威爾豪瑟 (WY) 2015 Q3 法說會逐字稿

Good morning. My name is Brent and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser third-quarter 2015 earnings conference call.

(Operator Instructions)

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 third-quarter 2015 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 risk associated with forward-looking statements, as forward-looking statements will be made during the conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in earnings material on our website.

I will now turn the call over to Doyle Simons.

Thank you, Denise, and welcome, everyone. This morning, Weyerhaeuser reported third-quarter net earnings of $180 million, or $0.35 per diluted share, on net sales of $1.8 billion. I'm very pleased with our third-quarter performance as each of our businesses capitalized on operational excellence improvements to deliver strong results, despite some market and global macroeconomic headwinds. In addition, we continue to deliver on our commitment to return cash to shareholders. We have completed the $700 million share repurchase program authorized in 2014. In August, our Board supplemented this program with an additional $500 million share repurchase authorization and also increased our quarterly dividend by 7%, to $0.31 per share. This illustrates our confidence in our ability to continue to execute our operational excellence initiatives and capitalize on market improvements going forward.

I will begin the discussion of our business results with some brief comments about the housing market. The US housing market continued to advance in the third quarter, following choppy activity in the first half of the year. Total housing starts as of September have improved 18% compared with 2014, and single-family starts are up 12%. We continue to anticipate just over 1.1 million starts for 2015. Our customers tell us they expect strong year-end activity for as long as weather conditions remain favorable. With rising employment, strong consumer confidence, historically low mortgage rates, and builder sentiment reaching all-time highs, we continue to anticipate steady improvement in the US housing market.

Let me now turn to our business segments, starting with Timberlands, charts 2 to 4. Timberlands contributed $126 million to third-quarter earnings, comparable to the second quarter. Strong cost controls and operational excellence initiatives offset the effect of reduced Western fee harvest volumes and lower average sales realizations for Western logs. As expected, Western fee harvest volumes declined by 5% compared with the second quarter, due to fire season logging constraints.

This year's fire season was exceptionally severe, due to record-breaking temperatures and unusually low rainfall. Our employees did an exceptional job of protecting our timberlands and flexing harvest settings to adjust to changing logging constraints and market conditions. Our tree farms experienced virtually no fire damage, with only about 150 of our 7 million acres affected, less than 0.01%. Average realizations for Western domestic logs improved slightly in the third quarter as fire season restrictions resulted in tighter log supplies, especially in southern Oregon, and we benefited from an improved mix.

Turning to the export markets, Japanese demand remains strong and pricing for our Japanese logs was up slightly in the quarter. After peaking in August, log inventories at Chinese ports have declined as supplies have fallen in response to lower pricing. However, Chinese demand and pricing remain challenging due to continued slow construction activity and we flex volume into more profitable domestic markets. Overall, average realizations for our Western logs declined compared with the second quarter, primarily due to the higher proportion of domestic log sales. In the South, fee harvest volume increased and average log sales realization improved slightly.

Third quarter included earnings of $13 million from disposition of non-strategic timberland, an increase of $8 million compared with the second quarter. Operational excellence initiatives contributed to Timberlands third-quarter results, as efforts to optimize harvest settings and road and silviculture expenditures resulted in continued cost improvements. The business remains on track to meet or exceed its OpEx target for 2015.

Wood Products, charts 5 and 6. Wood Products contributed $85 million to third-quarter earnings, an improvement of $14 million compared with the second quarter. EBITDA increased to $111 million as improved sales volumes and lower operating costs enabled the business to overcome the drag of lower average lumber realization. In lumber, EBITDA declined $4 million compared with the second quarter. A 3% decrease in average sales realizations was mostly offset by seasonally higher sales volumes and improvements in log and other costs.

In OSB, EBITDA improved by $12 million due to a 2% increase in average sales realizations and reduced manufacturing and log costs. Engineered wood products reported third-quarter EBITDA of $36 million, compared with $38 million in the second quarter. Slightly improved sales volumes and realizations for several products were offset by higher manufacturing costs due to planned maintenance down time. EBITDA for the distribution business increased by $7 million, compared with the second quarter, due to improved sales volumes and lower overhead costs.

