威爾豪瑟 (WY) 2007 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Weyerhaeuser 2007 third quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded Wednesday, October 31st, 2007.

I would now like to turn the call over to Kathy McAuley, Vice President of Investor Relations. Please go ahead, ma'am.

Good morning, and welcome to Weyerhaeuser's third quarter 2007 earnings conference call. I'm Kathy McAuley, Vice President of Investor Relations. Joining me today are Steve Rogel, Chairman, President, and CEO; Rich Hanson, Executive Vice President and Chief Operating Officer; Patty Bedient, Executive Vice President and Chief Financial Officer; and Dan Fulton, President of Weyerhaeuser Real Estate Company. This call is being webcast at www.weyerhaeuser.com.

The earnings release and material for this call can be found at the website or by contacting April Meier at 253-924-2937. Please review the warning statement in our press release and on the presentation slides concerning the risks associated with forward-looking statements. Forward-looking statements will be made during this conference call. I will now turn the call over to Steve Rogel. Steve?

Thanks, Kathy, and to all of our callers for joining us today. A little later on this call, you'll hear from Kathy, Dan Fulton, Rich Hanson, and Patty Bedient. They will provide more detail on the operating results we announced this morning and our outlook for the fourth quarter. But before they do, I'd like to give you a brief overview.

Third quarter results were obviously affected by the continuing weakness of the housing market. As we noted in our earnings release today, this downturn deepened during the quarter and affected many of our businesses. The regions in which WRECO operates have certainly felt the impact of the slowdown, as Dan will discuss. Our real estate companies are performing better than many of their peers. This is due in large part to the markets we're in, the niches we serve, and the steps we've taken to prepare for a downturn. Looking ahead, we remain bullish on the housing market. As we've discussed before, the long-term demographic trends support not only a rebound from today's levels but a strong housing market for the long term. In addition to managing through the current market, our job is to position ourselves to take full advantage of stronger markets when conditions improve. We've done just that in both WRECO and iLevel. It is also our belief that over the long term, the markets in which our real estate business operates will be among the strongest in the country, and that WRECO is well positioned to benefit from this.

In wood products, the weakness in the housing the the weakness in the housing markets is likely to affect our businesses for sometime. Rich will outline the steps we've taken to balance supply with demand through closures, curtailments, restricted operating postures at the company's wood products facilities. Our iLevel approach, which gives us great line of sight to our customers' ultimate needs, helped us develop these responses to market conditions. We're also better able to anticipate what our customers want from us in the future. This allows us to begin product development today for tomorrow, and it positions Weyerhaeuser to be the leading supplier. Our timberlands business was affected by softening in the log markets this quarter. But long-term we see opportunities to maximize revenue from our 6 million acres of fee owned timberlands. In addition to our ongoing timber management, exciting new revenue opportunities include our biofuel alliance with Chevron, carbon credits, and oil, gas, and mineral extraction.

We are committed to ensuring that our shareholders receive the full benefits from these valuable holdings. To that end, our work on structural alternatives continues, and we are actively supporting the industry's ongoing tax reform efforts. Bipartisan support for the Tree Act of 2007 is growing. Passage of this legislation would provide immediate value to shareholders and is compatible with many different business strategies. Our strategic decision to focus on specialty pulp also is paying dividends. Today absorbent and specialty fibers account for virtually our entire pulp portfolio, allowing us to leverage our research and development expertise. Strong market conditions resulted in higher prices in the third quarter. But more importantly, the outstanding operating performance of our cellulose fibers mills positioned us to capitalize on this improvement. Rich will provide further details in his report.

Finally, our containerboard packaging and recycling business is successfully implementing its new business model while we continue our strategic review of the business. As previously discussed, these alternatives range from continuing to hold and operate the business to a possible sale, disposition, or combination. The process is ongoing. But due to confidentiality requirements, I can't say more at this time. We are confident, however, that we are taking the right steps to create the greatest value for our shareholders. I'd now like to turn the call over to Kathy McAuley, who will provide some additional details on the results we reported this morning. Kathy?

Thank you, Steve. This morning Weyerhaeuser reported third quarter earnings of $101 million or $0.47 per diluted share, on net sales of $4.1 billion. The third quarter includes the following after tax items. A charge of $17 million or $0.08 per diluted share for closures, restructuring and asset impairments in our wood product segment. A charge of $17 million or $0.08 per diluted share related to the restructuring of administrative function, including a regional Canadian office and one-time cost associated with the transition to a new IT services provider. A charge of $16 million or $0.07 per diluted share for the impairment of real estate assets. A net gain of $26 million or $0.12 per diluted share related to legal settlements. A net gain of $7 million or $0.03 per diluted share on the sale of operation and previously-closed plant sites. Excluding these items, the company earned $118 million or $0.55 per share. A GAAP reconciliation of special items is available at our website in the earnings information package.

