Weyerhaeuser Earnings: Sequential Volume Improvements Offset by Housing Market Headwinds

No-moat-rated Weyerhaeuser WY reported somewhat underwhelming third-quarter results as the company continued to navigate a challenging operating environment. Net sales fell over 11% year over year as the wood product and timberland segments recorded double-digit declines. The company’s consolidated operating margins decreased roughly 250 basis points from a year ago to 17.5% but improved again sequentially due to solid performance in the wood products business. Nevertheless, Weyerhaeuser faces a difficult fourth quarter as higher mortgage rates constrain housing markets and limit demand for wood products. As such, we’ve decreased our fair value estimate to $34 from $35 due to our expectation of lower wood product volumes through 2023 than we had previously anticipated.

Weyerhaeuser’s wood product business made sequential progress despite facing persistent macroeconomic headwinds. Net sales decreased 13% while segment operating margins fell 150 basis points from a year ago. That said, this was a 350-basis point increase sequentially, largely due to strength in OSB as a spike in early summer demand drove robust price growth. Lumber and wood product prices have remained at lower levels for much of the year and have shown few signs of improvement. A few products, such as OSB, experienced some price growth in the quarter but the majority were flat or down year over year. Ample supply and softening demand have weighed heavily on prices since peaks in 2022, and we expect this trend will last through much of 2024.

Higher interest rates continue to constrain housing markets, applying significant pressure to Weyerhaeuser’s wood products and timberland operations. Demand has remained pressured for much of the year, and considering recent moves in mortgage rates, we don’t expect much relief in the near future. That said, we think wood product volumes will fare better in 2024 and potential industry curtailments could provide some much-needed relief to lumber prices.