Weyerhaeuser Q2 2023 Earnings Report

Weyerhaeuser EPS Results

• Actual EPS: $0.32
• Consensus EPS: $0.21
• Beat/Miss: Beat by +$0.11
• One Year Ago EPS: $1.06

Weyerhaeuser Revenue Results

• Actual Revenue: $1.88 billion
• Expected Revenue: $2.01 billion
• Beat/Miss: Missed by -$124.99 million
• YoY Revenue Growth: -36.70%

Weyerhaeuser Announcement Details

• Quarter: Q2 2023
• Date: 7/27/2023
• Time: After Market Closes
• Conference Call Date: Friday, July 28, 2023
• Conference Call Time: 10:00AM ET

Weyerhaeuser (NYSE:WY) (NYSE: WY) is a leading integrated forest products company whose core businesses are timberland ownership and forest products manufacturing. The company owns and manages large tracts of timberland and harvests, processes and sells wood and wood-derived products used primarily in residential and industrial construction. Its manufacturing operations produce a range of building materials, including lumber, engineered wood products and wood panels, alongside fiber-based products that serve multiple commercial applications.

Founded in 1900 by Frederick Weyerhaeuser and headquartered in Seattle, Washington, the company has a long history in the North American forest products industry. Weyerhaeuser manages millions of acres of timberland across the United States and Canada and operates manufacturing facilities and distribution networks to supply wholesale and retail customers in construction, housing and specialty industrial markets. The company also participates in land sales and investment management related to its timberland holdings.

Weyerhaeuser emphasizes sustainable forestry and long-term land stewardship as part of its operational model, employing practices and certifications designed to support forest regeneration and responsible resource management. As a publicly traded company, it is governed by a board of directors and an executive leadership team headquartered in Seattle, and it engages with institutional and industrial customers, as well as investors, on its strategic objectives and sustainability commitments.

Weyerhaeuser Q2 2023 Earnings Call Transcript

Key Takeaways

• Adjusted EBITDA of $469 million in Q2, up 19% sequentially on stronger wood products pricing and elevated Engineered Wood Products volumes.
• Acquired 22,000 acres of high-quality timberlands in Mississippi for $60 million, advancing toward a $1 billion portfolio growth target with $360 million deployed to date.
• Wood Products segment delivered an 82% EBITDA increase quarter-over-quarter, driven by improved lumber and OSB realizations and a 76% rise in EWP earnings.
• Natural Climate Solutions milestone: Forest Carbon pilot submitted for registry approval, with approximately 30,000 credits expected in Year 1 and two new U.S. South projects under development.
• Q3 outlook anticipates significantly higher Wood Products results on firmer pricing, offset by an expected $25 million sequential EBITDA decline in Timberlands.

Presentation

[Operator]

Greetings, welcome to the Weyerhaeuser Q2 2023 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. To ask a question during this session, you will need to press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin.

[Andy Taylor, Vice President of Investor Relations at Weyerhaeuser Company]

Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's Q2 2023 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer, and Davey Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported Q2 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 Q2. This is a 19% increase from the Q1 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 Q2.

[Devin Stockfish, CEO at Weyerhaeuser Company]

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-stocked 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.

[Devin Stockfish, CEO at Weyerhaeuser Company]

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've 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 Q2 business results, starting with Timberlands on pages six through nine of our earnings slides. Timberlands contributed $104 million to Q2 earnings. Adjusted EBITDA was $172 million, a $16 million decrease compared to the Q1. This was largely driven by lower average sales realizations for export logs in the West.

[Devin Stockfish, CEO at Weyerhaeuser Company]

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 Q2, and as a result, our average domestic sales realizations were comparable to the Q1. Our fee harvest volumes were slightly higher than the Q1 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 cost improved in the Q2, and forestry and road costs were seasonally higher. Moving to our Western export business.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Japan, log markets continued to soften in the Q2 in response to elevated inventories of European lumber imports, as well as lower consumption driven by reduced post and beam housing activity. A result, our average sales realizations for export volumes to Japan were lower compared to the Q1, and our sales volumes were comparable. 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. China, log markets softened in the Q2 in response to an influx of log supply from New Zealand, combined with a reduction in log takeaway at the ports. A result, our average sales realizations for export volumes to China were lower compared to the Q1.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Our sales volumes were significantly lower as we intentionally flexed logs to the domestic market. Turning to the South. Adjusted EBITDA for Southern Timberlands was $79 million, a slight reduction compared to the Q1. Southern sawlog markets remained fairly balanced in the Q2, as log supply improved with drier conditions and mills bolstered log inventories following weather-related challenges in the Q1. 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 products. Given favorable operating conditions, our thinning activity increased in the Q2, resulting in a higher mix of fiber logs. As a result, our average sales realizations were slightly lower compared to the Q1, and our fee harvest volumes were comparable.

[Devin Stockfish, CEO at Weyerhaeuser Company]

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 Q1 due to significantly lower sales volumes associated with seasonal spring breakup conditions. Turning now to Real Estate, Energy and Natural Resources on pages 10 and 11. Real Estate & ENR contributed $52 million to Q2 earnings. Adjusted EBITDA was $70 million, a $19 million decrease compared to the Q1, largely driven by the timing and mix of properties sold. Average price per acre increased significantly in the Q2 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.

[Devin Stockfish, CEO at Weyerhaeuser Company]

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 Maine. In the Q2, 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 Q2 and $270 million of Adjusted EBITDA.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Q2 EBITDA was an 82% improvement from the Q1, 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 Q2, a $43 million increase over the prior quarter, and largely driven by improved sales realizations. Benchmark pricing for lumber held fairly stable in April and 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 Q1, while our average sales realizations increased by 6%, with the relative outperformance driven by our regional mix and product mix.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Our sales volumes were moderately higher compared to the Q1, 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 Q1, 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 Q2 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 Q1. Our average sales realizations increased by 11%.

