Weyerhaeuser Company

Greetings and welcome to the Warehouse of Second Quarter 2025 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 the 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, 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 second quarter 2025 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer, and Davey Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported second quarter gap earnings of $87 million, or 12 cents per diluted share, on net sales of $1.9 billion. Adjusted EBITDA totaled $336 million, a slight increase over the first quarter of 2025. These are solid results in light of the current challenging market backdrop, and I'm pleased with the operational performance delivered by our teams. Before getting into the businesses, I'd like to comment briefly on an exciting growth opportunity within our Southern Timberlands portfolio. As we announced in May, we're acquiring 117,000 acres of high-quality timberlands in North Carolina and Virginia for $375 million. This acquisition represents a unique off-market opportunity to enhance our footprint in a strong and growing saw log and fiber market in the U.S. South. These Timberlands are strategically located proximate to existing Weyerhaeuser Timberlands and mill operations in the region and are expected to deliver immediate and sustained portfolio-leading cash flows within our southern Timberlands business. With an average annual free cash flow yield of 5.1% over the first five years, and that's a timber-only number. In addition, we see significant optionality to capture upside from alternative value opportunities over time. The acquisition is expected to close in the third quarter, and the cash outlay for the transaction is expected to be predominantly sourced from divestitures of non-core timberlands. And we anticipate completing these transactions in a tax-efficient manner. As we've demonstrated over the last several years, we are committed to active portfolio management across our timber holdings and have remained disciplined in our approach to growing the value of our timberlands, including through targeted acquisitions as well as divesting of non-strategic acreage. Upon closing of our latest North Carolina and Virginia acquisition, we will have achieved the multi-year target to grow our Timberlands portfolio through $1 billion of investments by the end of 2025. We've also grown our lumber capacity and are moving forward with a compelling engineered wood products growth opportunity in Arkansas, all while maintaining a strong balance sheet. And importantly, we've returned a significant amount of cash back to shareholders through dividends and share repurchase over this period. Looking forward, we will continue to evaluate strategic opportunities that enhance the return profile for our Timberlands and provide upside potential through our real estate and E&R business. And we'll balance these activities with other levers across our capital allocation framework to drive superior long-term value for shareholders. Turning now to our second quarter business results. I'll begin with Timberlands on pages five through eight of our earnings slides. Timberlands contributed $88 million to second quarter earnings. Adjusted EBITDA was $152 million, a $15 million decrease compared to the first quarter, largely driven by higher costs in our Western operations, which are typical in the spring and summer months. Turning to the Western domestic market, log demand was healthy at the outset of the second quarter, given seasonally lower log supply and steady takeaway of lumber. As the quarter progressed, log supply improved seasonally, but demand waned as mills responded to a softening lumber market and elevated log inventories. As a result, log prices were strongest in April and trended lower for the balance of the quarter. Given these dynamics, our average domestic sales realizations decreased slightly relative to the first quarter, and fee harvest volumes were comparable. Our per-unit log and haul costs increased as we made the seasonal transition to higher elevation sites, and forestry and road costs were seasonally higher. Moving on to our export business to Japan. Log markets in Japan were stable in the second quarter. Demand for our logs continued to benefit from lower shipments and inventories of imported European lumber in the Japanese market, which has allowed our customers to take market share. As a result, our average sales realizations for export logs to Japan increased moderately compared to the first quarter. However, our sales volumes were moderately lower due to the timing of vessels. Turning to the south, adjusted EBITDA for southern Timberlands was $69 million, a slight decrease compared to the prior quarter. Despite a reduction in log supply resulting from wet weather conditions, southern saw log demand was muted in the second quarter. as mills continued to align production with lower pricing and takeaway of lumber. In contrast, demand for our fiber logs improved as mills transitioned from spring maintenance outages. In general, takeaway for our logs remained steady given our delivered programs across the region, and our average sales realizations increased slightly compared to the first quarter. Given the wetter-than-normal conditions, our forestry and road costs and fee harvest volumes were lower than our initial expectations. That said, our harvest volumes increased slightly compared to the prior quarter. Per-unit log and haul costs increased moderately. In the north, adjusted EBITDA decreased slightly due to lower sales volumes associated with seasonal spring breakup conditions. Turning now to our real estate, energy, and natural resources business on pages 9 and 10. Real estate and E&R contributed $106 million to second quarter earnings, and $143 million to adjusted EBITDA. Second quarter EBITDA was $61 million higher than the prior quarter, largely driven by the timing and mix of real estate sales. We continue to benefit from healthy demand for real estate properties, resulting in high-value transactions with significant premiums to timber value. Turning briefly to our natural climate solutions business. During the second quarter, we received approval on our third forest carbon project, and currently have six additional projects in progress. We continue to see solid demand for our credits, given our commitment to delivering and developing projects that meet high standards for quality and integrity. For 2025, we still expect a significant increase in credit generation and sales relative to the last couple of years, and we remain on track to reach $100 million of adjusted EBITDA from our natural climate solutions business by year end. Now, moving to wood products on pages 11 through 13. Wood products contributed $46 million to second quarter earnings and $101 million to adjusted EBITDA, starting with lumber. After a steady increase in the first quarter, the framing lumber composite peaked in early April and trended lower through late June. This was driven by cautious buyer sentiment in response to elevated macroeconomic uncertainty and a softer-than-expected spring building season. Across the North American regions, pricing for western SPF lumber has steadily increased since mid-May, largely as a result of concerns around the upcoming increase in duties on Canadian shipments to the U.S. Over the same period, pricing for southern yellow pine lumber decreased significantly as supply outpaced demand. This dynamic was compounded by adverse weather conditions in certain southern geographies, which impacted building activity in the second quarter. That said, southern lumber prices have shown signs of stabilization in recent weeks. For our lumber business, second quarter adjusted EBITDA was $11 million, a $29 million decrease compared to the first quarter, primarily driven by lower product pricing and slightly higher log costs. Our average sales realizations decreased by 2% in the second quarter, which was largely in line with the framing lumber composite. Our sales volumes increased and unit manufacturing costs were comparable. Finally on lumber, I'll make a few comments on the recent announcement to sell our Princeton mill in British Columbia. While these decisions are never easy to make, we think this is the best outcome for our Princeton operations. The buyer is local, with deep roots in the region, and we expect a seamless transition that will position the facility for future success in a challenging operating environment. The purchase price is approximately $120 million Canadian and includes the mill, all associated timber license assets in British Columbia, and the value of working capital, which will be subject to customary purchase price adjustments at closing. We expect the mill portion of the transaction to close in the third quarter and the forest 10 years to follow over the ensuing months. Upon closing, we expect to recognize a gain on the sale and incur a tax liability of approximately $15 million Canadian. I do want to express my deep appreciation to our dedicated employees who contributed to the success of our Princeton operation over the years, and to the local community, who has been incredibly supportive of our operations and people. It's worth noting that our other operations in Canada will not be affected by this transaction, and we will continue to serve customers from our two lumber mills in Alberta. So now, turning to OSB. Benchmark pricing for OSB decreased significantly in the second quarter, largely driven by softening demand from new home construction activity and ample supply. Pricing did stabilize by quarter end and has remained steady through July. For our OSB business, adjusted EBITDA was $30 million, a $29 million decrease compared to the first quarter, primarily due to lower product pricing. Our average sales realizations decreased by 12%, which was favorable to the OSB composite. This is largely due to the length of our order files, which results in a lag effect for OSB realizations. Our sales volumes and fiber costs were slightly higher compared to the prior quarter, and unit manufacturing costs increased due to additional downtime for planned annual maintenance. Engineered wood products adjusted EBITDA was $57 million, a slight increase compared to the first quarter. This was driven by a seasonal increase in sales volumes across all products and lower raw material and unit manufacturing costs. Notably, our second quarter EWP results reflect an improvement in operating posture at our MDF facility in Montana, which experienced a multi-week outage in the first quarter. These favorable drivers were partially offset by lower average sales realizations across most EWP products, as new home construction activity was softer than our initial expectations coming into the second quarter. In distribution, adjusted EBITDA decreased slightly compared to the first quarter, as seasonally higher sales volumes were offset by lower pricing for commodity and EWP products. With that, I'll turn the call over to Davey to discuss some financial items and our third quarter outlook.

