Devin W. Stockfish
President and Chief Executive Officer at Weyerhaeuser
Thanks, Andy. Good morning, everyone, and thank you for joining us.
Yesterday, Weyerhaeuser reported third quarter GAAP earnings of $28 million or $0.04 per diluted share on net sales of $1.7 billion. Excluding a special item, we earned $35 million or $0.05 per diluted share. Adjusted EBITDA totaled $236 million for the quarter.
Our teams delivered solid operating performance in the third quarter against a challenging market backdrop. Notwithstanding recent headwinds, we remain well positioned in the current environment given our deeply ingrained OpEx culture and relative position on the cost curve. Our balance sheet is strong and we continue to demonstrate the durability of our portfolio and capital allocation framework across market cycles. Looking forward, we're optimistic that market conditions will improve into 2025 and maintain a constructive outlook for the longer-term demand fundamentals that support growth for our businesses.
Before moving on to our business results, I'd like to provide an update on the Alabama timberland acquisitions that we announced in July. As a reminder, the acquisitions totaled approximately 84,000 acres for $244 million and were sourced through multiple transactions, the first of which closed in the second quarter. I'm pleased to report that we completed the remaining transactions in the third quarter and earlier this month. These acquisitions represent an attractive opportunity to enhance our portfolio with high-quality, well-managed timberlands that generate solid returns for our shareholders. In addition, they demonstrate meaningful progress toward our multi-year timberlands growth target. Including these transactions, we've deployed approximately $775 million against our target and are on track to reach $1 billion of strategic timberland acquisitions by the end of 2025.
Turning now to our third quarter business results. I'll begin with Timberlands on Pages 6 through 9 of our earnings slides. Timberlands contributed $57 million to third quarter earnings. Adjusted EBITDA was $122 million, a $25 million decrease compared to the second quarter, largely driven by lower sales realizations and volumes in the West.
Starting with the Western domestic market. Log pricing faced downward pressure in the third quarter as log supply remained ample and mills carried elevated log inventories and continued to navigate a very challenging lumber market. As a result, our average domestic sales realizations decreased compared to the second quarter. Our fee harvest volumes were moderately lower as we made the seasonal transition into higher elevation and lower productivity harvest operations. Additionally, although wildfire activity was limited in our timberlands, dry conditions across the Pacific Northwest resulted in additional operating restrictions in certain areas, further reducing our harvest volumes in the third quarter. Per unit log and haul costs and forestry and road costs decreased compared to the second quarter.
Moving to our Western export business, starting with Japan. Log markets softened in the third quarter given ongoing consumption headwinds in the Japanese housing market and elevated inventories of finished products for our customers. In addition, there was a significant increase in European lumber imports into Japan, following the resolution of a labor strike in Finland earlier this year. This led to increased competition in the Japanese market. Given this dynamic, demand from our strategic customers moderated in the third quarter. As a result, our sales volumes and average realizations for export logs to Japan were lower compared to the second quarter.
In China, log markets shown signs of moderation at the outset of the third quarter, in response to lower consumption levels and elevated log inventories at the ports. As the quarter progressed, consumption improved steadily and inventories fell to their lowest levels since January. On balance, log demand was solid from our strategic customers and we shipped more volume to China than our initial plan for the quarter. That said, our sales volumes and average realizations were lower compared to the second quarter.
Turning to the South. Adjusted EBITDA for Southern Timberlands increased slightly compared to the second quarter. Southern sawlog markets continued to soften as log supply remained ample and mills further adjusted the lower pricing and takeaway of lumber. In contrast, Southern fiber markets were generally stable. 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 second quarter. Our fee harvest volumes and forestry and road costs were lower as multiple tropical weather systems impacted the region in the third quarter.
It's worth noting that while our timberlands were largely undamaged by these storms, wetter-than-normal conditions limited our operating activities in certain geographies. Per unit log and haul costs were comparable to the prior quarter.
In the North, adjusted EBITDA decreased slightly compared to the second quarter. Sales realizations were moderately lower due to mix. And fee harvest volumes were significantly higher, resulting from the seasonal increase in harvest activity that's typical in the third quarter.
