威爾豪瑟 (WY) 2014 Q3 法說會逐字稿

Good morning. My name is Brent, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Weyerhaeuser third-quarter 2014 earnings conference call.

(Operator Instructions)

Thank you. I'd now like to turn the call over to Denise Merle, Senior Vice President of Human Resources and Investor Relations. Please go ahead.

Thank you, Brent. Good morning, everyone, and thank you for joining us today to discuss Weyerhaeuser's third-quarter 2014 earnings. This call is being webcast at www.Weyerhaeuser.com.

Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during the conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in earnings materials on our website.

On the call with me this morning are Doyle Simons, Chief Executive Officer; Patty Bedient, Chief Financial Officer; and Beth Baum, Director of Investor Relations. I will now turn the call over to Doyle Simons.

Thank you, Denise. Welcome, everyone, and Happy Halloween. This morning, we reported strong third-quarter results in each of our businesses, as our employees continue to drive sustainable performance improvements through relentless execution of our operational excellence initiatives.

Net earnings for the quarter totaled approximately $1.15 billion or $2.15 per diluted share on net sales from continuing operations of $1.9 billion. This includes a gain of approximately $970 million related to the July 7 divestiture of Weyerhaeuser Real Estate Company. Excluding discontinued operations and special items, we earned $178 million or $0.33 per diluted share, an increase of almost 31% compared with the year-ago quarter. Special items for the third quarter included an ongoing gain from a change to a post-retirement health plan, and restructuring charges associated with our SG&A cost reductions.

I will begin the discussion of our business results with some brief comments about market conditions. Housing starts continued to improve in the third quarter, but at a measured pace. We now anticipate approximately 1 million housing starts for 2014.

We are confident that housing markets will continue to strengthen, supported by employment growth and increasing consumer confidence. We are also encouraged by changes recently proposed by the federal housing finance agency that would improve mortgage credit availability. Looking forward to 2015, our outlook is in line with consensus forecast, which anticipate 1.1 million to 1.2 million housing starts, and an accelerated single-family recovery.

Let me now turn to our business segments, starting with Timberlands, charts 3 to 5. Timberland's contributed $136 million to third-quarter earnings, compared with $170 million in the second quarter. In the west, fee harvest volumes declined, as we intentionally accelerated harvest during early 2014 in anticipation of lower price realizations in the third quarter.

Realization for western logs declined due to normal seasonal increases in domestic supply and softer Asian markets. Inventories at Chinese ports, although down from their peak, are still elevated, and takeaway remains below normal levels. Sales volumes to Japan increased due to timing of shipments.

Our Longview Timber acquisition contributed $36 million of EBITDA in the third quarter, and remains on track to achieve our 2014 target of $175 million to $185 million of EBITDA. In the south, fee harvest volumes increased due to improved weather conditions. Average realizations for southern logs rose slightly compared with the second quarter.

Third-quarter earnings included $19 million from disposition of non-strategic Timberlands, a decrease of $5 million compared with second quarter. Operational excellence initiatives to optimize truck scheduling, road construction and maintenance, and [silvicultural] practices contributed to Timberlands strong performance in the quarter.

Wood Products -- charts 6 and 7. Wood Products earned $105 million in the third quarter, a slight improvement compared with the second quarter. EBITDA increased to $135 million. In lumber, EBITDA improved by $8 million compared with the second quarter.

Average price realizations improved approximately 1%, as higher realizations for narrow lumber were partially offset by lower prices for wide-dimension lumber. All costs for our western mills declined, and operating rates fell slightly. This business continues to implement operational excellence initiatives focused on reducing manufacturing costs, net of logs.

In OSB, EBITDA decreased by $3 million compared with second quarter, as a decline in average realizations was partially offset by lower manufacturing cost. This business remains focused on lowering cost, improving operating reliability, and increasing sales of higher-value products.

Engineered Wood Products reported third-quarter EBITDA of $27 million, a slight decrease compared with second quarter. Average sales realizations improved for solid section products in TJI joists, as we captured the value of our announced second-quarter price increase and benefited from a favorable sales mix. These improvements were offset by lower sales volumes across most product lines, as second quarter included pre-buying in advance of the price increase, and customers managed inventories tightly during the third quarter.

The distribution business reported EBITDA of $5 million in the third quarter, an improvement of $2 million. This business remains focused on improving margins and lowering cost. Our Engineered Wood Products and distribution businesses continue to make strong progress against their operational excellence targets, and we remain confident that both of these businesses will improve EBITDA by $30 million to $40 million in 2014 compared with 2013.