Our Wood Products business remains relentlessly focused on operational excellence. Lumber and OSB are on track to achieve their 2015 targets. Engineered wood products is tracking significantly above its EBITDA improvement target. Year to date, the business has generated EBITDA of $100 million, a $35 million improvement compared to a target of $15 million to $20 million. We made significant progress in our distribution toward our OpEx target in the third quarter as EBITDA improved to $9 million. And we expect continued progress in the fourth quarter. At this point, however, we are unlikely to reach our full $20 million target for the year. With that said, I am encouraged by our level of improvement in the third quarter, and this business is highly focused on continuing to improve bottom-line performance going forward.

Cellulose Fibers, charts 7 and 8. Cellulose Fibers contributed $79 million to third-quarter earnings compared with $27 million in the second quarter. Pulp market softening in the third quarter due to rising global inventories and the continuing challenge of a strong US dollar. Average pulp realizations declined slightly compared with second quarter. Earnings for this segment increased significantly as maintenance expense declined and pulp production improved due to fewer scheduled maintenance outage dates. The third quarter included only four days of scheduled maintenance outages compared with a 46-day extended outage completed in the second quarter.

The Cellulose Fibers business continues to make good progress on operational excellence initiatives as well. Third-quarter results benefited from initiatives to reduce energy costs and chemical costs and usage. The Cellulose Fiber business remains on track to achieve its 2015 operational excellence target.

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

Thanks, Doyle, and good morning, everyone. The outlook for the fourth quarter is summarized on chart 12, and I will begin my comments with Timberlands. In the West, export log volumes to Japan is expected to increase during the fourth quarter as a result of an active Japanese housing market, and we anticipate a slight improvement in prices. Although construction activity in China is still slow, inventories at Chinese ports started to decline during Q3 and are expected to decrease further this quarter. As a result, we see fourth-quarter prices stabilizing. Average sales realizations and volumes for Western domestic logs are expected to be comparable to Q3.

Fee timber harvest in the West is anticipated to increase slightly, as fire-related logging constraints have been lifted. In the South, fee harvest volume is expected to be in line with the third quarter, and we anticipate roughly similar average sales realizations. Silviculture and logging costs will likely increase seasonally. Overall, fourth-quarter earnings in our Timberlands segment are expected to be comparable to Q3.

In our Wood Products segment, the fourth quarter is typically the seasonally weakest quarter of the year. Because of the seasonal slowdown, we expect lower sales volumes. Although we have seen an increase in lumber prices thus far in the fourth quarter, average sales realizations for Q4 are expected to be lower than the average of Q3. We expect higher average sales realizations for oriented strand board in the fourth quarter, compared to the third, and we anticipate that engineered wood products average sales realizations will be relatively flat.

Production volumes in the fourth quarter are expected to decline due to the holiday season and scheduled downtime to complete maintenance and capital projects. This downtime will result in higher per-unit manufacturing costs. Consistent with the normal seasonal pattern, we expect fourth-quarter earnings in our Wood Products segment to be lower than the third quarter and slightly lower than the earnings of Q4 of last year, which had much higher pricing.

Our Cellulose Fibers business is continuing to experience currency headwinds due to the strong US dollar. Worldwide inventories for softwood pulp stood at 30 days at the end of the third quarter. Typically, industry supply increases during the fourth quarter as there is seasonally not as much maintenance downtime in the colder winter months. As a result, we expect weaker average sales realizations for pulp in the fourth quarter compared to the third.

Our final planned maintenance outage for this year was completed earlier this month. The mill is back up and running well. Due to this outage we will have more planned maintenance days this quarter. As a result, expect that overall maintenance expense will be approximately $10 million higher than Q3. In addition, we expect seasonally higher fiber costs. We anticipate that overall earnings in our Cellulose Fibers segment will be approximately $20 million to $25 million lower in the fourth quarter compared to the third.

Chart 9 summarizes the results of Unallocated Items. Unallocated Items moved from a positive earnings impact of $20 million in Q2, to a negative $27 million in Q3. The largest change was a result of a non-cash charge for the weakening of the Canadian dollar. As we've said in the past, every penny change in the exchange rate is roughly $3 million to $4 million on a pretax basis. The other large variance was a lower positive effect for the elimination of inter-segment profit in inventory and LIFO.

Now, I will wrap up with some overall financial comments. Income taxes for the quarter resulted in a tax benefit of $16 million. This was due to a true-up of the effective tax rate for the year, which is now estimated to be lower, based on the higher mix of REIT income relative to the taxable REIT subsidiary. In addition, there were discrete items booked in the quarter of approximately $9 million, the largest item being a positive resolution of uncertain tax provisions.