[Devin Stockfish, CEO at Weyerhaeuser Company]

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 Q2, 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 Q1. This result is directly tied to improving demand for EWP products, which are primarily used in single-family home building applications. As a result, our production and sales volumes were significantly higher for most products in the Q2, and unit manufacturing costs improved significantly for solid section and I-joist products.

[Devin Stockfish, CEO at Weyerhaeuser Company]

That said, our average sales realizations were lower for most products as supply and demand continued 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 Q2. In distribution, Adjusted EBITDA increased by $12 million compared to the Q1, a 55% improvement, as the business benefited from strong EWP sales volumes in the Q2. With that, I'll turn the call over to Davey to discuss some financial items and our Q3 outlook.

[Davey Wold, CFO at Weyerhaeuser Company]

Thank you, Devin, and good morning, everyone. I will be covering key financial items and Q2 financial performance before moving into our Q3 outlook. I'll begin with key financial items, which are summarized on page 16. We generated $496 million of cash from operations in the Q2 and ended the period with approximately $1.8 billion of cash, cash equivalents, and short-term investments. Total debt at quarter end was approximately $5.8 billion. In May, we took advantage of attractive capital market conditions and issued $750 million of debt due in 2026 at a coupon of 4.75%.

[Davey Wold, CFO at Weyerhaeuser Company]

This debt issuance pre-funded the majority of our 2023 maturities, and due to the shape of the yield curve, we were able to reinvest these cash proceeds in the interim at interest rates in excess of the bond coupon. As a result of this transaction, our full year 2023 interest expense will increase by $10 million to approximately $280 million. That said, this increase will be more than offset by the interest income earned on the invested issuance proceeds. In mid-July, we used a portion of the debt issuance proceeds to repay our $118 million, 7.125% note at maturity, and we intend to use the remainder of issuance proceeds towards our December 2023 maturity. Capital expenditures for the quarter were $81 million.

[Davey Wold, CFO at Weyerhaeuser Company]

We returned $139 million to shareholders through the payment of our quarterly base dividend, which was increased in the Q1 by 5.6% to $0.19 per share. In addition, we returned $50 million to shareholders through share repurchase activity in the Q2. These shares were repurchased at an average price of $29.59, as of quarter, are $1 billion authorization. Looking forward, we will continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value. As highlighted on page eighteen, adjusted funds available for distribution for the Q2 totaled $415 million, and we have generated $470 million of adjusted FAD year to date.

[Davey Wold, CFO at Weyerhaeuser Company]

Looking forward, key outlook items for the Q3 are presented on page 19. In our Timberlands business, we expect Q3 earnings and Adjusted EBITDA will be approximately $25 million lower than the Q2 of 2023. Turning to our Western Timberlands operations, domestic log demand was steady at the outset of the Q3 in response to improved pricing and takeaway of lumber, and as mills continue to build inventories ahead of wildfire season. That said, absent fire-related disruptions in the region, log supply is expected to remain ample as the quarter progresses, largely driven by a seasonal influx of logs from non-traditional timber owners. As a result, our domestic sales realizations are expected to be moderately lower compared to the Q2. As is typical during the warmer and drier months, we have transitioned in a higher elevation operations, which generally have lower productivity.

[Davey Wold, CFO at Weyerhaeuser Company]

As a result, our fee harvest volumes will be moderately lower in the Q3. forestry and road costs are expected to be seasonally higher as we do a significant amount of this work during the summer months. Per unit, log and haul costs are expected to be lower, partly due to a decrease in fuel prices. Moving to the export markets, starting with Japan. As Devin mentioned, elevated inventories of European lumber imports and reduced consumption continued to weigh on the Japanese log market. That said, we anticipate our Japanese sales volumes will increase compared to the Q2 due to the timing of vessels, and we expect our sales realizations to be comparable. In China, elevated log imports from New Zealand and reduced log consumption continue to have an impact on the Chinese log market. We expect these conditions to persist through the Q3.

[Davey Wold, CFO at Weyerhaeuser Company]

As a result, our sales realizations into China are expected to be lower compared to the Q2, and we anticipate our sales volumes will be significantly lower as we flex logs to domestic customers to capture higher-margin opportunities. In the South, we expect sawlog markets to moderate somewhat in the Q3 and fiber markets to soften further. This is being driven by a seasonal increase in log supply, elevated mill inventories, and softening demand, particularly for pulp and paper products. That said, takeaway for our logs is expected to remain steady, given our delivered programs across the region. Our fee harvest volumes are expected to be comparable to the Q2 and will include a higher mix of fiber logs as increased thinning activity continues. With a higher % of fiber logs, we expect our sales realizations to be slightly lower compared to the Q2.

[Davey Wold, CFO at Weyerhaeuser Company]

Per unit log and haul costs are expected to be comparable, and forestry and road costs are expected to be seasonally higher. In the North, our fee harvest volumes are expected to be significantly higher compared to the Q2, as we have fully transitioned from spring breakup conditions, and our sales realizations are expected to be moderately lower due to mix. Turning to our Real Estate, Energy and Natural Resources segment. Demand for our real estate properties remains steady, and we continue to anticipate a consistent flow of HBU transactions with significant premiums to timber value. For the Q3, we expect earnings will be slightly higher and Adjusted EBITDA will be approximately $20 million higher than the Q2 of 2023 due to the timing and mix of real estate sales.

[Davey Wold, CFO at Weyerhaeuser Company]

For the full year, we continue to anticipate Adjusted EBITDA of approximately $300 million for the segment and now expect basis as a percentage of real estate sales to be 35%-40% for the year. For our Wood Products segment, benchmark prices for lumber and OSB entered the Q3 on an upward trajectory, supported by improving demand, relatively lean inventories, and the prospects of supply disruptions following an early start to wildfire season in Canada. As shown on page 21, our current and quarter-to-date average sales realizations for lumber and OSB are well above the Q2 averages. Assuming this pricing dynamic remains intact for the balance of the Q3, we expect our Wood Products financial results to be significantly higher compared to the Q2 of 2023.

