Devin W. 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 $230 million or $0.31 per diluted share on net sales of $2 billion. Excluding special items, we earned $238 million or $0.32 per diluted share. Adjusted EBITDA totaled $469 million in the second quarter, this is a 19% increase from the first quarter and was largely driven by an increase in wood products commodity pricing and strong EWP sales volumes. Notwithstanding elevated mortgage rates, we've been encouraged by resilient demand for new homes this year, which provided a nice tailwind for our Wood Products business in the second quarter. We delivered solid results in the quarter and I'd like to thank our teams for their collective efforts and focus on safety, operational excellence and continuing to serve our customers.
Before moving into our business results, I'd like to comment briefly on a Timberlands transaction we completed earlier this month. As we reported yesterday, we acquired 22,000 acres of high quality timberlands in Mississippi for approximately $60 million. This acquisition is comprised of highly productive timberlands, strategically located to deliver immediate synergies with existing Weyerhaeuser timber and mill operations. With a mature age class and well stock timber inventory, we expect these timberlands to generate strong cash yields. Additionally, the acquisition offers incremental real estate and natural climate solutions opportunities in the future. This transaction is a great example of our ongoing efforts to enhance our portfolio with high quality well managed timberlands that generate solid returns for our shareholders.
As highlighted on page 22 of our earnings slides, we continue to make great progress against our target to grow our timberlands portfolio through $1 billion of disciplined investments between 2022 and 2025. To date, we have deployed approximately $360 million against this target, including the recent Mississippi transaction and the acquisitions in the Carolinas and Washington, which were completed in 2022.
Turning now to our second quarter business results, starting with Timberlands on pages six through nine of our earnings slides. Timberlands contributed $104 million to second quarter earnings. Adjusted EBITDA was $172 million, a $16 million decrease compared to the first quarter. This was largely driven by lower average sales realizations for export logs in the West. Turning to the Western domestic market, favorable weather conditions during the quarter supported increased log supply across the region. Log demand improved as mills returned to more normalized operating levels in response to strengthening lumber prices, and later in the quarter took precautionary measures to bolster log inventories ahead of wildfire season. These dynamics kept log prices fairly stable during the second quarter and as a result, our average domestic sales realizations were comparable to the first-quarter. Our fee harvest volumes were slightly higher than the first quarter. As a result of favorable operating conditions. Domestic sales volumes were significantly higher, as we intentionally shifted logs to the domestic customers to capture higher margin opportunities. Per unit log and haul costs improved in the second quarter and forestry and road costs were seasonally higher.
Moving to our Western export business. In Japan, log markets continued to soften in the second quarter in response to elevated inventories of European lumber imports as well as lower consumption driven by reduced post and beam housing activity. As a result, our average sales realizations for export volumes to Japan were lower compared to the first quarter and our sales volumes were comparable. As we look forward, we expect European lumber inventories in Japan to normalize in the coming months, which should increase demand for our Douglas-fir logs into the Japanese market later in the year. In China, log market softened in the second quarter in response to an influx of log supply from New Zealand, combined with the reduction in log takeaway at the ports. As a result, our average sales realizations for export volumes to China were lower compared to the first quarter. Our sales volumes were significantly lower as we intentionally flex logs to the domestic market.
Turning to the South. Adjusted EBITDA for Southern Timberlands was $79 million, a slight reduction compared to the first quarter. Southern sawlog markets remained fairly balanced in the second quarter as log supply improved with drier conditions and mills bolstered log inventories following weather related challenges in the first quarter. In contrast, Southern fiber markets softened in response to elevated inventories of logs and finished goods at mills as well as lower overall demand for pulp and paper end-market -- end products. Given favorable operating conditions, our thinning activity increased in the second quarter, resulting in a higher mix of fiber logs. As a result, our average sales realizations were slightly lower compared to the first quarter and our fee harvest volumes were comparable. Per unit log and haul costs were slightly lower, primarily due to lower fuel prices and forestry and road costs were seasonally higher.