Thanks, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on page 15. In the second quarter, we generated $396 million of cash from operations. We ended the quarter with approximately $600 million of cash and total debt of just under $5.2 billion. Share repurchase activity totaled $100 million in the second quarter, representing our highest quarterly level since late 2022. These shares were repurchased at an average price of $25.74. In May, we completed our previous $1 billion share repurchase program, which was authorized in September of 2021, and announced a new $1 billion authority going forward. Reflecting on our cash return actions since the beginning of 2021, including dividends and share repurchase, we've returned more than $5.7 billion of cash back to shareholders. Over a similar period, we've continued investing in our businesses at a meaningful level, deployed capital towards strategic growth opportunities, and improved our balance sheet. These are notable achievements that underscore the durability of our portfolio and the flexibility of our capital allocation framework across market cycles. Looking ahead, our new authorization provides capacity for future opportunistic share repurchase activity, and represents an important ongoing lever for driving long-term value for our shareholders. Capital expenditures were $107 million in the second quarter, which includes $22 million related to the construction of our EWP facility in Monticello, Arkansas. Specific to Monticello, the project is on track, and we broke ground on the facility in June. As we previously communicated, The total investment for the facility is expected to be approximately $500 million, which will be incurred through 2027. For full year 2025, we anticipate approximately $130 million of investments for Monticello. And as a reminder, CapEx associated with this project will be excluded for purposes of calculating adjusted FAD as used in our cash return framework. Excluding CapEx for Monticello, we have lowered guidance for our typical CapEx program from $440 million to approximately $400 million in 2025. It's worth noting that we are always evaluating our capital allocation levers and have the flexibility within our framework to make adjustments in response to market conditions, alternate uses of cash, and to fund growth opportunities. Second quarter results for our unallocated items are summarized on page 14. Adjusted EBITDA for this segment increased by $22 million compared to the first quarter, primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the third quarter are presented on page 17, and updates to full-year outlook items are presented on page 18. In our Timberlands business, we expect third quarter earnings and adjusted EBITDA to be approximately $10 million lower compared to the second quarter of 2025, largely driven by lower sales realizations and higher costs in the West. As a reminder, results for our Timberlands business are generally at their lowest level in the third quarter given seasonal dynamics. Turning to the West, we expect domestic log demand and pricing to face downward pressure in the third quarter as mills continue to carry elevated log inventories and navigate a softer lumber market. As a result, we expect our domestic sales realizations to be moderately lower compared to the second quarter. However, limitations on log supply during wildfire season and the effect of increased duties on Canadian lumber imports could drive more favorable pricing as the quarter progresses. We anticipate seasonally higher forestry and road costs as we do a significant amount of this work over the summer months. And per unit log and haul costs are expected to increase given higher elevation harvest activity that's typical this time of year. Our fee harvest volumes are expected to be slightly higher compared to the second quarter. Briefly on our log export program to Japan, imports of European lumber have been lower year to date relative to 2024, allowing our customers to take market share. As a result, we anticipate steady demand for our logs in the third quarter. Our sales volumes are expected to increase moderately, largely due to the timing of vessels, and our average sales realizations are expected to increase slightly. Turning to the south, we expect saw log markets to moderate somewhat in the third quarter as log supply improves with drier weather conditions. In contrast, southern fiber markets are expected to remain relatively stable, outside of a few localized regions with softer demand due to reduced capacity or elevated log inventories. On balance, takeaway for our logs is expected to remain steady, given our delivered programs across the region, and we anticipate our saw log pricing to be comparable to the second quarter. That said, our average sales realizations are expected to decrease slightly, largely due to a higher mix of fiber logs from increased thinning activity. Given favorable weather conditions, we anticipate our fee harvest volumes will be slightly higher compared to the second quarter. Our forestry and road costs are expected to increase as wetter than normal spring conditions resulted in certain activities shifting to the third quarter. And per unit log and haul costs are expected to be comparable. In the north, our fee harvest volumes are expected to be significantly higher as we have fully transitioned from spring breakup conditions and we anticipate moderately lower sales realizations due to mix. Moving to our real estate, energy, and natural resources segment. Real estate markets have remained solid year-to-date, and we continue to anticipate a consistent flow of transactions with significant premiums to timber value. For the segment, we continue to expect full-year 2025 adjusted EBITDA of approximately $350 million, which includes our target to reach $100 million of EBITDA in our natural climate solutions business. That said, we expect third quarter adjusted EBITDA will be approximately $80 million lower and earnings will be approximately $60 million lower than the second quarter of 2025 due to the timing and mix of real estate