Weyerhaeuser Company ($WY)

And a disciplined approach to capital allocation. And the fourth growth lever, fourth lever, which we outlined at our Investor Day, is accelerated growth. And this is all underpinned by our high-performance culture, a strong track record of operational excellence and innovation, portfolio management as well as sustainability. And it really just -- it separates Weyerhaeuser from our competition. And ultimately, it's what drives drives superior returns for our shareholders over time. With the foundation that's really world class. Core to the company is our Timberlands business. We have we managed another 13 million acres in Canada under long-term license agreements. We're -- also 1 of the largest producers of wood products in North America. We have 33 facilities where we produce oriented strand board, a variety of engineered with products. We also have 22 distribution facilities across key markets in the U.S. across all of those acres we own. And we do that through our Climate Solutions business, our real estate business and our natural resources business. All of these businesses have significant scale, industry-leading margins and they're managed within a tax-efficient REIT structure. In fact, we are 1 of the largest REITs in the U.S. So just a quick recap on the goals and targets that we set out back at our Investor Day in 2025 and set some ambitious growth targets, and we updated the Street in December. The good news is, as always, we delivered on those. That includes the $1 billion Timberland acquisition program that we were able to last year. Importantly, we did pay for a lot of those new timberlands through the sales of nonstrategic timberlands, effectively recycling a lot of that capital. We were able to exceed our goal of $100 million of EBITDA in our new Climate Solutions business last year, and that really set us up with a strong pipeline that will lead into our next growth target, which I'll touch on here momentarily. We continue to invest in our wood products facilities. We continue to focus on cost management and operational excellence. We delivered on our multiyear OpEx targets, which really was quite an achievement given the inflationary pressures that we experienced over that time period. And finally, in terms of our commitment to returning cash to shareholders from 2021 to 2025, we returned over $6 billion of cash back to shareholders. That included 4 increases to our quarterly dividend each year over that period as well as closing out a $1 billion share repurchase program and putting a new $1 billion program in place. So just really incredibly proud of all the accomplishments in a time that was not without its challenges across COVID and inflation and supply chain challenges. Having achieved those targets back in 2020 that we set out in 2021, we laid out a new growth program in December that was really focused on driving growth across the entirety of our platform. And what we laid out in December was our plan to grow our EBITDA by $1.5 billion through the end of 2030. And that really includes ambitious targets across each of our businesses and the enterprise as a whole. The good news is the vast majority of those initiatives are already underway. Most of those are under our control. And so we're really excited about some of the opportunities out there I'm sure we'll touch on some of those during the Q&A. But that really just -- it sets us up to really deliver for our stakeholders. And so we're excited about that. Lastly, I'll just wrap up with some comments on capital allocation. We continue to view that as a critical lever for driving value for our shareholders. We have 3 key priorities, which remain unchanged, and that is returning cash to our shareholders. Through a combination of dividends, both quarterly and supplemental as well as share repurchase. It includes investing in our businesses, and that's 1 of the things that's driving our growth program, all while maintaining an appropriate cash structure capital or capital structure, which is essentially making sure that we retain our investment-grade debt profile. I will just remind everyone our cash return framework is really based on a foundation of returning 75% to 80% of our funds available for distribution back to our shareholders every year, again, through a combination of dividends and share repurchase. When we think about our balance sheet, it's strong. We've been spending a lot of time and effort over the years really to strengthen the balance sheet. We paid down debt. We've materially reduced our annual interest payments. We've got a lot of flexibility with our liquidity. And so really well positioned as we move forward to deliver on some of the opportunities that are out in front of us. So just in closing, I'd just reiterate Weyerhaeuser really does stand apart from anyone else in our industry in terms of our ability to deliver on our accelerated growth program. Our scale is unmatched in the industry with our timberlands, wood products assets. The quality, the diversity, the focus on operational excellence and innovation. We have a proven track record of delivering across all of these, and we're really excited about what next. So I think with that, Anthony, why don't we just go ahead and open it up for Q&A.