In that package, please turn to chart 12, which is a reconciliation of the key changes in earnings per share before special items between Q2 2007 and Q3 2007. Second quarter 2007 earnings before special items were $0.48 per share. Lower volumes reduced earnings $0.12 per share. The largest volume decline were in wood products. Price and mix were a negative $0.12 per share. This decline was due to lower log and wood products prices and a less favorable seasonal mix of businesses in containables. High cellulose fiber prices partially offset this result. Manufacturing cost contributed $0.19 per share, driven by productivity improvement and lower energy cost in containerboard packaging and recycling and productivity increases coupled with less maintenance downtime in cellulose fibers. Real estate related assets contributed $0.03 per share. Other contributed $0.09 per share partially due to SG&A reduction. Third quarter 2007 earnings before special items were $0.55 per share. I will now turn the call over to Dan Fulton to discuss Weyerhaeuser Real Estate Company results.

Good morning. Trends in earnings and other key operating metrics for real estate in the third quarter and year-to-date 2007 reflect the very difficulty business conditions that we were encountering. Negative momentum in the national housing markets discussed in last conference calls continued in the third quarter and conditions seem poised to deteriorate further over the balance of the year. Excess inventories of both new and existing homes, declining home prices, and tightened credit standards have rocked most local markets. Consumers are understandably cautious in this environment. Many have withdrawn from an active search pending stabilization in prices and easier access to the mortgage market.

As stated in this morning's press release, real estate earned $60 million in the third quarter compared to $64 million last quarter and $135 million in the same quarter one year ago. Earnings in the current quarter included a $30 million gain on land sales and last quarter's earnings included a $42 million gain on sale of an apartment project. Considering the very difficult market conditions across the industry, we're pleased with the relative performance of our operations. Third quarter earnings included $23 million in impairment charges for lots impacted by unfavorable market conditions. Earnings for the second quarter of the year and for the third quarter a year ago also included impairment charges of $12 million and $14 million respectively. Single-family operations generated 88% of revenue in the third quarter. And on a year-to-date basis, single-family operations have generated 91% of revenue this year compared to 93% last year. A 10% decline in average sale price in the third quarter compared to the same quarter a year ago reflects the intensely competitive pricing environment for new homes, changes in sales mix to lower priced product, and a slight shift in our geographic mix to the relatively healthier but lower priced Houston and Puget Sound markets.

With the burden of excess inventory, builders across the country continue to aggressively discount standing units, effectively rewarding buyers who withdraw from the market to wait for price stabilization. These market forces are driving expectations for lower pricing in order to clear excess inventory in a period of slack demand. For these reasons, we believe virtually all of the markets in which we operate have additional downside price risk in the near term. Puget Sound region has been our strongest market this year with year-to-date sales significantly higher than during 2006. However, traffic and sales were weak in the third quarter, both trending below the pace set in the prior year and inventories have increased. Houston has been steady in 2007, although moderated from the very active levels of a year ago. Market remains reasonably healthy, particularly in our targeted market segment of move-up buyers. The suburban Washington, D.C. market started the year stronger than expected but weakened in response to the record level of existing home inventories. Our own sales have increased year over year in 2007, due in part to increased lot availability in our communities.

Las Vegas, Phoenix, Sacramento, and the inland empire of southern California represent our most challenging markets, each of which is characterized by significant inventory overhang, deep sales price discounting, and high contract cancellation rates. These markets remain negative despite strong underlying fundamentals, including continued job growth. The markets in Los Angeles and San Diego have moderated compared to a year ago, but competitively priced product and good locations will attract buyers. Housing affordability remains a long-term structural issue in these markets. We're fortunate that the recent wave of fires in southern California did not affect our existing communities, though we have suffered some wind damage in our inland empire communities. Although there may be short-term spike in regional demand, especially for standing inventory, we expect that our operations will likely experience diminishability of subcontractors and local regulatory staff as priorities appropriately shift to remediation efforts.

Across the industry, single-family gross margins are under pressure from deep discounting in the market, particularly on standing units. At WRECO, third quarter single-family gross margins were 17.9%, an increase from 16.7% in the second quarter due to a shift in mix, but down compared to 26.1% in the same quarter a year ago. On a year-to-date basis, single-family gross margins were 18.7% this year compared to 27.5% last year. With the continuing overhang of inventory in many local markets, we expect our margins to deteriorate further next quarter.