[Davey Wold, CFO at Weyerhaeuser Company]

That said, excluding the effect of changes in average sales realizations for lumber and OSB, we anticipate Q3 earnings and Adjusted EBITDA will be slightly lower than Q4. For our lumber business, we expect moderately higher production and sales volumes in the Q3 and slightly lower unit manufacturing costs. Log costs are expected to be moderately lower compared to the Q2. For our oriented strand board business, we expect production and sales volumes to be comparable to the Q2. Unit manufacturing costs are expected to be slightly higher, and fiber costs are expected to be comparable. Turning to our engineered wood products business, as Devin mentioned, we continue to see improving demand for EWP products, and this has extended our order activity well into the Q3. As a result, we expect our sales volumes to increase slightly compared to the Q2.

[Davey Wold, CFO at Weyerhaeuser Company]

Notwithstanding this dynamic, we anticipate slightly lower sales realizations as supply and demand continue to rebalance in certain markets. That said, Q3 EWP prices are expected to remain substantially above pre-pandemic levels and will continue to adjust in response to demand signals from the home building segment, which has seen more strength of late, particularly for single-family construction. Raw material costs are expected to be higher compared to the Q2, primarily for OSB web stock. For our distribution business, we expect Adjusted EBITDA to be comparable to the Q2. With that, I'll now turn the call back to Devin and look forward to your questions.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Thanks, Davey. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets. Our view on the housing market has become incrementally more positive over the last several months, supported by improvements in home builder sentiment, an increase in new home sales, and an uptick in single-family starts. Despite elevated mortgage rates, we continue to see resilient demand from the home building segment, largely driven by the historically low inventory of existing homes, a strong labor market, and solid household balance sheets. That being said, there continues to be a degree of uncertainty around the trajectory of mortgage rates in the broader U.S. economy. As a result, we still expect housing starts in 2023 to be lower than the last couple of years.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Again, our outlook has become more positive as the year has progressed, and there may be incremental upside if mortgage rates move down from the high 6% range. Longer term, we remain quite optimistic on housing fundamentals, supported by favorable demographic trends and a significantly underbuilt housing stock. Turning to the repair and remodel market. Activity strengthened slightly in the Q2 and has held up well year to date, largely supported by solid demand from the professional segment. Demand from the do-it-yourself segment was steady in the Q2 and is largely normalized to pre-pandemic levels. Near term, we expect stable demand from this segment as prospective home buyers may choose to remodel in lieu of purchasing a new home in a higher mortgage rate environment.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Longer term, we continue to believe the repair and remodel market will be an important demand driver for our businesses, supported by strong home equity levels and an aging housing stock. In closing, our teams delivered solid operational and financial results in the Q2. In addition, we continue to make meaningful progress against the multi-year targets we set out in 2021 through strategic timberlands acquisitions and the advancement of our forest carbon business. Looking ahead, we're encouraged by recent improvements in the housing market and maintain a favorable long-term outlook for the demand fundamentals that will drive growth for our businesses. We remain focused on operational excellence and innovation, driving industry-leading margins and supporting our customers. With our strong financial position, our unmatched portfolio of assets, and disciplined approach to capital allocation, we're well positioned to drive long-term value for our shareholders.

[Devin Stockfish, CEO at Weyerhaeuser Company]

With that, I think we can go ahead and open it up for questions.

[Operator]

Thank you. We will now be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to withdraw your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from George Staphos with Bank of America. Please proceed with your question.

[George Staphos, Equity Research Analyst at Bank of America]

Thank you, everyone. Good morning. Thanks for the details.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Morning.

[George Staphos, Equity Research Analyst at Bank of America]

I want to start off. How are you doing, Devin? I, I want to start off on SG&A, and I guess relatedly, all the things you're doing to manage costs at the company. Your cost management, at least from our vantage point, has been commendable. Again, year to date, SG&A really hasn't moved much. Are there any cost pressures, though, that as you're looking out to 2024 and 2025, that you'll need to manage against that are maybe building, and we'll see a little bit more movement to the upside there in future years? What do you, what do you think about that?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, I mean, first of all, you know, I say thanks for the recognition, George. As you know, this is work that we've been doing day in, day out for a number of years to stay focused on cost. You know, it's a never-ending journey to keep control on costs, and particularly over the last few years with all of the inflationary pressures. You know, I think in terms of what we're doing on a day-to-day basis, it's just incorporated into our planning and our operations to daily focus on keeping our costs down.

[Devin Stockfish, CEO at Weyerhaeuser Company]

You know, I think we are seeing from an overall inflationary standpoint, not specific to SG&A, but just overall, we are seeing some of our cost pressures starting to wane a little bit: fuel, energy, resin, waxes, things of that nature. On the SG&A front, labor costs, you know, those are sticky, and those inflationary pressures are something that we continue to have to manage. In terms of, you know, the, the primary focus areas over the next several years, you know, I think it's largely more of the same. I think labor costs will continue to be something that we'll have to manage closely, but beyond that, I think it's, you know, a lot of the same things that we've been doing over the last several years. I don't know. Davey, would you like to add anything to that?

[Davey Wold, CFO at Weyerhaeuser Company]

Sure, Devin. You know, I would just point out that this goes back to everything we've been doing for a number of years on OpEx. As we look forward, our focus on OpEx and continuing into innovation and everything we're working on every day, we expect that to be a lever for us over time to continue to manage costs and drive those down into the future.

[George Staphos, Equity Research Analyst at Bank of America]

Okay. Thank you. Two follow-ons, I'll turn it over very quickly. Given, you know, what's been a nice pickup in demand over the course of the year in Wood Products, recognizing it wasn't so strong earlier in the year, are timber prices in the South for sawlogs where you would have expected them, given that backdrop? Why aren't we seeing more lift, recognizing, again, it's a, it's a market-by-market, very local market, but are timber prices in the South for sawlogs where you would have expected, given the backdrop? Why or why not? Then can you give us a bit more color in terms of the normalization, the factors that you're seeing in supply and demand in EWP, particularly in truss joists, and why we're not seeing more of a lift higher given the favorable single-family outlook?