Cellulose Fibers -- charts 8 and 9. Cellulose Fibers contributed $59 million to earnings, down from $91 million in the second quarter. Fluff pulp markets remained strong through the third quarter, and average realizations for pulp and liquid packaging board increased. This was offset by substantially higher maintenance costs, due to a scheduled increase in maintenance outage days within the pulp mill system and an extended plan outage at our liquid packaging board facility. Our liquid packaging board facility restarted in early October, and is running well, following the safe and successful completion of several maintenance and capital projects. The cellulose fiber business continues to demonstrate excellent operational performance.

Let me now switch gears briefly to SG&A and other matters. Our SG&A initiative remains on track, and I'm highly confident we will achieve our $70-million run rate reduction target by year end. On August 13, our Board of Directors approved a 32% increase in our quarterly dividend, and authorized a $700-million share repurchase program. During the third quarter, we repurchased nearly 19% of that authorization. Our foremost priority for capital allocation is returning cash to shareholders, and these actions demonstrate that commitment.

Also in August, we announced we will move our corporate headquarters from Federal Way, Washington, to Seattle. We expect the move to occur in mid- to late-2016, when construction of our new lease building will be complete. Although our existing campus has served us very well over the years, it is too large and too costly for our current needs. Our move to Seattle is an important step forward, and will help position Weyerhaeuser for future success.

I will now turn it over to Patty to discuss our fourth-quarter outlook.

Thanks, Doyle, and good morning, everybody. The outlook for the fourth quarter is on chart 11.

I'll begin my comments with Timberlands. Starting with log exports in the west: Log inventories at Chinese ports are still at elevated levels, which will likely result in somewhat lower sales volumes to China this quarter. We also expect lower sales volumes to Japan, primarily as a result of timing of shipments, and realization for our Japanese exports are expected to increase modestly due to mix. Sales realizations for domestic logs in the west are expected to increase compared to the third quarter.

In the south, we anticipate volumes will increase slightly, with flat pricing. Silviculture costs are expected to increase seasonally. Earnings from non-strategic Timberland sales and miscellaneous items are anticipated to be approximately $15 million lower in Q4 compared to Q3, primarily as a result of timing. Excluding these items, we expect fourth-quarter earnings in our Timberlands segment to be comparable to the third quarter.

In our Wood Products segment, the fourth quarter is the seasonally weakest quarter of the year. Because of the seasonal slowdown, we expect lower sales volumes across all product lines. Average sales realizations for both lumber and OSB are expected to weaken relative to the third quarter. Log costs are anticipated to increase somewhat, with seasonal inventory build and weather-related restrictions.

Production volumes in the fourth quarter will decrease due to the holiday season, and scheduled downtime to complete maintenance and capital projects. This downtime will result in higher per-unit manufacturing costs. Consistent with the normal seasonal pattern, we expect fourth-quarter earnings in our Wood Products segment to be lower than the third quarter, and likely comparable to the fourth quarter of last year.

Moving on to Cellulose Fibers: Worldwide inventories for softwood pulp at the end of the third quarter were at 27 days, slightly below normal levels. Demand for our products continues to be strong, especially for our fluff pulp, and we expect mostly pricing to be stable in the fourth quarter. Sales realizations for liquid packaging board are expected to be somewhat lower, due to grade mix, and fiber costs are expected to be higher. Total maintenance expense for this segment will be much lower in the fourth quarter compared to the third quarter.

As I discussed on our last quarter call, we had an extended plan to shut down at our Longview operation during the third quarter for maintenance and installation of capital equipment. We had a very successful start up of the mill, which was completed during the first week of this month. The mill is running well, and customer response has been very positive.

During the fourth quarter, we planned only one mill down for maintenance. That shutdown was completed earlier this month, and that mill is also back up and running well. We expect earnings in our Cellulose Fibers segment to be significantly higher in the fourth quarter compared to the third.

Now, I'll wrap up with some overall financial comments. As shown on chart 12, during the third quarter we invested approximately $112 million in capital expenditures in our businesses. This brings our year-to-date expenditures through the third quarter to $271 million, and we still estimate total expenditures for the year, including re-forestation, to be approximately $400 million.

As reported earlier, we completed the divestiture of our homebuilding business in early July. As a result of the transaction, we retired approximately 59 million shares of our common stock, and received cash proceeds of over $700 million during the third quarter. These proceeds, combined with strong cash flow from operations during the quarter, resulted in a cash balance of approximately $1.6 billion as of the end of the third quarter.

Chart 13 details significant actions we are taking to deliver on our commitment to return cash to shareholders. In August, the Board increased our quarterly cash dividend by 32% to $0.29 per share, or $1.16 on an annual basis. Based on the closing stock price at the end of the third quarter, that equates to a 3.6% yield.

In August, the Board also authorized a $700-million share repurchase program. During the third quarter, we repurchased approximately 4 million shares using approximately $130 million at an average price of $33.63. As a result of the WRECO divestiture and the share repurchase program, we reduced our outstanding share count during the quarter by over 10%.

