Devin W. Stockfish
President and Chief Executive Officer at Weyerhaeuser
Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported full-year GAAP earnings of $1.9 billion or $2.53 per diluted share on net sales of $10.2 billion. Excluding special items, our full-year 2022 earnings totaled $2.2 billion or $3.02 per diluted share. Adjusted EBITDA totaled $3.7 billion for the year.
For the fourth quarter, we reported GAAP earnings of $11 million or $0.02 per diluted share on net sales of $1.8 billion. Excluding an after tax charge of $160 million with special items, we earned $171 million or $0.24 per diluted share for the quarter. Adjusted EBITDA was $369 million. This is a 37% decrease from the third quarter, and was largely driven by further softening in Wood Products markets, as cautious sentiment continue to weigh on the near-term housing and macroeconomic outlook.
I'll begin this morning by expressing my appreciation to our employees for their strong execution and performance in 2022. Notwithstanding a number of supply-chain disruptions and dynamic market conditions over the course of the year, our teams operated safely, continue to serve our customers, and drove meaningful improvements across our businesses. Through their efforts, we delivered our second-highest annual adjusted EBITDA on record, and are well-positioned to navigate a more challenged market environment entering 2023.
Additionally, as highlighted on Page 20 of our earnings slides, we generated more than $2.3 billion of adjusted funds available for distribution in 2022, again demonstrating the strong cash generation capability, and combining our unmatched portfolio of assets with industry leading operating performance. We announced yesterday that our Board of Directors declared a supplemental cash dividend of $0.90 per share, payable on February 27 to holders of record on February 15.
When combined with our quarterly base dividends of $0.72 per share, we're returning total dividends to shareholders of $1.62 per share. Including $550 million of shares repurchased during the year, Weyerhaeuser is returning $1.75 billion of total cash to shareholders based on 2022 results or 75% of 2022 adjusted FAD, which is in line with our annual targeted payout range of 75% to 80%.
As summarized on Page 21, we've now completed the second full-year of our new cash return framework. Upon payment of the supplemental dividend, we have returned more than $3.8 billion in total cash to shareholders based on 2021 and 2022 results, through a combination of cash dividends and share repurchase. We continue to believe this framework will enhance our ability to drive long-term shareholder value by returning meaningful and appropriate amounts of cash back to shareholders across the range of market conditions, and deliver an attractive total dividend yield to our shareholders.
Moving forward into 2023, our cash return commitment will continue to be supported by our sustainable quarterly base dividend, which we intend to grow by 5% annually through 2025. As outlined in our cash return framework on Page 19, we plan to supplement our base dividend with an additional return of cash as appropriate to achieve our targeted annual payout of 75% to 80% of adjusted FAD. And as demonstrated in 2021 and 2022, we have the flexibility in our framework to return this additional cash in the form of a supplemental cash dividend or opportunistic share repurchase.
With that, I'll now turn to our fourth quarter business results. I'll begin with Timberlands on Pages 7 through 10 of our earnings slides. Timberlands contributed $86 million to fourth quarter earnings. Adjusted EBITDA was $150 million, an $18 million decrease compared to the third quarter. This was largely driven by lower sales realizations in the West. For the full-year, Timberlands adjusted EBITDA increased by 13% compared to 2021. These were strong results and I am extremely proud of the focus and resiliency, demonstrated by our teams in 2022.
Turning to our Western Timberlands operations. Domestic log markets softened at the outset of the fourth quarter, driven primarily by lower lumber pricing and ample log supply in the system. This drove domestic log pricing to lower levels early in the quarter. As the quarter progressed, log supply into the market became more constrained, resulting from a seasonal reduction in log availability. This dynamic resulted in a temporary period of log price stability into December.
For the quarter, our average domestic realizations were moderately lower than the third quarter. Our fee harvest and domestic sales volumes were higher as the business quickly return to full run-rate operations following the resolution of our work stoppage. We plan to capture the majority of the deferred harvest volume from the work stoppage in 2023. Forestry and road costs were seasonally lower compared to the third quarter, and per unit log and haul costs were comparable.
