Weyerhaeuser Company (WY) Q1 2012 Earnings Report, Transcript and Summary

Good morning. My name is Nicole, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Quarter 1 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Kathryn McAuley, Vice President, Investor Relations. Ms. McAuley, you may begin.

Thank you, Nicole. Good morning. Thank you for joining us on Weyerhaeuser's First Quarter 2012 Earnings Conference Call. This call is being webcast at www.weyerhaeuser.com. The earnings release, analyst package and web slides for the call can be found on our website or by contacting April Meier at (253) 924-2937. 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. Joining me this morning are Dan Fulton, President and Chief Executive Officer; and Patty Bedient, Executive Vice President and Chief Financial Officer. Additional information has been added to the analyst package and web slides. This includes EBITDA and operating margin data as well as business-specific metrics. In the web slide package, the charts and tables have been redesigned. I will note some of the graph changes as we review first quarter results. Corporate and Other has been renamed Unallocated to more accurately reflect the nature of these items. Chart 13 details unallocated items. We hope these changes help you in your analysis of Weyerhaeuser. As summarized on Chart 1, this morning, Weyerhaeuser reported first quarter 2012 net earnings of $41 million or $0.08 per diluted share on net sales of $1.5 billion. Earnings for the first quarter include aftertax gains of $32 million from special items. A GAAP reconciliation of earnings before special items can be found on Chart 2. This table now details special items on a pretax and an aftertax basis. The special items for the first quarter are: a gain of $34 million or $0.06 per share for a postretirement plan amendment; a gain of $8 million or $0.02 per share for income tax settlements; and a charge of $10 million or $0.02 per share for restructuring, impairments and other items. Excluding these items, the company reported net earnings of $9 million or $0.02 per diluted share. Turning to our business segment discussion. My comments reviewing the first quarter of 2012 refer to changes from the fourth quarter of 2011. This will be the same for all segments. Beginning with Timberlands, Charts 3 and 4. The graph on Chart 4 had been redesigned. The West and the South are now on separate charts, each graphing third-party log sales versus realizations. Graph on intersegment log sales, West and South, and fee harvest volume, West and South, have also been excluded. Timberlands contributed $71 million to pretax earnings, $1 million more than in Q4. Income from operations increased $13 million. This increase was primarily due to lower equipment and road maintenance cost in the West. This increase was largely offset by a $12 million reduction in earnings from the disposition of non-strategic Timberland. Western log sale volumes were flat. Third-party sales volumes declined 6%, primarily due to fewer log sales to China. Log exports to Japan, however, have increased. Japan accounted for 78% of log exports in Q1 versus 68% in Q4. Exports to Korea, a small market, also increased. Price realizations for logs in the West declined less than $1 per 