We control land representing about seven years of sales, of which approximately 55% is owned. Declining new home prices have increased the likelihood that land controlled in recent years may have valuation issues, particularly if controlled during periods when land markets were hyperactive in 2005 and later. We monitor our land positions on a quarterly basis. Using consistent practices, we recognized impairment charges in the third quarter of $23 million as compared to $12 million last quarter and $14 million in the third quarter of last year. Additionally, we recognized charges of $1.3 million for abandoned deposits and preacquisition costs in the third quarter compared to $800,000 last quarter and $5.5 million in the third quarter of last year.

The bulk of our land acquisitions in 2005, 2006, and 2007 have been lot takedowns in existing communities with the exception of our acquisition of Maracay Homes in Phoenix in February 2006. On an overall basis, a high percentage of our land position today was controlled via acquisition or option in 2004 and prior. We're not isolated from the actions of other home builders, including the public companies, virtually all of which have reported major impairment charges in each successive quarter over the past two years. These charges effectively reduce the cost basis of future home deliveries for our competitors and increase the pressure on us in competing communities. If a competitors' impairment charge results in a significant disparity in value compared to our community, we may choose to take a compensating sales price reduction.

We're focused on controlling the controllable and we have taken the following management actions in order to remain as efficient with our capital as possible. We reduced the number of housing starts in the third quarter by 41% compared to the prior quarter. Our current completed and unsold inventory position of 451 units represents approximately 33 days sales. Approximately 50% of our completed and unsold inventory today is in Las Vegas. Virtually all land acquisition obligations under purchase and option agreements have been renegotiated. In some circumstances, we canceled our option and written off deposits and preacquisition costs. Many sellers, however, have recognized the current market environment and our negotiations have resulted in reductions in price, changes in terms, or both. This is an ongoing process, and we'll have more work to do if the market slowdown continues. Our vendors and subcontractors are also supporting our efforts to remain competitive by reducing costs in order to help mitigate some of the impact of price discounting. Lastly, we've reduced general administrative expense by nearly 12% in the third quarter compared to the same quarter last year. Additionally, we selectively reduced field staff as we continue to balance supply with demand. And now I'll turn the call over to Rich.

Thank you, Dan. I will continue by providing an operational overview of our other business segments. As expected, the weak housing market also had a significant impact on the results of our wood products and timberlands businesses in the third quarter. Wood products obviously was most affected, but we also started seeing some negative effect on log prices during the quarter. I know that everyone understands that the plummeting national housing starts are having an effect on our wood products markets. But for perspective, on a seasonally adjusted basis, housing starts for the third quarter were down 24% from a same period a year ago and down 11% since the second quarter. In addition, we are experiencing significant weakness in the repair and remodel market. Because of lower sales volumes in our wood products businesses during the quarter, we have aggressively worked to balance our supply with customer demand. We are continuing that effort, as demonstrated by our recent announcements that by year end we will indefinitely curtail production at two oriented strand board mills and a timber strand mill. Taking into account the recently announced mill closures, we will be operating our oriented strand board and timber strand system at less than 60% of capacity. We expect to take further action in the fourth quarter as necessary to match our production to demand.

The wood products business continues to proactively reduce working capital consistent with this reduced demand in the business restructuring. We estimate by year end, working capital will be approximately 30% lower than year end last year. As reported by Random Lengths, the average oriented strand board prices for the third quarter are at their lowest level since late 2002 and the quarterly average price for lumber is at its lowest since 2000. Regarding timberlands, last quarter I mentioned that log prices had remained sticky and hadn't necessarily tracked the housing market slowdown. That changed in the third quarter, especially in the west, where prices declined for both domestic and export log sales. Industry log usage declined as mills in the west began taking downtime to adjust production levels to the declining demand. Although southern mills are also adjusting to lower demand, log volume and prices were stronger in that region due to an increased demand for chips and restricted log and stumping supply.

Meanwhile, a weak Japanese housing market affected our log export business. I just returned from Japan where I met with Chugoku Mokuzai, our largest log export customer. I learned that construction delays caused a portion of this weakening building market as new building regulations were recently implemented. The strength of the Japanese market, however, remains uncertain as we move into a seasonally slow period. Sales of non-strategic timberlands, as you can see during the quarter, offset some of the downward effect on earnings from lower log sales.