Turning to our export markets. In Japan, demand for our logs was strong in the fourth quarter, as our key customers sought to replenish lean inventories resulting from our work stoppage. That said, our export sales volumes to Japan were slightly lower as work stoppage related impacts to our export program were disproportionately higher in the fourth quarter, compared to the third quarter.
Our average sales realizations were significantly lower as broader log markets softened in Japan, due primarily to an oversupply of European lumber imports, as well as lower consumption driven by reduced housing activity. Log demand from our China customers was solid in the fourth quarter and our export sales volumes increased significantly, compared to the lower levels in the third quarter, when we intentionally kept more volume in the domestic market to capture higher margin opportunities. Our average sales realizations were significantly lower in the fourth quarter, as broader Chinese log markets softened due to lower consumption, resulting from COVID disruptions and challenges in the Chinese real estate market.
Moving to the South. Southern Timberlands adjusted EBITDA increased slightly compared to the third quarter. Similar to the last several quarters, notwithstanding adequate log supply and softening finished product pricing, Southern sawlog and fiber markets remained fairly stable during the fourth quarter. Log demand was steady, as mills continue to carry higher inventory levels to mitigate potential risks from supply-chain and weather challenges. As a result, our sales realizations were comparable to the third quarter. Fee harvest volumes were slightly higher as weather conditions remained generally favorable for most of the quarter.
Forestry and road costs decreased slightly and per unit log and haul costs were comparable to the third quarter. On the Export side, our Southern program to China remains paused, due to ongoing phytosanitary rules imposed by Chinese regulators. While it's unclear when this issue will be resolved, we continue to have a positive longer-term outlook for our Southern export business to China. And in the interim, we will continue to grow our export business into India and other Asian markets. In the North, Adjusted EBITDA increased slightly compared to the third quarter, due to significantly higher sales volumes, as weather conditions were favorable. Our sales realizations decreased moderately.
Turning to Real Estate, Energy, and Natural Resources, on Pages 11 and 12. For the full-year, Real Estate and ENR generated $329 million of adjusted EBITDA, slightly higher than our revised full-year guidance, and 11% higher than 2021. This was driven primarily by exceptionally strong demand for HBU properties in 2022 as well as robust Energy and Natural Resources activity for much of the year.
In the fourth quarter the segment contributed $24 million to earnings. Excluding a $10 million, non-cash impairment charge resulting from the planned divestiture of legacy coal assets, the segment earned $34 million in the quarter. Adjusted EBITDA was $46 million, a decrease of $14 million from the prior quarter, primarily due to a reduction in real estate acres sold. Although HBU demand has moderated somewhat in response to broader macroeconomic concerns, we continue to see steady interest from buyers seeking the safety of hard assets in an inflationary environment. Notably, we delivered our highest average price per-acre for all of 2022 on our land sales in the fourth quarter. These are high-value transactions with significant premiums to timber value.
I'll now make a few comments on our Natural Climate Solutions business. As shown on Page 13, full-year adjusted EBITDA from this business was $43 million, a 13% increase compared to 2021. Growth during the year was primarily driven by conservation activity with ongoing contributions from our mitigation banking, and renewable energy businesses. In addition, we achieved notable milestones in our emerging carbon businesses in 2022, including the announcement of our first two carbon capture and storage agreements, one of which was announced in the fourth quarter in partnership with Denbury.
Similar to our agreement with Oxy Low Carbon Ventures announced earlier in 2022, the Denbury project will take several years to begin production, and we expect both projects will come online in 2025 or 2026. Moving forward, we continue to advance discussions with high-quality developers of carbon capture and storage on portions of our Southern US acreage, and expect to announce additional agreements in the future.