Great. Great. It's a very helpful overview. Maybe just going through some of those in a little bit more detail and starting off with timberlands -- can you talk about your southern footprint versus your Western footprint in terms of how those are differentiated? Maybe what differentiates your holdings versus other timberland? And then just maybe touch on current log price trends and market trends.

Sure. Well, when you think about our timberlands portfolio as a whole, the thing that really differentiates us from everyone else is the scale and the quality diversity. Each individual wood basket is going to have its own supply-demand dynamics. And so you may have periods of time where you have 1 area that's a little stronger than the other. But when you look across the totality of our holdings, really just no 1 else has the scale. We are, as I said, over 10 million acres in the U.S. Our next largest competitor has about half of that. But it's not just about the number of acres, it's about the quality of those acres, and we've really been focused over the last several years on selling off the lower-performing assets and redeploying that capital into higher assets. And we've got some materials in our investor deck that really kind of highlight how that's benefited us. But really to the tune of just buying and selling in terms of dollars, comparable amounts but driving an incremental million of EBITDA from just constantly upgrading that portfolio. When we look at the West, 1 of the key attributes that we've seen there for a very long time is the access that we have to export markets. About 1/3 of the logs that we send to the market every year in the Northwest, go offshore, primarily to Japan, but also to China and Korea. And that's provided an extra tensioning in that market that's really put a floor on log prices and made that a very tensioned wood basket. So it's a very profitable place to own timberlands. We are recreating that in the South. We are one of the only, if not the only timberlands owner that is actively shipping logs out of the U.S. South via break bulk. And so when you think about shipping by a break bulk versus container, there are substantial cost improvements that you can get in doing that. And so -- when we think about just some of the opportunities in the South, we really think growing that export business, we doubled it from 24% to 25%. We're looking at doubling that again from 25 to 26. That creates attentioning in those wood basket provides us with additional opportunities for those logs. So we're excited about that. In terms of log prices, the U.S. South has been pretty stable for a long period of time, and that remains the case today. In the Pacific Northwest, you see log prices and lumber prices tracking a little bit more closely. And so as we've seen Western lumber prices improve recently, we've seen Western log prices doing that as well.

Great. Great. And then maybe moving to Wood Products. You had a number of businesses there, lumber, OSB, engineered wood products distribution. Can you talk about those businesses in a little bit more detail? And can you also touch on the timber strand investment?

Yes. Maybe I'll start with Timberstrand, that's one of the more exciting things that we're working on at the company. We announced a little while ago, we're building a new EWP facility engineered wood products in Monticello, Arkansas, that will produce timber strand. And that is a very unique product. It is a proprietary product that takes low-grade timber and turns it into a high-performance, high-value beam product. It's a product that is the highest margin product that we currently across our Wood Products business. Currently, we have one facility in Canada that manufactures that. It's a $500 million investment. When that mill comes online, we expect that to generate over $100 million annually that's making good progress. It's really -- the construction is going well. We expect that to come online in 2027 and ramp up from there. And so we're really excited about the product, the diversity of end markets that we can serve. It's also a really a platform technology that we're looking to use to drive innovation with new product development. So really excited about that. On the lumber side, we have continued to invest in that business really to have the low-cost mill set across the industry. You can see that over the last 5 years, on average, we have the highest EBITDA margins in the industry. We're continuing to focus on that, improving efficiency, driving productivity, reliability, taking costs out of the system. That's something we've been doing year after year for a very long time and we'll continue to do that. We really do have a very strong platform. We've seen lumber prices picking up last year, just was a very difficult year with what was going on with housing, but we have seen improvements both in Q1 and now quarter-to-date in Q2 with lumber prices. And that's a big driver of cash flow for us. And so that's a nice little tailwind. On the OSB side, the market has been a little bit more challenged here recently. Again, the U.S. housing, particularly single-family housing is a big driver or OSB demand. And so that's been, I would say, lackluster of late in terms of single-family housing. And so that's put some pressure on that. On the EWP side, that is an area where you just don't see as much volatility in pricing. It's come down a little bit, but we're actively working on pushing price to offset some of the increases in fuel costs, and I think that's to date going well. And so overall, we've been investing in what I think is the premier Wood Products manufacturing business in the industry. We've got a lot of additional opportunities laid out in our growth program to continue to drive earnings growth and cash flow growth across that business.