[George Staphos, Equity Research Analyst at Bank of America]

Thank you, guys.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Sure. Well, I'll start with the sawlog question in the South. You know, I think we've seen over the last several years, some uplift on sawlog pricing. You know, we've been talking about this for a long time. A lot of new capacity coming into the South, and certainly what we've seen in those geographies where we've had new capacity or expanded capacity, we have seen those markets tension, and we've seen upward pressure on pricing. I think this year there are a few things going on. You know, for the first half of the year, I think sawlog prices held up pretty well, at least in the markets that we participate in.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I think unlike the fiber logs, which have seen a little bit more pressure just because of what's going on in the, the pulp and paper industry, the sawlog market has held up pretty well. I think there is a nuance going on there with respect to the availability of transportation. One of the things that we saw over the last couple of years was just a real shortage of trucking capacity. I think that put a little bit of an uplift on pricing, just as mills, particularly strong lumber markets, were making sure that they had adequate log decks. As that trucking capacity has loosened a little bit, I think some of that pressure has come off.

[Devin Stockfish, CEO at Weyerhaeuser Company]

You know, as we think about where we are in the year, it's not atypical to see a little downward pressure on, on log prices just because in the summer months, and the drier weather, you have more supply hitting the market. That's the dynamic at play. I do think over time, and, and again, just going back to my point earlier, as we see capacity continuing to come into the region, you are going to see continued pressure and tensioning across the South. I think the trajectory is still, you know, what we had expected, and, and certainly, I think we're optimistic over the next several years as these mills continue to come into the region, that you'll see continued upward price pressure. You'll have up and- ups and downs seasonally, like we always do, the overall trajectory, I think, still looks positive.

[Devin Stockfish, CEO at Weyerhaeuser Company]

You know, with respect to your question around EWP, you know, I think if you, if you really want to understand what's going on today, you have to look back a couple of quarters and just think about the trajectory of what's happened. As we got into late last year and early 2023, we had a, a fair bit of destocking going on. You combine that with the, the lower residential construction activity, and it really put the EWP market, you know, in a softer place earlier in this year. That was really the story in Q1. As, as you remember, we did dial back our production in EWP to address that. I think we have a, a pretty good customer base.

[Devin Stockfish, CEO at Weyerhaeuser Company]

We have a strong product, as that market started to recover, there was good demand for our product, and, you know, we certainly saw that over the course of Q2 moving into Q3. The reality is, in Q1 and Q2, just as those markets rebalanced, we had to take pricing action as everyone else did, just to make sure that we were competitive in each individual market. There's generally a time lag, in terms of those pricing actions, whether you're raising prices or lowering prices. Some of what you're seeing in Q3 is just the lag effect of pricing actions that we had to take earlier in the year. I would say on balance, the market is recovering nicely. Our order files are back to the place where they're fairly extended. We're even on allocation for a few products at this point.

[Devin Stockfish, CEO at Weyerhaeuser Company]

The market's stabilizing, but each individual market has its own dynamics, and we'll make pricing action where necessary to make sure we're competitive. I think directionally, we feel pretty good about where EWP is and the trends that we've seen lately.

[George Staphos, Equity Research Analyst at Bank of America]

Thank you, Devin.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Great.

[Operator]

Our next question is from Kurt Yinger with D.A. Davidson. Please proceed with your question.

[Kurt Yinger, Equity Research Analyst at DA Davidson]

Great. Thanks, and good morning, everyone.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Morning.

[Davey Wold, CFO at Weyerhaeuser Company]

Morning.

[Kurt Yinger, Equity Research Analyst at DA Davidson]

I know it wasn't a huge impact for you guys in the quarter, but could you just talk about some of the derivative impacts from the wildfires up in Canada in terms of just operating your facilities there, logistics and transportation, and the role that has perhaps played in some of the pricing strength that we've seen in the last 2-3 months?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Sure. Well, I'll give you an update on our operations specifically, and then mention more or less, you know, the impact that it had on pricing in the market. You know, in terms of the impact to us, we had 2 of our 3 mills in Alberta that were impacted. We had a lumber mill and our OSB mill that both had to take about 2 weeks downtime each, as the fires caused evacuations in those local communities. The net impact to us, from a financial standpoint, was relatively minor, sub $4 million for the quarter.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I think the bigger impact, though, as you mentioned, was just with all of the fire activity, it did cause some concern around supply, particularly, I think, on the lumber side, and I suspect that was part of what drove some of the pricing activity to the upside in lumber as we got into June and early parts of July. I think the real impact was on the overall lumber market, and just kind of the concerns around supply availability with the fires. I would say from a transportation standpoint, it did obviously have some impact, but I would say not material.

[Kurt Yinger, Equity Research Analyst at DA Davidson]

