威爾豪瑟 (WY) 2014 Q4 法說會逐字稿

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

(Operator Instructions)

Thank you. I would 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 fourth-quarter 2014 earnings.

On the call with me this morning are Doyle Simons, CEO; Patty Bedient, CFO; and Beth Baum, Director of Investor Relations. 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 the earnings materials on our website.

I will now turn the call over to Doyle Simons.

Thank you, Denise, and good morning, everyone. As we entered 2014, we embarked on a journey here at Weyerhaeuser to grow a truly great Company. As we said at that time, the three primary levers we are pulling to drive shareholder value are portfolio, performance and capital allocation. Over the past year, we have made significant progress.

Specifically, in 2014 we divested our home-building business to become a focused forest products company, achieved our 2014 operational excellence targets, and improved earnings from our continuing operations before special items by 22% to $700 million, or $1.25 per diluted share, compared with $572 million, or $0.99 per diluted share in 2013. In addition, we increased our dividend by 32%, authorized a new $700-million share repurchase program, and within five months, completed nearly 30% of that authorization. Through these actions, we demonstrated our commitment to delivering shareholder value; and our total shareholder return for the full year of 2014 exceeded 17%.

Included in these full-year results are the strong fourth-quarter operating earnings we reported this morning. Weyerhaeuser earned $166 million, or $0.31 per diluted share, for the fourth quarter, on net sales from continuing operations of $1.8 billion. Excluding special items, we earned $145 million, or $0.27 per diluted share, an increase of 31% compared with the year-ago quarter. Special items for the fourth 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's performance with some brief comments on housing. Housing starts showed continued improvement in the fourth quarter, albeit at a modest rate. US housing starts totaled just over 1 million for 2014, an improvement of approximately 9% compared with 2013. We are confident that housing markets will continue to strengthen in 2015 as accelerating employment growth, strong consumer confidence, low mortgage rates, and initiatives to improve mortgage availability should support increased household formation. We anticipate over 1.1 million housing starts for 2015.

Let me now turn to our business segments, starting with timberlands, charts 4 to 6. Timberlands contributed $143 million to fourth-quarter earnings, compared with $136 million in the third quarter. In the west, fee harvest volumes increased as we were able to access tracks that had limited operations during the third quarter's fire season. Average realizations for western logs rose due to tighter domestic markets and a favorable export log mix.

Japanese demand remained solid during the quarter. Chinese demand slowed, and prices for Chinese export logs declined. Although Chinese inventories decreased during the fourth quarter, they remained above normalized levels, and the weak ruble improved the competitive position of Russian logs. Operational excellence initiatives to direct each log to its most profitable customer contributed to the strong performance in the quarter.

Our Longview Timber acquisition contributed $44 million of EBITDA in the fourth quarter. This acquisition has been fully integrated into our timberlands operations.

In the south, fee harvest volumes rose, and average realizations increased compared with the third quarter. Fourth-quarter earnings included $3 million from disposition of non-strategic timberlands, a decrease of $16 million compared with the third quarter.

Our timberlands business met or exceeded all of its operational excellence targets for 2014, including $184 million of EBITDA from the Longview acquisition, against a target of $175 million to $185 million; $29 million of synergies against a target of $20 million; and over $20 million of operational excellence improvements. We anticipate an additional $20 million to $30 million of operational excellence improvements in 2015 in this business.

I will now turn to wood products, charts 7 and 8. Wood products contributed $56 million in the seasonally weak fourth quarter, down from $105 million in the third quarter. Earnings for the segment were comparable to the fourth quarter of 2013, as benefits from our operational excellence initiatives offset a 13% year-over-year decline in average OSB realizations.

Wood product EBITDA for the fourth quarter of 2014 totaled $86 million compared with $135 million in the third quarter. In lumber, EBITDA totaled $65 million. Average price realizations declined approximately 4% compared with the third quarter. Log costs for western and southern mills increased, and per-unit manufacturing costs rose due to seasonally lower production volumes.

In OSB, EBITDA decreased by $4 million compared with the third quarter, due to a 4% decrease in average realizations. Engineered wood products reported fourth-quarter EBITDA of $14 million. A slight increase in average sales realizations was more than offset by seasonally lower sales volumes, and higher per-unit manufacturing costs due to reduced production volume. EBITDA for the distribution business declined $6 million compared with the third quarter, but improved by $5 million compared with the fourth quarter of 2013.