Now I'll turn the call back to Doyle.

Thank you, Patty. As many of you have heard me say over the past few months, we are relentlessly focused on performance and capital allocation to grow shareholder value. The pace with which we have begun to execute our share repurchase program illustrates our commitment to disciplined capital allocation. Through our operational excellence initiatives, we remain focused on driving performance to sustainably grow earnings and cash flow, and deliver additional value to our shareholders.

And now, I'd like to open this up for questions.

(Operator Instructions)

Your first question comes from the line of Anthony Pettinari with Citi.

Good morning.

Good morning, Anthony.

Just a question on Wood Products. If I look year-to-date, it seems like your third-party sales volumes in lumber and OSB are sort of flat with the first three quarters of 2013, and if I think that housing starts are growing and maybe your operating rates are in the low [90%s] and you have room to ratchet them up. Is there a reason your volumes in lumber specifically aren't up more year-over-year and by that same token if we do 1.1 million to 1.2 million starts next year, would you expect your volumes to be up in 2015 by a decent amount?

You know, Anthony, as we look at our volumes for lumber, I think year-to-date -- based on year-to-date, we were pretty flat as you said but I think that the third quarter we probably produced a little bit less than what we thought we would and as we look at 2015. I think that we have the ability to increase with the market which, as Doyle said, we don't have a real robust outlook for housing starts, although they will continue to improve as we move forward.

And then, Doyle, last week one of your competitors in fluff pulp said it was exploring the possibility of putting their mill system in an MLP structure. I was wondering obviously Weyerhaeuser is a REIT and the Cellulose Fibers business is in TRS, but is the MLP angle something you've looked at or do you have any thoughts you can share on whether the structure might ultimately be appropriate for Cellulose Fibers?

That, Anthony, is something we have looked at and I'll ask Patty to give a little more color on that because she's coordinating that effort for us.

Good morning Anthony. We are actively looking at the applicability of the structure. As you know there are a number of uncertainties and not the least of those is the fact that the IRS has put on pause issuing any additional private letter rulings until they've completed a thorough review of the MLP structure overall. We don't have clarity on when that will be, but we do continue to monitor the situation, and if we think it will add value we will move forward with our review. We have consulted our advisors and we've included their input into our review.

As you probably know, a number of years ago there was a private letter ruling for pulp but private letter rulings are fact-specific and technically can only be relied on by the taxpayer that's making that particular application. And given the fact that the IRS is now undertaking an in-depth review, we don't think it would be prudent to move forward without a ruling so we're sort of on pause waiting to see what happens. We haven't made any decisions one way or the other but we'll continue to monitor the situation.

Okay that's helpful. I'll turn it over.

Your next question comes from the line of Mark Wilde with BMO.

Good morning, Doyle, Patty.

Good morning Mark.

Good morning.

Doyle, the progress that you're making in these Wood Products business is pretty impressive. I wondered if you could give us a sense of where you think the gains are coming from, is it kind of better commercial performance, just better operating performance, reduced cost? And where you think you are on a sort of a scale of 1 to 10 in terms of optimizing those wood businesses?

So Mark, thanks for that comment. There's a lot of really good work going on in our Wood Products businesses. In terms of the progress we're making as we've identified in, starting with lumber. We said that we think there's $100 million opportunity there and as we've previously said, we will think we will get $30 million to $40 million of that in 2014. And then part of what we're going to be doing on December 9, Mark, on our Investor Day, is laying out more details of what we think the opportunity is and the timing is in that business and our others going forward.

In OSB, similarly, we've made progress there, more work to do, but again we've identified 50 to 60 of operational excellence opportunities and more work to do there. We will get 5 to 10 of that we believe in 2014.

In ELP and distribution where we had, in my opinion, and I think, most peoples' opinion, the biggest opportunity to improve, as I've said in my comments, very encouraged by the progress we're making in both of those businesses We believe we're going to improve despite not great housing starts, we think we're going to improve both the EBITDA in both of those businesses by $30 million to $40 million in 2014 versus 2013 and we're on track to do that.

I would tell you, Mark, to your exact question, there's still a lot of work to do in both of those businesses and opportunities. The $30 million to $40 million, the way we think about it proves that we -- or shows that we've earned the right to be in those businesses and our next step is to show that we can win in those businesses and part of winning, of course, is earning above cost of capital over the cycle, so good progress there. Very encouraged by all of the hard work that our employees have done but still a lot of work to do in both our VAR, ELP, and distribution businesses.

If I could, as a follow on, just for Patty. Even if we assume the rest of the share repurchase were to happen in the fourth quarter, it still looks like you'll be sitting on over a billion dollars of cash. Can you talk to us about how much cash you want to carry going forward and thoughts on the use of that residual cash?

