared to the fourth quarter, as sales realizations increased moderately. Fee harvest volumes were moderately lower in the first quarter, largely driven by the early onset of spring breakup conditions. Turning to our real estate energy and natural resources on pages 10 and 11. Real estate and E&R contributed $60 million to first quarter earnings and $94 million to adjusted EBITDA. First quarter EBITDA was $27 million higher than the fourth quarter, primarily attributable to an increase in real estate acres sold. Average price per acre decreased compared to the fourth quarter. due to the mix of properties sold, but remained elevated compared to historical levels. We continue to benefit from solid demand for HBU properties, resulting in high-value transactions with significant premiums to timber value. Now for some comments on our natural climate solutions business. In February, we announced an exploratory agreement with Lapis Energy to pursue carbon capture and sequestration projects across five potential sites in the U.S. South. The agreement represents a unique opportunity to scale our CCS offerings. To date, we've entered into three CCS agreements covering up to seven sites across our southern timber holdings. And we remain focused on developing new projects and intend to enter into additional agreements over the next few years. Turning to forest carbon, on the heels of our first approved project in Maine, we're advancing two projects in the U.S. South that are expected to be completed later this year. Combined, these three projects are expected to generate over 100,000 credits in 2024, and we intend to sell these credits into the voluntary market. Looking forward, we have several additional projects in the development pipeline and continue to see strong demand for high-quality credits. Lastly, I'll make a few comments on the progress we're making on our renewable energy business, with a specific focus on solar. Given our unmatched portfolio in the U.S. South, We are uniquely positioned to drive meaningful value across our land base as demand for large-scale solar development increases. In total, we've signed over 60 agreements for potential solar projects, covering more than 100,000 acres across 11 states. Notably, we recently signed sizable agreements in Georgia and Mississippi and currently have several projects in late stages of development, with one expected to be operational later this year. We've been very selective in choosing the counterparties to these agreements and have built an outstanding portfolio of projects with experienced and successful developers and utilities. Looking forward, we continue to see strong demand as this market continues to develop, and we expect to sign additional agreements over the next several years. Moving to wood products on pages 12 through 14. Wood products contributed $128 million to first quarter earnings. Adjusted EBITDA was $184 million, a 16% increase from the fourth quarter. Starting with lumber, first quarter adjusted EBITDA was a $5 million loss, but improved by $29 million compared to the fourth quarter, largely driven by a slight increase in sales realizations. Adverse weather conditions in January and cautious buyer sentiment weighed on the lumber market at the outset of the first quarter. As the quarter progressed, demand signals improved slightly, particularly for western SPF and Douglas fir species. This drove modest pricing improvements through mid-March. In contrast, southern lumber markets faced persistent headwinds during the quarter, given weather-related challenges, a moderation in demand, and ample supply of finished products. For the quarter, our average sales realizations increased by 4% compared to the fourth quarter, largely in line with the framing lumber composite. Our sales volumes decreased slightly, partially driven by winter weather disruptions early in the quarter. Unit manufacturing costs increased slightly, and log costs were slightly lower. OSB adjusted EBITDA increased by $14 million compared to the fourth quarter, primarily due to an increase in product pricing. Benchmark pricing for OSB was relatively stable through February, but increased significantly in March, This improvement was largely driven by lean inventories, supply limitations, and resilient demand from new home construction activity. As a result, our average sales realizations increased by 4% compared to the fourth quarter, while the average OSB composite pricing increased by 13%. This relative difference was largely due to our extended order files, which result in a lag effect for OSB realizations. Our production and sales volumes were slightly higher in the first quarter, and unit manufacturing costs improved. Fiber costs were slightly higher. Adjusted EBITDA for engineered wood products decreased by $18 million compared to the fourth quarter, primarily due to a decrease in average sales realizations as previously determined price adjustments took effect in certain markets. Our sales volumes for solid section products were comparable to the fourth quarter, while I-joist volumes were lower. Both unit manufacturing and raw material costs increased for most products in the first quarter. A couple of things worth noting for context regarding our engineered wood products in Q1. First, we did ship somewhat higher EWP volumes to customers in the fourth quarter of last year after having been on allocation for most of 2023. And consequently, customer inventories were slightly elevated entering the new year. Also, while single-family construction activity remained resilient, we experienced the typical seasonal pattern in EWP demand in the first quarter. That all being said, we expect healthy demand from the single-family segment as we get further into the spring building season. As a result, we anticipate higher sales volumes and stable sales realizations from our EWP business in the second quarter. In distribution, adjusted EBITDA increased by $4 million compared to the fourth quarter, largely driven by an improvement in commodity realizations and margins. With that, I'll turn the call over to Davey to discuss some financial items and our second quarter outlook.

