Weyerhaeuser Company (WY) Earnings Call Transcript & Summary

Well great, and good morning. So my name is Paul Quinn. I'm RBC's equity analyst in the forestry space. I'm joined with the CEO of Weyerhaeuser, Devin Stockfish. And maybe, Devin, you can give us an overview of Weyerhaeuser, the company and where you're going to take it going forward.

Yes. Sure. Well, thanks, Paul. I appreciate the opportunity to talk to everyone this morning about Weyerhaeuser Company and some of the exciting things that we're doing on the ESG front. Well, first, let me just give a brief high-level overview of the company for those that aren't familiar with our story. So Weyerhaeuser, we have 3 businesses, our Timberlands business, our Real Estate and ENR business, and our Wood Products business. And as a backdrop, Weyerhaeuser is the largest private owner of timberlands in North America. We have 11 million acres of high-quality timberlands across the U.S. We also manage another 14 million acres in Canada under long-term licenses. We're also one of North America's largest manufacturers of wood products. We produce lumber, oriented strand board, plywood and other engineered products. All of our business segments have significant scale and industry-leading performance and we manage them within a tax-efficient REIT structure. In fact, we're one of the largest REITs in the United States. And the foundation of our company is our Timberlands business. Weyerhaeuser has an unrivaled portfolio of timberland assets. Of our 11 million acres in the U.S., about 3 million of those acres are in the West in Washington and Oregon, and these are some of the best timber-growing regions in the world and just really some premium assets. We also have nearly 7 million acres in the U.S. South, high-quality pine plantations that allow us to access all of the key markets across the Southern U.S. And in the Northeast, we have 1 million acres where we grow a broad mix of species. Our Real Estate and ENR business is very focused on maximizing the value of every acre we own. Managing a large, diversified land portfolio presents a number of opportunities beyond core timber to drive incremental value back to the acre. This includes the work that we've historically done around capturing higher, better use premiums and unlocking value through our Energy and Natural Resources business, things like construction materials, wind and solar, be excited about some of the emerging opportunities in the natural climate solutions and carbon space. And finally, we're one of North America's largest wood products manufacturers. Our Wood Products business is an industry-leading, low-cost producer of lumber, oriented strand board and engineered wood products. We have 35 mills across U.S. and Canada that are well aligned to our timber base, and we have 18 distribution facilities as well. This mix of assets and geographic coverage allows us really to serve a broad mix of customers all across North America. Core part of our overall strategy as a company over the last several years has been our intense focus on improving our operating performance across the entirety of Weyerhaeuser. At the heart of this effort has been our operational excellence journey. Since 2014, we've captured hundreds of millions of dollars of margin improvement across all of our businesses. And this effort really has cut across every aspect of our business, and it's become core to how we operate our company. And this work has really put us in a position where we now have industry-leading performance across all of our businesses. I'll note though, it's not just about being the best operators, though. I think equally important is that we're doing it in the right way. We've been operating our business with integrity and a strong focus on sustainability for over 100 years. Weyerhaeuser was a pioneer in sustainable forestry, going all the way back to the '20s and '30s. And we rolled out a new and updated sustainability strategy last summer that further builds on that strong ESG foundation. I'm sure we'll have a chance to talk more about that during the discussion this morning. And just a brief comment here on climate change specifically. My view is as society continues to focus on the impacts of climate change and global warming, I really believe that the role of forest and sustainable wood products, as a key part of the solution, is going to become more and more evident. The growing conversation around climate and carbon will, we believe, help drive incremental demand for our sustainable wood building products, which have lower embodied carbon and other building materials as well as potentially opening up additional market opportunities around carbon and climate solutions. So finally, I'd just note, as you know, Paul, we've taken a number of actions at Weyerhaeuser over the last year, including paying down significant amounts of debt, implementing a new dividend framework that we think really positions us well going forward. And with our unmatched portfolio of assets, our operating expertise, industry-leading cost structure, culture, track record of disciplined capital allocation, we think we're really well positioned to drive superior value for our shareholders and really, all of our stakeholders into the future. So that's at a high level, a summary of Weyerhaeuser. Maybe Paul, I'll turn it back to you at this point, and we can dive in with some questions.

Yes. Thanks very much. Great overview. I worked for the company 15 years ago, but it's always nice to hear a different perspective on it. ESG strategy is the focus of our conference. And so just getting back to how would you describe Weyerhaeuser's ESG strategy? And really, how has it evolved over the last couple of decades here?