Sure, Mark. In terms of how much cash we carry, it's a function of where we are in the cycle. It will use some cash in the first quarter, at least we hope to use some cash in the first quarter to build some working capital as housing recovers, so that's one place that we're looking. We're also continuing to utilize the share repurchase, as you said, as we look at capital allocation. Our priorities for capital allocation, first and foremost, has been returning cash to shareholders. We increased the dividend as we talked about, continuing to execute on that share repurchase, and then we'll also be investing in our businesses and our capital expenditure program.

We'll give you a little more color on that when we get to our December Investor Day and certainly on our earnings call for the fourth quarter. I would expect that may be a little higher than this current year, not a huge magnitude, and then obviously as we've said before we're looking to grow our businesses in a disciplined way. Our first priority there would be in Timberlands but there's no imperative to have to grow. So we're being very disciplined about looking at all areas where we would utilize that cash.

In addition, we do have the credit line that doesn't expire until September of 2018, a billion dollars that has not been utilized to this point, so we really feel very good about our opportunities to continue to provide value to shareholders as we go forward so it's a nice place to be.

That's helpful, Patty, I'll drop back in the queue, thanks.

Thank you.

Your next question comes from the line of George Staphos with Bank of America Merrill Lynch.

Hi everyone. Good morning. Thanks for all of the details.

Good morning George.

Good morning, Doyle. I guess, my first question, maybe this is under the category of no good deed goes unpunished. You've done quite well in Wood Products, Mark was noting that in his Q&A. If we look at slide 7 of your deck, we generally see product prices that are flat to higher on average than where they were last year, OSB maybe being an exception there. We know the progress that you're making in cost reductions in operational excellence, so was just curious why, if I heard you correctly, fourth quarter guidance and EBIT for wood will be flat year-on-year, you know not diminishing the progress you've already made this year-to-date, and I have a couple follow-ons.

George, I would just say from a seasonal perspective, as you know, the fourth quarter is the slowest seasonal period. So that will have impact on our performance in the fourth quarter versus the third quarter. If you look year-over-year we have made improvements, as you've said, and part of the year-over-year will be impacted by sales realizations. It remains to be seen what happens in the quarter.

I will tell you currently lumber prices are down roughly $10 in the fourth quarter versus the third quarter, OSB down roughly $5 in the fourth quarter versus the third quarter. But part of it, of course, will be -- if you look at pricing on the chart that you referred to specifically in OSB, if you look at it year-over-year levels, pricing will be down fairly significantly in OSB fourth quarter of 2014 versus fourth quarter of 2013. So we'll see how that plays out for the balance of the year, but that's the biggest driver of what's going on.

Okay, and that's fair. We appreciate the thought. If we switch gears a little bit but still within Wood Products, and recognizing again this is probably going to be something you talk more about in detail on December 9, can you give us a little bit of a flavor in terms of what kinds of investments you're making within the mills. Is it similar to what you did at your former shop in terms of automation and improvement of yield, but can you give us a little bit more color there?

And then my follow-on, and I will turn it over, you again are clearly getting improvement in SG&A at least in terms of the numbers we are seeing across the segment. Do you worry at all that with the cost reductions, and you're on target for your $75 million, that at some point in time that begins to impact negatively your ability to be commercially more effective within Wood Products, i.e. cut a little bit too much on the cost side, cut into the bone. Thanks guys, I'll turn it over.

Thanks, George for the questions. So, in terms of what we're doing in investment in our Wood Products businesses, George, those are specific investments that will be made to lower our cost. This is proven technology that's in place in some of our mills and we will be extending that to additional mills but again the key focus is on investments, improving technology that are focused on lowering cost. This is technology that we are comfortable with. We know how to put it in and are confident as we implement these capital expenditures that we will ultimately get the cost reduction associated with that.

In terms of the SG&A, as I said earlier, we are on track to achieve the $75 million cost reduction initiatives in SG&A. With that said, I am not worried at all about that cutting into the bone, as you said in Wood Products. These are cost reduction initiatives across the entire organization and we are making sure that we are still very well positioned from a commercial standpoint and able to do what is necessary to service our customers going forward, so no concerns regarding that.

Thank you.

Thank you, George.

Your next question comes from the line of Mark Connelly with CLSA.

Doyle, with all of the work on operational improvement, do you think we're going to see a faster rate of growth in profits in REIT income or TRS income over the next say 12 months and 24 months -- assuming housing continues a slow recovery?

