威爾豪瑟 (WY) 2015 Q1 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 first-quarter 2015 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, ma'am.

Thank you, Brent. Good morning, everyone, and thank you for joining us today to discuss Weyerhaeuser's first-quarter 2015 earnings. On the call with me this morning are Doyle Simons, CEO; and 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 material on our website.

I will now turn the call over to Doyle Simons.

Thank you, Denise. And good morning, everyone. This morning Weyerhaeuser reported net earnings for the first quarter of $90 million or $0.17 per diluted share on net sales of $1.7 billion. Excluding a $9 million after-tax charge related to a nonstrategic asset we are $99 million or $0.19 per diluted share.

We were pleased with our first-quarter performance in Timberland and wood products as our operational excellence and efforts enabled both businesses to improve earnings compared with the fourth quarter despite weaker market conditions. Our cellulose fiber business faced several challenges in the quarter, including ongoing West Coast port disruptions, a strengthening US dollar, and a slower than expected restart of our largest fluff mill following a scheduled maintenance outage. Our earnings before special items also included non-cash foreign exchange losses of approximately $0.04 per diluted share related to debt held by our Canadian entity.

We continue to aggressively execute our share repurchase program. During the first quarter we repurchased over $250 million of common shares. In total, through the end of the first quarter, we had repurchased over $450 million or 65% of our $700 million share authorization.

I will begin the discussion of our business results with some brief comments about the housing market. US housing activity paused in the first quarter as severe winter weather delayed the spring selling season and disrupted construction activity throughout much of the country. Although reported new home sales were lower than anticipated in the first quarter, we are encouraged by the recent positive homebuilder sentiment regarding an improving spring home selling season.

Employment growth, strong consumer confidence, and historically low mortgage rates should support improvement in new home sales this year. Our outlook for 2015 remains unchanged at approximately 1.1 million starts.

Let me now to enter our business segment starting with Timberlands, charts 3 to 5. Timberlands contributed $162 million to first-quarter earnings, an increase of $19 million compared with the fourth quarter. Operational excellence initiatives related to cost efficiency and log merchandising more than offset the effect of softening Western markets and unusual winter weather.

In the West average log sales realization has declined. This decline is primarily due to a shift in mix as we sold fewer logs into export markets as the continued strengthening of the US dollar pressured demand and pricing for our export logs.

Sales volumes to Japan declined due to seasonality weaker demand and a slightly softer housing market following last year's increase in the consumption tax. However, average sales realization for our Japanese logs improved slightly due to favorable mix. Chinese demand remained low throughout the extended lunar new year period and inventories remain at elevated levels.

The combination of lower export log demand and unusually favorable logging conditions generated an oversupply of logs in Western domestic markets. And domestic log pricing weakened during the quarter.

In the South, unusually wet weather slightly amplified our normal seasonal decline in fee harvest volumes. Average sales realizations for southern logs were comparable to the fourth quarter.

First-quarter included earnings of $17 million from disposition of nonstrategic Timberlands, an increase of $14 million compared with the fourth quarter. The Timberlands business continues to expect $20 million to $30 million of operational improvement in 2015 from efforts related to log merchandising, harvesting, transportation and silviculture efficiencies and non-timber revenues.

Wood products -- charts 6 and 7 -- wood products contributed $62 million to first-quarter earnings, an improvement of $6 million compared with the fourth quarter. EBITDA increased to $88 million. Results were comparable to the first quarter of last year as benefits from operational excellence initiatives helped the business offset lower year-over-year sales realizations of nearly 15% in OSB and 7% in lumber.

In lumber, EBITDA was unchanged compared to the fourth quarter as the business fully offset a 3% decline in average sales realizations, with benefits from operational excellence initiatives to reduce manufacturing cost net of logs and overhead expenses. In OSB EBITDA decreased by $3 million. Average sales realizations declined 5% compared with the fourth quarter. This decline was largely offset by reductions in manufacturing cost.

Engineered wood products reported first-quarter EBITDA of $26 million, an increase of $12 million compared with fourth quarter and $18 million more than the first quarter of 2014. Sales volume rose across all product lines primarily due to stronger demand in the West. And per unit manufacturing cost improved due to higher production volumes and operational excellence initiatives.

EBITDA for the distribution business declined by $2 million compared with the fourth quarter but improved $2 million compared with the first quarter of 2014. This business remains focused on improving the margin and lowering costs. Our wood products businesses continue to target 2015 operational excellence improvements of $20 million to $25 million from lumber, $10 million to $15 million from OSB, $15 million to $20 million of additional engineered wood products EBITDA, and $20 million to $30 million of additional EBITDA from distribution.