Yes. Well, as you know, Paul, sustainability has been part of how we've been running the company for a very long time. It's part of who we are as a company. It's how we run our business, has been for a long time. So in many respects, it's always been core to what we do. We have rolled out recently a new sustainability strategy. We rolled that out last summer. We're really excited about it. Maybe I'd just highlight 3 key aspects of that. The first is really around maintaining and building on the strong ESG foundation that we have at the company. It's environmental stewardship, it's social responsibility, it's strong governance. It covers a wide swath of activities, everything from sustainable forestry, protecting habitat to reducing our greenhouse gas emissions and improving efficiency in our manufacturing. But it also covers S&G categories as well, things like safety, where we are an industry leader, improving our adversity and inclusion, the investments that we're making back into our people and our communities. So really a lot of good work that's been going on for a very long time, we need to make sure that we maintain that foundation, we continue to build on that. And I think, importantly, continue to find ways to talk about our ESG story. And as you've noticed, we've added a fair amount of new disclosure around ESG over the last 12 to 18 months, I think that's an important part of really helping all of our stakeholders better understand what we're doing in this space. The second aspect I would highlight on the new strategy is just around improving business alignment. And really, that is taking sustainability and incorporating it into the business practices throughout every level of the company. And this comes into play in a number of ways. It's building sustainability into business road maps and capital plans and people development plans. We think this is really important because as we drive that down deeper into the day-to-day operations, it gives our employees an opportunity to see how their activities contribute to our overall sustainability strategy and approach. It provides us opportunities to bring more of our employees at the table with ideas and innovations around how we can improve in sustainability. So I think that's going to be a really key and important part of our ongoing sustainability strategy. And then the last thing I would highlight is our positive impact piece of the new strategy. And we call this 3 by 30. We're really excited about it. It's really 3 key challenges that society faces where we think Weyerhaeuser is uniquely positioned to make a meaningful contribution over the next decade. And those 3 challenge areas are around climate change mitigation, making sure that people have homes that are made of sustainable materials and ensuring that rural communities are able to continue to thrive as places for our folks to work and to live. All 3 of these things are areas where we have a direct business high. And they are areas where I think we're very uniquely positioned to make a meaningful difference in society. So we're really excited about that. We're going to be intensifying our efforts around all 3 of those areas. So a lot of exciting work for us out ahead. But again, this really is a core of what we do. And so we're really looking to leverage this sustainability work to continue to make Weyerhaeuser a better company.

That's interesting. As a forester, forestry is a sustainable business, so it has been core to you. But along this journey, have you been propelled -- is it the focus, does that come internally? Or has there been external -- some of your stakeholders, some of your Board members maybe or some of your investors that have really put you along here? What's been the real cause of change for the new strategy that you put out last summer?

Yes. I think it's really all of the above. We are getting that from all of our stakeholders. Again, it's something that's been part of the company for a long time. So on some level, there's always been an expectation internally that we're going to run our business sustainably. That's the only way you can keep the business around for 100 years. We've got a very engaged Board. We talk about sustainability and ESG all the time. Our management team is very engaged. We're always pushing on this. But I'd say, in particular, of late, some of our newer, younger employees have made it very clear that when they're looking for employers, they're looking for places that are doing the right thing, that are making a positive contribution in the world. So we've heard loud and clear from our employee base that they're watching our ESG performance. So that's a key aspect of recruiting and retaining people, I think, in this day and age. The other piece, though, is just from an investor standpoint, that's something that's certainly picked up over the last couple of years. It's a very rare investor meeting these days where we don't talk about ESG. And so we're certainly hearing that from our investors. I think everybody is aware of the Larry Fink letter and some of his commentary on this topic, but we're hearing that from lots of our shareholders. And so we're trying to be very proactive on that front as well. Over the last couple of years, we've had an ESG governance roadshow where we've been out just talking about ESG matters with a lot of our big shareholders. That's a good opportunity or dialogue and for us to get feedback from our investors and our shareholders. So again, it's really coming from all of the stakeholders. I think this is just increasingly becoming an expectation of all companies.

Great. You've set some pretty lofty ESG goals. How do you measure and disclose those -- your performance around that?