In 2014, the wood products segment achieved over $100 million of benefits from operational excellence initiatives, including delivering on our commitment to improve EBITDA in engineered wood products and distribution by $30 million to $40 million in each business. We have made good progress, but much more work remains to be done. As we continue our focus on operational excellence in 2015, we have committed to deliver an additional $25 million to $30 million of operational excellence from our lumber business, $10 million to $15 million from OSB, $15 million to $20 million in engineered wood products EBITDA, and $20 million to $30 million of EBITDA from distribution.

Let me now turn to cellulose fibers, charts 9 and 10. Cellulose fibers contributed $87 million to earnings, an increase of $28 million compared with the third quarter. Fluff pulp markets remained strong in the fourth quarter, and average pulp price realizations increased.

Maintenance costs at our liquid packaging board facility declined substantially, and production increased following completion of an extended outage that occurred primarily in the third quarter. As anticipated, liquid packaging board realizations declined in the fourth quarter due to a temporary shift in mix as we restarted the facility. Shipment volumes for that product also declined as a result of slowdowns associated with the West Coast port labor dispute. The cellulose fiber business finished the year with strong operational performance, with several mills setting annual records for uptime, productivity and quality. The business generated nearly $30 million of operational excellence improvements in 2014, and is targeting another $25 million to $30 million in 2015.

As I wrap up this morning, let me touch briefly on SG&A. At the end of 2014, we had achieved our $75-million run rate reduction target. Moving forward, we will continue to seek opportunities to simplify and reduce costs, to ensure that we have the appropriate cost structure required to win.

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

Thanks, Doyle, and good morning, everybody. The outlook for the first quarter of 2015 is summarized on chart 12. I will begin the discussion with timberlands. Fee harvest in the west is anticipated to increase seasonally. Western domestic prices are expected to move higher, and we are shifting supply into those markets.

Japanese volume will likely decrease due to softer overall Japanese housing demand and seasonal weather conditions. Sales realizations for China logs are expected to decrease somewhat, but the impact of softer prices is being partially offset by lower freight costs. Inventories at Chinese ports have been declining, but takeaway has not yet been strong enough to bring balances to normal levels. Demand is not expected to pick up until after the lunar holiday. Logging and road costs should decrease in the quarter as a result of harvesting lower-elevation sites and less road construction activity.

In the south, we expect fee harvest to decline seasonally. We anticipate slightly stronger pricing, although realizations will likely be flat due to a somewhat smaller log size.

Earnings from non-strategic land sales are anticipated at around $10 million, compared to $3 million in Q4. We expect earnings in our timberlands segment to be significantly higher than the fourth quarter, and up slightly from the first quarter of 2014.

In wood products, we anticipate higher sales volumes in Q1, compared to Q4, due to seasonal improvement in demand, and slowly improving housing markets. The increase in single-family starts, which improved by almost 8% in December on a seasonally adjusted basis compared to a year ago, is a positive sign. Channel inventories are very lean, so assuming a more normal spring building season, we should see a pickup in pricing.

Prices in lumber and OSB, however, have decreased since year end. But we expect realizations to improve as we progress further into the first quarter. Average realizations for engineered wood products are anticipated to decrease slightly, due to product mix. However, this decrease should be more than offset by higher sales volumes.

Log costs are expected to increase, while manufacturing unit costs should be lower on higher production volume. Resin costs should also decrease as a result of low oil prices. Overall, we expect earnings in our wood products segment to increase significantly in the first quarter compared to the fourth.

In cellulose fibers, days supply of global softwood inventory has increased to 31 days as of year end, which is above normal levels. The combination of a stronger dollar and the usual seasonal slowdown in demand is likely to negatively affect pulp pricing. We also expect to incur higher maintenance expense this quarter, as our largest fluff mill takes its planned maintenance shutdown. Sales realizations for liquid packaging are expected to increase this quarter compared to Q4, due to a more normal sales mix.

The problems encountered as a result of the West Coast port slowdown have continued into this quarter. So far this quarter, we have scheduled 13 days of downtime at our Longview liquid packaging board facility, due to the port situation. Although negotiations are under way with a federal mediator, the issues have yet to be resolved. In addition to downtime, we are also incurring additional dollars for increased freight and warehousing. We expect overall earnings in our cellulose fiber segment to be significantly lower in the first quarter compared to the fourth quarter, and likely more comparable to the first quarter of 2014.