You know, Mark, as you know, we are looking at operational excellence across the entire organization, in our Timberlands business as well as our manufacturing businesses, and we've laid out specific targets for both. We've given an update on where we are on each of those for 2014 versus 2013 and we will, as I said, on December 9 be giving more clarity on what 2015 looks like. So I think there's opportunity, Mark, in clearly on the REIT assets, on the Timberlands, and encouraged by the progress we are making there and there's also opportunities on the manufacturing side both in Wood Products and Cellulose Fibers.

If you look at it from a dollar basis in terms of what we've laid out and added up, the bigger numbers are, of course, in Wood Products and Cellulose Fibers combined, compared with the Timberlands business, but we're focused on operational excellence across the entire organization including, as we just alluded to, the $75 million of SG&A.

Okay, and just one more question. How much of the improvement that we saw in engineered wood this quarter was attributable to lower OSB prices and should we assume that, that division is already seeing the full benefits of the decline we've seen so far?

So only a minor part, Mark, of what you saw in the ELP was a result of the lower OSB prices. And yes, you should assume -- we'll see what happens to OSB prices from this point forward, but yes you should assume most of that benefit has played through the system.

Terrific, thank you.

Thank you.

Your next question comes from the line of Tyler Langton with JPMorgan.

Yes, thanks, good morning.

Good morning.

Just given where housing starts are, and where southern sawlog prices are, and just with your thoughts on sort of housing starts for 2015. Could you just share some thoughts, I guess, on the type of harvest growth you may be planning for in the west and the south as we look out to 2015?

Yes, on the southern harvest, we have kind of been expecting as we've talked to you about a slow steady increase in southern sawlog pricing for 2014, and that's generally what we seen up 3% to 4%. We continue to have consistent demand from our customers, so we're not planning, at this time, any type of deferral as we look into 2015. We'll continue to keep a close eye on market conditions.

Just in terms of how we think about our harvest overall, what we look at is the financial maturity and the expected market demand, those are the factors that we use to build our harvest plans going forward, and we're working on those for 2015. We also, as you know and we've talked about, have the ability to flex some during the year and during a specific quarter, and you saw some of that earlier this year as we capitalized on stronger export prices in the first half of 2014 and 2015. And we'll continue to hopefully capitalize on those opportunities in 2015 and beyond.

Okay, great thanks, that's helpful. And just on the Wood Products, I don't know if you could quantify the type of volume declines you're looking for in the fourth quarter? Are these declines typical seasonal declines or are they driven by, I guess, a greater than expected drop in demand at all?

No, what we are talking about, Tyler, is just your typical seasonal type slowdown in the fourth quarter, as Patty said in our comments, the fourth quarter is typically the slowest seasonal period from a Wood Products perspective.

Okay, great. Thanks so much.

Thank you.

Your next question comes from the line of Gail Glazerman with UBS.

Thank you, good morning.

Good morning, Gail.

Maybe tagging on, on the question of 2015 outlook, again, I appreciate we'll get more either in December or January. But given the housing outlook that you put out for 2015, how do you think that affects the trajectory of sawlog pricing in the south? Do you think it's kind of more of the same? Do you see any chance for acceleration?

You know, Gail, our best guess on southern sawlog pricing is we will continue to see slow, steady improvement. I think the range we gave on housing 1.1 million to 1.2 million at the upper end of that range, I think you could see maybe an acceleration in pricing in southern saw logs, even above the 3% to 4% that we anticipate for 2014. If it's at the lower end of that range then maybe it's more in the 3%, 4%, 5% range that we've seen for -- or we anticipate for 2014 versus 2013, so that's our kind of best guess on southern sawlogs, in the near term.

Okay, thank you, and can you give a little more color on what you're seeing in terms of log export markets? How severe do you think the inventory situation is in China? How long do you think it would take to normalize, and X the timing of volumes to Japan, can you give us a sense of kind of the underlying trend in Japan, particularly relative to has it fully worked through the consumption tax at this point?

Sure, Gail, this is Patty. As we think about China, as I said, inventories are still at higher than normal levels and the takeaway is going a little slower than probably what we would have expected last quarter when we were on the call, but they are working their way through. That will probably take through the rest of this quarter, so we don't anticipate any significant change in direction for the quarter other than what I talked about earlier.

In Japan, I think that stepping back from that too, you'd have to say, there's the Japanese market overall but then there's also the customers that we have, and the customers that we have worked with, as you know, for some of them well over 20 years, are really talking to us about making sure that they get the volume that they need to support their operations. So they're large customers, they have very efficient supply chains, both in terms of the supply for logs but importantly as well, how they merchandise lumber in Japan.

So volumes in Japan, as I said, are primarily down because of timing. We had a little better shipment in the third quarter as Doyle talked about in his remarks, so we are still confident in our Japan volumes, although pricing will be impacted as we go forward based upon what things do overall. But we do expect our realizations to Japan for this quarter to be up a little bit because we'll have a little bit higher grade to Japan, relative.