And of lumber, OSB, EWP, what is most exposed to new housing construction versus repair and remodel.

Yes. I would say OSB is the most directly exposed, about 25% across the industry of OSB demand comes from single-family housing. And so you see that most directly. Now I would say EWP is very focused on single family, although there are some opportunities in industrial, multifamily, et cetera. Lumber has about 40% of demand is repair and remodel. So that's probably a little bit more of the demand coming from repair and remodel versus 30% to 35% from single-family.

Right. And maybe just finally, can you touch on the distribution business, a smaller business?

Yes. So our distribution business, we've been growing that business. We've added 3 new distribution here over the last couple of years. The primary purpose originally for our distribution business was really as a channel for our Engineered Wood Products business. About 50% of our EWP sales go through our internal distribution. And that's an opportunity, I think, for us to continue to penetrate in some markets where we don't have as much uptake with our EWP product but over and above that, we think there's additional growth opportunities just in terms of some of the things that we can do from a distribution standpoint. We've got good relationships with some of the other specialty manufacturers, so think track, strengths, think Asathi some of the siding products, et cetera. So we're excited about that. It's a relatively low capital growth opportunity -- and so we're looking to continue to build out our footprint across our distribution business but it's going well so far.

And you talked about lumber price improvement that you've seen year-to-date. There's obviously a dynamic there with import duties on Canadian lumber Section 232. Can you just talk about that dynamic from a tariff and import duty perspective and sort of what that does to the market?

Sure. I'll give maybe just a really brief recap to everybody's grounded -- this is all going back over 50 years. There has been a long running dispute between the U.S. and Canada on softwood lumber. The way that land is owned in Canada, the government owns it, you pay crown duties for the wood that you get off of the provincial lands. And the way that mechanism works, the U.S. industry has long said that's essentially a subsidy for manufacturing lumber in Canada. And so there's been a long-standing dispute, and what that typically results in is duties on softwood lumber coming from Canada into the U.S. For most of 26, those duties were at about 35%. And so there's a 35% duty on every stick of lumber that comes into the U.S. On top of that, under the Trump administration, they added an additional 10% for essentially national security reasons. And so that all-in duty tariff right now is 45%. Now as you can imagine, adding 45% to the cost and making lumber in Canada coming into the U.S., which is the primary market for lumber manufactured in Canada really has put some pressure on Canadian manufacturers. And it has taken a significant amount of lumber supply coming from Canada into the U.S. off of which has had the effect of pushing lumber prices up somewhat here in the recent past. That duty is going to go down from 45% to 35% later this year. It's an annual mechanism a variety of variables. But nevertheless, even with 35% all-in duty tariff, that still puts a lot of pressure on the Canadian producers. And it's one of the reasons I think you've seen a lot of Canadian mills that have been shut down a few years. When you look across North America as a whole, so Canada as well as the U.S., there have been probably 55 mills that have been closed over the last 3 years to the tune of about $7 billion. So a pretty significant amount of supply has come out of the market here just given some of the challenges the industry has seen lately. And that's had the effect of essentially balancing out supply demand, which is why you've seen lumber prices even in a stagnant housing environment move up quite a bit this year relative to last year.

And just to be clear, you have operations in Canada, you leased timberlands. You had a mill there, you sold it, net-net, this is positive for?

Net-net, it's positive for us. So we did sell 1 mill in British Columbia. We still have 2 lumber mills in Alberta. We also have OSB and EWP mills in Canada. Those are not subject to this. I mean it's a difficult place to do business. If you are going to operate profitably in Canada, you have to be very, very good with very low cost, which fortunately for us, we are. And so our Alberta mills are still profitable even with all of the headwinds. But it is a challenging place to do business right now.