Chart 11 shows the details of unallocated items. Earnings in Q4 were negatively affected, as unallocated items increased by approximately $23 million in Q4 compared to Q3. The largest increase was the change for profit and inventory in LIFO, which accounted for $14 million of the difference. Higher share-based compensation, as a result of the increase in the stock price during the quarter, accounted for an additional $8 million of the difference.

Referring to chart 13, I will now touch on some overall financial comments. Cash flow from operations for the fourth quarter was $304 million. Major uses of cash during the quarter included capital expenditures of $124 million, dividend payments for preference and common stock of $174 million, and share repurchases of approximately $80 million. This brings our total share repurchases for the year to just over $200 million, or approximately 30% of our current authorization.

We ended the year with total shares outstanding of approximately 524 million shares, down from approximately 584 million at the beginning of the year. The divestiture of our home-building business in the third quarter of last year resulted in retiring approximately 59 million shares.

Total capital expenditures for the full year of 2014, including reforestation, was $395 million. For 2015, we are expecting expenditures in the range of $480 million to $500 million, consistent with the guidance we gave at our investor meeting this past December.

I will now wrap up with an update on the status of our retirement benefit plan. The unfunded status of our defined benefit pension plans and post-employment retirement plans increased by approximately $820 million as of the end of 2014, compared to 2013. This increase in unfunded status was primarily driven by the implementation of new mortality tables and decreasing discount rates. The updated mortality tables accounted for approximately $400 million of the deficit increase, and the majority of the remaining change was due to decreasing the discount rates by approximately 80 basis points for both the US and Canadian plans.

We did not make any cash contributions to the US qualified pension plan in 2014, and we don't anticipate any cash contributions for that plan in 2015. Cash paid for all other pension and post-retirement benefits in 2014 was $101 million. We expect total spending in 2015 to be approximately $90 million. Our primary contributions in 2015 will again be to our Canadian plan for approximately $40 million, with the remainder going to pay for benefits under our supplemental pension plan, and other post-employment benefit plans, none of which are separately funded.

Chart 15 details pension and post-retirement benefit plan expense from continuing operations by segment. For 2014, the full-year nets to zero. Pension and post-retirement plan expense for 2015 is estimated to be approximately $40 million. The increased expense is driven by the adoption of the new mortality tables and decreased discount rates.

Now, I will turn the call back to Doyle, and I look forward to your questions.

Thank you, Patty. In 2014, we demonstrated our commitment to driving shareholder value by improving performance through operational excellence and returning cash to shareholders. As we enter 2015, our priorities remain unchanged. We remain relentlessly focused on driving operational excellence to fully capitalize on our improving markets, and deliver value to our shareholders.

And with that, I would like to open up the line for questions.

(Operator Instructions)

Your first question comes from the line of Mark Wilde with BMO Capital Markets. Please go ahead with your question.

Good morning, Doyle. Good morning, Patty.

Good morning, Mark.

Good morning, Mark.

Wondered if the two of you could talk a little bit about the impact of FX moves across your overall portfolio. You've made a couple of references to this in the commentary already this morning.

Mark, let me talk generally about the effect of the stronger dollar across our businesses, and then I'll ask Patty to fill in any of the details. But, just generally, a stronger dollar generally is not a positive for Weyerhaeuser. In terms of Japanese logs, what we've seen is the demand has not been affected by the strong dollar, as I referenced and Patty referenced in our comments. But if it continues, it could potentially affect our price.

In terms of Chinese logs, what's happening there is the weak ruble is making Russian logs less expensive than US logs. That, of course, reduces the price that the Chinese are willing to pay. Now, with that said, as you very well know, there is a practical limit on just how much Russia can provide. And the other thing is, we are -- as prices are not at desirable levels, we are able to redirect some of our logs to domestic markets and those domestic markets are holding up very well.

In terms of wood products, the Canadian lumber mills are benefiting from the higher margins on shipments to the US overall. And then, on cellulose fibers, as Patty alluded to, the strong dollar at this point has not affected demand, but we do anticipate lower prices due to considerable pressure from fluff customers primarily in Europe and, currently, India's K prices are under some pressure. That's the big-picture impact of what's happening because of the stronger dollar.

All right.

Sure, the other thing that I would add -- I think Doyle really went through all of the businesses -- I would just call your attention to chart 11 that I talked to in my comments. And you will notice there that there is an FX loss, both in the third quarter and the fourth quarter. That's really a function of US dollar denominated debt that is held by our Canadian subsidiary.