Got it. Okay, that's helpful. Then just 2 quick ones. First, could you talk about what you're hearing and seeing in terms of European lumber imports into the U.S., kind of for the back half of the year, as well as on the timberland side, you know, the pipeline of opportunities that you see and just kind of your outlook in terms of potential additional bolt-on or larger-scale transactions going forward?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Sure. Well, with respect to European lumber, we certainly saw a higher-than-normal amount of volume coming in late last year, early part of this year. Ordinarily, I would say European lumber volumes don't have a meaningful impact on the market. I do believe earlier in the year, with the amount of volume that was coming in, particularly on the East Coast, it probably did have some impact on the supply-demand dynamic and probably pushed pricing down just a bit. We've seen the volumes of imports really starting to wane here over the last several months, which makes sense. As the lumber prices have come down, it's less economically viable for some of that wood to come to the U.S. Our expectation is we will see lower volumes.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I think you'll still have some degree of European volume coming into the market, as many of those producers want to maintain that supply chain and give them the ability to flex, depending on what's going on here versus in Europe. I suspect it will be a lower volume coming in for the back half of the year. As we think about the M&A market on the timberland side, you know, as you probably have noticed, it's been lighter this year than it has been over the last few years. I think last year you probably saw in the neighborhood of $5 billion of transaction activity. We're certainly trending much lower than that this year. That's really, I think, largely a function of, A, probably some pull forward from last year, pretty heavy year.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I think there's probably a piece of this, too, that as the market is trying to figure out how to price carbon and ESG options in this space, perhaps some are holding out with the view that prices are going to continue to go up. We'll, we'll see what the back half looks like, but you know, we're expecting it to be a lighter year this year than it has. We're always in the market. That being said, as you saw with the Mississippi transaction, we'll continue to look at every deal that, that comes to market. We'll continue to have conversations with parties to see if we can do deals outside of the auction process.

[Devin Stockfish, CEO at Weyerhaeuser Company]

It's a competitive market, but, you know, I think there will be properties where we're very well suited to, to, to make those acquisitions and deliver returns for our shareholders.

[Kurt Yinger, Equity Research Analyst at DA Davidson]

Okay. Thanks for the color, Devin, and good luck here in Q3, guys.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Thank you.

[Operator]

Thank you. Our next question comes from Susan Maklari with Goldman Sachs. Please proceed with your question.

[Susan Maklari, Equity Research Analyst at Goldman Sachs]

Thank you. Good morning, everyone.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Morning.

[Davey Wold, CFO at Weyerhaeuser Company]

Morning, Susan.

[Susan Maklari, Equity Research Analyst at Goldman Sachs]

My first, my first question is, you know, Devin, can you talk just a bit about the production levels and the inventory that you're seeing at the mills, just across lumber? You know, as the builders are gearing up and, and adding those starts on the ground, how are you thinking about overall, lumber inventory out there? Maybe what could that mean for your ability to hit that 5% annual growth target that you've set out there?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah. you know, the first part of the question, in terms of inventories, I'd say on balance in the lumber space, inventories are on the lean side, not, not nearly as lean as OSB, but I'd say leaner than normal. I think what's going on right now is there is adequate supply coming on, and so people are feeling more comfortable with those lean inventories. As you know, typically the August time frame is a period where you see a little bit of pullback in demand, particularly on the R&R side, just because of the heat of the summer. You know, people are less inclined to build a deck if it's 110 degrees outside. I think you have some normal seasonal demand pullback just on the R&R side.

[Devin Stockfish, CEO at Weyerhaeuser Company]

In terms of what that, that leaner inventory looks like is, you know, as you get into the fall, if buyers continue to carry lean inventories, and certainly our inventories at the mills, are on the lean side as well. If you get into the fall when that R&R activity picks up and you have strong single-family home building, we've seen what, what happens there, particularly if you have some sort of supply shock, maybe from fire season or, or some other, some other thing happening, you know, that can really push pricing up fairly quickly. You know, we saw that even just in, in June with the fire activity in, in BC, what that can do to pricing.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I think it all depends on, you know, if we see repair and remodel activity pick back up in the fall as we normally do, and the builders continue to build, which is what we're expecting, that could be a nice setup for fall pricing in lumber. In terms of our ability to meet the 5%, you know, there are gonna be puts and takes every year. What we're doing is we're doing the work with building the capacity, so the CapEx projects, the improvements in reliability, et cetera, that we need to do to hit that target. You know, last year, obviously, we were down a little bit because of the strikes in the Northwest.

[Devin Stockfish, CEO at Weyerhaeuser Company]

This year, we did dial back production a little bit just because lumber demand had slackened a little, particularly in the Northwest and, and BC. You know, we'll, we'll see what the ultimate production number is for the year, but ultimately, we're doing the work from a capacity and an operations standpoint to support that 5% per year.

[Susan Maklari, Equity Research Analyst at Goldman Sachs]

Yeah. Okay, that, that's very helpful color. I guess, you know, as you do think about some of the dynamics that are going on in the lumber market from both a supply and demand perspective, how do you think about where pricing can go as we think about the back half of this year and probably even the first half of next year, given what the builders are talking to and looking to add on the ground? Maybe how is that different from what happened in the last few years that could either put a floor or ceiling in terms of the upside potential around the pricing?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, I mean, I'll, I'll offer the, the caveat that lumber pricing is very, very hard to predict, as we've seen over the last several years. You know, I would say if, if we look back over the pandemic era, I don't know that I would necessarily look at $1,000 lumber prices as being something we're gonna see very often. That was a result of a, just a number of factors coming together at the same time, all of the supply chain disruptions, et cetera. I'm not sure that's how you should be thinking about things.

[Devin Stockfish, CEO at Weyerhaeuser Company]

As we think about where lumber prices are gonna go in the fall, it's really a function of, you know, A, what's gonna happen on the supply side. I think we're gonna continue to see puts and takes there with the additions in the South, the capacity coming out of British Columbia. That dynamic, I think, is gonna continue to play out. Then it's just really a function of what happens with home building and repair and remodel. Our view is, you know, the home builders have done a remarkable job, of, you know, managing and, and navigating an environment with higher mortgage rates. They seem to be pretty optimistic in the conversations that we're having with them.

[Devin Stockfish, CEO at Weyerhaeuser Company]

My expectation is the back half of the year, even with high 6% mortgage rates, or even 7% mortgage rates, is that we're still gonna see strong single-family building, which will be supportive. Then it's the question of, of R&R, and, you know, we've seen pretty strong demand out of that segment. Just as a data point, year-over-year, our Q2 into the, the home improvement warehouse market was actually up. You know, we, we continue to expect that to be a strong market, and as the treaters come back in in the fall, I would expect that we're gonna see reasonably strong lumber prices.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Then again, it'll just depend on, you know, are there upside surprises on, on building, or are there supply shocks that you know, can cause that price, you know, price ceiling to go up?

