Devin W. Stockfish
President and Chief Executive Officer at Weyerhaeuser
Thanks, Andy. Good morning, everyone, and thank you for joining us today. This morning, Weyerhaeuser reported full-year GAAP earnings of $2.6 billion, or $3.47 per diluted share on net sales of $10.2 billion. Excluding special items, our full-year 2021 earnings totaled $2.5 billion, or $3.37 per diluted share. Adjusted EBITDA was a record $4.1 billion, more than 86% increase over full-year 2020. For the fourth quarter, we reported GAAP earnings of $416 million, or $0.55 per diluted share on net sales of $2.2 billion. Excluding a total after-tax benefit of $49 million for special items, we earned $367 million, or $0.49 per diluted share for the quarter. Adjusted EBITDA was $674 million.
I'll start this morning by thanking our employees for an exceptional year. Through their collective efforts, Weyerhaeuser delivered its strongest financial performance on record. Each of our businesses executed remarkably well. The teams maintained a safety focus and continue to serve our customers, all while navigating persistent operational and market challenges. I'm extremely proud of our accomplishments in 2021, which further positioned the Company to drive superior long-term value for our shareholders.
Notable 2021 highlights include delivering record adjusted EBITDA from our wood products business of $3.4 billion, a 120% increase over 2020; capturing more than $70 million of Company-wide operational excellence improvements; optimizing our timberlands holdings through strategic transactions in Alabama and Washington; launching our natural climate solutions business with the growth target to achieve $100 million of annual EBITDA by year-end 2025; publishing the Company's inaugural peer-leading carbon record; establishing a leadership position amongst our North American peers in setting a science-based greenhouse gas reduction target; strengthening our balance sheet by paying down an additional $375 million of debt; and increasing our share repurchase authorization to $1 billion.
In addition, as highlighted on Page 19 of our earnings slide, we generated more than $2.6 billion of adjusted FAD in 2021, further demonstrating the strong cash generation capability of our unmatched portfolio of assets and industry-leading operating performance. Based on our 2021 results, we announced this morning that our Board of Directors has declared a supplemental cash dividend of $1.45 per share payable on February 28 to holders of record on February 18. This supplemental dividend represents the final installment of our cash return to shareholders based on 2021 results. We combined with our 2021 quarterly-based dividends of $0.68 per share, and the one-time interim supplemental dividend of $0.50 per share that was paid in October. We are returning a total of $2.63 per share of dividends to shareholders based on 2021 results, which equates to a 75% of 2021 adjusted FAD.
Including the $100 million of shares repurchased in 2021, Weyerhaeuser is returning more than $2 billion of total cash to shareholders based on 2021 results or 79% of 2021 adjusted FAD, which is at the upper end of our commitment of returning 75% to 80% of FAD on an annual basis.
Moving forward in 2022, we remain committed to returning a significant amount of cash to shareholders. This will continue to be supported by our sustainable quarterly base dividend, which as previously announced, we intend to grow by 5% annually through 2025. As outlined in our cash return framework on Page 18, we will supplement our base dividend with an additional return of cash as appropriate to achieve our targeted annual payout of 75% to 80%.
As demonstrated in 2021, we have the flexibility in our framework to return this additional cash in the form of a supplemental cash dividend or a combination of a supplemental dividend and opportunistic share repurchase. We continue to believe this flexible and sustainable cash return framework will enhance our ability to drive long-term shareholder value by returning meaningful and appropriate amounts of cash back to our shareholders across a variety of market conditions.
Turning now to our fourth quarter business results. I'll begin the discussion with timberlands on pages seven through 10 of our earnings slides. Timberlands contributed $110 million to fourth quarter earnings. Adjusted EBITDA increased by $11 million compared to the third quarter. For the full year, timberlands adjusted EBITDA increased by 14% compared to 2020. These strong results were delivered despite persistent weather, transportation and pandemic-related challenges in 2021. And I would like to specifically recognize our Western Timberlands team for their exceptional work managing through the salvage operations resulting from the 2020 Oregon fires. As of year-end, we've completed substantially all of the planned salvage harvest.
In the West, adjusted EBITDA increased by $3 million compared to the third quarter. Western domestic log market showed signs of improvement at the outset of the fourth quarter, following a brief softening in demand in September. As the fourth quarter progressed, log demand further improved, as mills sought to capitalize on rapidly increasing lumber prices. While log supply in the Western system was sufficient as the quarter began, it became constrained later in the quarter, particularly in Oregon, as a result of supply chain disruptions and adverse weather conditions. Despite this dynamic, our fee harvest volumes increased slightly compared to the third quarter.
