From: Reuters
Published May 2, 2008 02:35 PM

Weyerhaeuser loss widens as housing woes weigh

By Euan Rocha

NEW YORK (Reuters) - Weyerhaeuser Co <WY.N> posted a bigger-than-expected first-quarter loss on Friday, as the slump in the U.S. housing market hurt demand for its lumber, plywood and other wood products used in home construction.

"The protracted recession in the housing market has had a devastating impact on our first-quarter performance," Chief Executive Daniel Fulton said on a conference call.

The company continues to expect second-quarter losses from its wood products business and from its real estate operation, which builds single-family homes.

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Last week, a government report said new single-family U.S. home sales fell 8.5 percent to 526,000 in March, while the median sales price took its biggest year-to-year drop since 1970.

On an inflation-adjusted basis, prices for many wood products used in home construction have hit record lows. Weyerhaeuser is among the companies worst hit, as many of its products are dependent upon the single-family housing market.

The Federal Way, Washington-based company posted a quarterly net loss of $148 million, or 70 cents a share, compared with a year-earlier profit of $720 million, or $3.09 a share.

The latest results include asset impairment charges, while the year-earlier profit includes a large gain from the divestiture of Weyerhaeuser's fine paper business.

Excluding items, the loss per share was 24 cents in the quarter, compared with a year-earlier profit of 20 cents. Analysts on average were expecting a loss of 19 cents a share.

Net sales fell more than 23 percent to $3.39 billion. Wall Street had expected $3.66 billion.

"I'm relieved that the loss in the first quarter is not worse, given what we've seen some other companies reporting," said Longbow analyst Joshua Zaret. "However, I've got to say that the near-term outlook continues to be really weak."

But Zaret said he expects the stock to hold up because of the company's asset value, rather than earnings performance.

Weyerhaeuser shares were down $1.22 or 1.9 percent, at $63.42 in afternoon trade on the New York Stock Exchange.

Weyerhaeuser expects the second-quarter loss from its real estate unit to be comparable with the segment's first-quarter loss of $74 million, but losses from its wood products business should narrow because of modest improvements in lumber prices.

However, the company expects maintenance costs to hurt earnings at its cellulose fibers business, which makes products used in paper, bandages, diapers and other goods.

Recent data from the National Association of Home Builders indicated that U.S. home builder sentiment lingered near all-time lows in April.

To cope with the downturn, Weyerhaeuser has been trimming and closing down operations in Canada and the United States, while divesting non-core businesses.

In March, the company said it would sell its packaging business to International Paper Co <IP.N> in a deal worth $6 billion, which would make the buyer the largest U.S. containerboard and corrugated packaging maker.

Weyerhaeuser has chosen to focus on its core timberland and wood products business, and many analysts would like the company to convert to a real estate investment trust (REIT), a move that would wipe out the company's tax burden.

"On a sum-of-the-parts basis, if you look at the market capitalization right now, the timber assets are worth the whole market capitalization of Weyerhaeuser," said Russell Croft, a portfolio manager with Croft Leominster, which owns shares in the company.

"In the end-game: Hopefully they become a REIT and the valuation will change accordingly," Croft added.

Some of the company's peers like Potlatch Corp <PCH.N>, Plum Creek Timber Co <PCL.N> and Rayonier Inc <RYN.N> have already adopted the REIT structure.

However, for now Weyerhaeuser is counting on the passage of the Timber Revitalization and Economic Enhancement Act, or TREE Act, which is a part of the farm bill that is currently being worked on by the House and Senate.

"We continue to work with the industry and Congress to seek passage of the, TREE Act, which would provide immediate value to shareholders and is compatible with many different business strategies," said Weyerhaeuser's Fulton.

The passage of this legislation would significantly lower, but not wipe out, the company's tax burden, while also easing some restrictions on timber companies adopting the REIT structure.

Weyerhaeuser shares have fallen about 14 percent year-to-date, while the Standard & Poor's 1500 Paper and Forest Products Industry Index <.15GSPAFP> has declined about 16 percent.

(Editing by Gerald E. McCormick, Dave Zimmerman and Lisa Von Ahn)

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