[Susan Maklari, Equity Research Analyst at Goldman Sachs]

Yeah. Okay. I appreciate all the thoughts, Devin. Thank you, and good luck with everything.

[Devin Stockfish, CEO at Weyerhaeuser Company]

All right, thank you.

[Operator]

Thank you. Our next question comes from Mark Weintraub with Seaport Research Partners. Please proceed with your question.

[Mark Weintraub, Equity Research Analyst at Seaport Research Partners]

Thank you. Thanks for all the details on lumber and walking us through your, your thought process on how pricing might evolve. If we think about OSB, I guess the first question I have is, you give on that slide that I think the current prices were, like, $70 higher as of July 1, the way you look at it. I think you also referenced that you know, you've got, your order files are what? three or four weeks, I believe. If we were to kind of assess real-time pricing in OSB, what does that mean?

[Mark Weintraub, Equity Research Analyst at Seaport Research Partners]

Can you give a census to what you'd expect your prices to be, given what we already know, three to four weeks out, once the real-time prices are what you would be calling your current prices?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, I mean, without specifically giving the number, what I can tell you is directionally, our order files are actually 5 to 6 weeks out, so they're, they're fairly extended. As you noted, Mark, you know, what that means for us is that there is a lag to the current pricing. While what you see quarter to date in the in the, the earnings package, is lower than current, that, that will catch up over time. There will be a several week lag on the upside and, you know, the flip side of that is there's also a several week lag on the downside. You know, we ultimately get it. It's just a timing question.

[Devin Stockfish, CEO at Weyerhaeuser Company]

You know, for us, as we think about the quarter, you know, there's a fair amount of, of leverage there as it's $8 million of EBITDA per quarter for every $10 increase. There's a, a fairly significant upside, and I think just given the length of the order files, that's gonna translate into a pretty strong quarter for OSB for us.

[Mark Weintraub, Equity Research Analyst at Seaport Research Partners]

Okay. Recognizing that, you know, prices can move from where they are, but, I mean, can I look back five weeks or so and look at the increase that we've had and expect that to-- 'cause that's over $100 plus, to expect that to translate into your prices, and then they'll go wherever prices real time go as we go forward. Is that a reasonable way to look at it?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, that's generally right.

[Mark Weintraub, Equity Research Analyst at Seaport Research Partners]

Okay. Then you, you kind of you'd mentioned that, you felt in lumber that maybe we can see some improvement in the fall, et cetera, but, you know, it sounded like you're reasonably cautious over the summer. Correct me if I, if I interpreted that incorrectly. How do you feel on OSB? Do you see the dynamics differently? If so, why?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, I do different just because there's not a lot of OSB available, and I think what you're seeing right now with the pricing dynamic is, most buyers went into the summer with very little inventory, and as you've seen that building activity pick up, the demand ended up being higher than people expected, and when they're going out and trying to buy open market OSB, there's just none there. So that's gonna take a little while to figure itself out. OSB is not as reliant on the R&R market, so it's a little bit more focused on the single-family construction, which has continued to be pretty strong.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Absent, you know, a, a, a material pullback on the housing side, it would seem to me that we're gonna see pretty tight, you know, tight market there for OSB, which should mean you should have strong OSB pricing into the fall.

[Mark Weintraub, Equity Research Analyst at Seaport Research Partners]

Okay, super. Just one, one last one. I, I know there are, you know, lots of concerns on wildfire season, weeks or a couple months ago, and, and not hearing as much about it, and, and certainly not in, in your comments, recognizing there's uncertainty. Have things calmed down, or are things feeling like it's not gonna be as, as dangerous a situation this year? Just a quick update.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah. You know, in the, the Northwest, it's, it's been a relatively mild wildfire season to date. I always caution people, though, it really starts to become an issue typically in August, in the early part of September. We're not necessarily in the, the heat of the wildfire season yet in the Northwest. Obviously, in Canada, it's been a, it's been a really bad year so far. There has been some rain in Alberta, so while we still have fire activity going on, I think that's calmed a little bit. In northern BC, I think the fire activity has started to pick up a little bit. As you think about some of the key regions for us, Washington, Oregon, British Columbia, I think that story will play out over the course of August.

[Devin Stockfish, CEO at Weyerhaeuser Company]

To your point, at this juncture in the Northwest, fire season hasn't been that bad.

[Mark Weintraub, Equity Research Analyst at Seaport Research Partners]

Okay. Appreciate the color. Thank you.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yep, thank you.

[Operator]

Thank you. Our next question comes from Anthony Pettinari with Citi. Please proceed with your question.

[Anthony Pettinari, Equity Research Analyst at Citi]

Good morning.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Good morning.

[Anthony Pettinari, Equity Research Analyst at Citi]

You know, just following up on the Mississippi transaction, I, I think it transacted at kind of somewhat of a premium to some, you know, comps that we've seen in the state. I, I think you talked about it being well-stocked and maybe having some synergies with existing operations. I'm just wondering if you could maybe, you know, touch on, I guess, the, the, the Real Estate & ENR opportunities that I think you were mentioned in the, in the press release, and maybe more broadly, I, I, I think you're the largest landowner in Mississippi. Can you just talk about that sort of Mississippi, Louisiana, Arkansas market in terms of, you know, anything that you're particularly, you know, excited about or concerned about maybe in, in the next few years?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, sure. You know, it's a really nice acquisition for us. A couple of things I would highlight, as you noted, really a good mature age class, high percentage of sawlog mix, and importantly, there's 2 pieces of it. There's a northern piece and a southern piece. Each of them are really close, so short haul distances to lumber mills that we have in Mississippi. Some really nice synergies there. I think from a comp standpoint, just, you know, for frame of reference, one of our large competitors did a deal in Mississippi recently at, you know, $2,700 an acre. You know, it's pretty in line with what we've seen for the higher quality acquisitions in that Mississippi region. We are the largest landowner in Mississippi by a fair margin.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I think, you know, the, the positive news from a Mississippi standpoint is, you know, we're seeing a fair bit of new capacity coming in there.