Turning now to Real Estate, Energy and Natural Resources on pages 10 and 11. Real Estate and ENR contributed $51 million to third quarter earnings. Adjusted EBITDA was $77 million, a $25 million decrease compared to the second quarter, largely driven by the timing and mix of real estate sales. It's worth noting that real estate markets have remained solid year-to-date, and we continue to capitalize on steady demand and pricing for HBU properties with significant premiums to timber value.
I'll now make a few comments on our Natural Climate Solutions business. We remain on track to receive approval for two forest carbon projects in the U.S. South in the coming months. Between the initial credits from these projects and the next issuance from our main pilot project, we expect to generate over 100,000 credits. Looking forward, we have several additional projects in the development pipeline and are encouraged by the increasing demand for high-quality credits and growing support for voluntary carbon markets.
Turning to renewables. We continue to see strong demand for large-scale solar development and are well positioned to capitalize on this opportunity as markets continue to expand. In total, we've signed approximately 70 agreements for potential solar projects. Notably, we have three solar developments currently under construction, one of which is expected to be operational by year-end. Additionally, we're expecting two new wind projects to come online in the coming months, which will increase our wind portfolio from six active sites to eight active sites.
Moving now to Wood Products on Pages 12 through 14. Excluding a special item, Wood Products contributed $37 million to third quarter earnings. Adjusted EBITDA was $91 million, a $134 million decrease compared to the second quarter, largely driven by lower product pricing, particularly in OSB, as well as lower sales volumes and higher unit manufacturing costs across our Wood Products segment.
Starting with lumber, third quarter adjusted EBITDA was a $29 million loss, as significant headwinds persisted across the North American market. Benchmark pricing for lumber reached historically low levels at the outset of the third quarter, particularly in the U.S. South. This was driven by several ongoing dynamics, including cautious buyer sentiment, ample supply and soft end market demand. As the quarter progressed, supply and demand began trending towards a more balanced state and benchmark pricing improved slightly.
It's worth noting that lumber prices in the U.S. South have steadily increased in October, as inventories remain lean and buyers navigate supply constraints following recent tropical weather events and in response to a series of milk curtailments and closures across the region. In addition, we've started to see an improvement in repair and remodel demand in the U.S. South, particularly from the Treater segment.
For our lumber business, production volumes decreased in the third quarter as we reduced our operating posture in response to a softer demand environment. This took place across our mill set and included the previously announced curtailment of our New Bern sawmill. As a result, our sales volumes were moderately lower in the third quarter and unit manufacturing costs were moderately higher. Our average sales realizations decreased by 4% compared to the second quarter and log costs were slightly lower. For the fourth quarter, we plan to return our lumber business to a more normal operating posture. We're encouraged by recent improvements in the Southern lumber market. And given our OpEx focus and relative position on the cost curve, we're better positioned to operate through the commodity cycle compared to much of the industry.
Turning to OSB. Third quarter adjusted EBITDA was $39 million, an $83 million decrease compared to the second quarter, primarily due to lower product pricing. Supply and demand were relatively balanced across the North American OSB market in the third quarter and benchmark pricing was stable, albeit at a much lower level than the second quarter average. For our OSB business, average sales realizations decreased by 25% compared to the second quarter. Our sales volumes were moderately lower and unit manufacturing costs were moderately higher due to planned annual maintenance outages that are typical in the third quarter. Fiber costs were slightly lower in the quarter. I would note that we've seen OSB prices trend up in recent weeks and our order files are now extended out through November.
Engineered Wood Products adjusted EBITDA was $61 million, a $31 million decrease compared to the second quarter. This was largely driven by lower sales volumes and higher unit manufacturing costs, as we aligned our production to match customer demand and to keep inventories at appropriate levels in light of weaker July housing activity. Notably, our average sales realizations for solid section and I-joist products were comparable to the second quarter. Looking forward, demand for EWP products will remain closely aligned with new home construction activity, particularly in the single-family segment. Given this dynamic, we expect a slightly softer demand environment in the fourth quarter, as housing activity typically decreases into the winter months. That being said, we do have a favorable outlook for housing and EWP demand as we transition into next year's spring building season.
In distribution, adjusted EBITDA decreased by $4 million compared to the second quarter, largely due to a decrease in sales volumes and commodity margins.
With that, I'll turn the call over to Davie to discuss some financial items and our fourth quarter outlook.