So, as the Canadian dollar depreciates, as it did in the fourth quarter, that takes more Canadian dollars to pay off that loan. So that's what generates the bulk of that loss there. Now, as we look forward into Q1, the Canadian dollar to date, I think, has depreciated even more than it did in the fourth quarter. But that will be driven, ultimately, by whatever the exchange rate is as of the end of the quarter.

Okay. And then, Patty, if I could ask just one follow-on, I wonder if you could talk a little bit about that big cash position you're sitting on, yet the rationale for holding so much. And tied with that, how you think about the -- completing the remaining share repurchase authorization? You have about $500 million out there yet.

Yes, so we are very committed to completing that authorization, and we have a little under $500 million left to go. The other thing I would say is that we think we should have a cash balance somewhere between $300 million and $500 million. We do have significant cash yet to create additional value for shareholders, and we'll be talking about that as we go into 2015 and have been discussing that.

But I really don't have anything more to add in terms of what we would use that for, other than just to reiterate that our priorities for capital allocation are, first and foremost, returning cash to shareholders, investing in our businesses, and maintaining our appropriate capital structure. And, to that end, I should probably add that, in January, we did receive an upgrade in our investment rating to BBB from BBB- from S&P. So I think our capital structure is in good shape.

Okay. Very good.

Your next question comes from the line of George Staphos with Bank of America/Merrill Lynch. Please go ahead with your question.

Good morning, this is actually John Babcock sitting in for George. How are you doing today?

Good. How are you this morning?

Doing very well. I know you talked a little bit earlier about the performance improvements and, first of all, I was wondering if you could discuss how everything is going on that front, especially in 4Q. And, additionally, are there any segment performance goals that are looking more difficult to achieve than when you presented back in December? And then, lastly, and with the G&A expense reduction in the fourth quarter, where was that ultimately focused?

In terms of our OpEx targets, we continued to make progress in the fourth quarter of 2014, and ended up essentially in line with what we laid out at our December 9 presentation. So, we are encouraged by the progress we continue to make.

In terms of 2015, as we specifically laid out on December 9, we think there is a lot of additional opportunity. We identified $20 million to $30 million of additional OpEx opportunity in Timberlands; another $20 million to $25 million in lumber; $10 million to $15 million in OSB. In ELP, here again, the target is improving EBITDA, and that's $15 million to $20 million of EBITDA improvement in 2015; $20 million to $30 million of EBITDA improvement in distribution business; and then $30 million to $35 million in cellulose fibers.

Overall, very encouraged by the progress we're making, but still, as I mentioned in my comments, still a lot of work to do in front of us. But we are very focused on getting that to the bottom line in 2015. Regarding your SG&A comment, if you -- or question, if you'll re-ask that so we make sure we're responsive to your question.

Yes, I was just wondering, it looked like G&A expense had come down in the fourth quarter and I was just wondering ultimately what drove that.

That was just a -- when we laid out our SG&A target back at the end of 2013, we said it would take the balance of 2014 to get it fully implemented. We continue to make progress in the fourth quarter and, by the end of the fourth quarter, we were at the run rate of above $75 million in terms of our SG&A target. So, encouraged by the progress we've made there. And, as I mentioned, we've achieved that target, but we'll constantly be looking for opportunities to make sure we have the appropriate cost structure going forward.

Mike, actually, as you look at Q3 to Q4, Q4 is up over Q3, and that's really just a function of some of the timing that happens with year end, as well as the additional items in unallocated, as I spoke about -- share-based comp, et cetera. But, as Doyle said, we feel very confident about that $75 million reduction run rate.

Okay. Great. Thank you for the color there. And then, next, before I pass it on, I just was wondering, on the cellulose fibers front, first of all, it looks like liquid-packaging realizations were down a little bit in 3Q. And I was wondering if most of that was seasonal in nature or if there's any impact ultimately from the port disruptions. And then, on top of that, how are the mills performing on the 18-month maintenance schedule?

Well, as it relates to the liquid-packaging realization, the decrease in the fourth quarter wasn't driven by the port disruption. It was driven by the fact that we had -- we were bringing up Longview liquid packaging as a result of the extended outage that we had in Q3. So, it's just a little mix of lower-grade board in the startup of that facility coming up from the outage. You'll see, in Q1, as I referenced in my comments, that the sales realization will increase in the first quarter, more consistent to where we were on a more normal sales mix. So, the fourth-quarter decrease is really just a mix issue, from the startup of the machine.