And if there's any questions from the floor, there's a mic there. But maybe just.

Canada is still testing or are they just deferring?

No, they're still harvesting. Yes, they're still harvesting. Although the backdrop in Canada in addition to the duty dynamic, they've also had years of beetle infestation and forest fires that have really taken a lot of the timber supply out of production, and that's not going to come back during our lifetime. And so they're still harvesting. There's still harvesting activity going on. But there's -- overall, when you look across most of the provinces, less available timber for manufacturers. And so timber availability, regulatory challenges, the duty structure just makes it so tough letting right now.

Great. Maybe just pivoting to strategic land solutions. It's becoming kind of increasingly important business. Can you talk about what's covered in that segment and kind of the broader strategy for Land?

Yes. mean this is an area I think we really differentiate ourselves. If you're going to own 10 million acres of land, I think it's incumbent upon you to make sure that you are maximizing the value of every acre you own. And so what that looks like is across most of our acres, we're going to continue to manage those for timber outcomes. We're very good at that. It's the core of the company. But when you look across the portfolio, there is a lot of optionality in that embedded into a landholding like that. And that can include things like natural resources. And so we have, call it, 40-some agreements with construction materials companies like Vulcan like Mark Marietta that can generate steady revenue. The beauty about that business as prices go up every year. It can include things like climate solutions. And so that's everything from solar and wind and forest carbon, our newest business, biocarbon. There's a significant amount of climate solutions opportunity across that and then real estate. And that runs the gamut from Peter or Jan wants to buy 200 acres to build a new cabin out in the woods at 3x, 4x, what it's worth us to manage it for timber, all the way up through selling land to a data center or to a Walmart where they're going to pay a substantial premium over what it's us to manage timber. And so between those 3 businesses, we've developed a significant set of internal capabilities to go out and execute on that program. And it's 1 of the reasons that you've seen our strategic land solutions business, which was up until recently named our Real Estate, Energy and Natural Resources business just continue to grow year after year, and we expect that to continue. That's a big part of our 2030 growth is some of the growth in the strategic land solutions business.

Can you talk a little bit more about what's included in Climate Solutions?

Sure. Yes. So we've got things like the renewables and I will just say there has been a significant amount of interest. The amount of activity in solar and even wind. There's not a lot of support at the administration level for wind, but -- we've just signed up 2 new wind agreements here recently. The demand for power is overwhelming. That's primarily for us, focused on solar. We now have 2 operating solar facilities, 3 more under construction. We expect 3 or 4 to come online every year really for the foreseeable future. And that is -- that's a substantial premium to what we can generate in terms of cash flow and earnings for managing timber. So you got the renewables, we've got the forest carbon, which is for someone that owns a lot of timber, there's a significant amount of opportunity there. I think we've really developed a leadership position in forest carbon for all of these companies that have net 0 goals. Forest carbon is by far, by a wide, wide margin, the least expensive option to tackle some of those climate commitments that, and so we're seeing good interest there. It includes things like carbon capture and storage, the biggest carbon capture storage project that's going on, I believe, in all of North America is our project in Louisiana with Occidental Petroleum. They have signed up with Enbridge to start building the pipeline. So we're excited about that. And it also includes things like mitigation banking, Anytime you're going to do construction that impacts wetlands, you need mitigation banking credits. And so with our land position. We're the third largest mitigation banking organization in the U.S., and we're continuing to look to grow that. So it covers a wide swath of activities. But again, all of those are just optionality that's built into the land base, and we built out the expertise to execute on those opportunities.

Great. And if we think about that list in terms of renewables, Forest Carbon, CCS, mitigation banking, what's contributing the most today? And if you think to 2030 or maybe beyond, what do you think has the most upside long term?