1,000 cubic meters. Price realizations for logs exported to Japan slightly increased. Southern log sales volumes were flat. Third-party sales decreased as internal sales increased due to strong Southern yellow pine lumber demand. The combined fee harvest volumes of the West and South rose 2%. Wood Products, Charts 5 and 6. Chart 6 has been reorganized into 4 product graphs of price and volume. First quarter operating income improved $39 million from fourth quarter. Sales volumes and price realizations increased across all product lines. Operating rates were higher. Lumber volumes were up 9%, and lumber prices increased 5% or $15 per 1,000 board feet. Oriented strand board volumes were up 9%. Price realizations rose 14% or $24 per 1,000 square feet. Engineered wood solid section volumes increased 16%. Solid section price realizations were up 3%. Engineered wood TJI volume was 7% higher. TJI prices increased 2%. Manufacturing costs were lower due to more mill uptime and product throughput. Freight expense increased largely due to higher shipment volumes and an increase in fuel costs. Cellulose Fibers, Charts 7 and 8. Pulp sales volumes and price realizations are on the same graph on Chart 8. The pretax contribution to earnings from Cellulose Fibers decreased $90 million in Q1 from Q4. Average pulp price realizations declined 9% or $76 per air-dry metric ton. Pulp sales volumes decreased 4%. Q1 had 2 scheduled annual maintenance outages totaling 27 days of downtime. There were no scheduled maintenance outages in Q4. Due to the scheduled downtime, maintenance costs increased significantly, and pulp production volumes were 5% lower. Real Estate, Charts 9 and 10. Chart 10 contains graphic representations of the metrics formally presented in a table format. The pretax contribution to earnings from Real Estate declined $49 million from fourth quarter. First quarter is seasonally the weakest quarter of the year for single-family home closings. In Q1, single-family home closings declined to 349 from 582 in Q4. Closings were 4% lower than a year-ago first quarter. The average home sales price was $376,000, 6% lower than in Q4 and 10% below the first quarter of 2011. Gross margins decreased to 17% from 25% in Q4. The gross margin was 22% in Q1 2011. Price and margin declines were attributable to mix. The cancellation rate dropped 10% from -- dropped to 10% from 18% in Q4. The cancellation rate was 12% in the year-ago quarter. The backlog increased from 429 single-family homes in Q4 to 777 homes. However, the average price of single-family homes in the backlog has decreased to $371,000 due to mix. The backlog at the end of the first quarter last year was 611 single-family homes. It was $1 million in land and lot sales in first quarter. Land and lot sales were $19 million in the fourth quarter. Other items. Unallocated items for the first quarter include a net pretax gain of $52 million from changes in retiree health care benefits, and changes of $14 million for impairment, restructuring and other items. Finally, I would like to remind you, on May 10, we will be holding our Annual Analyst Meeting at the Sofitel in New York City. You can register for this event on our homepage at www.weyerhaeuser.com. And now, I would like to turn the call over to Dan Fulton. Dan?

