Devin Stockfish
President and Chief Executive Officer at Weyerhaeuser
Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported second quarter GAAP earnings of $173 million, or $0.24 per diluted share, on net sales of $1.9 billion. Excluding a special item, we earned $154 million, or $0.21 per diluted share.
Adjusted EBITDA totaled $410 million, a 16% increase over the first quarter. These are solid results, and I'd like to thank our teams for their continued focus and operational performance. Through their efforts, adjusted EBITDA improved across each of our business segments compared to the prior quarter, a notable achievement in light of numerous market-related challenges, particularly in the lumber market.
Before getting into the businesses, I'd like to comment briefly on an exciting growth opportunity within our Southern Timberlands portfolio. As we announced yesterday, we are acquiring approximately 84,000 acres of high-quality timberlands in Alabama for $244 million. The collective acreage was sourced through multiple transactions, one of which closed in the second quarter for $48 million. The remaining transactions are under contract and expected to close later this year, subject to customary closing conditions.
These acquisitions represent an attractive opportunity to expand our footprint in one of the strongest inland sawlog and fiber markets in the US. These are highly productive and mature timberlands strategically positioned to demonstrate immediate synergies with existing Weyerhaeuser operations. In addition, they're expected to generate portfolio-leading cash flow and harvest tons per acre within our Southern Timberlands business.
As highlighted on Page 18 of our earnings slides, we've demonstrated meaningful progress toward our multi-year timberlands growth target. Including these transactions, we will have completed approximately $775 million against our target and are on track to reach $1 billion of strategic timberlands acquisitions by the end of 2025.
Turning now to our second quarter business results, I'll begin with timberlands on pages 6 through 9 of our earnings slides. Timberlands contributed $81 million to second quarter earnings. Adjusted EBITDA was $147 million, a slight improvement compared to the first quarter, largely driven by increased sales volumes out of the West.
Starting with the western domestic market, log prices faced downward pressure in the second quarter as mills carried elevated log inventories and continued to navigate a softening lumber market. In addition, log supply was ample, given the seasonal improvement in weather conditions and recent mill curtailments reduced log takeaway in the region. As a result of these dynamics, our average domestic sales realizations decreased slightly compared to the first quarter.
Given favorable operating conditions, our fee harvest volumes were moderately higher, and domestic sales volumes improved as demand for our logs remained stable despite softer end markets. Per unit log and haul costs increased, and forestry and road costs were slightly higher.
Moving to our Western export business. Log markets in Japan were stable in the second quarter and demand for our logs was steady. Suppliers of European lumber into Japan continue to face shipping and cost headwinds, which has provided our customers an opportunity to pick up market share. For the second quarter, our average sales realizations for export volumes to Japan increased slightly. Sales volumes increased significantly, partially due to the timing of vessels.
In China, log consumption increased modestly following the Lunar New Year holiday, and log inventories at the ports declined steadily in the second quarter. That said, log takeaway waned as the quarter progressed. On balance, log demand was solid from our strategic customers in the region, and we significantly increased our sales volumes into China during the second quarter. Our average sales realizations were slightly lower compared to the first quarter.
Turning to the South. Adjusted EBITDA for Southern Timberlands was comparable to the first quarter. Southern sawlog markets moderated in the second quarter, largely in response to elevated mill inventories, a seasonal increase in log supply, and reduced consumption as mills adjusted to lower pricing and takeaway of lumber. In contrast, Southern fiber markets were generally stable as supply and demand returned to a more normalized state. On balance, takeaway for our logs remained steady, given our delivered programs across the region. As a result, our average sales realizations were comparable to the first quarter.
Our fee harvest volumes and forestry and road costs were seasonally higher, and per unit log and haul costs were comparable. In the north, adjusted EBITDA decreased slightly compared to the first quarter due to significantly lower sales volumes associated with seasonal spring breakup conditions.
Turning now to Real Estate, Energy, and Natural Resources on Pages 10 and 11. Real Estate & ENR contributed $59 million to second quarter earnings. Adjusted EBITDA was $102 million, an $8 million increase compared to the first quarter, partially driven by higher royalty income from construction materials within our Energy and Natural Resources business.
In our Real Estate business, we continue to benefit from solid demand for HBU properties, resulting in high value transactions with significant premiums to timber value. That said, our average price per acre declined sequentially due to the mix of acres sold in the quarter.