Thanks, Devin, and good morning, everyone. I'll be covering key financial items and first quarter financial performance before moving into our second quarter outlook. I'll begin with key financial items, which are summarized on page 16. Our balance sheet remains exceptionally strong with approximately $900 million of cash and total debt of just under $5.1 billion at the end of the quarter. In the first quarter, we generated $124 million of cash from operations. It's worth noting that the first quarter is usually our lowest operating cash flow quarter due to seasonal inventory and other working capital build. Capital expenditures for the quarter are or $79 million, which is a typical level for the first quarter. We returned $146 million to shareholders through the payment of our quarterly base dividend, which we increased by 5.3% to 20 cents per share during the quarter. This is in line with our commitment to grow our sustainable base dividend by 5% annually through 2025. During the quarter, we also returned $102 million to shareholders through the payment of our supplemental dividend, which was associated with our 2023 financial results. First quarter share repurchase activity totaled approximately $50 million, and as of quarter end, we had completed nearly $800 million of repurchase under our $1 billion authorization. Looking forward, we will continue to leverage our flexible cash return framework and repurchase shares opportunistically when we believe it will create shareholder value. First quarter results for our unallocated items are summarized on page 15. Adjusted EBITDA for this segment decreased by $22 million compared to the fourth quarter, partially attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the second quarter are presented on page 18. In our Timberlands business, we expect second quarter earnings and adjusted EBITDA will be slightly higher than the first quarter of 2024. Turning to our Western Timberlands operations, we expect steady to increasing log demand in the domestic market in the second quarter as mills respond to improving lumber takeaway as we get deeper into the spring building season. That said, log supply is expected to increase as weather conditions improve seasonally. On balance, this should translate to a fairly stable domestic log market. As a result, we expect our domestic sales realizations to be comparable to the first quarter. We anticipate our fee harvest volumes will be moderately higher given seasonally favorable operating conditions in the second quarter. Forestry and road costs are expected to be higher as we enter the spring and summer months, and per unit log and haul costs are also expected to be higher. Moving to the export markets. In Japan, we anticipate stable log markets and steady demand from our customers in the second quarter. As a result, we expect our average sales realizations for export volumes to Japan to be comparable to the first quarter. Our sales volumes are expected to increase, largely due to the timing of vessels. In China, we expect a modest increase in construction activity and log consumption following the Lunar New Year holiday. And given steady log demand from our strategic customers, we expect to significantly increase our sales volumes into China in the second quarter. our average sales realizations are expected to be comparable to the first quarter. Moving to the south, log inventories were elevated at the outset of the second quarter and log supplies expected to increase seasonally. As the quarter progresses, we expect saw log demand to remain relatively stable and fiber demand to soften in response to increased annual maintenance outages. On balance, Takeaway for our logs is expected to remain steady given our delivered programs across the region. As a result, we expect our sales realizations will be comparable to the first quarter. Our fee harvest volumes and forestry and road costs are expected to be higher due to drier weather conditions that are typical in the second quarter. And we anticipate comparable per unit log and haul costs. In the north, our sales realizations are expected to be moderately higher than the first quarter. and fee harvest volumes are expected to be significantly lower given spring breakup conditions. Turning to our real estate, energy, and natural resources segment, as Devin mentioned, we are still seeing solid demand for our real estate properties, and we continue to expect a consistent flow of HBU transactions with significant premiums to timber value. For the second quarter, we expect adjusted EBITDA will be comparable to and earnings will be approximately $10 million lower than the first quarter of 2024 due to the timing and mix of real estate sales. For the full year, we maintain our adjusted EBITDA guidance of approximately $320 million for the segment, which includes a year-over-year increase in contributions from Natural Climate Solutions as we continue to advance toward our 2025 target for that business. For our wood product segment, we expect second quarter earnings and adjusted EBITDA will be slightly higher than the first quarter of 2024, excluding the effect of changes in average sales realizations for lumber and OSB. This is largely driven by improved sales volumes across our wood products businesses and favorable costs for lumber. I will note that we do expect demand for wood products to remain healthy, supported by improving housing and repair and remodel activity, as we move further into the spring. As shown on page 19, our current and quarter-to-date average sales realizations for lumber are slightly higher than the first quarter average. That said, the framing lumber composite has trended lower over the last several weeks. For OSB, our current and quarter-to-date average sales realizations are significantly higher than the first quarter average. As Devin mentioned, our extended order files result in a lag effect for OSB realizations. As a result, most of the OSB price improvement that we saw in March will be captured in our second quarter realizations. For our lumber business, we expect higher production and sales volumes in the second quarter and moderately lower unit manufacturing costs. Log costs are expected to be slightly lower. For our OSB business, we anticipate sales volumes to be moderately higher than the first quarter with comparable unit manufacturing costs. Fiber costs are expected to be slightly higher in the second quarter. In our engineered wood products business, we anticipate higher sales volumes across all products. Our average sales realizations are expected to be comparable to the first quarter. Raw material costs are expected to be higher, primarily for OSB web stock. For our distribution business, we expect adjusted EBITDA to be higher compared to the first quarter due to increased sales volumes and stronger commodity realizations. With that, I'll now turn the call back to Devin and look forward to your questions.