In containerboard, the industry containerboard mills continue at high operating rates, and inventories are low. In addition, inefficient box plant capacity has been coming out of this industry supply system. We've closed 12 plants since January '06. We've had a smooth implementation of our $40 a ton containerboard price increase and we anticipate that a majority of that price increase will be recovered in box price this year. The lag in the full recovery is because some of our businesses in long-term agreements we will be renegotiating during 2008, and that will give us better pricing flexibility. But what is more important is our focus on company margins here. We continue to implement a demand driven business model in containerboard packaging. We will achieve our projected $100 million in savings in 2007 as part of the two-year goal of $230 million and we are continuing to move aggressively with plant rationalizations and customer selection aligning to our capabilities to improve margins.

And finally, in cellulose fibers, this segment benefited from higher third quarter prices due to strong market conditions. During the quarter, third party realizations for absorbent pulp increased $26 a ton and this is an $85 a ton increase since third quarter of last year. More important, due to the significant improvements in the operating performance in this segment, we are positioned to capture the maximum revenue and bring this price improvement to the bottom line. Production from cellulose fiber mills increased by 26,000 tons in the third quarter, in part to one less annual maintenance outage in the quarter compared to the second quarter. But four of the cellulose fiber mills set quarterly production records. I'd now like to turn the call over to Patty Bedient, who will outline our fourth quarter expectations.

Thanks, Rich. Good morning. Our outlook for the fourth quarter anticipates continued challenging market conditions for all of our housing driven businesses. As a result, we expect difficult underlying fundamentals in timberlands, wood products and home building. On a positive note, economic drivers for our cellulose fibers and containerboard packaging segments should result in favorable operating earnings in the fourth quarter compared to the third.

I'll start the outlook with our timberland segment. The continued weakness in the housing market is expected to result in lower domestic and export log prices. We estimate the harvest in the west will decrease while southern harvest will be flat with the third quarter. Sales of non-strategic timberland are anticipated to be lower in the fourth quarter compared to the greater than normal levels in the third. Overall, timberland segment earnings are expected to decrease in the fourth quarter compared to the third quarter.

In wood products, the traditional seasonal slowdown of the fourth quarter will be further compounded by the anemic housing market. Sales realizations are expected to continue to deteriorate in the fourth quarter over most of our product line. Shipment volumes are also estimated to decline. The restricted operating postures that Rich outlined earlier will continue, and we will take further action as necessary to match production with demand and manage working capital. Despite these efforts, we expect that fourth quarter operating losses will deepen as compared to the third quarter levels.

Containerboard shipments are expected to increase due to the strong demand in export markets. Rights realization should also improve as the board price increases announced during the last quarter are in place for the full quarter. Box shipments are estimated to decline seasonally in the fourth quarter compared to the third. Prices should move up as increases from the third quarter announcements are realized more fully in the fourth quarter. The effect of price increases will be moderated somewhat due to seasonal changes in mix. OCC prices are expected to moderate somewhat over the third quarter level and will likely remain high given the Asian demand. We anticipate increased energy cost based on greater seasonal usage and higher natural gas prices. The non-fiber mill manufacturing cost should increase due to more scheduled maintenance downtime in the fourth quarter than in the third. Packaging manufacturing costs are also expected to increase, mainly due to seasonally lower volume. Overall, we expect fourth quarter earnings in our containerboard packaging segment to be comparable to the third quarter.

We believe markets for cellulose fibrous products will remain favorable throughout the fourth quarter. Shipments are anticipated to increase slightly and sales realization should remain strong. The mills are running well, and with less scheduled maintenance downtime in the fourth quarter, manufacturing costs are expected to decrease compared to the third quarter. As a result, we anticipate higher cellulose fiber segment earnings in the fourth quarter as compared to the third.

We expect business conditions for our real estate segment to deteriorate further in the fourth quarter. Volume, price, and margins in our single-family home building activity will be impacted by intensely competitive market conditions. Home builders are aggressively positioning in an environment with fewer buyers and higher inventories of new and resale homes. We expect to close approximately 1,200 single-family homes in the fourth quarter and we are evaluating the prospects of selling certain non-strategic land parcels. However, the likelihood and timing of closing these transactions cannot be estimated. Exclusive of such land sales, we expect overall segment earnings to decline in the fourth quarter compared to the third.

Capital expenditures for Weyerhaeuser Company were $454 million through September 30. Expenditures for the full year should be closer to $725 million as compared to our earlier budgeted amount of $800 million. We have now completed our share repurchase authorization, and in the third quarter we purchased nearly 7 million shares for about $440 million. These purchases contributed to our increased debt level at the end of the quarter. During the fourth quarter we will continue our focus on managing capital spending, working capital, and cash flow management in order to reduce our debt levels. With that overview, I'll turn the call back to Kathy to begin our question-and-answer session. Kathy?