Okay. Great. And then, on the maintenance schedule, briefly?

Yes. On the 18-month schedule, we are on track, fully implemented for that. It will vary from year to year as that 18 months hits, but we're pretty much on schedule to do that. As I mentioned, our largest fluff mill goes down this quarter, so that's our maintenance outage that we have in Q1.

Okay, great. Thanks for the color. I'll get back in the queue.

Your next question comes from the line of Mark Weintraub with Buckingham Research. Please go ahead with your question.

Thank you. Was hoping to get a bit more color on your encouraging comments on wood products prices expected to go higher as the quarter progresses. And maybe if you can just kind of contextualize, why they've been weak quarter to date and what you think -- and what degree of confidence you have that indeed they are going to turn.

Mark, as you know, predicting prices is always difficult. Currently, as we alluded to, lumber prices are down slightly versus the fourth-quarter average, and OSB prices are down about $5 versus the fourth-quarter average. We, in talking to customers, understand that inventory levels are very lean. We also believe, as we said, that how things are going to continue to improve. Our thought is as we move into -- closer to the stronger seasonal period, that we will see a rally in lumber and OSB prices as we move throughout this quarter.

Our comments, to your point, are predicated -- regarding significant improvement in earnings and wood products in first quarter versus fourth quarter, are dependent on pricing. But we do believe -- our crystal ball tells us that we will see higher prices as we move through the quarter in wood products, but time will tell.

Thank you. And do you have any view as to what's been pressuring prices of late? Are there some weather-related issues, or is there -- obviously, seasonally it's not a great time, but any added color you might have that -- anything unusual going on or just part of the seasonal process?

I think it's mostly the seasonal process, Mark. There have been some weather-related events. I don't need to tell you all. You all lived through, or at least the folks to the north you all lived through one earlier this week. I think there have been some isolated weather incidences. So far we haven't had the type of weather overall that we had last year first quarter. So, I think it's mostly seasonal.

I think it is some people being very conservative on their buying. As I said, inventory levels throughout the system are very lean. And that's part of why we believe that prices are going to rally because as demand does pick up, as we get closer to the spring building period, we believe it's not going to take a lot of pickup in demand to have a impact on pricing moving forward.

Okay. That certainly all makes sense. Just lastly, as you think about the dividend this year, can you remind us what the key metrics you'd be looking at that would determine any action you might want to take on the dividend later in the year?

Let me just make a general comment about the dividend. It goes back to our overall levers we're pulling, and we clearly understand that the capital allocation is a key lever to driving shareholder value. As we've consistently said over and over, our number one priority in terms of capital allocation is returning cash to shareholders through a growing and sustainable dividend. As you know, we increased our dividend by over 30% in 2014.

And I'll just tell you, we'll be working with our Board later this year to determine the appropriate dividend level going forward. We have given general -- and I reference it as a general guideline -- of 75% of FAS over a cycle, in terms of dividend level, but again, that's just a guideline. But we do, in fact, understand the importance of growing our dividend, and that's something we intend to do -- continue to do going forward.

And would it be fair to say that you'd consider 2015 to be -- the way it looks now, to be not an above-average year, given that housing is still at fairly depressed levels, or --?

Yes, that's a fair comment. As we've said, we anticipate housing this year will be north of 1.1. But that's still a long way from average 1.4, 1.5, 1.6, so I would agree with your commentary.

Thank you.

Thank you.

Your next question comes from the line of Mark Connelly with CLSA. Please go ahead with your question.

Thank you. Two things. Doyle, first, how are you thinking about the relative value of US versus non-US timberland acquisitions? And then, secondly, as you think about the targets you're setting for wood products for 2015, is the emphasis different than it was in 2014? I'm just curious, because you achieved a lot so fast in those businesses, and I'm wondering if you've got to do something different to get the next layer up?

Mark, in terms of the relative value of US versus non-US timberland, as we've said before, we look at all opportunities to grow our timberlands, both domestic and non-domestic. I will tell you I think our bigger opportunities going forward will probably be in the US. We will look internationally. I think one of the things we need to be sure and do when we look internationally is risk adjust, based on the international exposure, and we'll continue to do that going forward.

