Strong Earnings Growth Despite Market Challenges
This week one of the world’s largest owners of timberlands and producers of lumber and related building products shed some light on what type of lumber prices building contractors can expect over the second half of the year.
Seattle-based Weyerhaeuser just held their second quarter 2024 earnings call which gave good insight regarding log prices, activity at their mills, and contractor demand in both the single-family and multi-family homebuilding segments nationwide.
Overall the company had a strong quarter with net sales of $1.9 billion compared to $1.79 billion in the first quarter and adjusted EBITDA of $410 million compared to $352 million in the first quarter.
One of Weyerhaeuser’s biggest announcement on the front end of the call was the company’s planned acquisition of 84,000 acres of high-quality timberlands in Alabama for $244 million. The company described this major Southeast acquisition as an opportunity to “expand our footprint in one of the strongest inland sawlog and fiber markets in the US.“
President and CEO Devin Stockfish noted that adjusted EBITDA improved across all of Weyerhaeuser’s business segments in Q2 compared to Q1 which he described as “a notable achievement in light of numerous market-related challenges, particularly in the lumber market.”
Lumber Segment Impacted by "Soft Pricing"
Weyerhaeuser took a deeper dive into lumber prices, as well as oriented strand board (OSB) when the call addressed the company’s Wood Products business segment.
The company said “soft pricing” was the primary headwind for the Lumber segment where average benchmark pricing fell by 5% compared to the first quarter of the year.
“Despite solid single family housing starts thus far in 2024, other end markets for lumber, particularly the repair and remodel and multifamily housing segments, have been more muted recently. As a result, lumber supply continued to outpace demand and buyer sentiment remained cautious in the second quarter.” – Weyerhaeuser 2Q24 Earnings Call
CEO Devin Stockfish said the softness was the most pronounced in the Southern Yellow Pine market given the weakness in treater and multifamily housing demand.
On the surface, Oriented Strand Board sales were more encouraging than Lumber, but that positive momentum faded as the second quarter progressed.
Overall OSB sales saw 13% higher average sales vs. Q1 as well as higher benchmark pricing for OSB at the beginning of the second quarter (April) which “moved significantly lower as the quarter progressed” due to weakness in the spring building season and elevated inventory levels.
Soft Lumber Prices In The Southeast Expected To Continue
The outlook for lumber prices in the Southeast for the remainder of 2024 was addressed in the Q&A portion of the call when BofA’s George Staphos asked about the future of lumber pricing given the fact producers like Weyerhaeuser and their competitors have added several billion board feet of lumber over the past several years.
CEO Devin Stockfish answered by highlighting two factors impacting lumber supply, demand and pricing here in the Southeast:
- “Treated lumber is a pretty big market in the South for Southern Yellow Pine. That’s probably been down mid- to high-single digits this year from best we can tell.”
- “A lot of multifamily activity that’s been going on uses Southern Yellow Pine, and that obviously has been down quite a bit this year.”
With soft lumber prices here at home, Weyerhaeuser is looking seriously at growing the company’s lumber export business here in the Southeast, a theme that has been shared on previous earnings call which resurfaced in Stockfish’s closing commentary.
“We’re also very focused, as we’ve talked about before, on growing our export business out of the US South. And it’s still a small component right now, but I’m pretty excited about some of the opportunities in India and Vietnam. And I think we’re really looking to grow that over time.” – President & CEO Devin Stockfish
More quarterly earnings information can be found on the company’s website.
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