Now, I will refer to you chart 10. Cash flow from operations for the third quarter was $282 million, or a reduction of $84 million compared to Q2. The change was primarily the result of a large working capital reduction in Q2 and normal timing of interest payments. Capital expenditures for the third quarter were $112 million, bringing our total expenditures for the first three quarters of the year to just over $300 million. We still anticipate total expenditures for the year to approximate $500 million. There was no change to our scheduled debt maturities and, as you can see from the chart, the first maturity isn't until 2017.

Chart 11 details our share repurchase activity and we have now completed our $700 million 2014 share repurchase authorization. And, as mentioned earlier, in August, the Board authorized an additional share repurchase program for $500 million.

Now, I will turn the call back to Doyle.

Thank you, Patty. We are encouraged by the positive trend in housing and the optimistic tone we are hearing from our customers. Going forward, we remain relentlessly focused on operational excellence and disciplined capital allocation. By relentlessly driving operational excellence in each of our businesses, we are laying a foundation that enables us to take full advantage of market opportunities. Our recently announced dividend increase and share repurchase program illustrate our confidence that we will continue to grow shareholder value by capitalizing on these activities going forward.

And with that, we'd like to open the floor for questions.

(Operator Instructions)

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

Thank you. Maybe a little bit of a detail question. But on the tax rate, it I -- well maybe the easiest way to ask -- what type of tax rate should we be anticipating for the fourth quarter? Kind of looks like you were 5% to 10%, even after making all the adjustments for the first three quarters. Is that what we should expect for the fourth quarter?

Yes, Mark, that's our outlook for the full year and, of course, the fourth quarter will be the last one. As you mentioned, we had a number of things in the third quarter just to true up the rate for the full year. But we'll be over 5% for the fourth quarter.

Okay. Great. And also, maybe a little bit of help, if we look at lumber pricing, which has started to move quite positively of late, one could certainly see scenarios where at least the random [lent] average would be higher in the fourth quarter than it would be in the third quarter. Maybe a little bit more color of your comments on why you would expect it to be lower, recognizing maybe you sell more in October and things like that. But if you could give us a little bit of help in understanding how to think through fourth quarter lumber realizations, that would be great.

Sure. And, Mark, we agree with you. There is a scenario where lumber prices could, in fact, be higher in the fourth quarter versus the third quarter. But let me give you the facts of where we are currently. If you take quarter to date -- fourth quarter to date average, it's still about $15 below the third quarter average. Now if you take current prices today for lumber, it's basically in line with the third quarter average.

So to your point, it's all dependent on what happens from this point going forward. We may be being conservative in terms of what we're assuming for lumber prices, but we all know that, as Patty mentioned, the fourth quarter is typically a slower seasonal period and we'll just happen to see -- have to see what happens in the month of November and December.

So that's the way we see it at this point. And we'll just watch together, because it's nothing but a guess as to what we think is going to happen in the fourth quarter. And we'll just to have see how it plays out as we move through the next couple of months.

Understood. And totally fair enough. Any color, though, in terms of why you think lumber has come back as nicely as it has in the last several weeks?

Sure. I think there's a number of things that have played into that. I think what we understand in talking to our customers and buyers, I think there were very, very low inventories in the system waiting to see -- partially waiting to see what happens when the softwood lumber agreement expired. When that did happen, there was not a wall of lumber that came on. So I think part of it has been a building back of inventories.

In light of that, I think there have been some slight improvements in the Chinese markets. And our take is, as long as the weather holds, as I said in my comments, we're getting very positive commentary from our customers in terms of demand in building season. So that's, I think, what's happened to drive the lumber prices up over the past few weeks.

Thanks so much.

Thank you.

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

Good morning. A number of producers seem to have adjusted their production schedules in 3Q given weaker wood products prices. I was wondering what your operating rates were in the quarter across lumber, OSB and engineered wood products and if you took any kind of market down time or cut shifts in Q3 or expect anything like that in 4Q.

So in terms of operating rates, lumber was right at 90, OSB mid-90s and ELP in the mid-70s in terms of operating rates. And I'll let Patty -- because she alluded to it in her comments -- talk about the fourth quarter and some of the maintenance downtime we have planned for the fourth quarter.

Sure. As you think about the fourth quarter, the fourth quarter is typically when we do our maintenance as well as install capital projects. And most of that will happen in the wood products business. And it's really across the board as you think about OSB, for example, we're installing some not huge capital, but we will take advantage of putting in some things across the system.