Thanks, Kathy. And good morning, everyone. Thanks for joining us. As I begin, I want to start by reflecting on my remarks from our 2011 year-end earnings call. At that time, when we provided our outlook for the first quarter, we highlighted 3 major external forces that we believed could affect our 2012 financial performance: one, the pace of housing recovery; two, weakening log demand from China, offset by continuing strong demand from Japan; and three, softness in pulp prices related to high inventories worldwide and economic uncertainty in global markets. We emphasized that we were focused on improvement across all business segments in areas that we can control. Though cautious about economic conditions, we stated we were prepared to flex up to meet increased demand if markets improve more rapidly. Let me first provide an update on these 3 external forces. First, housing. During the first quarter, the signs of improvement in the U.S. housing market that began to emerge late last year continued. On our call in early February, I told you that we were basing our 2012 plans on 665,000 total U.S. housing starts, 445,000 single-family plus 210,000 multi-family. We considered this to be a conservative assumption, and I shared that we were planning cautiously given the uncertain economic environment as well as our experience in 2011. I said that once we were further along into the normal spring selling season, we would have a better idea what to expect for the year. So today is a good time for a status report. As we approach the end of April, we've seen continued improvement in U.S. housing. As a result, we have increased our forecast for U.S. starts by an additional 8% from 665,000 to 720,000. The forecast assumes 500,000 single-family and 220,000 multi-family starts. This would be nearly a 20% increase over 2011 levels. The increased sales activity experienced by WRECO and other builders during the first quarter does not have a significant effect on first quarter results for our businesses. This is due to the time lag between new orders, permits and then starts. The sales activity does, however, provide some indication of what we can expect for the balance of the year for our Timberlands, Wood Products and Real Estate segments. Second, Asian markets. In the fourth quarter, we reported slowing demand from China for logs. We anticipate a continued weakness in Chinese demand in the early part of 2012. However, we expected that the demand from Japan, by far our largest export market, would increase and it did. Third, we expressed concerns about softening pulp prices. We felt the effect of this softening in the first quarter. Today, softwood pulp index pricing appears to be stabilizing. Now let me provide some comments about the performance of each of our business segments during the quarter. In Timberlands, harvest volumes were up slightly in both the South and the West, despite some difficult weather conditions in the West. As expected, Chinese demand for logs slowed. Our export volumes shifted to a richer mix of logs to Japan where we have strong long-term presence, offsetting the decline in Chinese demand. In Wood Products, performance improved compared with last year and sequentially as compared with last quarter. We are seeing results from our ongoing improvement efforts across the entire segment. Sales volumes were up year-over-year and quarter-over-quarter. Much of our increased volume is coming from new market initiatives. These include sales and new geographies, increased lumber exports and increased repair and remodel sales. Later this year, we should begin to see increased volume for all product lines tied to the improved spring housing sales I mentioned earlier. Our volume increased resulted in higher operating rates across all product lines, a welcome and much needed improvement. Higher operating rates reduced per unit manufacturing costs and contribute to our improved profitability. Though we're still not where we want to be, the combination of these improvements narrowed our operating loss significantly compared with last quarter. In WRECO, closings for the first quarter were slightly lower than 1 year ago as a result of a lower backlog as we entered the year. As Kathy reported, margins for the quarter were lower primarily as a result of mix. Mix has affected by margin variability across markets by the relative share of closings from our respective markets and, in some cases, by the relative share of closings from attached and detached product. In the first quarter, we had a higher percentage of closings from lower margin and lower price markets, such as Phoenix, as compared with a higher margin and higher price markets of San Diego and Washington DC. As both a builder and land developer, the sale of land and lots through other builders is an integral part of our long-term strategy. On average, land sales represent about 10% of our revenue, but the timing of land and lot sales can be a bit uneven throughout the year, as Kathy noted in her comparison of land and lot sales in the first quarter versus the fourth quarter. Earlier this month, we successfully closed the sale of a master-planned community in Houston that Patty will discuss in a her outlook remarks. The positive news for WRECO and perhaps for the overall market is that our traffic is up, cancellations are down, and sales per community increased by 32%. The result was a 30% increase in first quarter sales over last year. Sales increases during the quarter were the strongest in Arizona, Las Vegas, Puget Sound and Houston, and weakest in Southern California. This increase in sales resulted in an encouraging increase in our backlog, up 27% compared with 1 year ago and up 80% from year end. In Cellulose Fibers, we expect a significant decline in earnings compared to the fourth quarter as a result of lower prices and expense-related to schedule annual maintenance shutdowns. During the quarter, our mills ran well and came up on time after our scheduled annual shutdowns. The shutdowns were successfully conducted with no recordable safety incidents. Some of the work accomplished during these scheduled shutdowns will help us move towards our goal of increasing the length of time between major shutdowns to 18 months rather than every 12 months. This transition will occur over a several year period. As we enter the second quarter, worldwide inventory levels have fallen to more normal levels, and prices are increasing. And now, I'll turn the call over to Patty to discuss second quarter outlook as well as provide financial highlights.