sales. For context, it's common for our real estate results to be more heavily weighted toward the first half of the year. In our wood product segment, we expect third quarter earnings before special items and adjusted EBITDA to be comparable to the second quarter of 2025, excluding the effect of changes in average sales realizations for lumber and OSB. Given the softer than expected demand environment over the last several months, composite pricing for lumber and OSB declined steadily during the second quarter. As a result, our current and quarter-to-date average sales realizations for both products are moderately lower than the second quarter averages. Notably, we have seen signs of stabilization in composite pricing over the last several weeks. Looking ahead, we expect demand for both products to remain at current levels into the third quarter. That said, duties on Canadian lumber shipments to the U.S. are expected to increase meaningfully. This dynamic, along with lean channel inventories, could provide some support for North American lumber pricing in the coming months. and potentially serve as a catalyst for incremental substitution towards southern yellow pine. In addition, on the demand side, we could see an increase in repair and remodel activity in the south as temperatures moderate into the fall and more broadly should the Fed cut interest rates. For our lumber and OSB businesses, we expect sales volumes and unit manufacturing costs to be comparable to the second quarter. Log and fiber costs are expected to be slightly lower. For our engineered wood products business, we continue to anticipate close alignment between product demand and single-family home building activity, which has been softer than expected year-to-date. As a result, we expect lower sales volumes for most products in the third quarter and slightly lower average sales realizations, as previously determined price adjustments take effect in certain markets. Raw material costs are expected to decrease, primarily for OSB webstock. For our distribution business, we expect adjusted EBITDA to be comparable to the second quarter. 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. After a reasonably solid first quarter, housing starts have softened over the last few months. Total starts averaging 1.3 million units on a seasonally adjusted basis in the second quarter. and single family starts below 1 million units. While the broader economy appears to be holding up reasonably well, the combination of weaker consumer confidence and elevated mortgage rates has been a headwind for housing activity. As a result, the spring building season was softer than we were expecting at the outset of the year, and I suspect we'll continue to see some choppiness in the housing market in the near term. Based on conversations with our HomeBuilder customers, The biggest issue right now is consumer confidence and general uncertainty around trade policy, inflation, and unemployment. That said, there are potential catalysts for improvement in the second half of the year. For example, we now have clarity on the tax bill and we could see additional trade deals emerge in the coming days and weeks, providing more certainty around trade and tariff policy. We might also get some support from the Fed on interest rates later this year. So we'll have to see how these things play out, but clarity in these areas could alleviate some of the uncertainty that's been weighing on consumers. But putting current market conditions aside, the longer-term fundamentals remain intact for a strong housing market, supported by favorable demographic tailwinds and a vastly underbuilt housing stock. In addition, the inventory of existing homes for sale will likely remain below historical levels given elevated rates. And on a positive note, There seems to be a growing appreciation that government policies need to better accommodate building activity to address housing shortages across the country. All of this will ultimately support healthy demand for housing in the years to come. Turning to the repair and remodel market, activity has been softer year-to-date relative to 2024, largely driven by many of the same factors impacting the residential construction market. In addition, R&R activity continues to be impacted by lower turnover of existing homes given higher mortgage rates and the lock-in effect. In the near term, we'll likely continue to see more muted R&R environment until consumer competence improves and interest rates move lower. I would note, however, that we typically see a seasonal uptick in repair and remodel activity in the south as temperatures moderate into the fall. And looking further out, we continue to expect favorable demand fundamentals for R&R activity, including significantly increased levels of home equity and an aging housing stock. In addition, we've largely worked through the pull forward of projects that occurred during the pandemic and, in fact, are now seeing deferrals of R&R projects. So, this should be a tailwind for repair and remodel activity as the macro environment improves. In closing, We delivered solid operating performance in the second quarter, notwithstanding the challenging market backdrop. We continue to demonstrate our commitment to returning meaningful amounts of cash back to shareholders, while also capitalizing on strategic portfolio opportunities. Notably, we significantly increased our share repurchase activity in the second quarter, and we continue to enhance the value of our Timberlands portfolio with high quality and strategically located acreage. Looking forward, we're well positioned to navigate a range of market conditions in the near term, and we remain confident in the longer-term demand fundamentals that support our businesses. Our balance sheet is strong, and we continue to focus on driving operational excellence, serving our customers, enhancing our unmatched portfolio, and creating long-term value for shareholders through our disciplined and flexible capital allocation framework. 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 Susan McClary with Goldman Sachs.