ELP will have some as well. Lumber has some capital projects and also we have holiday down time that happens in the fourth quarter. So I think as we think about our operating rates for OSB in particular, I think, as Doyle said, we were in mid-90s for the third quarter. We would expect to be low 90s for the fourth.

Okay. That's very helpful. And then just switching to the dividend, historically you've targeted 75% of FAD over the cycle. And this year you raised the dividend while your earnings should be down year-over-year, maybe double digits on a percentage basis.

I'm just wondering if you could talk about dividend coverage and prospects for continued dividend growth and maybe the confidence that you have going into 2016 that you are going to see earnings growth next year, given we've got a strong dollar and some of these headwinds in Asia that you called out earlier as well.

Yes. Anthony, as you alluded to, our guideline -- and it is a guideline, is 75% of FAD over the cycle. And I think the over the cycle is an important component.

To your point, we feel like we are still early in the housing recovery cycle and, as mentioned in my comments, are optimistic that house will continue to recover and will be 1.2 to 1.25 in 2016. As a result of that, we think we have a lot of opportunity to continue to grow earnings and cash flow going forward and are confident that we will continue to do that as housing continues to improve going forward.

Okay. That's helpful. And just in terms of next year, is your view not only that you are going to see a volume recovery with starts going higher but that will be accompanied by price recovery as well, or price improvement year-over-year in 2016?

Pricing, as we all know, is difficult to predict. But following up on the conversation we had earlier on lumber, we are encouraged that lumber prices are improving in a slower seasonal period. And our take is, as we move into the strong building season next year, again, assuming housing is at the 1.2 to 1.25 range, we think that will be a very constructive for wood products and, frankly, Timberlands prices moving into 2016.

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

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

Yes, good morning. Thanks.

Good morning.

With the domestic west coast prices, I think, Patty, you mentioned that the fires were a little bit beneficial for prices this the quarter. Could you quantify that a little bit?

Is there any risk that with the fire season going away that prices could slip a little bit this quarter? Or do you think they should be pretty stable?

Tyler, we just talked about the fact that we expect to have a little more sea harvest volume in the west, but it's not a huge amount. And even in the third quarter we didn't see as much benefit from the fire restriction, as probably many expected, because of the fact that many of the mills had already seen the fact that the fire season was going to be so severe -- had done some additional things as far as their own log supply.

So I don't see a huge risk related to that. But the increase that I mentioned in our sea timber harvest in the west is not a huge increase. So I don't think it will have that significant of an impact.

Okay. Great. Thanks. And then just switching to wood products, can you quantify -- and I think you said the lower earnings in the fourth quarter was coming from lower sales volumes -- the [previous operating rates] and then the maintenance and OSB. Could you roughly break out how much each one of those would contribute to the decline?

In terms of the overall impact, I would say that the biggest impact of third Q compared to fourth quarter really does come from sales volumes. As we talked about, seasonally the fourth quarter is a lower quarter for volume. And that's really a statement across most of our product lines -- lumber, OSB, and ELP, and certainly in distribution as well. We were very pleased with the improvement in distribution for the third quarter but they will likely be impacted as well from the seasonal volume fall-off.

Now having said all that, as Doyle talked about, we are pleased to see that prices in lumber, especially, and OSB have been coming up in the quarter. Its pricing can be very volatile and we'll just have to see how it all plays out. But I would say across the board, the biggest negative, compared to the third quarter, is in sales volumes.

And actually we're very pleased. When you think about quarter over quarter, last year in the fourth quarter we had much better pricing than what we're anticipating for this fourth quarter. And earnings are roughly just maybe a little lower or could be even comparable, depending upon where prices are. So I think you'd start to see the impact of our operational excellence initiative kicking in to that.

Okay. Great. Thanks. And just a final question with the distribution. You mentioned a nice increase in earnings. Can you just provide a little bit more detail about what drove that and how sustainable it is going forward?

What I would tell you, it's what we've been working on. It's the basic blocking and tackling of running a distribution. It's making sure we have the right warehouse cost in place. It's making sure we're having -- we're growing profitable sales.

So as Patty said, we were very encouraged by the progress we made in the third quarter, but more work to do. But we are pleased that we have -- on the trajectory that we saw in the third quarter and the changes that we're making in that business to position it for success in the future. So progress, more work to do, but are confident in the plan that we have in place will get to us where we need to be in that business.

Great. Thanks so much.

Thank you.

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

Hi. Thank you. Good morning.

Good morning, Gail.