Thanks, Davey. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets, starting with housing. On balance, our macro view on the housing market is largely unchanged. Despite elevated mortgage interest rates, the single-family segment remains solid. and continues to be supported by strong overall demand for housing, a limited inventory of existing homes on the market, and actions taken by the large home builders to offset affordability challenges. In contrast, activity in the multifamily segment has moderated, given the elevated interest rate environment and the recent and upcoming influx of multifamily units entering the market. As a reminder, single-family construction is a much more important demand driver for our business than multifamily. For the first quarter, housing starts averaged 1.4 million units on a seasonally adjusted basis, with single-family starts holding up well. However, we do think home building activity in the first quarter was impacted to some degree by various weather events across the U.S., so the spring building season has been a little slower to kick into high gear. As we move deeper into 2024, we're still expecting healthy demand for housing, particularly in the single-family segment. That's consistent with what we're hearing from our home building customers. And longer term, our view on the housing fundamentals continues to be very favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to repair and remodel, activity has been a little softer to start off the year, particularly in the do-it-yourself segment. Moving forward, we expect R&R activity to pick up somewhat as weather conditions improve and continue to believe that that demand will ultimately be supported by prospective homebuyers that elect to remodel in lieu of purchasing a new home in the current rate environment. And beyond 2024, most of the key drivers supporting solid repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock. So in closing, we delivered solid results across our businesses in the first quarter. We also continued to make progress toward our multi-year targets by increasing our quarterly base dividend and signing our third CCS agreement. Looking forward, we're encouraged by the strong underlying fundamentals that will drive long-term growth for housing and repair and remodel demand and natural climate solutions. And given our unmatched portfolio of assets, we're uniquely positioned to capitalize on these opportunities well into the future. Our balance sheet is exceptionally strong and we remain focused on driving peer-leading performance across our businesses, serving our customers, and delivering superior long-term value and returns for our shareholders. With that, I think we can open it up 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 remove your question from the queue. 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 Staphos with Bank of America.

Please proceed with your question.

Hi, everyone. Good morning. Thanks for taking my question. I hope you can hear me okay.

Good morning.

Good morning, George. Yep. So I want to look a little bit under the hood in terms of timber realizations in the west and the corridor. and the implications into 2Q. Now, it said you redirected, you mentioned you redirected volume from export, even though realizations were flat in export, to domestic markets. Nonetheless, Western realizations were down a bit. And I guess the question would be, given that price realization, why did you direct so much timber demand domestically? uh when it looked like export markets at least were able to maintain flat realizations that's question number one question number two recognizing there are some timing factors in terms of ewp there's been this steady trend lower in both solid section and ijoyce and just wondering what your views are in terms of the implications going forward and then third given all the project activity and climate solutions Are you prepared to update your $100 million target by 2025? Might that number need to be raised at some point? Thank you, and good luck in the quarter.

Yeah, thanks for the question. So, you know, I answered the third one first with respect to the $100 million. You know, we're still working towards that run rate, $100 million by the end of 2025. As we get closer to that end date, you know, we'll obviously – uh, you know, work with you on, on updating what that longer term number is, but we're not prepared to do that today. Uh, with respect to the first question on the timber markets in the Northwest, you know, the lower realizations was really more a reflection just on mix and not so much on, you know, number two, Doug for log prices, those, uh, those were just fine. So we move some, as we always do looking for the best margin opportunity, in Q1 to meet some customer demands. As we roll into Q2, as we noted, we're seeing pretty strong demand from our customers in China, notwithstand all of the market dynamics there. So we have an opportunity to flex a little bit more volume to China in Q2, and that's what we're going to do. And that's typical. We'll move back and forth depending on what the best margin opportunity is. And with respect to EWP, you know, we have seen some downward price pressure here coming out of the peak of the pandemic, but I think it's important to put that in historical context. We still have very strong EWP pricing relative to pre-pandemic. We still see strong demand. I think on the iJoy side in particular, one of the dynamics at play during the real peak of the pandemic where, you we did see some conversion to open web during that period. And so we're working on regaining that market share, obviously with lumber prices being relatively lower right now, you know, from a cost standpoint, you know, may take a little bit longer to pull some of that market share back to iJoyce, but we're working on that. The team's doing a nice job of picking up customers and making that conversion. As we think about Q2, as Davey mentioned, you know, we're expecting comparable realizations and we'll see the volume pick up in Q2 and Q3. So, Still a good market. Still think there's a lot of opportunity in EWP, notwithstanding pricing coming down a little bit from those, you know, those pandemic peak levels.