Turning briefly to forest carbon offsets, we're nearing completion of our pilot project in Maine and expect third-party approval soon. This project serves as a proof-of-concept for Weyerhaeuser, and positions us well to advance additional forest carbon projects in 2023. With these exciting developments, we continue to see multi-year growth potential from our Natural Climate Solutions business, and maintain our target of reaching a $100 million per year of EBITDA by the end of 2025.
Moving to Wood Products on Pages 14 through 16. Wood Products contributed $147 million to fourth quarter earnings, and $197 million to adjusted EBITDA. Fourth quarter adjusted EBITDA was a 50% reduction from the third quarter, largely driven by continued softening in Wood Products markets and lower product pricing. For the full-year, our Wood Products business generated over $2.7 billion of adjusted EBITDA, and our Engineering Wood Products business, established a new annual EBITDA record. Additionally, our distribution business generated the highest annual EBITDA in over 15 years. These are outstanding results, and I'm proud of our team's ability to deliver this level of performance, notwithstanding numerous challenges in 2022.
Turning to some commentary on the lumber and OSB markets. Benchmark prices for lumber and OSB entered the fourth quarter, showing signs of stabilization after falling for much of the third quarter. As the quarter progressed, both markets exhibited cautious buyer sentiment, resulting from a softening housing market, in addition to broader concerns about the economy and inflation. Buyers maintained lean inventories and limited orders to necessity purchases through year-end. This drove benchmark prices lower for both lumber and OSB In the fourth quarter.
As a result, the framing lumber composite pricing decreased by 24%, compared to the third quarter; and the OSB composite pricing decreased by 20%. That said, benchmark pricing for both projects -- products stabilized in January, as buyers re-entered the market to replenish lean inventories. Adjusted EBITDA for our lumber business decreased by $80 million, compared to the third quarter.
Our average sales realizations decreased by a 11% in the fourth quarter, with relative outperformance compared to the benchmark, resulting primarily from our regional and product mix. Our sales and production volumes decreased significantly, compared to the third quarter. These decreases resulted from a combination of the work stoppage related impacts in the Northwest, adverse weather conditions in December, and challenge reliability at several mills during the quarter. As a result, unit manufacturing costs increased significantly during the quarter.
Log costs were modestly lower primarily for Western logs. Specific to our Northwest mills, which resumed operations in November following the work stoppage, much of the lumber we sold in the fourth quarter was manufactured using logs purchased in the third quarter when log prices were higher. As a result, margins compressed and are expected to remain lower until we work through the higher cost log inventories and log prices in the Northwest adjust to reflect current lumber pricing levels.
Adjusted EBITDA for our OSB business decreased by $47 million, compared to the third quarter, primarily due to the decrease in commodity pricing. Our average sales realizations decreased by 16% in the fourth quarter. Production volumes were comparable. However, sales volumes decreased slightly, resulting from weather-related disruption challenges -- weather-related transportation challenges in Canada late in the quarter. Unit manufacturing costs decreased moderately and fiber costs were slightly lower in the quarter.
Engineered Wood Products adjusted EBITDA decreased by $56 million, compared to the third quarter. This result is directly tied to recent softening in demand for EWP products, which are primarily used in single-family homebuilding applications. Although, we often see demand for Engineered Wood Products slow somewhat during the winter months, the broader slowdown in the housing market in Q4 caused more of a pull-back than ordinarily would be the case. As a result of this dynamic, our sales volumes decreased for all products compared to the third quarter.
Production volumes were also lower as we elected to take temporary holiday downtime at several EWP facilities during the quarter. Our sales realizations decreased for all products, except for I-Joist, which were comparable to the third quarter. Unit manufacturing costs were comparable in the fourth quarter and raw material costs were moderately lower, primarily for OSB web stock. In distribution, adjusted EBITDA decreased by $18 million compared to the third quarter, largely driven by lower sales volumes, primarily for EWP products.
With that, I will turn the call over to David to discuss some financial items and our first quarter in 2023 outlook.