As you know, we have a very good plantation position in Uruguay. Those trees are -- we have a very good team there. Those trees are very well positioned and growing really fast, and those markets continue to develop over there. So, I tell you, we'll look both, but I think our bigger opportunities to grow our timberlands will be domestic going forward.

In terms of our wood products, operational excellence targets, Mark, thanks for the comment. We did make good progress in 2014, but, as I said, we've still got a lot of work to do in that business. Now, I'm not going to tell you it's going to be easy. As you continue to make progress on these, you've gotten some of the low-hanging fruit, so you've got to remain very focused on delivering that to the bottom line. That's why we set very specific targets and have very specific plans on how we're going to get there, both from the sales perspective, as well as the cost perspective.

We're very focused on pulling every lever that we can pull to continue to drive OpEx improvements in the wood products business and are confident we're going to reach the targets that we set out in 2015. But, to your point, it will get harder as we move forward, but I'm confident that we have the team and the focus to accomplish the goals that we've set forth.

Thank you.

Thank you.

Your next question comes from the line of Gail Glazerman with UBS. Please go ahead with your question.

Hi, good morning.

Good morning, Gail.

Good morning, Gail.

Can we go back to some of the comments about currency and how that might flow into some of the markets? Have you seen -- can you give any sense of magnitude to the shift that you might have seen in Russia and maybe more detail? Have you seen any signs of Canadian lumber being redirected from China into the US? And, if so, any concerns that, that might affect some of the Western markets?

Gail, as you would expect, it's hard to know exactly what's happening in the Russia situation. Clearly, we are hearing and seeing that there's more wood coming -- more logs coming from Russia into China. I think most of that's in northern China, as I understand it. I think, depending on what happens to the ruble, that's something that could continue. But, as I outlined, there are some practical limits based on just how much can come just from the infrastructure challenges that Russia has had historically and we believe will continue to have going forward. Patty, do have you any thoughts on the Canadian question and any redirect from lumber coming from -- that had been going to China that's being redirected otherwise?

Well, I think that, that is something that is happening. We haven't seen a big pickup in lumber volumes overall yet. So, I think to the extent that we'll see it, we'll see it more as the spring building season continues. So, it will be something that will impact us going forward. We do have some Canadian operations ourselves, as well. And, Gail, you referenced the Western prices, I think that, also, Canadian lumber coming in puts pressure on the US South as well. But, so far, it's not been a huge piece.

Okay. And can you give any insights into how your oil and gas income might be impacted by the recent collapse in oil prices?

Let me give a couple of sensitivities to that, because I think we've done some work on that exact issue. As you think about oil and gas prices, specifically oil prices, going down, there's some give and take that you would expect. But as we think about sensitivity, specifically to diesel prices, and how that flows through, I would tell you that we think there was probably a $4 million to $5 million benefit in our earnings in fourth-quarter 2014 as a result of lower diesel prices.

And that's probably $2 million to $3 million in Timberland, a couple million in -- or a couple million in Timberland, a couple million in wood products and maybe $1 million in cellulose fibers. Going forward, we would tell you that every roughly $0.10 decline in diesel prices, flowing it through the system, would result in -- somewhere in the $5 million benefit. Again, with the relative ratios like I outlined earlier in terms of the various businesses. So, o an annual basis, every $0.10 reduction in diesel prices will have a bottom line $5-million impact.

Now, there are some offsets as you just alluded to, Gail. One of them is, we continue to face increasing base rates for truck and rail carriers as those continue to be tight. So that will somewhat offset some of the benefits I just outlined. And then, to your point, if oil prices remain at the levels that they are currently, it will take a little time, but that would have a negative impact on our mineral income going forward. Just how much is hard to know. We haven't seen a big impact so far. But, again, if oil prices stay $50 or south of $50, that would have some impact going forward as we continue to look at ways to maximize the value from our mineral resources.

Okay. Thank you. And just one last quick one. Patty, can you spot us, or give us any perspective on how much pulp maintenance will be in the first quarter?

Yes, I think that we'll have an additional, in the fourth quarter, somewhere I would expect around $10 million to $15 million in additional maintenance expense. We'll have some decrease as a result of the effect of less productivity because of maintenance. As I said, as you think about the overall earnings for the pulp segment -- or cellulose fibers segment, it's a little difficult to project. So, we try to give you a little more color on that in that we said it would be significantly lower than the fourth quarter, but probably comparable to the first quarter of 2014, which I think was somewhere a little bit north of 50, maybe 54.