Thank you, Devin. I'll turn it over.

All right. Thanks.

Our next question is from Susan McLaurie with Goldman Sachs. Please proceed with your question.

Thank you. Good morning, everyone.

Morning. Morning to you.

My first question is on the solar projects that you mentioned, Devin. You gave some interesting commentary on those. Can you talk a bit about how that could potentially contribute to results in the more near to medium term perhaps? And then anything on the unit economics of those projects and how they compare to some of the others that are falling within the NCS area?

Yeah, sure. You know, with respect to the specific economics at this point, we're not prepared to release that. We're really working on signing up new contracts. And I think just from a competitive positioning standpoint for not to do that at this point, we will obviously at some later date. You know, it's going to be a growing component of NCS. The NPV uplift on doing a solar project is always going to be the right answer relative to timber multiple uplift on NPV. So you're going to sign those up as often as you can. The challenge is with many of the NCS businesses, it's just the timeline to get these things hooked into the grid. We're signing up a pretty healthy number of agreements. We're building up a really nice pipeline. As I mentioned, we've been really thoughtful about the counterparties that we're engaging with, really trying to get the high-end developers involved. to improve the conversion rate. It's important to remember not every solar agreement you sign is necessarily going to convert into a project that comes to fruition, but I think we'll have a pretty good success rate just given the partners that we're engaging with. So, you know, as I said, that will be a growing component of our NCS, and even in the 100 million, you know, that will be a decent component of that, but obviously it will grow over time as more of these projects come online.

Okay, so that's helpful, Collar. And then, you know, turning to wood products, lumber prices have been, you know, sort of softer lately, despite the activity that we're seeing on the single-family side, like you mentioned. What do you think that we need to see in order to get some more strength there? And understanding you don't forecast lumber prices, but just generally, how important do you think an improvement in R&R is? And I guess, how do you think about that relative to the supply dynamics in that area?

Yeah, Sue, you know, I think you hit the nail on the head there. The big issue, I think, right now, given that single family construction has been relatively strong, although I would note, you know, even though we've seen strong housing numbers of late on a seasonally adjusted basis, you do see more actual building activity as you get into spring and summer. So there is just that natural increase in the demand for lumber and wood products as the number of actual building, you know, the building activity picks up. But I think the real issue, and this is particularly true for southern yellow pine, is R&R has been okay. It hasn't been terrible, but we just haven't seen as much of that spring R&R activity as we typically would have seen. I think in the south in particular, you know, some of the treated market, we haven't necessarily seen as much buying activity there, which obviously southern yellow pine lumber is big in that treated market. So I do think as we get deeper into the spring, beyond some of these weather events, I expect that to pick up somewhat. And so we'll see some of that tensioning up as we get a little bit deeper into the year. But I think, you know, with lumber, obviously about 40% of the ultimate demand is repair and remodel. So if that's a little bit softer, that does have a bit of an impact on pricing. For the SPF and Doug fir markets, you know, I think Maybe the outdoor market isn't quite as important, but particularly for Doug fir, the California market is very important. And it was a pretty rainy Q1. It's drying out. You're starting to see a pickup in activity, and I think that will put some upper pressure on Doug fir prices as we move deeper into the spring and summer.

Okay. That's helpful, Collar. Thank you. Good luck with everything.

All right. Thank you.

Our next question is from Hamir Patel with CIBC Capital Markets. Please proceed with your question.

Hi, good morning. Devin, just given how weak the lumber prices have been of late, particularly for Southern Pine, are you surprised we haven't seen more curtailments across the industry?

Yeah, I mean, on some level, yes, because I suspect there's a good chunk of the industry that's been operating below cash break even. So, historically, that would have caused people to make certain operating decisions. I do think to some extent, there's still this residual concern coming out of the pandemic around labor. And just to the extent people think that prices are going to turn around, you know, kind of trying to hold out a little bit longer so you don't jeopardize the available labor force in your mills. So perhaps that's some of it. But ultimately, you know, you wouldn't expect people to operate indefinitely if they're below cash break even, which I think, you know, where southern yellow pine prices are. For some of the industry, I think that's certainly the case right now.

Great. Thanks, Ben. That's helpful. Are you able to comment on where inventories look to you in the channel today for lumber, OSB, and EWP? Sure.