Thanks, Dan. And good morning, everybody. We expect improved operating results from each of our business segments in the second quarter as compared to the first. The outlook for the second quarter by business segment is summarized on Chart 11. I'll begin the outlook discussion with Timberlands. Beginning in the West, export volumes are expected to be flat to the first quarter with realizations softening only slightly. China markets are not anticipated to improve until the second half of this year. And Japan market realizations could be slightly lower in the second quarter due to ongoing competitive pressure from European supply, as a result of a weaker euro compared to the yen. Domestically, in the West, sales, volumes and prices should increase compared to the first quarter, resulting from a slight seasonal pickup in demand. We expect Western fee harvest volumes to increase approximately 5% to 10% compared to the first quarter. In the South, log realizations are anticipated to be flat, and fee harvest volumes are expected to increase approximately 5% as a result of seasonal demand. We anticipate a seasonal increase in silvicultural costs in both the West and South, and fuel costs are expected to remain high. Overall, we estimate that earnings in the Timberlands segment will be approximately 10% higher in the second quarter compared to the first. In Wood Products, we expect increased revenue in the second quarter compared to the first. Volumes are anticipated to increase approximately 10%. Average sales realizations in lumber are estimated to be approximately 5% higher. Realizations in our other product lines are mixed but could be somewhat softer in the second quarter compared to the first if the price trends of last year repeat, although OSB realizations thus far in the quarter are stronger than Q1. Overall log costs are expected to increase slightly during the quarter. Log costs in the West and Canada should be higher but modestly lower in the South. Manufacturing costs are estimated to be lower due to improved operating rates. Freight spending will increase due to higher shipment volumes and increased fuel costs. We expect continuing improvement in our operating results in the second quarter compared to the first quarter. We anticipate approximately breakeven performance for the second quarter. Given these expected results, Wood Products would generate around $30 million of EBITDA. While the performance in this segment is not yet where we expect it to be, breakeven is a significant improvement over the $53 million operating loss we incurred in the second quarter of 2011. In Cellulose Fibers, average sales realizations for pulp are anticipated to increase modestly in the second quarter compared to the first, due to improving market conditions and tightening supply. Worldwide inventory levels have decreased due to significant shipments to China and spring annual maintenance shut. As of the end of the first quarter, the supply of softwood inventories stood at a low of 29 days. Maintenance expense is estimated to increase in the second quarter due to some carryover expenses from the 2 mills, which had annual maintenance shut in the first quarter. In addition, we will have similar scheduled maintenance costs for the mills scheduled for their annual shut in the second quarter. Outages this year are slightly longer than typical in order to complete capital projects focused on cost reduction, and to position the mills to begin the process of transitioning to an 18-month frequency and planned maintenance outages as Dan mentioned. We expect overall earnings on our Cellulose Fibers segment to be approximately 10% higher in the second quarter compared to the first. Moving onto our Real Estate business. As Dan discussed, we continue to see slowly improving housing demand. Closings in our single-family homebuilding business are expected to improve by over 30% from 349 closings in the first quarter to approximately 460 in the second quarter. This increase reflects a normal seasonal pickup in addition to the slightly improved market. Average prices are estimated to decline approximately 4% due to mix, while gross margins are expected to increase slightly but remain under 20%. Selling expenses will increase with the additional closing volume. Earlier this month, we closed on the sale of a large land parcel in the Houston area, known as Cross Creek Ranch. The sales price for this transaction was $100 million, and it is expected to contribute about $10 million to earnings in the second quarter. Including the earnings from this sale, we expect that our Real Estate segment will generate a slight profit in the second quarter. Now I'll wrap up with some overall company financial comments. Please turn to Chart 12 for this discussion. We ended the quarter with a cash balance of almost $730 million. Cash from operations in the first quarter was negative $60 million. This reflects increased working capital of $148 million in our Forest Products businesses for the typical seasonal working capital build, primarily in our Wood Products and Timberland businesses. In addition, the first quarter included the cost of scheduled annual maintenance on our sale of Fibers business. The first quarter was also the seasonally weakest quarter of the year for our Real Estate business as compared to the fourth quarter, which is typically our strongest quarter for cash generation. Capital expenditures for the first quarter were $64 million. We expect spending to increase in the second quarter compared to the first. Major projects with second quarter spending include a pulp-converting facility in Poland, a fiber line upgrade in our pulp mill in Columbus, Mississippi, and an evaporator upgrade at our pulp mill in Grand Prairie, Alberta, Canada. We expect capital spending, including reforestation, to be around $290 million for the full year. Our near-term debt maturities for the next 5 years are also shown on Chart 12. As you can see, we have total maturities of approximately $610 million, well below our existing cash balance. In addition, we have a 4-year credit facility for $1 billion with no borrowings outstanding. We continue to focus on controlling costs across the company. This includes a relentless effort to lower our SG&A costs. As shown in our income statement, SG&A in the first quarter of last year was $172 million compared to $150 million this year, a reduction of $22 million. This emphasis on cost reduction should result in even greater leverage as we began to experience a housing recovery. Now I'll turn the call back to Dan, and I look forward to your questions. Dan?