With lower log inventories and limited regional log supply as the quarter progressed, we increased the volume of our fee logs to our internal mills resulting in modestly lower third-party domestic sales volumes compared to the third quarter. This is a great example of how we leverage our integrated business model to effectively navigate and capitalize on temporary market disruptions. Our average sales realizations in the West were comparable through the third quarter, but increased each month and ended the year at their highest levels of 2021. Per unit log and haul costs decreased in the fourth quarter, as did forestry and road costs.
Turning to our export markets. In Japan, demand for our logs remained strong in the fourth quarter as persistent global supply chain disruptions, shortage of shipping containers and strengthening U.S. domestic lumber markets reduced the availability of imported lumber into Japan. This dynamic continue to drive solid demand for locally-produced Japanese lumber and for our imported logs to support that domestic production. As a result, our Japanese log realizations in the fourth quarter increased slightly compared to the third quarter. Sales volumes were modestly lower due to the timing of vessels.
In China, end-market demand for our Western logs remained favorable in the quarter, despite lower-than-expected overall Chinese consumption and elevated log inventories at the ports. Imports of lumber and logs into China continue to be impacted by global shipping container availability and the ban on Australian logs. As a result, our sales volumes to China increased significantly compared to the third quarter. Sales realizations for our China export logs decreased slightly and ocean freight rates improved during the quarter.
Moving to the South. Southern timberlands adjusted EBITDA increased by $4 million compared to the third quarter. Southern sawlog and fiber markets continued to strengthen in the fourth quarter, despite ample log supply resulting from drier weather conditions. Mill inventories returned to normal levels in most geographies during the quarter, but log demand remained strong across the South as mill sought to capitalize on rising lumber and panel pricing and focused on bolstering log inventories heading into the first quarter. As a result of these dynamics, our sales realizations increased slightly compared to the third quarter, and fee harvest volumes were modestly higher. Per unit log and haul costs increased slightly in the quarter, primarily for transportation costs.
Turning now to Southern export, which remains a small component of our overall operations. During the fourth quarter, Chinese regulators implemented new rules for imported pine logs to address potential phytosanitary concerns. These regulations imposed additional costs and administrative requirements. As a result, we paused our Southern pine log exports to China, and consequently, our export log volumes to China decreased significantly compared to the third quarter. In response, we redirected logs to domestic mills and significantly increased our export log volumes to India in the fourth quarter. We are optimistic that this headwind for pine exports to China would be transitory and still maintain a constructive longer-term outlook for our Southern export business.
In the North, adjusted EBITDA increased by $2 million compared to the third quarter. Fee harvest volumes were significantly higher, resulting from favorable weather conditions and robust log demand as mills build inventory. Sales realizations increased slightly, primarily for hardwood logs.
Turning to real estate, energy, and natural resources on pages 11 and 12. Real estate and ENR contributed $36 million to fourth quarter earnings and $49 million to adjusted EBITDA. Fourth quarter EBITDA was $11 million lower than the third quarter, due to the timing of transactions. Similar to 2020, our real estate activity in 2021 was heavily weighted towards the first half of the year. For the full year, the segment generated $296 million of adjusted EBITDA, slightly higher than our revised full-year guidance and 23% higher than 2020.
Despite a year-over-year reduction in acres sold, full-year earnings increased by 144% compared to 2020, due to the mix of properties sold, and average sales prices increased by more than $2,000 per acre, a 120% increase. These results underscore the strength of the HBU market in 2021, the quality of our properties, and our team's ability to capitalize on these strong markets to deliver significant premiums to timber values.
Now I'll make a few comments on our natural climate solutions business, which we launched in 2021. As shown on Page 22, full-year adjusted EBITDA from this business increased by 73% compared to 2020, driven primarily by growth from existing businesses in our portfolio, including mitigation and conservation as well as renewable energy. Additionally, we continue to make progress on our forest carbon pilot project in Maine and we continue to look to seek approval in 2022. We're also advancing discussions with high-quality developers of solar, wind and carbon capture and storage projects across our ownership. We continue to see multi-year growth potential from these businesses and maintain our target of reaching $100 million of annual EBITDA by the end of 2025.