Sure. I think for lumber, I would say inventory levels are adequate. We've had a few years where they were more or less operating on a pretty lean basis. I think to a large extent, buyers have built up some inventory. I mean, I wouldn't say it's excessive by any means, but at least it's enough for people to not have to be aggressive in terms of their lumber buying, which has been a headwind on price. OSB has been a little bit leaner. I'd say on balance, the channel is still pretty lean on the OSB side. And I'd say EWP is pretty typical for this time of year, not terribly low or high, just generally in normal range for this time of year.

Fair enough. Thanks.

That's all I had. I'll turn it over.

All right. Thank you.

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

Thank you. Maybe first just following up on the NCF recognizing competitive reasons, you don't want to give too much in the way of details, but are you primarily looking at leasing on the solar side, or would there be sales arrangements? Is there a strong bias?

Yeah, we're focused on leasing activity. We think that provides the best long-term value.

Okay, and obviously we've seen some other directional estimates on the types of uplift. Is there any reason to believe that the your situation would be meaningfully different from what we hear from others?

Yeah, I mean, we may have minor disagreements in terms of the specific numbers, but directionally, I think what others are talking about align with how we're thinking about it, at least for quality projects. I think the differentiator for us, Mark, is really a couple things. One, particularly on the Forest carbon development, we are doing more of that work internally, so we get to keep more of the economics. And then just from a scale standpoint, we have the opportunity to participate maybe at a larger level. But directionally, in terms of MPV uplifts, I think those are generally in the ballpark, at least in our view.

Okay, that's very helpful. And just lastly, on the CCS, can you just remind us kind of what the process is here? You've got to get that permitting. And then after that, well, you don't get, the permitting has to be gotten. And then does equipment have to be put in place, et cetera? So what type of timelines are realistic for the CCS projects?

Yeah, I mean, it is a multi-year process. So you have to go through the process of first, you know, we provide certain geologic information, but the counterparty is going to do their work and their analysis on that. There's the permitting process as we all know in the U.S. permitting is very challenging and so that's a process that has to be worked through either at the EPA level as the one in Mississippi or at the state level now that Louisiana has gotten primacy from EPA. That's a lengthy process that has to be undertaken. Then there's the process of actually building the injection facility on site and the pipeline development. All of that work does take a bit of time and, frankly, probably has taken a little bit more time than we had anticipated when we rolled out these targets initially back in 2021. But, again, ultimately, we think this is going to be a healthy business for us. We think the demand is definitely there, but you just have to work through the process. But the beauty is once it's up and running, it's a recurring revenue stream for decades.

Right. So is it fair to say that it's probably not a big part of the 2025, but that there's hopefully significant upside beyond that from these projects?

Yeah, that's accurate.

Okay. And then just lastly, I promise last one on it. So I believe at one point you talked about 500,000 acres being potentially suitable or identified for CCS. With the Lapis project, do you have an update on that number?

Yeah, it's probably another 100,000, 75,000 acres over and above that, just because three of the five sites that are part of that LAPIS agreement were not part of our initial estimate. And so, you know, I think that has expanded the potential opportunity zone. I will say, you know, just a cautionary note with respect to the acreage references, since we will continue to manage the above ground land base on those projects outside of a very small sliver for the pipeline and the injection site it's not necessarily the greatest proxy for how much underground space we use that just to kind of help dimension uh ultimately each of these sites will have their own uh you know poor space availability but we do think that The opportunity with LAPIS is a nice way to continue to expand our potential opportunities within the CCS space.

And so as you think about ratios of pore space to land base, what might be a reasonable average percentage to use?

Yeah, I mean, it's really hard to do that, Mark, because each one is going to be different. So I'd be hard-pressed to give you sort of a rule-of-thumb number since each one is going to be differential.

Fair enough. Thank you.

All right. Thank you.

Our next question is from Ketan Mamtara with BMO Capital Markets. Please proceed with your question.

Good morning, and thanks for taking my question. Perhaps the first one on OSB, I was a bit surprised that your, you know, current realizations are up, you know, sort of $95 versus Q1 average versus kind of, you know, random lengths, which is up almost $200. I understand the lag impact, but beyond that, what are the other nuances that we may be missing?

Yeah, I mean, it's really just the lag effect, because you're talking about a three- to five-week lag trailing behind random lengths. And so what you typically see when you have the tighter markets for us with OSB is we lag on the upside, but then we hold it longer on the downside. That's really it.

So, Devin, in that case, if we assume that prices stay near these levels for the rest of the quarter, just hypothetically, then, you know, is it fair to say that your realizations should move higher if they were to just stay here at this level for the quarter?

Yes.

Understood. Okay. And then just one quick one, you know, as a follow-up. What were your operating rates in lumber, OSP, and engineered wood in Q1?

Yeah, so lumber kind of in the high 70% operating rate, and OSB was the low 90s, EWP was the high 70s. And so, you know, again, I think we saw on the lumber side that operating rate was a little lower probably than we would have anticipated, but that should move back up in Q2. Really, operating rates for all three businesses should move up in Q2.