I'll now make a few brief comments on our natural climate solutions business. We continue to see strong demand for large scale solar development and signed additional agreements in the second quarter. In total, we now have over 70 agreements for potential solar projects covering more than 130,000 acres across the US South.
Turning to Forest Carbon. We are advancing several projects through the development pipeline and expect to have two new projects in the US South approved later this year. These projects, in combination with our main pilot project, are expected to generate over 100,000 credits in 2024. Looking forward, we're encouraged by the growing support for the voluntary carbon markets and are uniquely positioned to capitalize on increasing demand for high quality credits.
Moving to Wood Products on Pages 12 through 14. Excluding a special item, Wood Products contributed $171 million to second quarter earnings. Adjusted EBITDA was $225 million, a 22% improvement over the first quarter, largely driven by an increase in OSB pricing, as well as higher sales volumes and lower costs in lumber and EWP.
Starting with lumber. Second quarter adjusted EBITDA was an $8 million loss with soft pricing as the primary headwind. Average benchmark pricing for lumber decreased by 5% compared to the first quarter. Despite solid single family housing starts thus far in 2024, other end markets for lumber, particularly the repair and remodel and multifamily housing segments, have been more muted recently. As a result, lumber supply continued to outpace demand and buyer sentiment remained cautious in the second quarter.
Although this dynamic is being felt across the North American lumber market, it's been more acute in Southern Yellow Pine, given softness in treater and multifamily demand, which are proportionally larger markets in the South compared to other regions. For the lumber business, our average sales realizations decreased by 2% in the second quarter. Our sales volumes were moderately higher, partially due to increased production following winter weather disruptions in the first quarter. Unit manufacturing costs and log costs were both lower in the second quarter.
Before moving to OSB, I'll make a few comments on our recent decision to indefinitely curtail operations at our sawmill in New Bern, North Carolina. These are always difficult decisions, given the impact on employees, their families, and the local community, so we did not take this decision lightly. New Bern is the smallest mill in our portfolio at 100 million board feet of capacity. Unlike other facilities across our mill set, for a variety of reasons, we haven't invested meaningful capital in New Bern, so its cost structure was relatively challenged, making it very difficult in the current pricing environment.
Given these variables, along with New Bern's limited integration with our fee timberlands, we didn't see a clear path to achieving sufficient financial results to keep the mill running. As a result, we've commenced an orderly wind-down of operations and expect the mill to be fully curtailed in the third quarter. I do want to thank our New Bern team for their contributions to the company, as well as the local community for their support over the years. We're working to minimize the impact of the curtailment by providing employment opportunities in other parts of our operations or transition services to affected employees.
As for the remainder of our mill set, we are very focused on running efficiently and controlling costs. Given our deeply ingrained opex culture and relative position on the cost curve, we firmly believe that we're better positioned to operate through the commodity cycle than most of the industry. Nevertheless, in light of current market conditions, we expect to reduce our lumber production by 5% to 10% in the third quarter. This will take place across our mill set and is inclusive of the New Bern curtailment. And looking forward, we will continue to assess our performance, customer commitments, and broader portfolio integration as we evaluate the need to further optimize our lumber operations.
So now turning to OSB. Adjusted EBITDA increased by $35 million compared to the first quarter, primarily due to higher average sales realizations. Benchmark pricing for OSB began the quarter at elevated levels, but moved significantly lower as the quarter progressed, largely in response to the softer than expected demand during the spring building season and elevated channel inventories. Pricing stabilized by quarter end and has remained steady into July.
Notwithstanding this volatility, average OSB composite pricing was 6% higher compared to the first quarter, while our average realizations were 13% higher. This relative difference was largely due to the length of our order files, which results in a lag effect for OSB realizations. Our production and sales volumes and unit manufacturing costs were comparable to the first quarter, and fiber costs improved slightly.
Engineered Wood Products adjusted EBITDA increased by $6 million compared to the first quarter. Given solid single-family construction activity, the EWP market experienced a slight seasonal improvement in demand at the outset of the second quarter before stabilizing into the summer months. As a result, our sales volumes were higher across all products in the second quarter, and sales realizations were comparable for most.
Unit manufacturing costs improved sequentially, and raw material costs moved lower for solid section products, but higher for I-Joist, primarily related to OSB web stock. In distribution, adjusted EBITDA decreased by $2 million compared to the first quarter, as lower commodity margins offset higher sales volumes.
With that, I'll turn the call over to Davie to discuss some financial items and our third quarter outlook.