Please proceed with your question.

Thank you. Good morning, everyone. Good morning. Good morning. My first question is on the wood product segment. When you think about the outlook and what the builders are telling us in terms of guiding to the lower end of their closings range for this year, talking about perhaps going into 2026 with less inventory on the ground as well, How are you thinking about balancing your capacity across the wood products space? And how are you also thinking about any incremental opportunities in terms of OPEX 2.0 to perhaps improve or sustain the profitability in that part of the business?

Yeah, great question, Sue. Maybe I'll start with the OPEX piece and then get to the broader question. You know, for us, operational excellence is just deeply important. built into the DNA of the organization at this point. And so that's something that we're focused on really across market cycles. It becomes particularly important when you're in a softer demand environment to make sure that you stay in the right spot on the cost curve. And so we're very focused on that. I think you can see that, you know, over the last handful of years with our relative operating performance, really being industry leading across our manufacturing businesses, super important. We're going to stay focused on that, and I do think that that gives us a lot more flexibility to operate through the down cycle. You know, as we think about the rest of the year and into 2026, certainly, you know, at present, you can see this in the builder sentiment numbers. You know, there's not as much optimism as we had hoped coming into the year. Certainly, the housing market has been softer than we had expected, and so you can see builders that are adjusting to that. So to the extent that that holds on for a while longer, I think we're well positioned to serve that market. We'll always keep an eye on what our production is versus the demand. But again, given where we are on the cost curve, I think that gives us the opportunity to really run more during a down market than perhaps others may. So we're going to continue to keep focused on that. I think obviously in these down markets, a lot of the things that we've been doing over the last handful of years with the balance sheet, with cost control, with the optics, the things that we've been doing to just make sure that we're in a good position in a down market. It gives us the opportunity to do things opportunistically, whether it's Sherry purchase or acquisitions, et cetera. And so, you know, we'll, we'll see how long this lasts, but we're well positioned to navigate it. And importantly to take advantage of those opportunities in a down market. When we see those, that's how you, that's how you drive value in cyclical businesses.

Yeah. Okay. That's great color, Devin. Thank you. And then maybe, you know, turning to Timberlands, it's exciting to see the deal that you announced in North Carolina and Virginia. Can you talk a bit about just the overall environment for Timberland acquisitions and anything that you're also seeing perhaps on the divestiture side, just how that is coming together?

Sure, Sue. So I describe the Timberlands market right now as solid. We generally think about the typical range of activity being in that 2 to 3 billion range annually. It's probably going to trend toward the lower end of that range this year, but there have been a handful of larger, high-quality packages that have come to market of late, and there's plenty of capital out there pursuing these transactions. There's been a significant amount of capital raised over the past couple of years with a mandate to invest in this asset class. Those dollars have largely not been placed, so our expectation is that we're going to continue to see solid demand in for Timberland packages in light of that. With respect to the progress on our divestitures, as you know, we announced with the recent Timberland transaction acquisition that we would be funding that through the divestiture of non-core Timberlands. So we generally don't comment on transactions that are not yet at a definitive agreement. But what I can say, as I just mentioned, there's strong interest out there in the market for this asset class And so we expect to be able to deliver strong value on those divestitures, and we'll update you as appropriate moving forward.

Okay. Thank you both, and good luck with the quarter.

Thank you.

Our next question comes from George Staffos with Bank of America. Please proceed with your question.

Hey, good morning, Devin and Davey. This is Brad Barton for George.

Morning.

Morning. Quickly, when we look at EWP prices, there seems to have been a trend downward for some time now. You're guiding Q3 lower again. Just wondering what your thoughts on what you think the catalyst is that ultimately slows and then reverses that trend so we can see prices inflect higher. When do you think that happens?