Thank you, Patty. Eric, could we open the floor for questions, please?

Yes, ma'am. Ladies and gentlemen, at this time we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS) One moment, please, for our first question. Our first question comes from George Staphos with Banc of America. Please go ahead.

Thanks. Hi, everyone. Good morning. First question around containerboard and packaging. Rich, I was wondering if you could give us a bit more color on the things that are going well for you with the business -- the new business plan, new business model, and things that you're still finding a challenge with. It would appear that it's still somewhat difficult moving the pricing ball towards the goal line because of the lag effect you have with some of these contracts. If you could add a little color there, that would be great. Then I have a couple of followons.

Okay, George. Well, your description is really pretty accurate. I think what's going well is the rationalization and transition of business to the remaining plants in a more efficient system. It's going well and on schedule. As I said, we are tracking our own cost and margin improvements in those initiatives, we are well on schedule against the $230 million permanent margin improvement. But as you say, as we go through and we have some major national contracts that we need to renegotiate to get relief on factor cost increases and board cost increases, that's where we still have some challenge in front of us. We've been very pleased with the price increases that we have gotten on those contracts that are open, and the percentage of business we've been able to transition.

Was there a mix factor at all in the third quarter versus the second quarter in terms of why we didn't see a bit more of a price lift in boxes?

Absolutely. The E. coli scare in green vegetables had an impact in the lower volume in the produce segment. As we said in the past, that's an attractive margin segment for us. And we experienced lower volume there. And overall the produce market is becoming more competitive as well.

Okay. You may have mentioned this in the past but I just wanted to get a refresher here. Should we expect more in the way of potential box plant closings as you complete the program?

We'll continue to look at how we can serve the highest margin segments of the business, and we will structure our business including more rationalization to improve those margins.

Okay. I'm sorry, Kathy?

Thank you. We'll have our next question.

I'll turn it over. Thanks.

Our next question comes from the line of Mark Connelly from Credit Suisse.

One question. Rich talked about the excess capacity in the engineered board businesses. I wonder if you could put that in perspective for us. When we look at the numbers this quarter, it looks like you saw a pretty big drop year over year relative to the drop you saw in lumber. Is that just -- am I just looking at that too superficially? It looks like engineered wood is getting hit a lot harder than lumber. Is that not correct in the big picture?

I'll try to respond to what you're looking at. This capacity comes out in significant lumps. And as we have taken this capacity down especially coming into the second half of this year, I think you see it more abruptly happening. But there's been real pressure on this with the lower operating rates as we've come through the whole year.

Okay. That's helpful. Thank you.

Next question?

Our next question comes from Richard Skidmore of Goldman Sachs. Please go ahead.

Good morning. Just to follow up on the containerboard question, how much of the business is tied to long-term contracts and how much of the business is currently open for pricing to get better?

Well, I can't be specific about that but more than we would like. As I said, we will realize the majority of that price increase as we come out through year end. But I really can't be specific about exact percentages there.

Thank you.

Next question?

Our next question comes from Gail Glazerman with UBS. Go ahead.

Thank you. Sticking on containerboard, part of your whole restructuring has been to analyze the markets a bit more carefully and get hopefully more insight into the demand side. I'm just wondering, looking past the fourth quarter into '08, what you're hearing from your customers in terms of box demand?

I'm sorry, the very last part of your question, you broke up a bit.

I'm sorry. I'm just wondering, I guess, what sense you're getting from your customers about their outlook for box demand in 2008.

I think reasonably positive. Overall, the economy is still in pretty good shape but there's a lot of concerns about the general economic level of activity, but in general positive. As I've said, the price increases have been going very smoothly.

Okay. Just a separate question. Kathy, can you break out some of the maintenance cost you had both in cellulose and containerboard in the quarter and maybe a sense of the magnitude of the shift in the fourth quarter?

Gail, we don't break out specific maintenance cost items in the quarter. We did have significant productivity improvements in both containerboard and in the cellulose fiber business. We had less maintenance downtime in cellulose fibers, which was also a positive in that quarter. But both of them saw significant improvements in productivity.

Okay. Thank you.

Next question.

Our next question comes from Peter Ruschmeier with Lehman Brothers. Please go ahead.

Thanks. Good morning. Steve, I was curious if you could comment on your view of the timber tax bill both in terms of likelihood, timing of events. The challenges it faces, whether we have funding for the tax cuts. And importantly whether that passage has any impact on potential future restructuring plans for Weyerhaeuser.