In the North, adjusted EBITDA decreased by $4 million compared to the first quarter due to significantly lower sales volumes associated with seasonal spring break-up conditions.
Turning now to Real Estate, Energy and Natural Resources, on pages 10 and 11. Real Estate and ENR contributed $52 million to second quarter earnings, adjusted EBITDA was $70 million, a $19 million decrease compared to the first quarter, largely driven by the timing and mix of properties sold. Average price per acre increased significantly in the second quarter and remains elevated compared to historical levels. We continue to benefit from healthy demand for HBU properties resulting in high value transactions with significant premiums to timber value.
I'll now make a few comments on our Natural Climate Solutions business. We continue to make progress on our Forest Carbon pilot project in May. In the second quarter, we completed the third party audit process and submitted the project to the American Carbon Registry for final approval. Once approved, we expect an initial issuance of approximately 30,000 credits in year one, and we're currently developing two additional projects in the US South. We remain focused on positioning our credits to capture the highest value possible in the marketplace.
Moving to Wood Products, on pages 12 through 14. Wood Products generated $218 million of earnings in the second quarter and $270 million of adjusted EBITDA. Second quarter EBITDA was 82% improvement from the first quarter, largely driven by an increase in lumber and OSB Sales realizations and strong sales volumes for engineered wood products. Starting with lumber, adjusted EBITDA was $51 million in the second quarter, a $43 million increase over the prior quarter and largely driven by improved sales realizations. Benchmark pricing for lumber held fairly stable in April May, as sentiment remained cautious. Buyers mostly limited orders to necessity purchases despite lean inventories. By mid June, overall sentiment and benchmark pricing improved in response to stronger housing activity. Perceived risks to supply from Canadian wildfires and announced mill curtailments also bolstered buying activity in June. For the quarter, the framing lumber composite was comparable to the first quarter, while our average sales realizations increased by 6% with the relative outperformance driven by our regional mix and product mix.
Our sales volumes were moderately higher compared to the first quarter, as our northwest mills returned to more normalized operating levels. Log costs were slightly lower, primarily for western logs and unit manufacturing costs were slightly higher during the quarter. Adjusted EBITDA for OSB increased by $15 million compared to the first quarter, primarily due to the increase in commodity pricing, slightly offset by higher unit manufacturing costs related to planned and unplanned downtime. Benchmark pricing for OSB entered the second quarter on an upward trajectory, largely driven by lean inventories and steady demand from new home construction activity. As the quarter progressed buyer sentiment and benchmark pricing continued to improve as Canadian wildfires disrupted supply and in response to improving residential construction activity. As a result, the OSB composite pricing increased by 21% compared to the first quarter. Our average sales realizations increased by 11%. This relative difference was largely due to our extended order files, which result in a lag effect for OSB realizations. Our production and sales volumes were moderately lower in the second quarter and unit manufacturing costs were moderately higher, due to planned downtime for annual maintenance and a temporary period of unplanned downtime related to wildfire activity near one of our facilities in Alberta. Fiber costs improved slightly during the quarter.
Engineered Wood products adjusted EBITDA increased by $62 million or 76% compared to the first quarter. This result is directly tied to improving demand for EWP products, which are primarily used in single family homebuilding applications. As a result, our production and sales volumes were significantly higher for most products in the second quarter and unit manufacturing costs improved significantly for solid section and I-joist products. That said, our average sales realizations were lower for most products as supply-and-demand continue to rebalance across the broader EWP market. It's worth noting that our current EWP prices remain above pre pandemic levels. Raw material costs decreased for all products in the second quarter.
In distribution, adjusted EBITDA increased by $12 million compared to the first quarter, a 55% improvement as the business benefited from strong EWP sales volumes in the second quarter.
With that, I'll turn the call over to Davie to discuss some financial items and our third quarter outlook.