Okay. Thank you.

Your next question comes from the line of Chip Dillon with Vertical Research Partners. Please go ahead with your question.

Good morning, this is James Armstrong standing in for Chip.

Good morning, James.

First question is, in wood products, with oil prices down significantly, how much impact have you seen on resin and chemical costs so far? And, could you remind us of the cost buckets for that business?

Yes. So, James, the sensitivities that I just outlined for Gail -- or we just outlined for Gail, in terms of diesel prices, includes the improvement in resin. But you're exactly right. That's where the biggest opportunity is in terms of the lower oil prices, is in the resin that we buy for our OSB and ELP businesses. The biggest component of what I just outlined is prices. As oil prices move down, resin prices are moving down, and the sensitivity I gave earlier is making the correlation between diesel and resin, and then flowing that through to the bottom line.

Okay. That helps a lot. And then, switching gears, any chance to retire debt in the next year? I just was wondering if there are any lockups, or what's going on there?

Sure, as you think about the debt, we don't have any maturities due until 2017. And for us to retire that debt, in terms of the premiums we would have to pay, really don't make it very economic to do that. Depending upon the issue, it's probably a premium of somewhere between 25%, 30% plus. We do continue to look at it. But it doesn't really seem to make a lot of sense to us at this point.

Perfect. And then, lastly, could you just give us an update on what you expect the 2015 tax rate to be?

Sure. The tax rate always is dependent upon the mix of REIT income, which the tax rate is zero, and TRS income, which is -- would be somewhere around 33%. There are two things that drive that. One is the rate overall, which is dependent upon the mix, but we would expect that we'd be somewhere around 18% to 20%.

Okay. That helps. Thank you very much.

You bet.

Your next question comes from the line of Tyler Langton with JPMorgan. Please go ahead with your question.

Thanks, good morning.

Good morning, Tyler.

I was just wondering, in the West for Timberlands, I know it's still early, but do you think domestic demand at this point is still strong enough to offset the weaker demand that you're seeing from the export markets at this time?

As we talked about, at least in the first quarter, we anticipate that we will have higher earnings in Timberland. And, clearly, a component of those higher earnings versus the fourth quarter, Tyler, are higher price, and that's primarily due to domestic prices being higher, as you just alluded to, and some mix issues. We'll see how it plays out going forward. But, as we said, domestic prices are in good shape, and we think that could continue.

We'll just have to see what happens in terms of -- I think the biggest challenges we talked about is in the Chinese markets. We'll get through the lunar holiday. As we talked about, inventories have come down, they're not back to where normal is, but they have come down. So, our guess is those markets will stabilize in the second half of the year as well.

Okay. And then, I would just -- another thing in terms of your export log volumes, China has slipped, they had been accounting for around 30% of your volumes and they were around 25% this quarter. Is that anything -- is that a deliberate effort on your part, just given the weakness over there? Or, really, is that just a function of demand from China has just slowed a lot more than demand has slowed out of Japan?

I would say it's both, Tyler. Part of it is we have seen a little bit of falloff in demand in China, as we alluded to, but we also made the conscious decision to redirect some of those logs domestically because of the strong prices that we're seeing on the West Coast. So, it's a combination of both things.

Got you. And I think, just finally, on the engineered-wood products side, I know that you've had two quarters of pretty significant production declines. Have these been more temporary cuts and given volumes [dribble] down more towards the levels that we saw in the first half of 2014? Or do you think volumes should grow more in line off of this lower base? Just any thoughts on that going forward.

I think the declines, one of them was the -- it happened because of the second and third, as we put in a price increase, and moving some volume forward to the second versus the third. And then the falloff in the fourth quarter, from our perspective, was purely seasonal. So, as we move in to the stronger seasonal period, first quarter and then second quarter, we would anticipate a nice rebound in volumes in our engineered-wood products business.

Great. Thanks so much.

Thank you.

Your next question comes from the line of Paul Quinn with RBC Capital Markets. Please go ahead with your question.

Thanks very much, and good morning.

Good morning, Paul.

Just two easy questions today. Just one is, you referenced opportunities in timberland in North America, just wondering if you could comment on the competitive landscape out there and whether you're looking at bigger things or smaller things?