Understood. Now, that's very helpful. I'll turn it over. Good luck.

All right, thanks.

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

Great, thanks, and good morning, everyone. Good morning. I just wanted to circle back on EWP. You know, you talked about the extended lead times late last year. What have you done from either a labor, operating posture, or capacity perspective to kind of ensure that if this single-family strength continues you don't run into those same issues again in 24?

Sure. Well, a couple of things going on last year in 23. First of all, I think we were still struggling to get fully staffed up across our mill set. I think we are in a much better place today than we were a year ago. So that's number one. Number two, if you remember back at the beginning of 2023 with where mortgage rates were going, I think our view was that it was going to be a much more challenging housing environment. And so we made a decision to pull back a little bit on production to align with what we thought was going to happen in the housing market. Now, obviously that's not how things turned out. And, you know, the challenge with EWP is once you get behind the eight ball, it's hard to get back, you know, get back to even. And so it took us a good chunk of the year to really get our, you know, our volumes to customers back where they needed to be. We are on allocation for most of the year. So I think heading into this year, just a different view. I think we've seen that the market can operate well even in a higher mortgage rate environment. And so we were running in Q1 at normal operating levels, and we'll continue to do that. So I don't expect us to have the same challenge this year.

Got it. Thanks for that. And then since Mark had asked about CCS, I wanted to ask a similar question around the solar opportunities. Could you maybe help us understand some of the different steps between signing the agreements and the go-live or when you might expect any substantive contributions from that? And is there a typical or general rule of thumb in terms of the timeline between when you would think of signing an agreement and that ultimately materializing?

Sure. Yeah, I mean, I think historically you would think it's a several-year process. So typically you sign up an agreement for a number of acres. Usually that initial acreage is going to be larger. The counterparty will go in, do their work, do the assessment on just the economics of the size and scale, et cetera. And that process is pretty straightforward. I think that things really extended this timeline of late is there is so much solar activity going on right now. The permitting process has become quite challenging. I think whether it's at the federal, state, local level, they just don't have the resources available to work through the level of permitting activity. That's number one. Number two, even after you get to that point, tying into the grid, we have an aging infrastructure. And so just the ability to tie new renewable projects into the grid takes a little bit longer than it probably should. You have to work through the utilities. There aren't enough energy engineers to do the balancing assessment and work as things get tied into the grid. So there's just, you know, the pipeline is fairly large, but there are some pinch points along the way that extends this out. So you're typically now from signing to actually having a solar project up and running, it's a multi-year process, three, four years if things are working well. Got it. Appreciate the color. But I will just reiterate the point. That all being said, once these come on, you have a 30-year recurring revenue that just increases with you know, with every year and you've got escalators, you know, for inflation. So it's a wonderful revenue stream once they're up and running.

Our next question comes from Anthony Petanari with Citibank.

Please proceed with your question.

Good morning. Um, in, in wood products, you've been EBITDA negative in lumber for a couple quarters and, and random links, you know, seems like it's taken another step down over the last couple of weeks. I'm just wondering, you know, are there steps that you're taking in terms of, you know, OpEx or projects or staffing or shifts to improve profitability and kind of your own controllables within the lumber business, you know, to the extent you're able to discuss.

Sure. Well, I mean, the good news is we've been working on OpEx and costs for a decade. So I think, you know, we're relatively speaking well positioned on the cost curve. When you think about the last two quarters, you know, it's obviously been a tougher pricing environment. But the real challenge for us has been primarily in the Pacific Northwest and British Columbia. And, you know, the challenge there is if prices come down a lot quicker than log prices, it can create an environment that's very difficult. Now, It's important to remember, even in the Pacific Northwest, where lumber profitability has been challenged as a system, you know, we're still obviously profitable when you think about our Timberlands and wood products business together. But as we think about our system as a whole, you know, Pacific Northwest, British Columbia, you're going to be hard-pressed to find anybody that has a lower cost, unit cost, to manufacture lumber than Weyerhaeuser. And so, you know, as the prices come up, which we believe they will, and, you know, to some extent, SPF and Green Dub Fur are are already coming up a little bit. I think we're going to be positioned just fine in those markets. And in the South, you know, the vast majority of our mills are top quartile cost structure mills. So even at today's prices, where I think much of the industry is going to have a hard time driving profitability, we should, as long as we run reasonably well, we should still be black at the bottom, really under any circumstance in the U.S. South. So, you know, it's been a little bit more challenging the last couple of quarters, but I think we're well positioned moving forward our relative position in the industry is still very strong. And I think we'll see that play out over the coming quarters. And obviously, you know, at some point we, we do believe that lumber prices are going to move up materially, whether that's next week, next month, uh, or sometime after that. And I think we'll be very well positioned when that does happen.