Thanks, Patty. In summary, we're encouraged by our performance during the quarter. We continue to focus on improving our financial results with current market conditions. The performance of our Wood Products segment during the quarter is evidence of this progress. The increasing housing demand that we are now experiencing, if sustained, will give us the opportunity to flex up to meet profitable demand in our Timberlands, Wood Products and Real Estate segments by increasing harvest levels, wood products production and home construction. Continued firming of pulp pricing will position us for improving results from our Cellulose Fibers segment. We remain committed to safely improving our overall performance, and we're well positioned to take full advantage of opportunities that emerge from an improving market. And now we welcome your questions.

Nicole, would you please open the floor for questions?

[Operator Instructions] Your first question comes from the line of George Staphos with Bank of America Merrill Lynch.

My first question is around Chart 10 and WRECO. And it's encouraging to -- obviously, the lower cancellation rates, the buyer traffic picking up. The one interesting -- one of the interesting data points here is the price in your backlog, which has been trending lower. And I guess, my question here is how much of this is cyclical from what you see, Dan? Or are there any secular implications that we should take away from the declining price in the backlog that could impede the recover ultimately in WRECO and profitability when we finally see more and more closings and starts?

The primary reason for the decline in the price and backlog, George, is answered by mix. So as I mentioned in my remarks, we had mix issues across our various markets. We have higher-priced product, for instance, in San Diego and the Washington DC area, lower-priced product in places like Phoenix. And what we've seen over the last 3 to 6 months that is reflected in our backlog is a recovery in sales in some of those lower-priced markets, ahead of what we're longer term expecting to see coming from, let's say, Southern California. So we had a very significant increase in activity, for instance, in Arizona, not just in the last quarter but really going back probably 6 months. And Arizona generally is a lower-priced market. Those are lower margins. And so that's also impacting our margins. So it is more of a mix issue. We also had, for instance, in Washington DC, which is a higher-priced market, a period of time where we had a heavier shift to multi-family. So we're in some larger master-planned communities. And for example, in some of those master plans, we have a requirement to build affordable housing as part of the entitlement process, those are lower-priced units. And so that would affect both the margin that you see falling as well as sale price. So it is more a function of where the homes are. And for instance in some markets, we are beginning to be able to pass through price increases. So I think that most of the price decline due to the softness of the market is behind us, and there'll be some choppiness as mix shifts as we come out of this. And we'll try to keep you informed, so that there's no surprises.

Okay. The related question, and I have one last follow-on. Would it be fair to say then, given the ultimate lag in trend and materializing your performance, the recent improvement in pricing that you could see single-family margins more or less close to where they were last year in the back half, should we ultimately get to better than breakeven, better than marginal loss in WRECO in the second half in single-family? And then the second question I had, totally different topic in terms of Cellulose Fibers. Relative to the rest of your portfolio and what you're trying to build within Weyerhaeuser, because obviously you've done a great job of improving your returns here, but it still remains a very cyclical and capital-intensive business from where you sit right now, why you think that Cellulose Fibers is still a good business to maintain the portfolio for Weyerhaeuser for your shareholders?

To your question of WRECO in the balance of the year, yes, we will return to profitability. What happens in the first quarter is that it is our lowest quarter for closings. And so we end up in a loss position fundamentally because of G&A. And as the volume picks up through the year, then you'll see those break into profitability. As Patty mentioned, we expect to be profitable in the second quarter. And then through the balance of the year, we'll be delivering the homes that we have sold earlier in the year, so we'll have the margins from those sales come through the P&L. So we would certainly expect that to recover. In terms of what the margins may be in the balance of the year, we had good visibility today for second quarter margins. It gets a little bit fuzzier as we look at third and fourth quarter because we -- some of the closings that will occur in third and fourth quarter will be from sales that we haven't even entered into yet. With respect to Cellulose Fibers in your portfolio question, we believe that the Cellulose Fibers business is a good fit for our portfolio. We are a strong competitor in the fluff business in particular, where we have very strong relationships with growing global customers. What the Cellulose Fibers business does for us is it gives us really terrific global exposure because about roughly 2/3 of our sales are for customers outside of the U.S. And so we believe long-term trends or demand for fluff are very positive. And the relationships that we are building with our customers that are growing give us confidence that we will be able to maintain profitability and grow with them. Patty mentioned when she was talking about projects that we're spending money on this year in our CapEx, the Poland facility, so that's a conversion facility that will give us increased product to sell to key global customer as they expand into Europe and North Africa. And we believe that we're a strong competitor in that business, and it's a good fit for us.

Your next question comes from the line of Gail Glazerman with UBS.

I guess just to start, can you talk a little bit more about the West Coast export markets, and I guess just the level of trend, was it getting worse as you moved through the first quarter? Or was it picking up in terms of, I guess, the Chinese market particularly? And are there any sort of numbers you can put to it in terms of the change in your export volume to China?

You were breaking up at the very end of your question, Gail. Could I just ask you to -- sorry.

Sure. Are there any numbers that you can -- the last part was, are there any numbers you can put to in terms of the change in your volume to China either year-over-year or sequentially, and just generally give a context on what the trends were like moving through the quarter and to the second quarter?