[Devin Stockfish, CEO at Weyerhaeuser Company]

From a, a sawmill standpoint, we've got the pellet mills that are coming in and building new mills in Mississippi, so it's a, it's a market, while it's been less tension perhaps than some of the other markets, and, and this is true, for Louisiana and Arkansas, by the way, I do think that's where a lot of the new capacity is coming in, and, you know, with the work that Russell and his team are doing, we're working real hard to make sure that we can influence where some of that capacity is coming in, so that it's, placed in a, in a, in a region where we benefit from a timberland standpoint and can drive synergies for those customers.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I think we feel pretty good about the trajectory of all three of those markets, and, you know, my, my instinct here is that over the next several years, you're gonna see some of the biggest price growth in those markets as that new, new capacity comes into place.

[Anthony Pettinari, Equity Research Analyst at Citi]

Okay, that's very helpful. Then just switching to climate solutions, I think you mentioned two carbon projects underway in the South. You know, given the experience you've gained with the Maine pilot, I mean, is it possible to say,

[Anthony Pettinari, Equity Research Analyst at Citi]

how long it might take for those two Southern projects to maybe ultimately start issuing credits? You know, is that 1 or 2 years, or maybe, maybe longer or shorter? Then, you know, I kind of thought that the Maine project was chosen because, you know, economics in the, in the Northern region are maybe less compelling than in the Southern region. I don't know if, if that's the, the case or if that's changed, but is there any sort of change in view where, you know, carbon projects are getting more feasible or more attractive and, you know, you're moving them to the South, or maybe these are special regions within the South? I, I don't know if you can comment there.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Sure. Well, you know, I think first of all, with the Maine project, and, you know, that's why we call it a pilot project, is there were learnings that, you know, we acquired through that process. I think we've been able to take the learnings from that Maine project and apply that to those two projects in the South. My expectation is those projects are going to move dramatically faster than the Maine project, and, you know, we could have those, you know, issued as soon as later this year or early next year. Much faster, and again, I think we've taken a lot of the learnings from that initial project, which was the whole point, in building out that group and the expertise so that we can start to scale this business.

[Devin Stockfish, CEO at Weyerhaeuser Company]

In terms of the regional decision-making for where carbon projects go, you're, you're absolutely right. We started in Maine because the economics there are more supportive. As you think about a portfolio of 7 million acres across the South, there are going to be certain parcels and, you know, certain tracks that are less economically beneficial than others. There are going to be places where the economics for carbon, even in the near term, still make sense in the South. You know, just to be clear, we're only gonna do carbon projects where we think the economics in doing carbon will beat the economics of doing timber. You know, part of that is the, the quality of the land base, but part of that is where we think carbon prices are trending.

[Devin Stockfish, CEO at Weyerhaeuser Company]

What we've seen here of late is for improved forest management, carbon projects that are of high quality, they're generating strong pricing, and that's our expectation when we bring these credits to market.

[Anthony Pettinari, Equity Research Analyst at Citi]

Okay. That, that's very helpful. I'll turn it over.

[Devin Stockfish, CEO at Weyerhaeuser Company]

All right. Thank you.

[Operator]

Thank you. Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question.

[Paul Quinn, Equity Research Analyst at RBC Capital Markets]

Yeah, thanks very much. Morning, guys. Just, just want to follow up on this Natural Climate Solutions and the carbon optionality that you've got. If you could, and I appreciate the extra color on the 30,000 credits that you expect in year one. What's the size of the Maine project? You know, the scope of it that you put forward, and then what's the size of the two projects that you've got in the US South?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah. We're not providing the specific acreage really for a couple reasons, Paul. First is, as we think about how we're managing these carbon projects, we're not just taking those acres out of production. We're going to continue to generate timber revenues from those acres in addition to carbon. It's a little... We, you know, we feel like it's a little hard to put that in context just by throwing acres out there, so we're not gonna be providing acreages for these products. We'll, we'll ultimately provide the number of credits and the, the revenues that we're generating from the credits, and that's how we'll dimension that going forward.

[Paul Quinn, Equity Research Analyst at RBC Capital Markets]

Okay. Well, just trying to scale it from my side then, the 30,000 credits, is that equating to somewhere in the $500,000-$600,000 range?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Well, it depends on what you think pricing is gonna be. You know, $30,000.

[Paul Quinn, Equity Research Analyst at RBC Capital Markets]

Mid-twenties?

[Devin Stockfish, CEO at Weyerhaeuser Company]

You know. Yeah, mid-20s is kind of a good way to think about it in terms of what we've seen lately. You know, I think the quality of the credits we're bringing to market are really gonna be at the top of the range, so that's how we're thinking about it.

[Paul Quinn, Equity Research Analyst at RBC Capital Markets]

Okay. Just lastly, just, is this 100%, you know, addition to your cash flow, or is there an impact when you put these projects, the carbon projects forward, i.e., is there an impact on harvest in the area?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, there will be some. Obviously, we're picking, we're picking areas which, you know, have, have economics where, where, where that's supported by the, you know, the carbon. Ultimately, if you're, if you're going to get carbon credits, you are giving up some degree of volume. So we're gonna pick regions where that margin is the lowest and where, you know, that offset makes the most sense. Yes, there will be some offsetting impact to, to timber revenues where we do carbon projects.

[Paul Quinn, Equity Research Analyst at RBC Capital Markets]

All right. Makes sense to me. Best of luck. Thanks.

[Devin Stockfish, CEO at Weyerhaeuser Company]

All right. Thank you.

[Operator]

Thank you. Our next question comes from Ketan Mamtora with BMO Capital Markets. Please proceed with your question.