Okay, thank you, and on the engineered wood, do you think the volume you saw in the third quarter is reflective of the underlying market or was it depressed due to payback from the outside strength in the second quarter?

I think we clearly saw, as we indicated after the second quarter -- or on the second quarter call, Gail, some pre-buying in the second quarter due to the price increase that went in late in the second quarter in our engineered wood business. So I think maybe if you average the two, that would probably be kind of the normalized rate but clearly, we had some pre-buying in the second quarter versus the third.

Okay and just one last quick one. Patty, can you possibly quantify, particularly since it seems like you're already done, what the outage expense would be for the fourth quarter in Cellulose?

Sure, Gail. As we looked at Cellulose Fibers, if you look at chart 9, where we detailed the maintenance expense and outage dates. So in the third quarter, we had about 38 days of maintenance down time. We would expect because we are now complete that, that would be about 14 days for the fourth quarter, so that's a difference of around 20 days, 24 days. As I've said in the past, each day is usually about a million dollars, so it's around $20 million delta from third quarter to fourth quarter which is the primary difference between our outlook for the fourth quarter as it compares to the third.

Okay perfect, thank you.

Your next question comes from the line of Alex Ovshey with Goldman Sachs.

Thank you, good morning everyone.

Good morning, Alex.

Engineered Wood Products, can you just talk about how engineered wood is performing in the marketplace relative to lumber and single family construction and any progress, if any, that has been made -- for the penetrating the multi-family end-market with engineered wood?

Sure. So in engineered wood, we continue to be, as I mentioned earlier, encouraged by the progress that we're making. As you see from our overall shipment numbers, we continue to gain in terms of capturing profitable share going forward and some of that is coming from multi-family. Still I don't want to mislead you. The key driver for engineered wood has been, and will continue to be a single family, but we have had some successes in moving into multi-family in terms of our engineered Wood Products.

Got it, and then at the Analyst Day last year, we talked about the performance in engineered wood and distribution, didn't materially improve and potentially those businesses would not be part of the portfolio. Longer term, obviously, we've seen very meaningful improvement in those businesses. So are we at a point now where the improvement is enough, where we can say that engineered wood and distribution will be part of Weyerhaeuser for the long term?

You know, Alex, the way I would answer that is, and I think I've said this earlier, is the $30 million to $40 million was necessary to show that we deserve the right to be in those businesses. I think we are delivering on that, so our next step now is to show that we can win in these businesses, and again, I will define winning as showing that we can earn above cost of capital in each of these businesses over a cycle. That's going to take some additional work in each of these businesses going forward, but that's what we're focused on doing, winning both from a cost of capital perspective and showing that we can be the leader in each of these businesses going forward. And that's the way we think about it.

Understood. Last one on share buybacks, so good to see that happen in the quarter. Should we read into it in terms of the amount and the timing, is that any sort of potential number that we could see consistently on a go-forward basis? Is that the sort of run rate we could think about on a go-forward basis that you could buyback?

I would read into it that we are committed to executing this share repurchase plan on a timely basis. The comment we made when we announced this authorization is this is when we fully anticipated completing on a timely basis. We will report to you, just as we did this quarter, the progress we are making going forward, but I wouldn't read into just to say we're going to do this amount every quarter based on what we did for half a quarter in third quarter of 2014.

Got you, thank you very much.

Your next question comes from the line of Chip Dillon with Vertical Research Partners.

Good morning, Doyle and Patty.

Good morning Chip.

First question is, we've seen a pretty interesting divergence of opinion in the last few weeks. One way you can, of course, buy timber is by buying your own stock and it looks like we've seen two of your competitors, one step up in pay pretty close to peak prices I guess for southern lands, and another of your competitors decide to focus on not only buying back stock but actually selling land into the strength to buyback stock. And I didn't know if you had an opinion on what you thought of land values, and I'm really thinking of the south at this point where there seems to be a divergence of opinion, and whether we would see a step up now or hang back.

Chip, I think you can look at our actions in terms of the way we think about things. Clearly, as we've already highlighted, we are in the market actively repurchasing our shares, so we are convinced that we are creating value for our shareholders for doing that. In terms of actively buying timber land, there's no doubt there are lots of opportunities out there. To do that in today's market, there's also lots of money chasing those deals. We look at those deals, each and every one of them that comes along, and as we said before we're going to be very disciplined in what we actually acquire and to date, we have not made any acquisitions in the south.

The type of transactions we're looking for -- again, actions are the ones that are along the lines of what we did in the Longview acquisition, and you can look at the type of returns that we are generating from that acquisition that we made last year. That's not a south versus west statement, Chip. We would look -- if the right opportunities are there, where we think we can grow value for shareholders, we would look at making acquisitions both in the west and in the south, but we're just going to continue to be very disciplined in the way we look at those potential acquisition opportunities going forward.