Okay. That that's very helpful. And then, you know, if you look across your portfolio and wood products and maybe Timberlands and real estate as well, Are there end markets or exposures or customer sets that you would view as maybe more sensitive to kind of short-term changes in interest rates and with mortgage rates above 7% now? I'm just wondering with those exposures or customers, are you seeing any impact in terms of customer discussions or tone or just any color you can give there?

Sure. Maybe I'll break it down by some of the key components. From a single family residential construction, that's particularly true for the bigger builders. I mean, I think they've been remarkably nimble and resilient in managing through this environment. They're still going to build. I think they've figured out how to build through this higher rate environment. So I think they're doing just fine. I do think on the multifamily segment, you have seen more interest rate sensitivity. I think that's the one I would highlight. you know, really more so than others that has been impacted by the higher interest rate environment and the inflationary dynamic at play right now. I would just point out, you know, as you think about multifamily, one, obviously single family is a more important market for us than multifamily. But even within multifamily, you know, if you look at the spike of volume that's hit the market last year and this year, I think you'd see it's primarily that increases in those higher rise multifamily projects. And those don't typically use all that much wood. The lower rise, the mid-rise, you know, those kind of one to three, four to six kind of type multifamily, you haven't seen that same spike of volume coming to the market in that space. And so consequently, we don't necessarily think that's going to come down as much. And those units do typically use more wood. So I'm not sure that fall off in multifamily is going to impact us as much as you might think. And then on the repair model, the pro segment seems to be doing fine, even in these higher interest rate environments. I think do-it-yourself has been impacted somewhat, whether that's inflation, whether that's interest rates. As I said earlier, I think that's probably a little bit softer this year. We'll see how that progresses as the year continues.

Okay, that's very helpful. And maybe just one follow-up for me on wood products. As a reminder, black at the bottom, you would define that as free cash flow positive in all quarters, or can you just remind us kind of how you define black at the bottom?

Yeah, it's cash flow positive at trough level prices.

Got it, got it. That's very helpful. I'll turn it over. Thanks.

Our next question comes from Matthew McKellar with RBC Capital Markets. Please proceed with your question.

Hi, good morning. Thanks for taking my questions. I'd like to start by circling back on maybe George's earlier question around engineered wood products and some of the timing issues there. And please correct me if I'm wrong, but I think you've previously talked about there being a bit of a lag in pricing action for some components of the business. I think you've got it to comparable realizations quarter over quarter with higher raw material costs and how much OSB prices have increased, which I think maybe is mostly specific to dress choice. But I was wondering if you could talk about the impact of margins there and then your ability to maybe push pricing higher to reflect the higher cost of inputs and just how to think about that sort of timing dynamic.

Sure. Yeah, the timing lag is accurate. Typically, price actions can be anywhere from 30, 60, 90 days to come to effect depending on the specific dynamic with that customer. So you have seen, and that's kind of the Q1 story is some of those prior actions taking full effect in Q1. You know, with respect to the fiber costs or the input costs, you know, that's primarily an OSB WebStock comment with iJoyce. You're right about that. I do think, you know, as that price moves up, does that take some, you know, some of the lower cost competitors trying to take market share? That puts a little bit more pressure on them. Do remember that for us, you know, the OSB web stock comes from our internal mills. And so, you know, to the extent you see higher web stock pricing for EWP or cost for EWP, that means you're getting it on the other side with OSB.

Okay, great. That's helpful. Maybe next, I was wondering if you could just provide a bit of commentary on maybe what the latest you're seeing is on the market for Timberland acquisitions. Any significant changes in tone or sentiment in that market or any other comments you can offer around what you've seen to start 24? Sure. Sure.

You know, our expectation at this point is it's going to be a pretty typical year, somewhere in the two to two and a half billion range for total transactions. We haven't seen a lot of big transactions hit the market this year. There is a larger package, I think, up in northern Washington, northwest Washington right now, I think that's on the market. But, you know, I do think you're still seeing a strong interest in the asset class, particularly for moderate to high quality Timberland packages. The only thing that we've really seen, and this was true towards the end of late last year as well, maybe a little bit of less aggression on lower quality packages. We've seen a few no-sale transactions here of late. But nevertheless, I think for quality packages, you're still seeing a lot of interest and pricing has been very strong.

Great. Thanks. That's all from me. I'll turn it back.

Thanks.

Our next question is from Mike Rocklin with Truist Securities. Please proceed with your question.