Cellulose fibers -- charts 8 and 9 -- cellulose fibers contributed $33 million to earnings compared with $87 million in the fourth quarter. The West Coast port dispute significantly affected our cellulose fiber business throughout the quarter. Although a tentative contract agreement was reached in late February, productivity at the ports of Seattle and Tacoma remain well below normal due to continued congestion at the container terminals. Both ports are also absorbing volume from carriers that have canceled service at the port of Portland.

As a result of the disruption we incurred 13 days of downtime at our liquid packaging facility, as well as incremental warehousing and transportation costs throughout the segment. In total, the port disruption affected segment earnings by approximately $15 million in the quarter. This was significantly more than we had originally anticipated.

Turning to our pulp mill system, pulp markets weakened during the first quarter as global inventories remained above balance levels and a strengthening US dollar pressured broader market pricing. Average pulp sales realizations declined due to slightly softer pricing for pulp, weaker pricing for our premium towel and tissue grades, and an unfavorable product mix.

The first quarter also included higher maintenance expense for a planned outage at our largest fluff mill. The restart of this mill took longer than anticipated resulting in lower production and higher per unit manufacturing costs. This mill is now running well.

The cellulose fiber business remains relentlessly focused on delivering operational excellence improvements of $30 million to $35 million in 2015. I will now turn it over to Patty to discuss our second-quarter outlook.

Thanks, Doyle. And good morning, everybody. The outlook for the second quarter is summarized on chart 13 and I will begin the discussion with Timberlands.

In the West, log export volume is expected to improve from Q1, consistent with higher seasonal construction activity. Log prices are likely to remain under downward pressure due to the combination of currency headwinds and higher than normal inventories in China. Western domestic log prices and volumes have continued to decrease through the first part of this quarter, but we anticipate they will stabilize as housing activity begins to improve and mill inventories come back into balance. Fee harvest in the West will decrease slightly and road costs are expected to increase seasonally.

In the South we anticipate pricing consistent with first-quarter levels. We expect typical seasonal increases in the fee harvest and silviculture costs. In Q1 the gain on nonstrategic land sales was $17 million. We anticipate only minimal land sales in Q2. In total, we expect that earnings in our Timberlands segment will be lower in the second quarter compared to the first.

Moving to wood products, thus far in the quarter prices for lumber and oriented strand board have continued to soften and are currently below the average sales realizations for last quarter. However, we do expect this trend to reverse as weather improves and building activity picks up. As a result, we anticipate that average realizations in the second quarter for both lumber and OSB will be similar to Q1 on seasonally increased volumes. Volumes in engineered wood products are expected to increase significantly with little change in pricing.

Western log prices should decrease compared to the first quarter. And per unit manufacturing costs will likely be lower due to higher operating rates and our operational excellence initiatives. Overall, second-quarter earnings in the wood products segment are expected to be significantly higher than Q1.

In cellulose fibers, pulp prices have been negatively affected by foreign currency exchange rates and higher than normal inventory levels. Second-quarter average sales realizations are anticipated to be lower than the average for Q1. The effect of lower realization should be partially offset by increased sales volumes.

While the disruptions caused by the West Coast port dispute have lessened, we continue to have some negative effects in the second quarter. We will have an extended outage at one of our southern fluff mills in order to perform scheduled maintenance and to install energy-related capital improvements. These improvements include installation of a turbine generator and upgrades of the boilers and steam and power systems.

Benefits include lower manufacturing costs through improved reliability, improved energy efficiency, and increased outside power sales. This second-quarter outage is anticipated to result in more than twice the number of outage days compared to the 17 days in Q1.

We expect maintenance expense will be approximately $15 million higher in Q2 compared to Q1. As a result of this extended outage, overall earnings in the cellulose fiber segment are expected to be lower in the second quarter compared to the first. We have only one mill maintenance outage scheduled for the second half of the year, and therefore earnings in the second half of the year should be significantly higher than the first.

Chart 10 details the major items of unallocated costs. Q1 expense before special items increased to $41 million from the fourth quarter level of $13 million. As Doyle mentioned the major item was the non-cash foreign exchange impact of $29 million resulting from the weaker Canadian dollar. In Q2 we expect that the total expense for unallocated items will be closer to the fourth-quarter level before considering the effect of foreign exchange rates.

Now I will wrap up with some overall financial statement comments. I'll refer you to chart 11 for this discussion. Cash for the quarter decreased $422 million. Cash flow from operations was $77 million. As you can see from the chart the first quarter is typically our lowest quarter due to seasonality.

Major outflows in the first quarter were as follows. Capital expenditures were $89 million. We continue to expect that total capital expenditures for the year will be approximately $500 million. We paid $152 million in dividends and repurchased shares for $253 million. The share repurchase activity is summarized on chart 12. As of the end of the first quarter we had just over $240 million remaining on the $700 million authorization that we announced last August.