So our overall export volumes were slightly off in the first quarter as compared to the fourth quarter. That's fundamentally a China statement. As I mentioned, we had a significant slowdown in exports to China starting in the fourth quarter continuing into the first quarter, and that caused a shift in mix. So in very round numbers, that 80% of our export volume went to Japan, 10% Korea, slightly more than 10% going to China. Now we go back to the fourth quarter, those numbers were sort of mid-60s for Japan. China had actually grown to be 25% of our export volumes. So we are returning to more typical mix. Our long-term market continues to be Japan. Those are higher quality logs. That's our most valuable resource that we're exporting off of the West Coast, and we see that demand continuing to be steady. And it has been growing. We are well positioned to sell into the China market as we did last year, because of the location of our lands and the advantage facilities that we had to ship off the West Coast. So longer term, we continue to expect the export to be a significant part of our activity. Off the West Coast, Japan will continue to be our major market, but we will take advantage of opportunities to serve longer-term customers in Korea, to build market share in China and also to take advantage of opportunities that are beginning to emerge in some other export markets beyond those big 3.

Yes, Gail, to your specific question about -- in the first quarter, we saw coming out of the fourth quarter a lot of inventory in China and into the first quarter, and some of that was also due to some of the Chinese government policy, which we are starting to see some signs of monetary easing by the Chinese government. So that's encouraging. In terms of the impact going into the second quarter, we don't see a lot of pickup, but we see some of that inventory being worked off. So that's why in my comments, I focused primarily on the second half of the year in terms of the resurgence of Chinese demand. We don't see a lot of that impact of it happening in the second quarter, but rather that inventory continue to be worked down.

Okay. Would these comments hold generally for the lumber exports? I think you have some exposure to that out of Canada going into China. And if so, is there any risk, or are you seeing signs of some of that being repatriated?

I'm sorry, I'm going to have to ask you to ask that question one more time.

Sure. I mean, do those comments hold for lumber as well? And if so, are you seeing any signs of volumes that might have gone to China previously kind of being repatriated in North America?

Well, we've been -- we have been shipping some lumber to China out of Canada. And actually, on a year-over-year basis, our export volume to China out of Canada roughly doubled. They have, as you know, the wood that goes to China is used for industrial purposes, concrete forms and packing and crating, at least as it relates to softwood. So the Chinese government did impose, try to control to try to slow down growth, to try to slow down some real estate development. We would expect that activity to start to recover. We will continue to take advantage of that opportunity as it exists. In our lumber business, out of Canada, once again our primary customer is -- has been Japan. And that's a higher quality wood than is going to China. But we'll take advantage of the opportunities as they present themselves. We are -- in our Wood Products business, we are exporting lumber. We are also starting to export some amount of OSB and engineered products into Asia also.

Yes, Gail, I really think as it relates to our lumber exports, as Dan said, similar to logs. Japan is a much more important market for us because most of our lumber production comes out of Alberta. It's not as affected by the beetle damaged wood as some of the other producers. So we produce and export more to Japan of a higher J-grade than probably other producers that you might be hearing from.

Okay. And then just 2 quick ones. The guidance for Timberlands in the second quarter, does that include land sales, or would land sales be additive or subtractive to that?

We don't forecast land sales because they are lumpy. But I can tell you based upon what we see right now that we wouldn't see a big difference in the second quarter compared to the first. But as we've talked about in the past, that can move around. But as we sit here today, it doesn't make a big difference quarter-over-quarter.

Okay. And Patty, is there any guidance for the unallocated items? I think in the past, you talked about maybe $80 million for the year. You're well below that in the first quarter. Would you expect that to normalize, or is there any change structurally there?

Well, what we tried to do on the Chart 13 was really give you what makes up that. So as you think about walking down that chart, the unallocated corporate functional expenses, I wouldn't see that changing significantly throughout the year in terms of the quarter impact. The unallocated share-based comp does move around because that's tied to, for the most part, the volatility in our stock price. Pension and postretirement costs, probably pretty stable. Foreign exchange gains, that's the result of changes in primarily the Canadian dollar on our intercompany borrowings. So those would be the primary items as you think about. So as the foreign exchange Canadian dollar, if that moves around, that will impact that number. Just roughly, I would say, probably $0.01 change makes about a $3 million-ish, give or take. And it's also a function of the currency fluctuation as well as the level of borrowings inter-company, how that goes on through year-to-year or quarter-to-quarter. And then on share-based comp, probably about $1 movement in the stock price is roughly $1.5 million to $2 million, so maybe that will help you to calibrate throughout the quarter.