Thanks, Pete. First of all, with regard to timber tax, I'm confident of its passage. We are asking for comment as to when, and that's the difficult part. So let me tell you the positives about it and it's moving forward. First is I think you're well aware, it has a tremendous amount of co-sponsorship. The bill has been introduced. It's been attached to two vehicles moving along. Removed from them is the prospects for the main bill, look to Dimmer. But some of those main bills now have higher prospects of passage. So our open expectation is that our timber tax vehicle will ride along with them. With regard to how it's viewed, it has been scored, which is Congress speak for they have determined what the costs of the bill are. And they actually came out pretty well. And they have found ways to fund it. What we hear from the floor is that this will pass. It's a matter of being patient and watch Congress make their sausage.

Okay. And whether it has an impact on your restructuring plans, is it --

Well, whatever our plans are, the Tree Act is good for us. Because it has elements of support for the entire industry regardless of its form of ownership. So it's well worth pursuing now and into the future.

And just lastly if I could, Steve, does it specifically on containerboard, does it have anything to do with the timing on containerboard, the delays we've seen so far on containerboard? Does that have anything to do on timber tax or is it a completely separate issue?

Those are completely separate issues.

Thanks very much. I'll drop back in queue.

Next question.

Our next question comes from Mark Wilde with Deutsche Bank. Please go ahead.

Good morning. I heard Lynn [Mitalis] at a big industry conference two and half weeks ago. He talked about a housing downturn that would be as severe as the early 80s. He talked about single-family starts going down to about 900,000 units with a risk on the downside. I'm just curious, is this the scenario you're using for decision making in the different parts of your portfolio? And really, what are the implications of 900,000 single-family starts or less?

This is Dan. I'll take the first crack at this. We're using Lynn's forecast to judge overall demand and to look at economics across the entire country. But when it comes to our individual markets, we are at different points in the cycle, and so we are making decisions based upon local dynamics. However, that kind of a stark forecast does have an impact on policy in the mortgage markets and I think providing some guidance in Fed actions. So we are taking that forecast into consideration with other forecasts. But we are managing defensively because of that, focusing on individual competitiveness in the markets in which we operate.

This is Rich. Just to further comment about that kind of an outlook. Of course it's only prudent to plan for some of this downside. I think that the best example of that is the action that we took in oriented strand board and timber strand. As we've explained in earlier calls, these closures in Canadian facilities are very costly with regard to severance. And you have to believe that there's not relief in the near term in order to do that. So to some extent, yes, it is impacting our decisions and we think that's only prudent.

Very good. Is it possible to get a number for those timberland sales in the third quarter?

The difference between second and third quarter was in the range of $40 million increase and around $50 million, but it was a quarterly -- a larger number than normal in quarterly results.

I think we termed these things as lumpy during the year. Yes, because we negotiate them and we complete the transaction when we can realize the best value. So it's going to tend to be lumpy through the year.

Yes. I understood.

You might remember that on our call for the second quarter, we did talk about the fact that we anticipated we would have a greater than normal amount in the third quarter, because some of those that were planned in the second quarter actually moved into the third.

Okay.

Next question.

Our next question comes from Mark Weintraub with Buckingham Research. Please go ahead.

Thank you. First, Steve, I just wanted a quick clarification when you were answering Pete's question, he had asked whether or not the Tree Act and delays on containerboard had any linkage, and you said no. Can you just remind us if you've laid out any timeframes? I wasn't sure, have there been delays on containerboard? It wasn't clear to me.

As I indicated, Mark, in my prepared remarks, there's very little I can say because of confidentiality requirements about that process. I will say that we are looking at a variety of strategic directions for it. Those because of the wide variety take more time. Some of them require a great deal of time because it's a due diligence effort on two different classes or sets of assets. So the kind of process we're following to achieve the maximum shareholder value just takes time.

Mark, to your direct question and to Pete's characterization, we have not talked about a delay in the containerboard process at all.

Fair enough. And then if you could just also provide a little bit more color, possibly, on what the timberland sales, I guess about $50 million or $55 million of profits in the quarter. Were those some larger tracts or were you again doing smaller tracts here, there, and everywhere?

Pretty normal. I don't have the list in front of me. No major tracts, no.

Okay. Thank you.

Next question?

Our next question comes with Chip Dillon with Citi. Please go ahead.

Yes, good morning. Could you just review for us, clarify one thing. You said in the press release it says that land sales in the fourth quarter might offset part of the decline you expect from single-family closings? I think, Patty, you said on the call you left open the possibility that you could see completely offset or even a higher real estate number. Secondly, could you define your backlog? You used to talk about it in terms of months. Was that 33-day figure that was mentioned the backlog or was that the inventory of houses? Could you just tell us what the backlog is?