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

Thank you, Patty. We are optimistic that housing markets will strengthen throughout the remainder of 2015, and look forward to improving demand as the spring selling and summer building season progresses. Going forward, our priorities remain unchanged. We are relentlessly focused on improving our performance through operational excellence and delivering on our priorities for capital allocation.

And now I would like to open the floor for questions.

(Operator Instructions)

Mark Weintraub, Buckingham Research.

Thank you. I just wanted to focus in a little bit more on the cellulose fiber segment, just to make sure I understood what was said. I believe you said that the maintenance costs would be as much as $50 million higher second quarter versus first quarter?

Thank you for asking that question, Mark. It is $15 million -- one-five.

Okay. All right. That changes things -- all those questions are out the window.

Okay, good.

Shifting gears -- when looking at the first quarter, I think you originally were anticipating that you would see lumber and presumably OSB pricing come back, and it didn't. Do you think that was more a function of the demand or supply side issues? Maybe if you could delve into that a bit.

Mark, as you know, historically we have experienced price increases in the first quarter and the fourth quarter in lumber. As you highlighted, we thought that would happen again this year. It did not. And to your question I think there were two drivers.

Number one is, while January was okay from a weather perspective, February and March were not. So, clearly from a demand perspective, the lack of construction activity due to the severe weather had an impact on the demand side of the equation.

I think there was also some impact from additional supply of lumber coming from Canada due to the currency situation. So, I think it was a combination of both of those things that resulted in pricing not improving to the level that we had anticipated when we had the fourth-quarter call.

Is it fair to say that the demand side should take care of itself assuming housing continues to improve? How do you feel on the supply side? The stronger dollar, does that change the playing field a bit on a go-forward basis? Or are there reasons why that will come back to normalize and the supply issues disappear?

I think it's the latter, Mark. I think the demand clearly will take care of itself and, fortunately, we are starting to see some real signs of improvements there.

On the supply side think that takes care of itself over time, as well, as you continue to see improvement in export markets for lumber. And as we also know, there is just a natural constraint on how much lumber can come from Canada on an ongoing basis because of the whole pine beetle situation. I think both supply and demand were temporary phenomena in the first quarter and will take care of themselves over time.

Okay, I'll get back in queue. Thank you.

Tyler Langton, JPMorgan

Good morning. Thanks. Just on Timberlands, Doyle, you touched on it in your opening remarks but, in general, revenues were down but profits were up. Could you just talk a little bit about how much a mix maybe contributed to operational excellence? And the same question applied on the wood products side because there is a similar trend there, as well.

As I referred to in the comments, we clearly saw some benefit from operational excellence in both the Timberland business and the wood products business in the first quarter. And Timberlands, to your point, basically what happened there is we had lower price and volume, as we talked about, but that was more than offset by lower cost in the quarter, the lower cost being both in the West and in the South, and the lower pricing volume, of course, being primarily in the West.

In addition we had some benefit from our landfills. But that's what got us to the improvement in the first quarter versus fourth, despite the fact that we had weaker market conditions, specifically in the West.

On the wood products side, I would say we are pleased with the fact that we clearly saw OpEx improvements in our results in the first quarter, because, as we talked about, we did in fact have, rather than higher prices, we had lower prices pretty much across the board. I would tell you our continued effort, for example, in lumber to reduce our costs net of log we saw benefit there. In OSB lower manufacturing costs.

And then in ELP where we saw a nice improvement, really the key driver there was we had lower price offset by higher volume, but we had overall lower manufacturing costs due to favorable resin less maintenance downtime in the quarter. But, frankly, a big part of it was it was just running better as a result of our OpEx efforts. That's what we saw play out in the first quarter versus the fourth.

Do you think you are on track with your operational excellence goals to exceed the targets for this year or are you in line?

Yes, I would say we are on track in both Timberlands and wood products. We got some catching up to do in cellulose fiber.

Okay, thanks so much.

Alex Ovshey, Goldman Sachs

Thanks. It's actually Usha Guntupalli on for Alex. Just following up on the operational excellence program, as you are working through this program has execution proved a bit more difficult than original expectations for any of the segments? Or maybe are you even seeing opportunities for further savings in any segments?

I would say generally -- and I have made this comment before -- as we get deeper into our operational excellence program it's harder work to get it done. But with that said, as I just referred to, very pleased with the progress that we've made in our Timberlands business and our wood products business in the fourth quarter. Still some additional work to do in cellulose fiber.

But we are very encouraged by the progress we made. And I can tell you are folks are working really hard every day to deliver against those targets, and we are confident that we will reach those targets in 2015.

