Tags: Weyerhaeuser | timber | REIT | WY

Weyerhaeuser Timber REIT Waits On Recovery

Tuesday, 17 April 2012 05:12 PM

Weyerhaeuser (WY), like most companies linked to the U.S. housing industry, waits on a recovery to finally take hold and improve the bottom line. Meanwhile, it has converted its corporate structure to a timberland real estate investment trust (REIT), the better to distribute earnings to investors at lower tax cost.

Weyerhaeuser is a forest products company that grows and harvests trees, builds homes and makes a range of forest products. The company has offices or operations in 11 countries, manages 20.3 million acres of forests, of which it owns 5.7 million acres.

In 2011, Weyerhaeuser generated $6.2 billion in net sales from continuing operations. Weyerhaeuser reports two groups: forest products and real estate. More than a third of revenue, $2.2 billion, was earned from customers outside the United States. The company has 12,800 employees, of which 3,400 are union members covered by multi-year collective bargaining contracts.

Weyerhaeuser began as a timber company in Washington state in 1900. Starting in fiscal 2010, the company converted to a real estate investment trust (REIT). As such, it expects to create income from timber investments that it will distribute to shareholders without first paying corporate level tax, substantially eliminating double taxation on income.

The slow U.S. recovery, Japan earthquake and tsunami, Europe’s debt crisis and other factors affected the company in 2011, Weyerhaeuser management noted at the end of the year.

“Improvement in the latter part of 2011 in key areas such as job creation, industrial production and GDP may help spur growth in U.S. housing; however, the sector remains burdened by excess inventory and a diminished pool of qualified home buyers,” management said.

“The health of the U.S. housing market strongly affects our Real Estate, Wood Products and Timberlands segments.”

Weyerhaeuser is a $11.11 billion market cap firm, a touch larger than the $8.17 billion market cap average for its sector, which is real estate investment trusts. Its trailing 12-month P/E ratio is 35.08, compared to 55.83 for the sector.

Its five-year projected-earnings-to-growth (PEG) ratio is 66.20, compared to 7.23 for the sector. The trust’s projected earnings per share growth for the coming year is 97.50 percent, nearly triple the sector average.

Strong margins

Analyst opinions are mixed on Weyerhaeuser, with a few buys counterbalanced by sells and most taking a neutral position.

“WY has divested assets to focus on its timber, wood products, real estate and fiber businesses. Although the steep downturn in the residential
construction sector has hurt many of these businesses, the sector has likely bottomed and WY should see strong margins once volume recovers, in our view,” S&P analysts wrote in early February.

“The company has adopted the REIT form of corporate structure, which will likely result in greater cash flows and higher dividend payouts in the future,” they added.

Weyerhaeuser next reports on April 27.

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Tuesday, 17 April 2012 05:12 PM
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