Chip, this is Dan. I'll take both of those. We do have sales on an ongoing basis as you know of what we call non-strategic land. That land could be commercially zoned, apartment zoned land. We sell it in most of the operations where we have master planned communities or land that may have those characteristics. And with respect to Q4, we have a number of transactions that are in process. Our guidance that Patty provided was that we would expect that that would help to offset the decline that we do anticipate in single-family that would come from margins and pricing. With respect to backlog, our backlog's at about four months. It's down slightly from last quarter. When I referred to the number of days of sales, in my remarks that was referring to our standing inventory.

Got you. It sounds like it's not likely. But if a lot of these land sales did come together, that would allow you to beat the $83 million you had without impairments in the most recent quarter. But if it's sort of a best guess, maybe it's not quite as high as that.

Can't handicap it to date.

Thank you.

Next question.

Our next question comes from Don Roberts with CIBC World Markets. Please go ahead.

Thank you. Steve, two questions. First of all, just getting back to the Tree Act, you mentioned it's attached to two vehicles that are likely to pass. Could you just refresh me on when are sort of generally the milestones we should be looking at for those vehicles in terms of timelines?

Oh, I can't speculate on when any individual bill might go through. Politics is everything. What I was really referring to is a couple of bills that appeared dead because of huge differences between the two parties. Now it seemed to be coming back to life because they are in conference and working out differences. But it would be extremely hard for me as an amateur at that sort of stuff to give you a prediction of when those bills will make it out.

Okay. And an unrelated question, you had mentioned in your opening remarks about the strategic initiative with Chevron on the cellulosic ethanol. Any kind of updates? How much sort of credence or emphasis we should put on that type of initiative?

Well, our work with Chevron has proceeded forward, as we indicated at the outset. That was a letter of intent to be negotiated into a joint venture and that's proceeded well. So as two companies, we have some similar philosophies and we seem to be getting along well in that area. And we're moving right forward with the venture.

Okay. And again, any kind of timeline where we might expect an announcement on when that's finalized, the venture?

I can't give you a forward time.

Thank you.

Next question.

Our next question comes from Ross Gilardi with Merrill Lynch. Please go ahead.

Morning. Thank you. Just had a couple of questions. On the Tree Act. If you do get some form of tax relief legislation, would you potentially become a more active acquirer of timberland?

Certainly we've indicated many times that Timber R Us. If we do get tax relief, that allows us to be more competitive in the acquisition of tracts. But I couldn't speculate for you which or when. But it does allow us to be more competitive in the market.

Okay. Thanks. Just in terms of the wood products business, Weyerhaeuser has really taken a lot of aggressive actions to control supply and demand internally. What do you think it will take to see more a aggressive rationalization by the industry of Canadian lumber capacity and do you foresee that occurring?

I can't talk about the strategies of other companies in North America, but certainly I think this industry has become more mature in its management of capacity against demand. The actions we've taken I think demonstrate that.

Next question.

Our next question comes from Steve Chercover with D.A. Davidson. Please go ahead.

Question for Dan Fulton. If we would try to handicap the risk in real estate, should we look at the land that real estate [pro assessed] for sale and is already being transferred in fair market value and therefore not that risky, but the land that's held for future development is the risky part?

No, I don't view it that way. We have a longer-term land position than most. It's been part of our value proposition in this business for a long time. The length of our land position varies by market and it's a function of the challenge of gaining entitlements and processing land in more constrained markets. What that does for us long-term is it translates into higher margins. We have -- we believe a core competency in processing and managing land development. So our longer position is generally reflective of the fact we had it tied up at lower prices for a longer period of time. We're creating value and in fact think that that's why we have industry leading margins. So I may not be addressing your specific questions, I'm concerned about that. But we don't view the longer-term position to be more risky. We, in fact, view it to be less risky.

Okay. So I guess just to clarify, it appears that you're doing this differently than publicly traded competitors. Would you therefore conclude there's less risk, although certainly you never said there was no risk?

There's always risk. We understand that. Most of our competitors have a shorter position. I would say the one notable exception to that is Toll Brothers, which like us maintains a longer position, does more processing, and also generates the kinds of margins we do. So it's a different business model. We like ours.

Thank you.

Next question.

Our next question comes from Mark Connelly with Credit Suisse. Please go ahead.

Thank you. Just a question on the buybacks. I wonder if you could tell us the average price for the quarter. Is the buyback complete? Do you have an intention to ask the board for another buyback program?