The one thing I would add is on the -- Doyle did a nice job of walking through the operational excellence on the businesses -- one of the other areas that we had was our SG&A targets. As we said at the end of the year, that we had identified the things that we needed to execute on to get that. You can see in the results year over year the improvement is coming through there. So, we are also equally pleased on that front.

Thanks. And just a quick one on FX. Are you seeing a major impact on trade flows for the log market, given all the FX noise around the world?

I'm sorry. Would you repeat your question please?

Could you talk a little bit about the FX impact on the log market? Are you seeing major changes in trade flows around the world?

As we talked about, we did see some impact on the trade flows in terms of our export volumes in the first quarter. As we stated, volumes were down both into Japan and to China, and as a result there was additional trade flow that came into the domestic market, and that was part of the reason for the lower-priced logs, overall lower price realization in the first quarter versus the fourth quarter.

Great. Thank you.

Chip Dillon, Vertical Research Partners.

Good morning, Doyle and Patty. First question is just to make sure I heard this right. I know that Timberland -- I think sales were, top line, $25 million in the first quarter. Did you say earnings impact was $18 million?

Are you talking about the gain on non-strategic land sales in the Timberland segment?

Yes, that will go away in the second quarter.

The gain in the first quarter was $17 million in total, and that was an increase of $14 million over the fourth quarter. And we really don't expect anything of any significance in the second quarter. So, that's true, that will impact our Timberland earnings about $17 million. We would expect that that's probably half of the decrease of Q1 to Q2. The other piece would be primarily Western logs.

I see. Okay, that's helpful. Switching gears -- Doyle, you had mentioned coming in back in December of 2013 that the two businesses within wood products that you really wanted to see, that needed to improve the most, were engineered wood and distribution. It looks like, at least looking at the first quarter and just watching the trend, the engineered wood products is doing great compared to what it had done. But also, by the same token, it looks like distribution is still, while better, bumping along at breakeven. How would you look at those businesses strategically over the next year or two? And has, for example, engineered earned its right to grow yet? And what has to change in distribution?

To your point, Chip, we did make the comment that we needed to significantly improve the performance in both of those businesses. In 2014, as you will recall, we improved our earnings in both of those businesses by $30 million to $40 million. So, real progress.

At the end of 2014, as you also recall, Chip, we made the comment that that was good progress but we still had a lot of work to do to get these businesses to where they needed to be long term. Thank you for your comment on the progress that we made on ELP in the first quarter, and we were pleased with that. More work to do. And on distribution we did make slight improvements there.

But what I would tell you is we set OpEx goals for ELP of $15 million to $20 million for 2015, and we are on track and maybe a little ahead of schedule to deliver on that. And then on distribution $20 million to $30 million, and I'm still confident that we will accomplish that going forward.

So, I would say progress in both business. Still work to do. And, ultimately, as I've said, we've just got to show that we can, in both of those businesses, earn above our cost of capital over the cycle and sustainably, and maybe more importantly, out execute our competition. So, still more work to be done. Thanks for your comment on the progress.

The last question is, you have certainly executed on the buyback, as you said you would back in last August, in the wake of the home-building business sale. As we get out, I would imagine, to this summer or maybe early fall, and assuming you've worked through the remaining authorization, what is your view then? Are you going to take another look to see if you should continue a buyback? I know that obviously this buyback was funded by the sale of the home-building business. And also I'm sure what would fit in your thinking is your view toward opportunities in Timberland acquisitions, although we keep hearing there's really not much on the market. So, any early thoughts on those issues?

Chip, as you know, we spend a lot of time focusing on capital allocation our around here and we are constantly reviewing our various alternatives. To your point, as we approach the completion of the current repurchase authorization, we will work with our Board regarding the best use our best cash going forward.

As we've previously stated, long term we believe the appropriate level of cash on our balance sheet is in the $300 million to $500 million range. And even with the completion of the current share authorization we will be well in excess of that. So, it's something we are spending a lot of time working on, thinking about, and we will make some decisions as we move forward.

Thank you.

Anthony Pettinari, Citigroup.

Good morning. Regarding the West Coast port strike, I think you indicated it was $15 million in 1Q, and I think Patty said you are still feeling the effects of that this quarter. Is there any way to size what the impact of the West coast port strike might be this quarter?

And then I think you indicated the oversupply of Western logs that you saw in 1Q, you had some level of confidence that might work itself out domestically as demand improves. I am just wondering, the inventory situation in China and the oversupply in China, do you have any view as to when that situation normalizes?