Got you, that's very helpful. Just a quick follow-up. Last year, I seem to recall that you all made a point of saying that lumber and OSB were a little more strategic in possible areas of growth through acquisition than say EWP and distribution. I just wanted to know if you are still open to making acquisitions if the right thing comes along in those two businesses that you've mentioned, and if those other two businesses, EWP and distribution, continue to improve as they've certainly done this year. Could they also be areas that maybe in a couple years you could see growing in?

Chip, I don't specifically remember making the comment that you just referred to, but let me talk about how we think about acquisitions generally. As we've consistently said, we think our biggest opportunities for acquisitions are going to be in our Timberland business, and with that said if we can find acquisition opportunities in our Wood Products business or Cellulose Fibers business for that matter, that will result in additional shareholder value, that's something we would look at. We don't feel compelled to grow any of our businesses, but again if we can find bolt-on type acquisitions in Wood Products or Cellulose Fibers that we think add value for shareholders, that's something we would potentially consider, but again, we think our biggest opportunities for acquisition will be in our Timberlands business.

Okay, thanks.

Thank you.

Your next question comes from the line of Steve Chercover with Davidson.

Thanks good morning, everyone. Just a couple cleanups. In engineered woods, can you please tell us what your operating rate was in the quarter and what you expect it to be in 2015?

The operating rate in the third quarter, Steve, continued to be in the [mid-7] range so roughly [70%- to 75%-type] range, operating rates in EWP in the third quarter, and we'll see what happens to housing, but don't think that number -- so I would anticipate as housing continues to improve that number could go up going forward.

And I was going to say, given that housing is kind of underwhelmed over the last couple years, is it appropriate to budget your production to the lower end of that 1.1 million to 1.2 million range, maybe particularly with respect to OSB?

Well yes, OSB is a different story, of course, and what I would tell you in OSB is we took 20 days of down time in the third quarter. In the fourth quarter, we would anticipate higher amounts of down time due to normal seasonal factors, holiday season, and some maintenance and capital projects that are going in place in terms of OSB in the fourth quarter.

Great. Final question, with respect to your understanding of MLPs, is converting logs into lumber panels and EWP also eligible or is it just for pulp-based businesses?

Steve as I said before, the IRS has a project, a very complete project, that they've undertaken and it seems they are taking a little bit longer than maybe what was anticipated when they announced the project, which was back toward the beginning of this year, so I think it's difficult to know really where they will come out on their deliberations.

What we do know, as I said before, was a number of years ago they did have a ruling on pulp, but whether or not they will modify that ruling, an application going forward and whether or not they would say anything about the other businesses is still yet to be known. So tough to give you anymore clarity. I wish we all had a little more clarity at this point but that's sort of what we know as we sit here today.

Thank you Patty.

Your next question comes from the line of Mark Weintraub with Buckingham Research.

Thank you. I too, like George, was looking at chart 7 where you had Wood Products volumes and pricing, and had something of a different question, and that's the lumber, engineered wood and if we threw plywood on here, it'd be the same, prices have been pretty good over the last 1.5 years. Obviously OSB has been a very different story.

There was a lot of restarts last year, but that was awhile ago. Any thoughts as to why it's taking so long for OSB to regain its footing, and what needs to happen for the markets to get into balance and more profitable?

Mark, I think you said it right. There's significant additional supply that came online. I think, in anticipation of maybe stronger housing starts than we've seen occur in the 2014 type time frame, so I think it's a simple supply and demand equation that appears to be out of balance currently and that is what has resulted in the current pricing environment.

Do you think there were any structural impediments to regaining balance, because I'm not sure the operating rates in engineered wood are higher or for that matter in gypsum than in OSB, it just seems to be that the market struggles to adjust to the demand situation. Any thoughts as to what impediments might be in place?

No, Mark, I don't think there are any long term structural impediments. OSB tends to be very volatile as you very well know, over a cycle, and I think we're just in one of those periods of low pricing currently.

You know, one thing I would say, Mark, that's different in the two technologies. OSB, when capacity comes on the market, comes on in pretty big chunks and people seek to run those mills 24/7 because of the type of operation that they are. So I think when new capacity starts up, as we saw a number of mills earlier this year, it takes a longer time for the market to absorb it, if the housing doesn't recover as quickly as I think what people anticipated as we started the year. So I think I would point to that as a difference between the two technologies.

Lumber, similarly, also is a more fragmented business that capacity comes on in smaller chunks than what OSB does.

Fair enough and certainly I realize it's not your jobs to be prognosticating on price actions, et cetera, but given your housing starts forecast for next year, is it feasible that OSB gets into balance or do you think we're still a ways away?