Yeah, I mean, so as you know, EWP is largely driven by what's going on in residential construction and in particular single family. And, you know, I think the big catalyst here for why you've seen some pressure on pricing has just really been, we've seen a slowdown in single family construction here, you know, really over the last 18 to 24 months. And so that has put some pressure on pricing. I think you combine that with just the overall concern with the home builders on margin and There's pressure to keep those prices in check, and so you've seen that. The big catalyst to move that back in the other direction really are twofold. Obviously, to the extent that single-family housing activity picks up, that will be a catalyst. Around the margins, R&R activity as well. I think the other piece that can help with that, and we're actively working on this, during the pandemic, there was some conversion from EWP over to open web. And that has been a little bit more challenging to convert back to EWP. The lower lumber prices have not helped that, but that's something that we're actively pursuing that could have some benefit to the upside. In the interim, and look, housing activity is going to return to a better place. We know that. The timeline is always a question. But directionally, we know the fundamental drivers for strong housing still remain in place. And so that market is going to return to a better place. But in the interim, we're going to be out there supporting our customers. We have, I believe, the best product line in the industry. We have a great service model. We have a good cost structure. So we're positioned to navigate this, and we'll be out working on taking market share, converting markets, and all of those things that you would expect. And at some point, we'll see pricing start to pick up on the other side.

Great. Thank you. And just a quick follow-up, on the real estate side, prices per acre, they seem to have been appreciating over the last five quarters or so. So is that just simply due to mix in timing, or is there something larger at play, maybe like the optionality on climate solutions-related businesses? I guess maybe related to that question, if we look out over the next year or so, where do you estimate the appropriate price per acre would be?

Sure, Brad, you know, that is, uh, you know, as we've said, we do have a high degree of conviction. The value of, of Timberlands is going to increase over time, uh, based on the appreciation of all those things that you just laid out, you know, what it is though, is it, it is a lot of timing and mix there. Um, we're going to see that move around based on the particular composition of the packages at any one quarter. There were a few more Western acres this quarter compared to some of the other quarters. of late, so that's going to drive up the price per acre there. So I wouldn't read too much into that other than, again, over time we do expect increasing interest in the asset class.

Okay, great. Appreciate the time, guys. Our next question comes from Anthony Pettinari with Citi.

Please proceed with your question.

Good morning. Morning. Good morning. Devin, do you see the one big beautiful bill impacting your natural climate solutions business? And I guess I'm thinking specifically about sort of solar and wind projects. Do you have any projects at risk or does the bill impact your expectations for future growth for natural climate solutions?

Yeah. Yeah. I mean, look, overall, I think the big, beautiful bill was a net positive for Weyerhaeuser. And I'll let maybe Davey speak to a couple of the specific tax items here in a moment. But when you look at the impact to our natural climate solutions business, there are going to be puts and takes. And as we've said before, the tone, the rhetoric around climate is obviously different in this administration than it was under the prior administration. But ultimately, this business, the foundation of it is built on an expectation that over time, companies, governments, et cetera, are going to have to do things to mitigate the effects of climate change. And so our underlying conviction around that hasn't changed at all. In the near term, you know, we have a couple of things that went on with the bill. So first, 45Q, which is the tax incentive that supports carbon capture and sequestration, there was some discussion around that. That did make it through ultimately and was preserved. The biggest impact probably, at least in the near term, is around the incentives on renewables. And so, as I'm sure you've seen, a lot of discussion around that. They did provide a cutoff here that was pulled forward perhaps a little bit earlier than we had expected. And so, it's really to get the incentives, you have to have projects started by July of 2026. And there's some discussion with an executive order about exactly how that's going to play out. But as I think about that in the context of our business, we have one operating solar site today. We have two more that are under construction and a handful that I would expect to get, you know, uh, you know, under the wire by the time that deadline hits. And so, you know, in the near term, we've got a whole host of projects. I think to some degree, this might even expedite some of the projects that were maybe midterm that'll go a little faster to try to meet that deadline. But look, ultimately, there's an issue countrywide from a power and energy perspective. The level of supply is not going to keep up with demand, with data centers and AI, etc. And so there's really only one solution to that in the near term, and that's going to be renewables. So these things are going to get built out. We've aligned ourselves with sophisticated counterparties that largely saw this coming and have mitigation strategies in place to take care of this. But ultimately, these are going to get built. It may mean that the customer has to pay a higher electric bill. But ultimately, I don't see this meaningfully over the mid to long term slowing down solar much.

Anthony, I just add a couple of other positives for Weyerhaeuser on the tax legislation. The bill did increase the portion of a REIT that can be held in a taxable REIT subsidiary. from 20% to 25%, so that does give us additional capacity over time to grow our wood products businesses without jeopardizing REIT status. There are also some other adjustments to reinstating 100% bonus depreciation, other qualified production deductions that we expect to be beneficial to our manufacturing business as a whole over time, and they'll also apply to our Monticello facility.

Okay, that's very helpful. And then just switching gears, you know, lumber does seem to have stabilized a little bit in recent weeks. And I'm wondering if you had any, you know, additional thoughts on what might be driving that or what you're seeing in terms of, you know, are dealers buying ahead of import duties or 232? Or are you seeing curtailments in Canada or elsewhere? Or Is demand picking up? I'm just curious if you had any additional color on kind of current market conditions, especially lumber.