In terms of the port situation that has, as we said in our comments, taken longer to get resolved than we had originally anticipated. There is still some congestion at the ports. We had the whole situation in Portland and some of the traffic there moving to Seattle and Tacoma. But, to your point, Patty did say that it was a $15 million impact in the first quarter, and we would expect that to be $5 million or less impact in the second quarter.

I think it could be $5 million to $10 million in the second quarter.

And then your question regarding -- let's talk a little bit about how we're viewing the export markets and the overall markets for our Timberlands, for our logs. In Japan, what we've seen there, as we talked about, is reduced log demand by lower housing activity. The strong US dollar is impacting the prices, as our customer competes with other alternatives from Europe due to comparative FX rates. And Q2 log shipments, as we said, should be up seasonally compared with Q1, but the price we anticipate will be down. And we expect prices to stabilize as we go out of the second quarter into the third quarter.

China, there the strong US dollar is having a negative impact on the US log demand and pricing relative to imports from New Zealand and Russia. Log inventories, as everybody knows, remain elevated at approximately 4.5 million cubic meters. We expect our shipments to be higher in the second quarter compared with the first quarter due to the Chinese building season. We expect continued downward pressure on pricing in Q2. And here, again, we expect prices to stabilize in the second quarter, moving into the third quarter.

I would make the point on China, despite the current situation, if you take a little bit longer-term look, we believe China will continue to be a key market for us due to continued growth in the middle class in China and the natural limitations on additional wood supply from Russia and New Zealand. But China has been volatile in the past and we think it will continue to be volatile going forward.

And then, finally, if you look at the domestic markets -- to, I think, your specific question -- we think the volume and prices that we see there will flatten as housing activity accelerates, especially in California -- and we are starting to see some of that -- and as log inventories normalize. A part of why log inventories got to the condition they are in is because of the very favorable logging conditions that occurred in the first quarter.

Okay. I will turn it over.

Gail Glazerman, UBS.

Good morning. On one of your responses to a question you referred to seeing some positive signs of improvement. We are in May, it wouldn't be a surprise, but I was just wondering if you could put a little bit of color behind that. Where you are seeing the improvement and how would that compare to this time last year?

Gail, I am sorry. You cut out a little bit on our end. So, if you could repeat your question for us, please.

Sure. In response to an earlier question you referenced seeing some positive signs of improvement. It wouldn't be a surprise, we're into May. But I'm just wondering if you could put a little bit of color behind that. Exactly where are you seeing it and how would it compare to this time last year?

As I said we are seeing signs. It comes partially from discussions that are ongoing with our customer base. We are also encouraged by the commentary that's coming out of the homebuilders that we talk to. Their commentary is a lot more people are showing up, even some commentary that first-time home buyers are starting to show up.

So, it just feels like the spring selling season is starting to shape up well. As we said, it was deferred because of weather. But all in all, almost without exception, our customers and others that we talk to are saying that the demand is there, folks are interested.

And if you really look at it, it makes sense. You've got full-time employment. It's at the highest level it has been in many years. You've got consumer confidence is high, you've got gas prices that are down over 30% year over year, you've still got very low-rate mortgages. You've got the FHA and HUD working together to try to bring in the first-time home buyers. So, a lot of very positive things. And we are seeing it in the sentiment that we're hearing and from our customer base.

Okay. Can you talk a little bit about what you're seeing on the cost environment? You had put out some targets based on where oil prices are. Are things targeting in that level? And maybe specifically, are you seeing any offsets in terms of ocean freight to offset maybe some of the pressure you're seeing in export markets?

Yes. As you referred to, yes, we did give some guidance on what we thought the positive impact would be from lower diesel prices. We saw some of that in the quarter. Overall I would say the benefit was roughly $5 million because of the lower diesel prices in the first quarter versus the fourth quarter. That has helped on the ocean freight. And that has partially offset some of the pressure that's been on pricing.

The other thing I would say -- and I think you asked this question last time -- partially offsetting that we are seeing some negative impact from our oil and gas revenue from our Timberlands side. Our best guess is that will be down somewhere $5 million, maybe $10 million in 2015 versus 2014 if we continue at these oil prices going forward.

All right. And just one last question on the fluff pulp market. We've seen another really large supply announcement. You've got a company looking at doing hardwood-based fluff down in Brazil, and another one doing softwood in Brazil in addition to projects here. Has any of this changed your outlook? Are you hearing anything from your customers that would make you worried as you look out at some of that supply coming on next year?

Gail, as we look at that market, the demand for that is growing and that's why we do need more supply overall to meet that demand. The unfortunate part is that oftentimes when it comes on it comes on in chunks, so it takes a while for the market to absorb it.

I think the good news that we're hearing from the folks who are bringing that supply on is they do have the opportunity to produce both paper grade as well as fluff. So, I suspect that that will come in over the course of time. But there is no question that as we look at our own demand growing and their customers growing that there is just more demand for fluff, both in the emerging market and also in the adult incontinence here domestically.