Thank you, Devin, Davey, Andy, Karen, for taking my questions. Devin, I just wanted to follow up with you on the EDWP operating rate. You mentioned it was in the high 70s in 1Q. That's down from the low 80s. in 4Q. So just wondering, did you take increased downtime in EWP? And I'm just trying to reconcile that operating rate comment or the rate itself with your earlier comment that you shipped greater EWP volumes in 4Q after being on allocation for most of the year. So help me just try to reconcile what happened in the operating rate and why you bring it down in 1Q rather than the 4Q.

Yeah, you're talking about, you know, really only a percentage or two of difference. It wasn't intentional. It was really, we had some weather events in the January timeframe that caused us to lose a little production. We had one mill that had reliability challenges for a brief moment in time. But, you know, it wasn't anything intentional. It was really just, you know, some operational things. But as I said, plan to move that up as we get into Q2.

Gotcha. And where do you think it will be in 2Q? Are you looking at bringing it back to low 80s or even accelerating that beyond the low 80s, given what you pointed out is better single family demand?

Yeah, it should be in the mid to low 80s is kind of where we're targeting.

Got it. And then just one quick follow-up on UWP. One of the things I've heard in terms of why UWP has gained demand, gained share against lumber over the last few years is just in terms of ease of construction, especially with tight labor markets. But when you look at your EWP volumes, look at some of your peers' EWP volumes relative to single-family starts versus 2019, single-family starts are actually up close to 6% to 7% versus 2019. And in that time, solid section volumes are down 4%, and iJoyce volumes are down close to 20%. So if Just trying to get a sense of if EWP is really gaining share against lumber, why are the volumes down in EWP when single-family starts are up?

Yeah, I mean, without looking at the numbers next year, that's kind of hard to pinpoint the specific numbers. But what I would say is directionally, when you look at what was happening during the pandemic – really couldn't get solid section or I-joice, you know, with a certain level of building activity. Really, once it went over 1.5 million housing starts, there just wasn't enough EWP available. And so it put home builders in the position where, you know, to keep building homes, they had to find alternatives. And so whether that was, you know, using lumber instead of solid section or using open web instead of, you know, engineered wood solutions, people did what they had to do And so I do think all things being equal, most builders would prefer to have engineered wood products. And so as that becomes available and, you know, obviously there's a cost component. Lumber prices have been a little bit lower, making some of those alternatives, you know, a slightly better cost, you know, decision. But that being said, as lumber prices ultimately materialize, I do feel very good about the ability to build market share in EWP.

Thank you. Good luck in the quarter. Thank you.

Our next question is from Buckhorn with Raymond James. Please proceed with your question.

Hey, thanks. Good morning. Just a quick follow-up. I appreciate the comments on the timber M&A markets. Just wondering if you could give a little extra color on valuations across the regions that you're seeing right now in terms of just directionally. And I guess I'm also curious if you're If you think directionally, you know, carbon optionality continues to be an increasingly important driver of valuations, or is that theme kind of moderated in more recent months?

Yeah, I mean, for quality packages, you're seeing very strong pricing. You know, anything in that Washington, Oregon area, at least kind of in the key manufacturing regions within those two states, very, very strong pricing there. I think in the South, you know, we're continuing to see good, strong pricing again in markets where you have the decent supply-demand dynamic with mill availability. I do think you're, you know, you're still seeing people try to get their arms around how to underwrite carbon, but there's no question that that is playing a part in how people value Timberlands really in most key regions. And I think that will continue to be the case. I think it's important to note, as you think about underwriting that carbon optionality, we're still kind of in the early stages of pinpointing what those numbers are going to look like. If you think about the carbon sale that we did just here back in Q4 of last year at $29 a ton, I think that's strong pricing. Our view is we're going to see pricing improve in the years to come. but you almost need more data points for people to really bake that hard into their underwriting process. So I think we'll, you know, we'll continue to see that be a part of how people underwrite deals today, but probably more so into the future when, when you have more data points on how to price those carbon, uh, carbon offsets.

Yeah. I appreciate that. Yeah. It's actually a good segue to my, my next question. I was going to ask about the foreign forest carbon credits, um, in the a hundred thousand, um, credits you guys are expecting this year? And if you think, I mean, should pricing for that be similar to the $29 a ton you achieved earlier? Or is that improving? Or what's the trend in kind of that voluntary market?

Yeah, trends in the voluntary market are a little challenging because there's such a differential in terms of the quality of those projects that are coming to market. And it's still to a large extent based off of individual transactions. So you know, insight into pricing can be a bit challenging. That all being said, we continue to believe that we're going to get good, solid premiums for the product that we're bringing to market. And we do think that as, you know, the demand continues to grow for these high quality projects, pricing will go up over time. Each individual project, you know, they're going to be puts and takes depending on what's going on in the market. But directionally, we feel good about the trajectory of carbon prices, you know, over the course of this year and over the next several years.

All right.

Thanks. Good luck. Thank you.

There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments.

Okay. Well, thank you, 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.