Yeah, I mean, on the lumber side, there's a lot going on right now. I would say when you talk about the lumber market right now, you really have to talk about it in SPF terms and then Southern Yellow Pine terms, because we've seen a diverging dynamic there. And a lot of this is driven, I think, by just anticipation of the higher lumber duties and perhaps to some degree the outcome of a 232 investigation. When you look at Southern Yellow Pine, I think the reason that it stabilizes is because it got down to a position where a lot of the industry is bouncing around the cash flow break-even and perhaps some even below that. And so I think what you're seeing is people are dialing back a little bit on production at these price levels. The flip side of that is on SPF, people know that the duties are going up from 14% to 34% just on the softwood lumber duty case. And so I think there's some expectation around where people are selling and the price. There's probably a little bit of inventory building, although I would say across the system as a whole, it doesn't feel like the dealer networks have significant lumber inventories at present. And so you see kind of those diverging dynamics at play. We're going to have the new duties coming out very soon. Those should be announced in the coming days in terms of when they're going to go in effect. I think that will cause some volatility probably in pricing here in the near term until that stabilizes. But ultimately, I would expect from a pricing standpoint, you would expect that pricing should go up over the course of the fall given all these different dynamics, even in a stable demand environment.

Okay. That's very helpful.

I'll turn it over. Thanks.

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

Thank you. So maybe a couple follow-ups. One would be on lumber. And, you know, with the duties coming, et cetera. And at the same time, kind of looking at the second quarter, you guys, I think we're like 11 million in EBITDA. And if you look at where prices are today, you presumably would be fairly negative in EBITDA in lumber. And, you know, you've certainly indicated in the past and margins and things like that would suggest that you have, you know, a better system, lower cost system than most. I mean, are you surprised there hasn't been more response on the capacity side to date, or do you think that's just going to come soon and just waiting for the duties? Any thoughts there would be helpful.

Yeah, I mean, so, look, it's always hard to know what other companies, you know, are thinking about behind the scenes, so I won't necessarily speculate on that. What I would say is, you know, high-level companies, it's hard to know exactly what's going to happen with pricing until we see these duties come into effect. And so, you know, to some degree, there's probably a logic to waiting until the duties come, seeing what that does to pricing. If the general expectation is that you're going to see, at least from a U.S. lumber perspective, see pricing go up here in the next several months, you'd probably wait to see how that shakes out before you start making meaningful operating decisions, at least in terms of long-term curtailments, et cetera. You might dial back production around the margin, certainly probably not run extra overtime, those kinds of things. But I would, I would guess that, you know, probably folks are thinking about let's, let's see what happens with pricing after these duties come into play. We'll see what happens at the two 32 investigation and, see where prices settle out before we make any sort of big operating decisions. That would be my guess.

Understood. And just, just, but is there any reason why that the window we get on sort of costs looking at what you're doing, like the 11 million, again, if you put in where prices are would seem to be fairly negative EBITDA, why that wouldn't be a good visual on, on just, you know, how distressed you would think most other manufacturers would be at this juncture?

Yeah, I mean, our view, and I think we've seen this over time, is from a cost structure standpoint, we're in a pretty good place on the cost curve. So I still believe that to be the case. And so you can take that assumption and do what you will and apply that to other manufacturers. But that's certainly, we view ourselves to be low-cost producers. And from an overall cost standpoint, efficiency standpoint, we feel like we're in pretty good shape relative to most of the industry.

Great. And then lastly, so just on the Section 232, first, any intelligence on how you think that might play out? And then one point of clarification. So I believe that tariffs, for instance, on European lumber are not being applied while Section 232 is in process. Is that accurate? So that when the Section 232 investigation is concluded... do then do at least European would start having a tariff on it?

Yeah, I mean, with respect to the European, you're absolutely right. No tariffs on European lumber coming in while the 232 investigation is ongoing. And so all things being equal, I think you're right. Now, obviously, there's a lot of discussion going on between the U.S. government and the European government, the EU on what a trade deal might look like. And so I think there's always an open question how something in terms of a trade deal, would affect that. But I think the default answer is just as you said. In terms of 232, we don't have anything to offer up today in terms of timing, scope, magnitude. I guess the only thing I would say with respect to that is this does seem to a large degree to be prefaced on the administration's desire to see more manufacturing in the U.S., and so You know, to the degree that you can read into that, what happens with 232, I would, you know, I would guess there's some chance that you see some additional tariffs. But, again, we don't have anything specific to provide at this point.

Thanks, Ben. Appreciate it. Yep. Thank you.

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

Great. Thanks, and good morning, everyone. Just wanted to circle back around on the divestitures, understanding we're not getting to get into specifics of transactions that haven't been announced. But from an expectation standpoint, I guess, how much of the Roanoke acquisition would you expect to be kind of funded with divestitures? And is there a reasonable kind of timeline for us to think about divestitures? at least when you hope to maybe have those deals completed by?

Yeah, Kurt. So not sure I can give you a whole bunch more specifics, as you know, but we've said we're going to fund that transaction through the divestiture of non-core Timberlands. So I would expect that to be the vast majority, if not all of it. With respect to timing, again, that's something we're focused on. We'll report back as appropriate as I can offer up that as you look at the requirements under the IRS code, Section 1031, those exchanges have to be completed within a 180-day timeline. So we're certainly cognizant of that and looking forward to moving forward on these transactions.