Okay. Thank you.

Paul Quinn, RBC Capital Markets.

Thanks very much. A lot of questions here have been answered. But just overall guidance -- you guys guided after the Q4 call that this quarter would be a little bit better. Just wondering how you think about that when you are seeing prices lower than your expectations. Was there a thought to revise the guidance at some point in the quarter? And what is your current thinking?

I want to make sure I answer your question, so restate that, Paul.

If I go back to the Q4 guidance, 4Q1, it seemed a lot more bullish than what you were able to achieve. And a lot of things moved in the quarter. it's your best guess at the time. I'm just wondering how you're thinking about that. When you see prices like, say, for example, lower lumber and lower OSB prices, when you guided materially higher pricing and a material improvement in wood products, would you look at revising that guidance? Or is that something that's a point in time and you wait for the quarter?

That is a really good question. And the way we think about it, and let me talk specifically about wood products, is we did say we anticipated prices going up in the first quarter versus the fourth quarter. That was based on what we were seeing in January when we did that. And as I mentioned earlier, January was a good month and we were right on track. Some things happened in February and March, on the demand side primarily, as we talked about, that impacted lumber and OSB prices.

We also did make the comment on the first-quarter call that those were our best guesses and we would all watch lumber and OSB prices together and see what happens. Our sense is that that's something that's not unique to us. It's able to be tracked by our analysts and investors and can make adjustments accordingly.

If what our experience was dramatically different than what was happening in the marketplace, to your point, then at that point we would consider officially revising guidance. But if it's just something that is public in what is happening in the marketplace, we typically would not revise guidance just based on that because there is a lot of visibility to those prices in the marketplace.

That's very helpful. Additionally on cellulose fibers, it looks like you had some operational hiccups in Q1 and probably a drag on this West Coast port issue in Q2, and maintenance. Just wondering how much better the second half of the year is going to look. It looks quite a bit, from my standpoint. Just trying to get some more color from you guys.

As Patty alluded to in her comments, we anticipate that the second quarter will be significantly higher than the first quarter. To your point, we had a lot of maintenance in the first half of the year, both in the first quarter and then we have double the amount of maintenance in the second quarter. We also had some, to your point, headwinds and small operational issue in the first quarter. All of that should be behind us so we would anticipate significant improvement in our cellulose fibers business in the second half versus the first half.

Great. Thank you very much. Best of luck.

Steve Chercover, DA Davidson.

These are kind of cleanup at this point. Could you please expand on your comments on engineered wood? I think you said flat pricing. Maybe you can tell us what the operating rates are and when you expect to see some tension kick in to justify higher prices.

We do anticipate, or we did have -- well, let me start with operating rate. Operating rates in the first quarter were in the low 70s in terms of ELP. In terms of pricing, you are right, we said that was roughly flat currently versus the first quarter. There has been pricing increase announced in Canada for ELP of roughly 5% or a little more, and we think that could pass through. We won't see the full benefit of that until the third quarter.

Okay. And then clearly you think that housing is going to get better and Q1 was just basically seasonal. Do you think that your pulse on the market is as accurate today as it was when you owned RICO? What is your full-year view for starts?

I would say the first quarter is always slower seasonally, but I would say it was even worse than the normal seasonal because of the weather impacts, again, in February and March. As I said earlier, January was a pretty good month and then February and March were difficult due to the weather situation.

In terms of our visibility into housing, our crystal ball is not necessarily any better than anybody else's, but we have a lot of customers that we talk to on a very regular basis so I would say we've got good visibility into housing going forward. I would say in terms of what our forecast is for starts it is unchanged at 1.1 million. And actually we're really encouraged by what we've seen over the past few weeks in terms of, again, talking with customers and their overall sentiment for housing.

And if you really step back and look at it -- and I talked about it earlier -- there are really a lot of positive things happening, which should continue to drive house formation -- the employment levels, consumer confidence, the lower gas prices, where mortgage rates are, the availability is improving in terms of mortgage for first-time home buyers. So, a lot of encouraging things there that we think will continue to drive housing going forward.

I agree with you actually. Thank you very much. I appreciate it.

Mark Wilde, BMO Capital.

Good morning, Doyle, good morning, Patty. I have a lumber question, then I've got a timberland question. My lumber question, Patty, is two pieces. One is, typically I think of you guys lagging what we would see in terms of random lengths in terms of lumber realizations. You report every quarter. And I just want to confirm that and see how we reconcile that with your assumption that price will be flat quarter to quarter.