As you know, it's been pretty active in terms of activity in both the South and the West. In terms of the competitive landscape, I still think there's a lot of money out there that is looking to invest in this asset class. In terms of the way we look at it, our key criteria are we clearly are looking for opportunities that generate appropriate returns and cash flow, both short term and long term. We look for opportunities where we can strengthen our access to strategically important markets for us, or move into new markets that we may not be in, although we're in most markets, as you know.

Also looking for opportunities to where we can get synergies, and I think Longview's a very good example of where we were able to do some things to get some unique synergies. And then, finally, to your point, we're looking for scale opportunities. Now, that doesn't mean we won't do some small deals, and we're always in the markets doing some small deals. But we're really looking for some scale opportunities to continue to grow our timberland if we can find those right opportunities going forward. So, that's the way we think about it.

Okay. Great. And then, turning over to the softwood lumber agreement, one of your competitors on the timber REIT side this week said that he thought that the softwood lumber agreement served its purpose and really no longer needed. I'm just wondering what Weyerhaeuser's position is. Are you happy with the current agreement? Do you want to see higher import duties? Or is it the latter, the no longer needed?

I wouldn't say some type of agreement is no longer needed. As you know, as we've talked about, the agreements that expire later this year -- I can tell you there's a lot of discussion from folks on both sides of the border, discussing options for renewing that agreement. And I can also tell that you we are very actively involved in those discussions.

Okay. That's all I had. Best of luck. Thanks.

Thank you.

Ladies and gentlemen, we have time for one additional question. Your final question comes from the line of Anthony Pettinari with Citi. Please go ahead with your question.

Good morning.

Hi, Anthony.

Hi. I had a question on cellulose fibers. Given we've seen a slowing of emerging market economies and a very strong dollar, I was wondering, as we start the year, putting aside the West Coast port issues, are you seeing any change in customer buying behavior or any slowing of demand for fluff? And then, a related question, you have a competitor who's talked about converting a fair amount of new fluff capacity next year, and I think you've debottlenecked some capacity as well. I was just wondering how you're thinking about the fluff supply/demand balance over the next year or so.

Sure, Anthony. As it relates to demand for the product, demand has continued to be very strong. Having said that, I think that we will likely have some downward pressure potentially on price. Just given what's happening with the economies in Asia, as well as just currency flows. So far, we've been very pleased with the demand outlook for fluff. It does continue to grow, but depending upon what happens with some of those developing economies, we should -- could see some softening a little bit there. But really haven't seen it at this point.

As it relates to conversions, I wouldn't want to speculate too much. Because it will take some time for any conversion to come into play. And then, it will just be a function of what the overall market is at that point in time. One thing I would say is that, as we've talked about before, the higher-quality fluff product, which is where we play primarily, does have consumer product companies like Procter & Gamble, who are pretty picky about the quality. So, not only does it take time to actually do the conversion to the product, it also takes time to qualify that product. It's something we are watching very carefully and being very thoughtful, as we go forward. But the current state is that the demand is pretty solid.

Okay. That's very helpful. And then, maybe just switching to wood products, you've made some very impressive performance improvements in distribution this year -- or last year. And I think you referenced the $20 million to $30 million improvement target for 2015. Can you drill down a little bit on the kind of the levers you're going to pull to drive that EBITDA improvement in distribution this year? And can you talk a little bit about the strategic importance of distribution as part of the broader wood products portfolio?

In terms of the levers that we're going to pull, they're essentially the same levers that we pulled in 2014. It's just continuing to be focused on those. As Cathy Slater talked about in our December 9 presentation, it's really a focus on what we call the five S's, which is sorting, selling, stocking, storing, and shipping. It's basically the blocking and tackling of making sure we're continuing to do things to drive down our cost structure where it needs to be, and then making sure we're doing things on the sell side to maximize the profit margins of what we run through our distribution system.

In terms of how we think about distribution, as I've said before, we -- that's a business where, frankly, we've underperformed for a number of years. We needed to show that we could make dramatic improvements in that versus in terms of overall EBITDA improvement and where we stack up competitively. We started to do that in 2014. But still a lot of work remains to be done. In terms of how we think about it going forward, that's a business where we need to show that we can win by out-executing the competition and generate returns well in excess of our cost of capital over a cycle, and that's what we're focused on doing currently.

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

Great. Thank you. Okay. As I understand it, that was our last question. I would just like to end by saying thank you, everybody, for joining in this morning. More importantly, thank you for your interest in Weyerhaeuser.

Thanks, everybody.

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