Moving to wood products, pages 13 through 15. Wood products contributed $466 million to fourth quarter earnings before special items and $517 million to adjusted EBITDA. Our EWP business established a new quarterly adjusted EBITDA record in the quarter, surpassing the prior record established just last quarter by 50%. For the full year, our lumber OSB and EWP businesses established new annual EBITDA records, and our distribution business generated the highest annual adjusted EBITDA in over 15 years. This is all notwithstanding ongoing challenges resulting from supply chain, transportation, weather and pandemic-related disruptions. This is truly exceptional performance, and I'm extremely proud of the resiliency, flexibility, and determination exhibited by our teams as they navigated multiple headwinds in 2021.
In the fourth quarter, demand remained unseasonably strong across our wood products businesses, driven by continued strength in new residential homebuilding and repair and remodel activity, as well as favorable weather conditions for construction for the majority of the quarter. Starting with the lumber and OSB markets, benchmark lumber prices entered the quarter on an upward trajectory, driven by strong homebuilding and repair and remodel demand.
In contrast, OSB markets remained fairly balanced for the first two months of the quarter, resulting in relatively flat composite pricing. Both lumber and OSB pricing increased at a rapid pace starting in December as supply was disrupted by a myriad of factors, including major flooding in British Columbia; the disrupted transportation in supply chain networks across Western Canada; labor challenges exacerbated by the Omicron variant which impacted industry-wide mill operations, log supply, and transportation carriers; and significant weather events that further impacted transportation in log supply in the Northwestern Canada in December.
Channel inventories of both lumber and OSB ended the year in a lean position with continued strong demand. Adjusted EBITDA for our lumber business increased by $77 million compared to the third quarter. Our average sales realizations increased by 15% in the fourth quarter, while the framing lumber composite pricing increased by 40%. This relative difference was largely a result of extended order files that lagged surging lumber prices and shipping delays due to transportation disruptions.
Our sales volumes decreased significantly in the fourth quarter, resulting from weather-related transportation challenges in Canada and lower inventory drawdown compared to the third quarter. Production volumes were modestly lower and unit manufacturing costs were moderately higher, resulting from weather-related events in the Northwestern Canada, including one week of downtime at our Princeton mill following the flooding event in British Columbia.
Adjusted EBITDA for our OSB business decreased by $168 million compared to the third quarter. Despite a rapid increase in pricing in December, our average sales realizations decreased by 29% in the fourth quarter, while the OSB composite pricing decreased by 20%. Similar to lumber, this relative difference was largely a result of extended order files that lagged surging OSB prices and shipping delays due to transportation disruptions. Our sales volumes decreased slightly compared to the third quarter, resulting from weather-related transportation challenges in Canada. Production volumes and unit manufacturing costs improved in the quarter due to less downtime for planned maintenance. Fiber costs were moderately higher in the quarter.
Engineered wood products adjusted EBITDA increased by $38 million compared to the third quarter, a 50% improvement. Raw material costs were significantly lower, primarily for OSB web stock. Sales realizations improved for most of the -- most products and we continue to benefit from previously [Technical Issues] price increases for solid section and I-joists. Sales and production volumes were lower for most products as a result of planned annual maintenance during the quarter and the impacts of COVID-related staffing shortages.
In distribution, adjusted EBITDA increased by $18 million compared to the third quarter, an 82% improvement as the business captured improved margins, primarily for lumber and OSB, partially offset by seasonally lower sales volumes.
I'd like to now turn to operational excellence. In 2021, our teams captured more than $70 million of margin improvements, meeting our $50 million to $75 million target, while also making meaningful progress against our other opex priorities, including with respect to future value creation, cost avoidance, driving efficiencies, and cross-business synergies throughout the Company. This was a remarkable accomplishment when considering the numerous challenges facing our business in 2021.
Once again, our people demonstrated unwavering focus and exceptional teamwork to deliver innovative and creative solutions to overcome obstacles and drive opex across the Company. In addition, I'm pleased with how well our employees continue to drive cross-business opex, that improved margins in both timberlands and wood products. These efforts optimized internal log deliveries to Weyerhaeuser mills to maximize value and avoid out-of-log downtime. And our teams worked together across our businesses to ensure that we maximize the recovery value from our salvage operations in Oregon. As we look forward to the future, we're targeting another $175 million to $250 million of opex improvements across our businesses between 2022 and 2025. And I look forward to sharing more about our key initiatives and results in the years ahead.
With that, I'll turn the call over to Nancy to discuss some financial items and our first quarter and 2022 outlook.