And also within lumber, it looks like Southern lumber prices are starting to come down now, even while we're seeing a little pickup in West Coast lumber prices. How will that affect you guys, Southern prices versus Western, and then just the lag between reported prices and what you realize?

As you think about what we report against the random lengths framing composite for lumber, the framing composite for lumber is made up of a number of different grades and it does not equate it exactly to what we are manufacturing. Sometimes we lag, sometimes we are a little ahead. So, I don't know that I would say we always have that same relationship.

As you think about what happens in the South versus West, of course we have operations in both. Our Southern system is larger than our Western system. One of the things that I think will help our Western system for lumber in the second quarter is the log prices coming down. As you know, log costs are a big cost of producing lumber. So, the West will get a little help on that and. And in the South we would expect that those log prices will be unchanged, as well. A little more important to us in the South just based on the size of the system but both geographies are important to us.

Okay. And then over on Timberlands, I wondered, Doyle, if you can just talk a little bit about what you see out there in terms of the timberland acquisition markets, how you're seeing values right now, and just how you think about Weyerhaeuser's timberland portfolio going forward. You're pretty heavily skewed right now in terms of your earnings to the Pacific Northwest. Do you want to shift that over time?

Mark, in terms of the deal flows overall, it was low in the first quarter in both the South and the West. As we've previously said, we expect that to increase as we move through the year. I'll tell you, there's still a lot of money chasing deals going forward.

In terms of our specific portfolio, as you know we've got 4 million acres in the South, 2.7 million acres in the Pacific Northwest. We would like to grow both areas. We like the positions where we are. We will look at growing both the South and the Pacific Northwest.

But with that said, we're going to continue to be very disciplined in terms of our approach, and make sure that any acquisition opportunity that we look at meets our specific criteria of having appropriate cash flow and returns, both in the near and long term, strong market access, and ability for us to add value or synergies. And I think the Longview acquisition is a good example of where we were able to add synergies as a result of that transaction. We will look to grow both in the West and in the South. We like our position in both of those but we will be very disciplined in the approach we take.

Doyle, how do you think about international Timberlands, because at one point this was a big growth focus for Weyerhaeuser and I think you've peeled that back quite a bit. How does that fit in the equation now?

I think our biggest opportunities for growth going forward, Mark, will be domestic. We will continue to look internationally. As you know, we have timberland in Uruguay. That is a really good timberland. We've got a good team in place there. The growth rates there are really encouraging. We understand international timberland, but I think on a risk-adjusted basis I think our bigger opportunities going forward will be domestic as opposed to international.

Okay, that's helpful. Good luck in the coming quarter.

George Staphos, Bank of America.

Good morning. A lot of my questions have been asked already. Maybe a couple of bigger picture questions. And not necessarily to pick on cellulose fibers, first of all, Doyle, if we look at the portfolio, my guess is your strategy, your strategic view, would not have changed a whole heck of a lot since the December presentation, but certainly cellulose fibers does operate to a different cycle than your classic housing-related businesses. Can you update us on your thoughts in terms of how C fibers fits within the whole portfolio and why it fits well?

And then, separately within cellulose fibers you mentioned that you are relentlessly focused on operating excellence over the balance of the year, which suggests that you perhaps wanted to improve the performance or maybe some things that did not go as well as you would have liked in the first quarter. Obviously you can't control the port situation -- or maybe you could have.

Were there some things where the port and the situation and your reaction to it as a company that you thought you could have done better? And the mill outage and coming back from that, Again, it lagged a little bit. Is that a reflection at all of the new maintenance schedule or totally not related at all? Thanks. And good luck in the quarter.

Thank you, George. And I'm going to take your second question first and then I'll come back to the bigger question. In cellulose fibers in the quarter we did not see much benefit from operational excellence. In terms of the start up of the mill that was down, that is something that we could have done better.

In terms of the port situation and the FX situation, those are just were what they were. I was actually really proud of the way our team managed through the very difficult port situation, from the fact that it had a really significant impact on our ability to ship products. We had to move things around, we had additional transportation costs, we had warehouse costs -- a lot of moving parts there. And our team was on top of it and did a really nice job of managing through that and has continued to do that as we move forward.

As comment on the $30 million to $35 million of OpEx, I am absolutely convinced we are going to get that for the year. There was not much that showed up in the first quarter in our cellulose fiber business, unlike our other two businesses where it did show up. But we've got a good team in place, we've got the right strategy. The mill outage, when you take those down, you start them back up, it does not always go as well as you'd hope. That happened this quarter and we will manage that better as we move forward.

In terms of the strategy overall for cellulose fiber, as you alluded to, we talk about that at our December meeting. We like having cellulose fiber business as part of our overall portfolio, partly because of the reason you said -- it does tend to be counter-cyclical to some of our other businesses.

