Devin W. Stockfish
President and Chief Executive Officer at Weyerhaeuser
Great. Thanks, Andy. Good morning, everyone, and thank you for joining us today. This morning, Weyerhaeuser reported third quarter GAAP earnings of $482 million, or $0.64 per diluted share on net sales of $2.3 billion. Excluding a special item with a net after-tax benefit of $32 million, we earned $450 million or $0.60 per diluted share. In the third quarter, we delivered strong results across each of our businesses despite weather-related disruptions, the ongoing COVID-19 pandemic and continued supply chain challenges. Our teams did an exceptional job navigating these headwinds, and I'm incredibly proud of their collective efforts and focus on safely operating our businesses and continuing to serve our customers. Truly, great execution across the entire supply chain in a difficult environment, which has resulted in record earnings and cash flow in 2021. Year-to-date, we've generated more than $3.4 billion of adjusted EBITDA and $2.4 billion of adjusted funds available for distribution.
Turning now to our third quarter business results. I'll begin the discussion with Timberlands, on pages six through nine of our earnings slides. Timberlands earnings increased by $20 million in the quarter, which included a $32 million gain on the previously announced sale of our North Cascades Timberlands. Adjusted EBITDA decreased by $15 million compared to the second quarter. In the West, adjusted EBITDA decreased by $13 million compared to the second quarter. Western domestic log markets started the quarter in a favorable position despite weakening lumber prices and ample log supply. Demand remains elevated as mills continue to bolster log inventories during the peak of wildfire season, but weakened somewhat in September as a number of producers experienced COVID-related disruptions and finished lumber inventories increased above normal levels. Despite these headwinds, our third quarter domestic sales realizations were comparable to the second quarter, driven by strong domestic log prices in July and August. Salvage operations resulting from the 2020 Oregon wildfires continued in the third quarter.
The teams have done an outstanding job in managing these salvage efforts over the last year. To date, we've completed approximately 80% of our planned salvage harvest and expect to conclude most of this work by year-end. As expected, during the warmer and drier months in the summer, we transitioned to higher elevation and higher cost operations. Additionally, although we experienced very minimal wildfire damage to our timberlands, active fires and dry conditions across the region resulted in restrictions on our harvest activity in the quarter, particularly in Oregon. As a result, our fee harvest and domestic sales volumes were modestly lower in the third quarter, and per unit log and haul costs were higher. Turning to our export markets. In Japan, demand for our logs remained strong in the third quarter. Lumber imports from Europe into Japan continue to be restricted by the ongoing shortage of global shipping containers. This dynamic is driving increased market share for our customers and robust demand for our logs. As a result, our Japanese log sales realizations increased moderately compared to the second quarter, and sales volumes were comparable. In China, demand for our logs remained favorable in the quarter despite seasonally lower consumption, COVID impacts to construction activity and other supply chain disruptions.
Imports of lumber and logs into China continue to be constrained by global shipping container availability as well as the ban on Australian logs. As a result, sales realizations for our China export logs increased moderately compared to the second quarter, but were more than offset by higher ocean freight rates. Sales volumes to China were comparable to the second quarter. Moving to the South. Southern timberlands adjusted EBITDA was comparable to the second quarter. Southern sawlog and fiber markets continued to strengthen as log supply was constrained and mill inventories remain lean, resulting from ongoing wet conditions and significant weather events. As a result, our sales realizations were slightly higher than the second quarter. Fee harvest and sales volumes increased slightly in the third quarter, but fell below our planned activity level as a result of persistent wet weather and operational disruptions from Hurricane Ida. Per unit log and haul costs increased slightly in the quarter as did forestry and road costs. On the export side, we continue to see growing demand for our Southern logs. Our export log pricing increased substantially in the third quarter, but volumes were lower than second quarter as we continue to face challenges associated with container availability and increased freight rates.
In the North, adjusted EBITDA decreased slightly compared to the second quarter. Sales volumes were significantly higher coming out of spring breakup conditions, though sales realizations were lower due to mix. Turning to Real Estate, Energy and Natural Resources on pages 10 and 11. Real estate and ENR contributed $45 million to third quarter earnings and $60 million to adjusted EBITDA. Third quarter adjusted EBITDA was $31 million lower than the second quarter due to timing of transactions, but comparable to the year ago quarter. Similar to last year, our 2021 real estate sales activity has been heavily weighted toward the first half of the year. Third quarter earnings more than doubled compared to the third quarter of 2020 due to the mix of properties sold. We continue to capitalize on strong demand for HBU properties, resulting in high-value transactions with significant premiums to timber value. Moving to Wood Products, pages 12 through 14. Wood Products earnings and adjusted EBITDA decreased by approximately 60% compared to the prior quarter as lumber and OSB pricing declined substantially from record levels earlier in the year before stabilizing later in the quarter.
Additionally, weather events in the U.S. South, including Hurricane Ida, resulted in temporary downtime and lost production in our lumber business. And together with COVID-related staffing disruptions, further exacerbated transportation challenges in the region. Despite these headwinds, our teams performed well and delivered strong results. Our EWP business established a new quarterly EBITDA record in the third quarter and the overall Wood Products segment has achieved year-to-date adjusted EBITDA of more than $2.8 billion. Lumber markets began the third quarter with elevated home center and treater inventory levels due to softening do-it-yourself repair and remodel activity. As a result, pricing continued its downward trajectory in July and for much of August. The market began to strengthen later in the quarter as home centers and treaters work through excess inventories and consumer spending shifted back to do-it-yourself repair and remodel activity after Labor Day. When combined with solid demand from new home construction and professional repair and remodel activity, each of which remain healthy throughout the third quarter. These dynamics caused pricing to stabilize in late August and increased gradually through September
Adjusted EBITDA for our lumber business decreased $686 million compared to the second quarter. Our sales realizations decreased by 52% in the third quarter while the framing lumber composite pricing decreased by 61%. Our sales volumes increased moderately in the third quarter and log costs increased slightly, primarily for Canadian logs. The OSB market weakened significantly at the outset of the third quarter with the softening of do-it-yourself repair and remodel activity. This dynamic drove lower sales activity and higher inventories at the home centers. As a result, we experienced a rapid decline in pricing from the peak record prices that we reached in July. Pricing then stabilized above the historical average in August, as demand from strong new home construction activity continued and the market faced supply constraints resulting from ongoing resin availability and transportation challenges. This dynamic, along with late quarter improvement in do-it-yourself repair and remodel demand, drove prices gradually higher through September. Adjusted EBITDA for our OSB business decreased by $128 million compared to the second quarter. Our sales realizations decreased by 24% in the third quarter while the OSB composite pricing decreased by 43%.
This relative outperformance was largely a result of our higher percentage of premium OSB products. Our sales and production volumes improved modestly in the third quarter due to less downtime for planned maintenance. Unit manufacturing costs increased slightly, primarily for resin costs. Engineered Wood Products adjusted EBITDA increased $23 million compared to the second quarter, a 43% improvement. Sales realizations improved significantly across most products, and we continue to benefit from previously announced price increases for solid section and I-joist products. This was partially offset by higher raw material costs for OSB webstock, resin and veneer. Sales and production volumes were moderately lower for most products as a result of planned annual maintenance during the quarter. In Distribution, adjusted EBITDA decreased by $53 million compared to the second quarter. Despite lower sales volumes for most products and significantly lower margins resulting from the commodity price correction, our teams did a great job navigating these challenges and delivered $22 million of adjusted EBITDA in the third quarter.
With that, I will turn the call over to Nancy to discuss some financial items and our fourth quarter outlook.