Yes. I mean today, it's conservation, mitigation banking and renewables that make up the majority our Climate Solutions business. As we get out over the next 5 years, forest carbon is going to become a bigger portion of that. We haven't really spent a lot of time talking about biocarbon. We think that's 1 of the biggest opportunities in our industry, maybe in a generation Essentially, what that is we're working with a company called Amiam. They have a proprietary process that converts low-value wood, whether that's residuals from a sawmill or pulpwood chips. They run that through a process and turn it into a very dense carbon, what we call biocarbon material that can be used as a drop-in replacement for metallurgical coal. This is, we think, a really significant opportunity. It's part of our 2030 growth program to build out up to 7 million tons of production or 7 million tons of fiber usage, which to 1.5 million tons of biocarbon to sell to steel silicon manufacturers. There's a lot going on globally, particularly in Europe and Japan, where they're putting new taxes on carbon-intensive industries, that is going to become increasingly expensive for manufacturers, and this is an opportunity to play in that space. And so we think that's a really big opportunity. Ultimately, when you get to 2030 and beyond, that could be, by far, the biggest opportunity for us. And so we're excited about that. In CCS, it's taken a lot longer than we expected, but ultimately, those projects as they do eventually come online will be very lucrative for us.

Right. Everyone is trying to build data centers. I don't know if you have any they take a lot of land. I don't know if you have any direct exposure to data centers do you just see it through maybe energy projects or?

Yes, it's a combination. So I'd say 2 things. On the data center front, we have a team that is specifically focused, as you would imagine, on selling land projects to developers of data centers. There are a few things that are really important when you're developing a data center power, obviously, I mean that is 1 of the key drivers. You need the land depending on the impacts on wetlands mitigation credits. But one of the key issues that today is becoming a really a prohibiting factor for a lot of data centers is the relationship with the local community. You're starting to see a lot of local pushback on some of these data centers. And that's an area where I think we can bring something interesting to the table most of these rural communities. We've been there for a very long time. Our employees, it's not unusual for 1 of our employees to be the mayor of 1 of the small community, and so we have a team that's actively looking to really grow our sales into that channel. And that is -- there's really nothing that is more lucrative than selling land to center. So we're very focused on it, and we've got a pipeline of different properties that we're out actively marketing today to that space. And then on the energy side, I think there's an opportunity there working with some of our long-term partners like NextEra, those types of folks to really work together to come up with, we've got the land position. We maybe can work with them on some renewables, maybe do some behind the meter power to get speed to execution on some of these data centers. So we've got a team of folks looking at that as well.

We're kind of coming close to time. But I'm just curious, if you take a step back, and look at market values for timber ones in public and private transactions. And then when we look at your portfolio, I mean, it seems like the discount to NAV has really sort of gapped out. And I'm curious what you think is driving that? And if there are catalysts to kind of close that gap, some maybe you can control others maybe you can't, but...

Yes. Look, so obviously, we're aware of the views on the disconnect there. I think it's pretty clear that we're trading at a pretty good disconnect to our NAV. When we think about the ranges at which timberland packages are trading, even some average quality timberland packages and compare that to the buildup of our NAV, it's pretty clear there's a disconnect. But I think right now, we're operating in an environment where the reality of the commodity prices have put us in a place where we're trading in cyclical lows given that environment. So I think as you see the housing environment improve, we'll see some improvement in where we trade. That's kind of the reality of where we have traded historically is that the valuation tends to be driven by the projections of the next 12 months' cash flows. And so really going back to what we can do to close that gap, our whole 2030 growth strategy was designed around the fact that, hey, we like commodity businesses. We're in those businesses. We're going to make a lot of money in those commodity businesses when pricing is strong, but we also have a lot of other things that we can do, whether it be the Timberstrand facility, whether it be expanding all the alternate uses across our timberland space, whether it be thinking about export growth, whether it be thinking about new product development that may not be as sensitive to some of those commodity price swings with the ability to add $1 billion of EBITDA ex price, excluding any sort of improvement in price, ultimately, that's going to be something that really raises the floor on the cash flow, and we think will drive meaningful value creation over time. And share repurchase. We bought back a fair bit of stock here over the last several years as well. And so that's part of the equation also.

Great. Great. Well, Devin, Dave, thank you for your time.

All right. Thank you. Appreciate it.