Can you just offer broader some perspective on the softwood lumber agreement? We obviously haven't seen much impact in October -- but just how you see it playing out I guess over the next year while the [standstill] is in place.

As we all know the softwood lumber agreement expired on October 12. Just in terms of what's happening on that, there are ongoing discussions between participants to participants on both sides of the border regarding renewing the agreement. As we also all know, this is ultimately a government to government negotiation and election season has hampered the ability to have those discussions. But we are looking forward to both governments having an opportunity to engage. And it's my take, our take, that there's a possibility of reaching an agreement prior to the one-year standstill playing out.

Okay. And in terms of flows, you think recent activity is a pretty good indicator that it probably won't have major impact in terms of flows and the market?

Yes, I think that's exactly right. I think what's happened over the past two or three weeks was in line with what we anticipated. But you never know. But I do think that does show that there wasn't a significant impact from -- in terms of flows when that agreement expired.

All right. And just in terms of the current market, you talked about customers having pretty low inventories and supporting the recent rally. Do you have any view? Has buying activity over the last couple of weeks been enough? Or do you think inventories are still light?

What we think is inventories continue to be lean, especially in lumber and OSB. So, yes, there has been increased buying activity, as you alluded to, and we stated. But it's our sense that inventories continue to be on the lean side.

All right. And you guys have a lot of -- Patty alluded to some smaller stuff going on on the capital side, but you guys do a few larger capital projects going on in at least a couple of your sawmills. And I'm just wondering, can you give some -- just walk through what you're doing. Because I think there's 191 -- 190 million going on at one project. Can you walk through some of your bigger projects, whether they're fourth quarter 2016 events?

Fourth quarter 2016?

Just walk through some of the bigger projects that you have going on (inaudible) the OpEx program.

Yes. You're exactly right. We are, as we have been talking about for a period of time now, spending capital, specifically in our lumber operation to support our OpEx initiatives and to drive down our overall cost structure. So that's happening at a number of mills. Each of our mills has a specific road map that's what's needed to get them to be in the lowest cost quartile. And we have specific projects going on.

One of the projects, to give you an example, is our Dierks sawmill. Our Dierks sawmill has been a very good sawmill for us for a long time. It's located in a fantastic wood basket. It's close to very good end markets. But it's a very old mill with an odd configure.

We are basically rebuilding that mill. We are rebuilding that mill on site. As we looked at all the different opportunities to make that mill more cost efficient, that was the one that made the most sense.

But to your question, Gail, every project that we're doing, the whole focus is to drive down our overall cost structure so that we will have low-cost sawmill operation and will be able to deliver on our OpEx initiatives. As we've said, we're going to spend roughly, total Company-wide, $500 million in capital. That's inclusive of what we're spending in lumber and would anticipate the capital spend, as Patty said on the last call, will be in that range for next year as well as we continue on these projects.

Yes, Gail, the only other thing that I would add is, as you look at the fourth quarter spend, it will be our highest spend for the year. And as Doyle mentioned, the biggest piece of that will be in the lumber business. In addition to the things that he talked about, there are projects at many of the mills really focused on lowering their cost structure.

One piece, for example, is in our CDKs that we're putting in, the continuous dry kilns at a couple of locations, both to address boiler [MACT] as well as bringing down drying costs, which is a significant cost. We've got some edger projects, those types of things, that really will improve recovery. But they really are focused on lowering the overall cost structure.

Your next question comes from the line of Mark Willoughby with BMO Capital Markets. Please go ahead.

Good morning, Doyle. Good morning, Patty.

Good morning.

Doyle, you've really made some impressive progress in all these wood products businesses. I wondered if you looked at the engineered wood business -- that's had particularly nice gains -- would there be two or three key issues you would point to that have driven that?

Mark, thank you for your commentary and our employees have done a nice job of making improvements and more work to do. In terms of EWP specifically, it really boils down to three things.

One is reducing manufacturing costs, and specifically controllable manufacturing costs. And that's something we're focused on every day. We've also driven down our overall SG&A costs in the EWP business. And then finally, we're really focused on growing, not only just sales, but growing profitable sales.

So those are the three key levers that we've been focused on in EWP and have been encouraged by the progress that we've made there. And we're focused on continuing to improve that operation going forward.

Okay. Over in the OSB business, are there any debottlenecking opportunities there similar to sort of -- some the capital you're putting in the lumber to improve the lumber operations?