Okay, got it. That's helpful. And then just kind of looking at the balance sheet, if we don't factor in the divestitures, it seems like leverage could maybe pick up into the mid-fours by year-end. I guess in that context, how should we think about your appetite for share repurchases, at least here in the near term? And how are you thinking about overall flexibility, just given what we know is coming in terms of Monticello spending next year as well?

Yeah, look, Kurt, I mean, we feel really good about the strength of our balance sheet. We've been working hard for the last several years, a number of years, to get our operating posture and profile in the right position and to get our balance sheet in the right place. So as we navigate whatever market conditions may arise, we feel really good about how we're positioned, a lot of flexibility, feel really good as we think about our balance sheet and opportunities there. I think more broadly speaking on share repurchase, we're pleased to have been very active in that space over the course of the second quarter, completing $100 million in the quarter, our highest level that we've done in several years. So I think that's an indication that we view it as a very attractive lever. For us, I think we'll continue to weigh the opportunities available in that space moving forward and not just in share repurchase, but other opportunities that may arise. And so part of that evaluation process and what we're weighing as we're focusing on that is ensuring we maintain a strong balance sheet, have the right capacity for future growth opportunities, So as always, we're going to look at all of that and focus on allocating cash in the way that creates the most long-term value for shareholders.

Okay. Got it. Thank you.

Our next question comes from Keetan Memtora with BMO Capital Markets. Please proceed with your question.

Thank you. Good morning. Thanks for taking my question. Perhaps to start with, Devin, are you hearing anything from your customers around the you know, kind of substitution of SPF for SYP when these duties, you know, go into place. Is there a price differential, you know, where this sort of really starts to pick up?

Yeah, I mean, as you can imagine, we're certainly focused on this right now, given the footprints that we have across the South. You know, I do think at current pricing, which, you know, we've seen we've seen a pretty decent gap develop between SPF and Southern Yellow Pine. At this kind of pricing level, frankly, I think even at a smaller gap, there is an opportunity for Southern Yellow Pine to pick up market share from SPF. Particularly, you know, you think about an environment where builders are really focused on margin and affordability for buyers. We also know that Southern Yellow Pine lumber availability is growing where SPF is shrinking. So, And I do think this is an opportune moment for builders to be taking a closer look at this nice cost saving opportunity. You know, as you know, there's, you know, there's some historical views in certain markets around, you know, using Southern Yellow Pine versus SPF. I do think to some degree, you know, some of that is a little outdated around warp, et cetera, with the way that we dry lumber these days, that's much less of an issue than it used to be. And, you know, Weyerhaeuser actually has a lot of warp-stable products that I think can fit squarely. So that's an area that we're really focused on. This is an opportunity, I think, for Southern Yellow Pine producers to go out and take market share, just given this price dynamic, which I think will be in place to some degree for a while here. Yeah, that's absolutely right.

And then just as a follow-up, your operating rate in Q2 for lumber OSB and EWP, please.

Yeah, in Q2, we were kind of in the high 80s on lumber, mid 90s on OSB, and high 70s in EWP.

Got it.

That's very helpful. I'll turn it over. Thank you.

Thanks.

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

Good morning. Thanks for taking my question. One big, beautiful bill and the increase in the size of the taxable REIT subsidiary that could be held in a REIT. Just recognizing you've expressed a bullish view on timberland valuations here. Is it appropriate or attractive to allocate additional capital to wood products? What makes sense for your business? Thanks.

Yeah, you bet, Matt. I mean, absolutely, we would have interest in wood products M&A. As you referenced, we've been focused on the timberland side with that billion-dollar target. We've also been investing in our wood products business, though, through our CapEx program. Really, that's been a focus on working to reduce cost and grow volume organically over time. We announced the new timber strand facility last fall in Monticello, Arkansas, making great progress on that, as we mentioned. We really like the opportunity to grow our EWP business. That creates value across our whole portfolio. And yeah, we certainly remain open to acquisitions on the wood product space if we found the right asset at the right price that aligns well with our portfolio, creates clear value for shareholders. We've looked at a handful of deals over the past few years, and we'll continue to look at opportunities as they come available. But of course, it's always got to meet our strategic and financial criteria.

Great. That's helpful. Thank you. And then last one for me, just around forest carbon credits. I think you mentioned six additional projects under development. Could you just clarify, are those all tracking to 2026 in terms of registration and sales? And just maybe more broadly, what does the pipeline for 2026 look like compared to how we're thinking about 2025 here? Thank you.

Yeah. So in addition to the three that we have approved, we have six more that are currently under development. Some of those we do expect to be issued in 2025. with the remainder kind of early 2026. And then we're building out additional projects to put into the pipeline after that. So, you know, we're just going to continue to grow this pipeline over time. We have a long list of potential properties that I think would be good carbon opportunities. And so we would expect this pipeline to just continue to grow year after year.

Thanks very much. I'll turn it back.

Thank you.

Our next question comes from Honghang with JP Morgan. Please proceed with your question. Yeah.