You know, Mark, I think as we move through 2015 and housing continues to improve, I think they are in the range that we laid out, you could see an environment again. We aren't prognosticators of pricing, we'll leave that to others, but I think you could see a point where that is more in balance going forward.

Thank you.

Your next question comes from the line of Paul Quinn with RBC Capital Markets.

Just following up on Chip's question on Timberlands transactions and trying to get your viewpoint by your actions. If you could give us a little bit more color on your non-strategic Timberlands sales, where is those happening, is it more west-based than south, and in terms of transaction values, are you seeing a steady increase over the last year?

Yes, so we have those in both the west and the south. I'll give you an example of one that was in the third quarter. It happened to be in Oklahoma. It was a track that was roughly 760 acres and it sold for $14,000-plus per acre, so that's an example of what we see occurring out in the marketplace right now. So some of it's truly non-strategic, some of it's more HBU-type land, and that's what we seen going on and we think we'll continue to be opportunities for us going forward.

Okay and just getting back to the Q4 outlook on lower lumber and OSB pricing, just specifically on the OSB side, it looks like those prices bottomed out in September and we've seen, depending on the region, but anywhere from 10% to 14% price lifts since that point. What's your level of confidence that prices will be lower quarter-over-quarter?

You know, again, we're not better than anybody else in predicting what's going to happen on prices. The number that I referenced earlier is, if you look at third quarter average versus October to-date prices, October to-date is down roughly $5 for our overall mix, so that will give you some sense of where we are today. Now again, that third quarter average -- you referenced into the third quarter but if you look at third quarter average versus October to-date, that's where we ended up.

Okay, fair enough. Great results in the quarter, thanks.

Thank you.

Ladies and gentlemen, we have time for one more question. Your final question comes from the line of Collin Mings with Raymond James.

Thank you, and good morning. Congrats again on the solid quarter. Just a couple of clean-ups here. Kind of a follow-up to Gail's question on Japan, you mentioned you're seeing better realizations in 4Q due to mix. How are like-comparable quality log prices, are they still falling in that market or are you actually starting to see some stabilization in lift on an apples-to-apples basis there?

I would say that Japan is stable as it relates to price overall. As I said, both in terms of the volume to Japan, we are also very pleased with the customer relationships that we have that really are focused on making sure that they have adequate supply in Douglas Fir logs in order to supply their large operations.

Okay thanks for that, Patty, and then as far as the Cellulose Fibers guidance for 4Q, could you see, as far as from an earnings contribution, a bounce back all the way to what you saw in 2Q or is it probably going to fall out somewhere between what we saw in 2Q and 3Q?

Well I think as you look at that, the major difference between the third quarter and the fourth quarter is going to be that roughly $20 million of maintenance expense that I referenced when Gail asked her question. There are some puts and takes in other -- I said liquid packaging realizations will be down, pulp pricing should be pretty stable, but the major difference between the two is that -- two quarters is that $20 million of maintenance.

Okay thanks, Patty, and just one last big picture question, Doyle. Kind of the follow-up to both Chip's and Paul's questions. Just given the strong bid for Timberlands right now, have you thought about just becoming more aggressive as far as capital recycling within the Timberlands business, more specifically, are there certain wood baskets in the US that you want to try and get more aggressive and have a bigger presence in and maybe exit some of the regions you are in now?

Just looking at your footprint in the region, there's some areas and states where we have a pretty large concentration and other areas where we're seeing arguably a little bit better signs of a price recovery in sawlogs that you're not in, so are you looking at kind of shifting some capital around within Timberlands from that perspective?

It's a good question, and as you I think know, and as we've talked about before, we're always looking to improve through trading and buying and selling the overall quality of our Timberlands and some of that may include, as you alluded to, potentially getting in markets maybe that we're not in, although we're in most of the markets currently. So those are things that we are considering. I have considered and will continue to consider going forward.

With that said, we have, as you know, a pretty good footprint in terms of both in the south and in the west in terms of where our strategic Timberlands is located and you know we're convinced that through growing and harvesting trees on that strategic Timberlands, we're going to be able to drive value for our shareholders going forward. But we're always looking to improve the overall quality of our Timberlands base and I think we've had some success in doing that historically, and we'll continue to look at opportunities to do that going forward.

Okay, thanks, Doyle.

Thank you. So as I understand it, that was our final question. As we wrap up this morning's call, I want to just remind everybody that we will be holding an Investor meeting on December 9, that's going to be at the Mandarin Oriental Hotel in New York. Our business leaders will be participating in that meeting. We're looking forward to that meeting and we look forward to seeing each of you there. So with that, thanks everybody for joining in on the call this morning and we thank you for your interest in Weyerhaeuser.

Thank you. This concludes today's conference call. You may now disconnect.