Mark, I would say in OSB, the projects that we're doing, some of it involves debottlenecking. But more than that, it's just figuring out a way to continue to improve reliability and drive down costs. As we've talked about, we've got a couple of mills that are world-class and we've got opportunities to improve some of our OSB mills to those same type of levels in terms of reliability and cost structure. And that's what our capital expenditures are focused on.

Okay, fine. Last question I had, Doyle, back in September we had one of your peers announce kind of an interesting transaction with a group of institutional timber investors. Can you just talk about the applicability or non-applicability of that kind of structure to Weyerhaeuser? And maybe tie in that with how you're thinking about growth in your Timberlands business over the next few years?

Sure. So we thought that the Plum Creek transaction that you're referring to was a very creative transaction and especially did a nice job of highlighting the underlying value of high-quality southern timberlands. If we were at some point to conclude that this type of transaction was in the best interest of our shareholders, it's something we would consider.

In terms of growth overall, Mark, as we've said, we are interested in growing our Company. The primary opportunity we think will probably be in Timberlands. But we'll continue to be very disciplined in looking at acquisitions, opportunities as we move forward.

Okay, good enough. Good luck in the fourth quarter, Doyle. Good luck next year.

Thank you.

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

Thanks, everyone. Good morning. Appreciate the details. Congratulations again on all the progress on the cost side and OE.

Maybe piggybacking off the last two questions from Mark and Gail, Doyle, I think what you would have left in terms of projects and OE benefit as we head into 2016 is something north of $100 million. I know will you probably want to talk a little bit about in this December at your analyst day, but is there a way to at least catch us up on maybe the opportunity for more OE benefits?

And is there a way to talk to what you achieved in OE in the third quarter across the segments? If you had it, I missed it in the deck or in your comments.

George, to your point, we will be updating exactly our progress in 2015 later this year and giving more specific guidance on the opportunities that are still in front of us. But to your point, we have made good progress. What I'm most encouraged about is this is now becoming bottom up driven in our organization as people are really understanding what we're trying to do in OpEx and finding additional opportunities. So we will be giving further update on that going forward.

In terms of quarter to quarter, clearly if you looked at price and volume and what that would result in, in terms of earnings, that's one number in our earnings. And each of the businesses are higher than that and that delta is primarily due to OpEx. Looking at it, I'll just give you an example. If you look at it -- this morning, actually, I looked at some numbers and I looked year-to-date 2015 versus year-to-date 2014, because it's hard and things move around a lot on a quarterly basis. But just looking at Timberlands, for example, year-to-date 2014 our earnings in 2014 were $470 million.

Look at lower price, lower volume, that would have -- you would have thought, just factoring in those two things, our earnings would have been $370 million year-to-date 2015 and, in fact, they're $415 million. So that delta, not all of it is OpEx, but a big portion of that is OpEx -- similar type numbers, lumber, OSB, ELP. So that's the way we think about is taking out the things, the volume, the price components of it. And that's how we know it's showing up in the bottom line.

Doyle, could you remind us as you look out, do the buckets for OE change the deeper we go into this decade? Or will it be continuous or pretty equal contribution across the various categories for the various businesses? I know it's a broad question, but if you give us a bit of a feel there.

Yes, I wouldn't say it changes substantially, George. We will identify broader opportunities as we move forward.

As I've said, the encouraging part about this is it's becoming part of our culture. It is being bottom up driven. So things that, frankly, I would have never thought of as opportunities are our employees are bringing up as opportunities continue to drive down our cost structure, improve our profitability. So again, we'll give more clarity on that as we move forward.

But it is -- it really does boil down, as I mentioned earlier, to the basic blocking and tackling of running these businesses. But we are encouraged by the opportunities that we continue to unearth to drive our OpEx initiatives.

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

Good morning, Doyle and Patty.

Good morning, Chip.

First question, we haven't talked about cellulose today. And I was just wondering what you are seeing in that marketplace in terms of there's a very small player that's kind of working hard to fill up their mills because things haven't turned out the way they planned. And then you've got obviously two competitors who are involved in conversion projects next year. And could you just give me a feel for how that may or may not impact you in terms of your contracts and what you see for the marketplace?

You might imagine, Chip, we're right in the middle of that process. So let me just give you a little bit of color. I would say that we are very pleased with the demand that we're seeing for our product from our customers. We've got, as you know, very long customer relationships.

So on a volume size, we're feeling good about -- it's still just the fourth quarter. We're not into 2016 until next year and we'll give you more color as we get a little closer. Having said that, I do expect that there will continue to be some price pressure as we have moved forward into 2016 as you see supply and demand. But I would say, at this point, we're very pleased with where we are on that front, but more to come.