[Ketan Mamtora, Equity Research Analyst at BMO Capital Markets]

Thank you, and good morning. First question, Devin, you talked about, you know, the order files in OSB, which are quite extended right now. Can you give us some sense of what the order files are like in engineered wood and in lumber, and how they compare, you know, for this time of the year versus historical average?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, lumber order files are pretty normal. I mean, that's in a 2-week time frame, 1-2 weeks, which is pretty typical, particularly for this time of year. The EWP order files are extended, you know, depending on the product, out even beyond OSB. They're back to a place where they're fairly lengthy, the order files.

[Ketan Mamtora, Equity Research Analyst at BMO Capital Markets]

Understood. Gotcha. Coming back to wildfires, Devin, are, are your mills in Alberta back up to... I, I thought I heard you say that you all took some downtime at 2 of your 3 mills. Are they back up running, you know?

[Ketan Mamtora, Equity Research Analyst at BMO Capital Markets]

fully, or are there some, you know, still some restrictions, whether related to the log decks or anything else there?

[Devin Stockfish, CEO at Weyerhaeuser Company]

No, those mills are both back up, running full. No, no ongoing issues there. The downtime was really just when the fire got close to the community, there were evacuation orders, so everybody had to leave town. As soon as those evacuation orders were lifted, we were back at the mills, and they're, they're both back up, running full.

[Ketan Mamtora, Equity Research Analyst at BMO Capital Markets]

All right. Okay, that's all from my side. Good luck. Thank you.

[Devin Stockfish, CEO at Weyerhaeuser Company]

All right, thank you.

[Operator]

Thanks, Ketan. Our next question is from Mike Roxland with Truist Securities. Please proceed with your question.

[Mike Roxland, Equity Research Analyst at Truist Securities]

Thank you, Devin, Davey, Andy, and Kara, for taking my questions. Very good quarter.

[Devin Stockfish, CEO at Weyerhaeuser Company]

Thank you.

[Mike Roxland, Equity Research Analyst at Truist Securities]

Just on, on EWP, can you talk about any regional differences that you've seen on EWP demand? I recall the West being more impacted, some months ago from slower market conditions and the climate weather. Have you seen a ramp in, on the West more than the South? Just help, help us figure out how that demand improvement has been broken out by region.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I mean, California in particular, earlier in the year and late last year was, was struggling, and that was, if you recall, just a result of wave after wave of storms hitting that market. You really saw building activity slow quite a bit. As we got deeper into spring and early summer, the California market picked up quite a bit, and you can see that most, you know, mostly in, in the Douglas fir lumber sales that we've got going, into that California market. That really saw an uptick as that building activity increased. You know, I'd say there are always regional differences. You know, California, I think, has been picking up. Texas is always a strong market. The South has generally been pretty strong, and I think all of those trends are holding.

[Devin Stockfish, CEO at Weyerhaeuser Company]

You know, when you think about what's going on with EWP, you know, there's, there's obviously two pieces of that, though. There's the demand and how much building's going on, and then there's also the supply that's going into each individual region. You know, our experience is every, every local market has its own competitive dynamic, and so it's always balancing, making sure that you're serving your customers, you know, trying to, to make sure your margins feel good, but also making sure that you're holding market share against competitors who all want the same business. You know, that dynamic plays out in every, every region, every day. But I'd say on balance, again, the EWP market certainly has stabilized, and as you can see, with our order files extending out, we feel pretty good about that trajectory.

[Devin Stockfish, CEO at Weyerhaeuser Company]

I mean, there will always be some ups and downs on pricing, but directionally, we feel pretty good about where EWP is going.

[Mike Roxland, Equity Research Analyst at Truist Securities]

Thanks for that. Just, just following up, I mean, it's kind of interesting when you look at your sequential improvement in lumber versus EWP. Lumber, about 5% sequentially in terms of volumes, but EWP up about 63% quarter-over-quarter. Can you help us frame, like, what's, what's really driving the difference? I mean, is it all due to just the fact that EWP is more single-family related, maybe lumber's got that R&R component? Or is there anything else driving the difference between the, between lumber demand and, and EWP demand?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, I mean, when you look at our sales volumes, it's really more of a function that we, you know, we had scaled down our EWP production earlier in the year because of what was going on and just the dynamic with, with so many buyers destocking. The big volume increase in EWP, I mean, obviously it's, it's, it's related to the fact that there's been a pickup in home building activity, but the delta between the improvements in volume in EWP and the improvements in volume in, in lumber is just that EWP was operating at 60%, you know, capacity for the Q1, whereas lumber wasn't down nearly as much. That was an intentional decision on our part just to match supply with demand.

[Mike Roxland, Equity Research Analyst at Truist Securities]

Got you. One final question before turning it over. Just the operating rate in EWP in Q2?

[Devin Stockfish, CEO at Weyerhaeuser Company]

Yeah, it was in the mid-70s. Low to mid-70s, we think it'll be up just a little bit in Q3.

[Mike Roxland, Equity Research Analyst at Truist Securities]

All right. Thanks very much, and good luck in the second half.

[Devin Stockfish, CEO at Weyerhaeuser Company]

All right. Thank you.

[Operator]

There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments.

[Devin Stockfish, CEO at Weyerhaeuser Company]

All right. Terrific. Well, thanks everyone for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day.

[Operator]

This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.

Participants

Executives

• Andy Taylor, Vice President of Investor Relations
• Davey Wold, CFO
• Devin Stockfish, CEO

Analysts

• Anthony Pettinari, Equity Research Analyst at Citi
• George Staphos, Equity Research Analyst at Bank of America
• Ketan Mamtora, Equity Research Analyst at BMO Capital Markets
• Kurt Yinger, Equity Research Analyst at DA Davidson
• Mark Weintraub, Equity Research Analyst at Seaport Research Partners
• Mike Roxland, Equity Research Analyst at Truist Securities
• Paul Quinn, Equity Research Analyst at RBC Capital Markets
• Susan Maklari, Equity Research Analyst at Goldman Sachs