Hey, good morning, everybody. Good morning. I guess on Japan, you've talked about gaining some market share in the country this quarter. Do you think that's sustainable or is there an expectation for that to kind of reverse later this year?

No, I mean, my expectation is that's going to continue to be the case for really a few reasons. You know, when you look at what's going on in Europe generally, you can see this in a lot of the producing regions. Log costs have gone up pretty dramatically, and so that's changing the cost structure for a lot of the products that have historically been sent into Japan. We've always had, when I talk about we, I mean us and our primary customers in Japan, we've had a cost advantage in that market. Relative to the Europeans, I think that will just continue to grow. That's also going to be supported with our big Japanese customer that's rebuilding a mill that was burned down a few years ago. That's progressing well. The first line is up and running. When that is fully operational in 27, they're going to have a world-class, low-cost mill that is just going to further support their cost competitiveness. And so, you know, the overall population is probably not going up in Japan. And so overall, you know, you would expect housing to decline over time. But that being said, we do think that just by virtue of gaining market share, taking a bigger piece of the pie together with our customers, that business should be strong and healthy for the foreseeable future.

Got it. And I guess on China, is it safe to just say the expectation is that imports won't resume until the entire trade war resolves itself?

I mean, I think that's probably a reasonable assumption. I think, you know, obviously there's a lot going on there in terms of trade with China. There are discussions ongoing. We've made our position very clear to the administration, Commerce, USTR, etc., that we would like to open that market back up. They understand that, but certainly there are bigger issues at play. So I think that's probably a reasonable expectation. We're, of course, going to continue to push from our end to try to open that market back up. But I would say silver lining there is in the interim, you know, that has allowed us, particularly out of the U.S. South, to pivot our focus to India. And I think that's going to be a nice growth opportunity as we expand our export business out of the South. So, We'll see it come back eventually. I'm sure the timing is still TBD.

Thanks. Have a great weekend.

Thank you. Thank you.

Our next question comes from Amir Patel with CIBC Capital Markets. Please proceed with your question.

Hi. Good morning. Devin, there's been some reports in Canada that the federal and provincial governments are more open to exploring a quota as a potential solution to the softened lumber dispute. Do you see any kind of movement on the U.S. side there? Any prospects that that may be a path forward?

Yeah, I mean, so look at a high level, there are a lot of discussions going on between the U.S. and Canadian government right now. I'm sure that at least from the Canadian side, there's been some discussion from the governmental negotiators around lumber and wood. I'm not sure I have any particular insight on to what extent those conversations are progressing. I would just say, you know, over time, obviously this will get resolved. Is that going to happen in the very near term? I think that's very hard to say whether that includes a quota or some other mechanism, you know, obviously the devil is in the details and there's a lot that goes into, you know, what would be acceptable from the U S side. There are lots of parties, as you know, that are involved in these discussions. And so, you know, I think it's hard to say how quickly this will all get resolved. Lots of conversation, uh, Ultimately, I'm sure there will be a resolution at some point in the future, but I'm not sure I think that's necessarily going to happen in the very near term.

Yeah, fair enough. Thanks. That's all I had. I'll turn it over.

Our next question comes from Mike Roxland with Truva Securities. Please proceed with your question.

Yeah, thank you, Devin, Davey, Andy, for taking my questions. Just the first one I had in terms of the EWP, Devin, what's your expectation for the Q operating rate given your outlook line for lower sales volume?

Yeah, I mean, so we are going to see lower operating rates in Q3 relative to Q2, and that's really just a reflection on the market dynamic. You know, we can dial that up if we see the demand environment improve over the quarter, but Just given where things are today, we've dialed that back just a little bit around the margins. We do have, I think, a high-quality product, and so we've got good customer demand from our long-term customers, and we're always looking to take market share and those kinds of things. But at today's present building level, I think it's prudent for us to dial that back just a little bit until we start to see some pickup in construction activity.

Got it. Makes sense. And just one quick question on your 3Q wood product outlook overall. Based on your guidance calling for 3Q wood products to be comparable to 2Q, and given where lumber and OSB prices stand today versus the 2Q average, is it fair to say that EBITDA and wood products could be down $50, $60 million sequentially?

Yeah, I mean, so, you know, we obviously provide the, you know, the spread on for every $10, it's $50 million annually in lumber and $32 million on OSB. So, you know, you can do the math as we progress across the quarter. You know, we find it very difficult to predict what's going to happen with commodity prices, which is how, you know, why we do our outlook that way, providing guidance on the things that we have a little bit more control and visibility into. So we'll see what happens with pricing over the course of the quarter. As I said, at least from a lumber standpoint, there's going to be a lot of volatility here in the near term as these duties come into place. Over time, you wouldn't expect the industry to continue to operate below cash flow break-even. And if you look back over history, you can see lots of examples of what happens in that instance. And so our expectation is obviously, ultimately, you should see some upward movement on lumber pricing. OSB, you know, similar story. Sometimes that takes a little bit longer to play out, but ultimately, you know, the industry you would assume is going to operate at a level that's profitable. And so we'll see how long that takes, but just in terms of, you know, specific lumber and OSB, you know, you can sort of do that math based on the sensitivities that we provide on overall EBITDA.

Thank you very much. All right. Thank you. I think that was our final question.

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

All right. Well, thanks, 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.