And regardless of the supply side, are you -- would you still characterize the market globally as still low to mid -- maybe even a mid-single-digit growth? Are you seeing that kind of growth rate?

And I know it's very early days, but what do you think this change in policy in China could mean for demand on having going from one child to two children?

Well more babies mean more diapers, which means more fluff pulp. So hard to factor that into the cash flow stream, but I know what the direction would be. So I think from that perspective, we feel good about that piece. But I don't know how to quite model that at this point.

Okay. And then just on a separate note, I notice the -- and this would be on page 8 of the financial package, but the other unallocated expense, which isn't tied to FX or LIFO, was a pretty high number, $23 million. And maybe I missed it, but what was that? And what should -- I know it jumps around, but what should we expect that to do from third to fourth quarter?

Sure. We did true-up some of our environmental reserves, which is probably the biggest piece of that. It's not all of that by any matter of means. We have a number of things, as you saw, in the second quarter. The number was, I think, about $13 million went to $23 million. The biggest difference really was for a true-up of some environmental reserves that are old reserves. And it's just a function of this is kind of the time that we go through that process. There are probably some other small reserve true-ups, but that's the biggest number. Going forward into the fourth quarter I wouldn't expect that that number would be as large as you see it.

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

Thank you. Good morning, everyone. I had a couple of questions on EWP, first of all. Have you seen any significant pressure from the decline in solid wood? Because it seems like your prices were holding in pretty well.

Yes, Steve -- and good morning, Steve. As you would expect, we have seen a little bit of pricing pressure as the saw log prices have come off. We anticipate, as we mentioned earlier, as saw log prices go up, some of that pressure could, would, will abate. So to answer your question, I'd say yes. We've seen a little bit of pressure, nothing significant and not something we're concerned about in the long term.

Okay. And do any of the trust joist facilities have the ability to participate in this cross-laminated timber market that seems to be emerging?

We are really encouraged by the cross-laminated timber emerging market. And more and more buildings, as we all know, are using wood. And, yes, we are positioned to participate in that as we move forward. And there are some big initiatives that, as you know, to continue to encourage those efforts going forward.

Yes, I think it's a great opportunity. And then I had one question on cellulose. A couple of years ago when [viscos] was really, really strong you introduced your pearl product that, I believe, was marketed as an extender.

But I don't think you've spoken about it recently. So I was just wondering, is it growing? Is it lucrative? And are prices moving one way or another?

Yes, Steve, it's Patty. It is a smaller part of the overall portfolio. But we are producing the pearl product, primarily in our Port Wentworth facility. And that does help the overall supply that comes into the fluff market. So it is still a meaningful part for Port Wentworth, still a small part it is a relates to the overall pulp manufacturing supply.

But your expertise and any future growth would be more in fluff than in the extenders, is that correct?

Well the biggest impact, for sure, would be in fluff, just based upon the size of both that market and our capacity. But I wouldn't discount the importance of the pearl product, especially it is a results, as I said, to both the price as well as additional capacity for Port Wentworth.

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

Hi, everyone. This is Scott [Leaman] in for Mark Connelly. Good morning. Just two quick questions. The first one, if you guys see these FX conditions persist for the next year, how would you expect that that would affect the mix of wood that you guys are shipping?

Let's talk just a minute about the -- about what we're seeing in the export market. As we mentioned, we are very encouraged by what we're seeing in Japan. Housing continues to improve there. And as a result, we expect improved shipments into Japan in the fourth quarter and would expect that trend to continue next year.

In terms of Chinese markets, as we referred to earlier, inventories are returning, trending back towards normalized levels. And we think, as a result, prices are stabilizing and getting inventories back toward more normalized levels by the end of this year. We think this positions China to be an improving market as we move into next year, 2016.

Okay. And then just the second and last question is, it looks like your price realizations for engineered wood products were both up in the quarter. Do you think that those markets are tight enough to allow you to pass along higher OSB prices if OSB prices do continue to move higher over the next six months?

We'll have to see how that all figures out. As we said for the fourth quarter, which is really on a pricing guidance what we give, we think that realization will be basically flat for the third quarter.

Okay. Thank you.

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

Thank you. Good morning, Doyle and Patty.

Good morning, Alex.

A couple of ones for you. So you and others who are US-based pulp producers have talked about the potential impact of a strong dollar on pulp pricing. Assuming the dollar does stay strong, how do you handicap the potential impact to margins in pulp from that?