Yes. So we measure a lot of things around sustainability. If you go to our sustainability report, which is available on our website, you can see just the breadth of things that we track and measure. And it's really covering the gamut from the environmental, again, on sustainable forestry and carbon emissions and all the things that we do from an environmental standpoint. It covers people, diversity data, employee, capital management and employee management, human management, really across the board. So we measure a lot of things internally. I think our new strategy with the business alignment is even going to take that up a notch as we continue to find opportunities in the business for things we can measure to improve our sustainability performance. But in terms of external frameworks, we have a pretty broad set of ESG disclosures that we provide, starting again with the sustainability report that we provide every year. You can find that on our website. We publish that in alignment with the GRI standards. And so you can see all of those materials there. We also publish our alignment with SASB, TCFD and a number of other consolidators; MSCI, ISS, Dow Jones. So our approach is we really try to provide a broad set of disclosures that our various stakeholders can utilize to assess our performance. And we're always looking for more opportunities to provide information that's usable and helpful to our stakeholders.

Earlier, you mentioned diversity and inclusion, and you know, the issues of inequality. How has Weyerhaeuser changed in this respect? And what are you doing to address some of the challenges that you must have within the workplace?

Yes. No question. Well, I'll just start by saying inclusion is a core value of the company. It's something that's on our vision statement. For those of you that know the company, we really do run our business based on that vision statement. And so we've been doing a lot of work around diversity, equity, inclusion at the company. We've got a lot of efforts underway. It's a really important part, I think, of creating value over time. This is an area where if we do this right, it will be a competitive advantage for us over the long term. I really do believe that. And what we're really going after is to try to create a culture and a workplace where everyone, regardless of gender, race, religion, et cetera, everyone feels welcomed and empowered to bring ideas to the table, where everyone feels comfortable and assured that they're going to have opportunities for career advancement and development. And really, that's the end goal for us. Last year, we put together an inclusion council, where we picked a diverse group of folks across the organization to really help guide us on setting inclusion and diversity equity goals, helping us with our overall strategy. We've got a lot of work underway across the organization from some things that are tactical, like taking names off of resumes, broadening the communications around diversity and inclusion, to upping our training around unconscious bias and justice and equity for senior managers. And really just making our expectations more around diverse hiring pools and candidate pools and making sure we have diverse hiring teams in place. And really just bringing more visibility and accountability around diversity and inclusion at the company. And so we've, I think, made some good progress over the last couple of years, still clearly opportunities for us to improve. And again, I think this is an area where if we can do this right, it creates a lot of value for the organization. Beyond just being the right thing to do, that really can set us up for success over the long term. So it's an area that I'm very committed to, our senior management team is committed to. I will tell you that our Board is holding me personally and our management team accountable for continuing to make improvements in this space. So I think it's an exciting opportunity for us as a company.

Okay. Let's talk about some of the future opportunities around ESG. One of the biggest challenges, I think, the globe is going to face going to a low carbon environment is balancing current business situations with some of the cost and transition to be able to move to a lower carbon footprint. How is Weyerhaeuser addressing some of this stuff?

Well, yes, I think that's one of the fundamental issues that all organizations are going to face as we transition into this new lower carbon environment. I would say on balance, I think our company and our industry are probably a little further ahead in this respect for a couple of reasons. First, this whole concept about investing today to ensure that you have a prosperous future, that is at the very heart of what we do in the Timberlands business, and we've been doing that for a very long time. So that's not a concept that's boring to us. And I'd say specifically on the carbon piece, we, as an industry and we as a company, I think, are pretty far out ahead of most industries. If you think about what we do, in our Timberlands business, our growing forest, they sequester and pull millions and millions of tons of carbon dioxide out of the atmosphere every year. And we store and sequester that carbon in the wood products that we make for very long periods of time. And so the amount of carbon that we take out of the atmosphere is pretty significant. We use renewable biofuels for the majority of our energy needs. And so when you think about our company on the whole, we've got a pretty good carbon story overall. And so that's a good starting place. Now that's not to say we're not going to face some challenges. We think about transitioning to lower carbon transportation, for example, that very well may come with some costs early on, and we'll have to manage through that. But I think there's some opportunities as well. I'll give you a good example. The strategy that our Wood Products business is undertaking around energy in ways to reduce our energy consumption in our manufacturing operations, but also looking for lower carbon opportunities like wind and solar and cogen. Those are the kinds of things that may come with some cost early on, but over time, I think and save us money and improve mill level economics. And so there may be some cost upfront, but we'll continue to look for opportunities to make win-win solutions out of this while still ultimately getting to a lower carbon future.

Great. One of the themes that we've identified is the rise of ESG targets and particularly around net zero targets, which, when you take a look at today's business, it seems like it's quite a ways in the future. But just wondering how Weyerhaeuser approached that push to get that net zero? And do you see that over the course of your tenure as CEO?