But much more importantly, we like the cash, the very strong cash flow generation, that we have historically received from that business. And we are convinced it will continue to generate significant free cash flow going forward.

We like that because that ties to our number one capital allocation priority of having a growing and sustainable dividend. And we believe the cash flow that we generate from that business will continue to allow us to grow our dividend going forward.

One of the projects that will significantly improve our operational excellence going forward was, as Doyle said, we didn't have in the first quarter and we won't have the full benefit in the second quarter, but is that energy installation and boiler upgrade that we're doing in one of our fluff mills in the second quarter. We're excited about the additional power generation sales that we'll have from that upgrade. But also it will significantly improve the reliability of that mill and thereby lower our cost going forward, as well.

That's just one example of an operational excellence focus that you haven't seen show up on the bottom line yet. But we will start to see some of that improvement later in the year.

Thanks for that, Patty. Doyle, the fact that you didn't mention it means it really wasn't an issue, but you have not seen the new maintenance schedule affect your ability to bring mills back up in a timely way -- or have you? Again, thanks and good luck in the quarter.

No, George. And you're right, I didn't mention it because it did not have an impact. That was a mill that went down. And as we said, when you start mills back up sometimes they don't start up as well as they should. That's what happened on this occasion. And we will work to make sure that that does not happen going forward.

It is tougher than running a spreadsheet, I guess. Have a good quarter.

Collin Mings, Raymond James.

Good morning, Doyle, good morning, Patty. Just a couple of questions. First, Patty, -- and I may have missed this -- despite some of the pricing headwinds, and given some of the operational improvements you are seeing, the lower log costs, could you see wood products earnings bounce all the way back up to year-ago levels or is that a bit too optimistic?

I think that we would certainly see our second quarter significantly higher than the first quarter, as I said. To get to the roughly a little over $100 million of a year-ago quarter, we're going to have to see some really significant turnaround in prices that we have not seen yet. I'm pulling for it but it is unlikely that we will get there unless, as I said, pricing just really significantly has an inflection point from here. But it will be somewhere south of that, but still significantly higher than what we saw in Q1.

Okay. That's helpful. Again, you talked a little bit, as far acquisition priorities, US South being on the radar. But maybe just provide a little bit more of an update of what you are seeing as far as saw log price improvement in the region, if any. I know in Q2 you are looking for flat pricing, but just the outlook in that market. I know some of your peers have suggested that, given some of the weakness in Asia, that that tipping point, as far as the supply-demand in that region, may have been pushed out even further. So if you can just maybe update us on what you are seeing in that region.

In the South we continue to anticipate that Southern saw log prices will be up 3% to 4% in 2015 versus 2014. That is what we saw in 2014 versus 2013 and we think that trend's going to continue. It is hard to know exactly what the tipping point is going to be, to your question.

China, as I mentioned earlier, is going to be volatile, so I don't get too concerned about that component of it. I think as housing continues to improve that's going to help on the demand side. And then overall on the supply side the constraints that Canada has in place because of the pine beetle situation will be a key driver there.

We're not yet to the tipping point. I think it's still in front of us and the key driver there is going to be what happens with US housing. And as I mentioned earlier, we continue to be encouraged by the progress there. It had the pause in the first quarter but the fundamentals are clearly in place for continued improvement in housing as we move forward.

Okay, that's helpful. And then just following up really quick as far as on the Pacific Northwest, is there a good way to think about, as far as you're looking at 40% year-over-year decline, as far as in log export revenue. I know there is a couple of moving pieces there but can you maybe give us some sense of how much of that was pricing versus volume?

I would say the biggest component -- and I don't have that exact breakdown here in front of me -- but the biggest component of it was volume. As we talked about, demand slowed down due to just the general slowdown in housing, and then we all know what happened in China. Clearly both were components but I would tell you volume was the bigger component of the decrease that was experienced.

Okay. And then just one last one -- Doyle, as you think about the headwinds in the Pacific Northwest -- and, again, I recognize that you are optimistic that pricing is going stabilize as you go through Q2 on the domestic front -- but is there a point where you really start to ratchet down harvest activity in the region, just with the thinking that maybe prices have over-corrected here, given some of the currency headwinds and the slowing in China and the inventory there?

Collin, as you know, we do have the ability to flex up and down depending on what's happening on market conditions. We will see how things play out going forward. Do not have any intention to do that at this point but that is something we have done historically and we have the ability to do as we move forward.

Okay. Thanks for all the detail. Good luck during the quarter.

I would now like to turn the call back over to Doyle for any closing remarks.

Thank you. And thanks to everyone for joining us this morning. And most importantly thank you for your interest in Weyerhaeuser.

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