Well, I think, as Doyle talked about in his comments on FX, a strong dollar is not a positive for [this] business. But I think as we look at the euro right now, if you look year-over-year, it has weakened considerably compared to the US dollar. So I wouldn't necessarily see that it will be significantly weaker from where it is today.

Thanks for that, Patty. And then just thinking about the manufacturing portfolio, so a few years back we were talking about engineered wood and distribution as businesses that you would potentially exit unless there was material improvement in the profitability, which we've absolutely seen. So is there any interest in growing those segments through M&A now that we have seen the very nice improvement in the profitability there?

Thank you for your comment regarding the improved profitability, and as I mentioned earlier, a lot of good work from our employees. With that said, in both of those businesses we've still got more work to do.

In terms of growth, generally, we've said we would like to grow our Company. We'll be very disciplined about how we do. That we think our largest opportunities will be in Timberlands.

But if we can find bolt-on type acquisitions in our other businesses that make sense and drive value for shareholders, that's something we would consider. But our primary focus, especially in the two businesses that you just highlighted, are continuing to improve our existing operations.

Thanks, Doyle.

Thank you.

Your final question comes from the line of Collin Mings with Raymond James & Associates. Please go ahead.

Hi. Good morning, Doyle. Good morning, Patty.

Good morning, Collin.

Good morning, Collin.

Just first on the capital allocation front. Going back to when you announced your $700 million buyback, I think you guys made it pretty clear that you fully intended to utilize that in context with the TRI Pointe deal. How should we be thinking about really this latest share repurchase announcement just given where your cash balance is? Now should we view that as you are going to fully execute that? Or is it just kind of a tool you want at your disposal?

I think when we announced the share repurchase, our intent when we announced it is to fully execute it. So we'll continue to update everybody on exactly where we are on a quarter-to-quarter basis, but our intention would be to execute that -- the share repurchase over time.

Okay. No, it just looked like there was a little bit of a pause, that you completed the full $90 million in the third quarter. And there wasn't really anything incremental for the remainder of the quarter. So that was where the question was coming from.

There's nothing to be read into that, Collin.

Okay. And then just I'm curious if you can talk a little bit more about -- there have been a few lumber production curtailments announced in the US south recently, and obviously in response to where lumber pricing was in the third quarter. And just maybe what have you seen in terms of your Timberlands business as it relates to that?

Have you had to give back at pricing at all? Have you lost a little bit of volume to a couple of mills? Just maybe update us in context of some of the announcements in the third quarter.

In terms of our southern Timberlands, I would say our -- while there are these one-offs, our demand has been -- continued to be fairly consistent. And pricing in the third quarter was up slightly versus the second quarter. And for 2015 versus 2014, our best guess is prices will be up somewhere in the 2% to 3% range as we had indicated earlier this year.

So, yes, was there some impact from those announcements? Yes. But was it -- did it have a significant impact on our Timberlands, either volume or price? No.

Okay. And then just bigger picture, I know you've mentioned a couple of times on this call, again, Doyle, just the focus on looking at growing potentially that Timberlands platform, maybe more opportunities in the US south. But can you just talk about -- given that we've now seen two of the larger deals that were out there this year are either cleared or in the process of clearing the market, just what you're even seeing in terms of opportunities?

There's not a lot out there right now, Collin. I would tell you, especially for higher-quality Timberlands, when something does come -- become available, there's a lot of interest, a lot of competition, and still a lot of money out there interested in investing in this asset class. But in terms of specific opportunities other than the two that you just mentioned, not seeing a lot of activity in terms of availability.

Again, congratulations on all the progress, particularly on the engineered wood products business. Should we think about -- just given that there still sounds like some other opportunities you wanted to explore there on cost savings over time, do you think about this as now being kind of at minimum $140 million to $150 million a year in terms of EBITDA business? I mean, just maybe speak to the sustainability of the improvements that we've seen here, particularly over the last couple of quarters.

I do think the improvements that we've seen are sustainable. I do believe that we have, as I alluded to earlier, additional opportunities to improve that business going forward. So to your point, very encouraged about the progress, very encouraged about the work of our employees in that business. And there's no reason that things that we've done aren't sustainable and that there aren't additional opportunities to improve that business going forward.

All right. Thank you very much.

Thank you, Collin.

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

Let me just close by saying thanks, everybody, for joining in this morning. And more importantly, thank you for your interest in Weyerhaeuser and everybody have a good day.

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