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Weyerhaeuser (WY) Down 4.8% Since Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Weyerhaeuser Company WY. Shares have lost about 4.8% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Weyerhaeuser Beats Q1 Earnings on Increased Sales

Weyerhaeuser Company reported better-than-expected results in first-quarter 2017, with earnings and sales beating their respective Zacks Consensus Estimate by 22.2% and 6.5%.

Earnings from continuing operations before special items came in at $0.22 per share, above the Zacks Consensus Estimate $0.18. Also, the bottom line was 10% above the year-ago tally of $0.20.

The company's net sales totaled $1.693 billion in the quarter, surpassing the Zacks Consensus Estimate of $1.59 billion. Also, the top line grew 20.5% year over year.

Segmental Details: Weyerhaeuser operates through three business segments, results of which are detailed below:

Timberlands: The segment's revenues (excluding intersegment sales) totaled $486 million, up 25.6% year over year. It accounted for 28.7% of net sales.

Real Estate, Energy and Natural Resources: The segment's revenues, accounting for 3.1% of net sales, were $53 million, up 35.9% from the year-ago tally.

Wood Products: The segment generated revenues (excluding intersegment sales) of $1,154 million, accounting for 68.2% of net sales. Compared with the year-ago quarter, the figure was up 17.9%.

Margins: In the quarter, Weyerhaeuser's cost of sales grew 15.3% year over year, representing 75.1% of net sales compared with 78.5% in the year-ago quarter. Gross margin grew 340 basis points to 24.9%.

Selling, general and administrative expenses comprised 6.4% of net sales down from 7.3% in the year-ago quarter. Research and development expenses were $4 million, below $5 million in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization ("EBITDA") came in at $454 million, above $336 million in the year-ago quarter. EBITDA margin in the quarter was 26.8%.

Balance Sheet & Cash Flow: Exiting the first quarter, Weyerhaeuser had cash and cash equivalents of $455 million, down from $676 million in the preceding quarter. Long-term debt dipped 1% sequentially to $6,263 million.

In the quarter, the company generated net cash of $35 million from its operating activities, down 25.5% year over year. Capital spending decreased 8.8% to $52 million.

During the quarter, the company paid dividends worth $233 million.

Outlook: For the second quarter 2017, Weyerhaeuser anticipates Timberland segment's earnings and adjusted EBITDA to be flat with the year-ago quarter. While results in the West will be influenced by sequentially higher realizations, lower harvest volume and higher logging road and silviculture costs, sequentially higher silviculture expenses and higher harvest volumes will impact results in the South.

For Real Estate, Energy and Natural Resources segment, the company anticipates sequentially comparable earnings and adjusted EBITDA in the second quarter while predicts adjusted EBITDA to exceed $250 million in 2017.

For the Wood Products segment, the company predicts sequentially higher earnings and adjusted EBITDA on the back of higher average sales realizations and increased sales volume.

During the first quarter, the company completed its merger with Plum Creek Timber Company, Inc. In the quarters ahead, it anticipates realizing merger synergies.

For the full year, the company anticipates capital expenditure to be approximately $435 million, including $300 million for the Wood Products segment and $135 million for Timberlands segment. Tax rate will be in a 15-17% range.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter, while looking back an additional 30 days, we can see even more upward momentum. There have been three moves up in the last two months.

Weyerhaeuser Company Price and Consensus

 

Weyerhaeuser Company Price and Consensus | Weyerhaeuser Company Quote

VGM Scores

At this time, Weyerhaeuser's stock has a poor Growth Score of 'F', however its Momentum is doing a bit better with a 'D'. Charting a somewhat similar path, the stock was allocated a grade of 'F' on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'F'. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate investors will probably be better served looking elsewhere.

Outlook

Estimates have been trending upward for the stock. The magnitude of these revisions also looks promising. It comes with little surprise that the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.


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