Hi, Mark. This is Patty. I'll take that. We'll actually be detailing all of the detail of the repurchases for the quarter in the Q that will be filed next week. We have now completed the buyback. I will tell you that over the course of time that 18 million share repurchase authorization was about a little over -- a little less than $1.2 billion at a price just north of $64. We have completed that now and we also have reduced our shares earlier this year by over $25 million shares in conjunction with the Domtar transaction. I think where we might go from here certainly would be up to the board. I think as we look at our financial priorities, returning cash to shareholders is an important financial priority for us, both in terms of the stock buyback that we have completed as well as the dividends that we have increased 50% since 2005. I wouldn't want to speculate what the board might do from here. I think our near-term priorities, as I mentioned in my outlook, is controlling our working capital and cash management and to bring our debt levels down over the course of the quarter.

Very helpful. Thanks, Patty.

Next question.

Our next question come comes from Paul Latta with McAdams Wright Ragen. PLease go ahead.

Good morning and thanks for taking my call. Just a question on the non-strategic timberland sales. Sounds like fewer non-strategic timberland sales for the fourth quarter. I have two questions. Is that seasonal? Also, how does the New Zealand transaction this morning work through that timberlands? Does that go through the timberlands segment or where is that accounted for?

Excuse me. This is Rich. I'll start with the timberlands. No, they are not necessarily seasonal. By the way, I looked at the numbers and the increase compared to the second quarter was $34 million. We tend to have an ongoing program of divesting of non-strategic timberland. It tends to come in lumps. It's not seasonal. It's a function of the negotiation and getting the best value for completing the transaction. So on New Zealand, Steve, do you want to comment on New Zealand?

Yes. We just had an announcement about the sale of our portion of the New Zealand timberlands this morning. It was a deal that was previously announced and completed today.

Rich, on the $34 million, just clarifying, is that in proceeds or is that in operating profit contribution? What does the $34 million mean?

That's an operating profit contribution.

Great. Thank you.

I think that one of the other things that contributes to timing is we always look for some 1031 exchanges.

Steve makes an important point that I believe we're in the 90% range on doing a 1031 exchange on those sales. So in other words, keeping the transaction tax-free.

Okay. Great. Thanks for taking my questions.

Next question.

Our next question comes from Mark Wilde with Deutsche Bank.

Thanks. Just a follow-up on timberlands. We typically see kind of saw log prices lag the wood products market by six to 12 months. You mentioned that log prices came down in the third quarter. Would it be fair to assume that on average your saw timber prices are likely to be lower for kind of full year '08 versus full year '07?

I'd have to look at that. But they really have hung up a long time. So, and they tend to also be still not follow directly the product prices down. So not necessarily.

Do you have any sense, kind of as you do your own planning for next year, what you're thinking about in terms of kind of performance out of the timberland business both from timber sales as well as some of these non-strategic sales?

Well, we do, but we're not going to comment on a forward look that far out.

Okay. Very good. Thanks.

I think we have time for one more question.

Thank you. Our final question comes from George Staphos of Bank of America. Go ahead.

Thanks. Hi, everyone. Two quick questions. You mentioned that confidentiality agreements understandably restrict what you could say about the strategic review in containerboard. Just for the record, last quarter were you under confidentiality agreements relative to what you could say about the strategic review? Just checking on that. Separately, just wondering if you could give your thoughts on the board and voting term changes you put into place. What was behind the move? We view them positively, just was interested in your thoughts there. Thanks, guys. Good luck on the quarter.

Well, two questions, George. First one is confidentiality. Since we have entered the process, we have confidentiality in place. So you can assume that we did in the previous quarter. With regard to our change on majority election of directors, our board continuously reviews or governance practices and they were proactive in implementing this amendment because they think it's in the best interest of the company shareholders. The Washington law was changed recently that allows for majority voting. In addition, plurality was kept in the law. That freed us up as a Washington chartered company to look at some changes that fit our company. And we think work pretty well for our shareholders.

Thanks for the call, Steve. Again, good luck in the quarter.

Thanks.

Thank you very much for joining us this morning. If you have additional questions, I'll be back in my office in a short time. The telephone number is 253-924-2058. Have a good day.

Ladies and gentlemen, that does conclude the Weyerhaeuser 2007 third quarter earnings conference call. If you would like to listen to a replay of this call, you may do so by dialing 800-405-2236, or internationally at 303-590-3000 and entering pass code 11098530. Once again, those numbers are 800-405-2236, internationally at 303-590-3000 and entering pass code 11098530. This does conclude the conference and you may now disconnect. We thank you for using AT&T, and have a pleasant day.