Okay. And just that other segment, because that was a pretty swing quarter-on-quarter for the year?

Yes. That's just really made up of a bunch of little things. There's a whole list. That's why wouldn't call out anything separately there. Other is a bunch of $1 million or $2 million kind of unique items quarter-over-quarter.

Okay. But would -- is the fourth quarter kind of a more normal number, or is it just completely random?

It's kind of random, I would say. It's probably somewhere between that $2 million and $7 million number.

Your next question comes from the line of Mark Connelly with CLSA. Kurt Schoen - Credit Agricole Securities (USA) Inc., Research Division: This is Kurt Schoen filling in for Mark. So you noted earlier that there was a pickup in the lower-priced housing market which, I guess, also happened to be the hardest hit market. Given your heavy exposure there, do you expect your housing segment to recover quicker than the overall industry? And will this dynamic alter your allocation of resources or strategy going forward?

I don't expect that it changes our strategy long term. So what we're seeing is, housing is a regional business. And we do have different value propositions in each market. I talked about the recovery in demand, particularly in Arizona. That happens to be a market that has good positive employment growth. I think on the last call, I noted that last year, there were nearly 100,000 housing transactions in the Phoenix market. So that market seems to have recovered just as we're starting to see some recovery in Florida. We're not an active builder there, but investors have come in and picked up excess inventory, and so the market is now starting to recover. So the lower-priced markets where we operate, Phoenix, we're seeing strong recovery. I noted Las Vegas in my comments. Las Vegas is coming off a rare variable base, but we did see a pickup on a year-over-year basis. Sales in Las Vegas [indiscernible] transactions are starting to occur. We had 2 new openings in Las Vegas, actually higher-priced product that sold very well. So it's not simply people that are looking for foreclosed homes that are buying homes. The markets are starting to recover. So I don't expect our strategy to change in any of our given markets. We will allocate capital in order to provide lots to be able to build those homes, part of that working basis. But I don't see any significant shift longer term for us in our value propositions in markets or in the longer term mixed results.

Your next question comes from the line of Mark Wilde with Deutsche Bank.

Just curious, Dan and Patty, as you think about sort of a housing upturn and how it will affect your different Wood Products businesses, can you help us think about sort of where you think you have the greatest leverage to increase volumes in Wood Products?

Yes. So our primary products in our Wood Products business are lumber and OSB and engineered wood products, which we split between our TJIs in our solid sections. Lumber has throughout the cycle maintained a somewhat higher operating rate because there are multiple outlets for lumber. As we see the market pick up for housing, you would expect to see lumber pick up along with the appropriate level of starts. OSB is a product that is more heavily weighted to new construction, but we have some industrial uses, and we have been expanding our activity in the R&R market. So as you see a pickup in activity, that should translate very quickly into OSB. That has had a somewhat lower operating rate than lumber because we've had fewer outlets for that product. In the engineered business or TJIs in solid sections, that's fundamentally a new construction product, either for single-family or multi-family. And so that probably has the most significant, immediate impact as the activity picks up either for singles or multis. That product goes into both, and so we have the most leverage on the upside coming from that business because we've got the lowest operating rates today, Mark, in that product line. And then there are -- there's still an issue out there as to the mix between singles and multis, and what the appropriate square footages are for each of those. But I think the most significant upside in those 3 product lines and a pickup in housing would be seen in the Engineered business because we've got the lowest operating rates, and so much more ability to increase production there. But you'll see it in all product lines.

Okay, all right. Maybe when you're out here, it would be -- I would like to get a little update on sort of what your building products distribution business looks like right now because I know you've made a lot of changes. A couple of other questions for today, though. Can you give us, Dan, just a sort of a rule of thumb in your Real Estate business about sort of profit that you make from homebuilding, versus profit that you make from the gain on the underlying land?

I can't do that because it varies by market and by project. And let me give you an example, Mark. And probably the 2 extremes would be Houston, Texas, where historically we have purchased auctioned lots from land developers. So fundamentally, the primary profit and margin that you see in Houston comes from homebuilding. We do, as you know, have some land development activity down there, but roughly 2/3 of our homes in Houston are built on lots that we purchased from others. The other extreme would be San Diego, where we've got a long land position in a market that is very difficult to obtain entitlements. And that's the nature of why we have a longer land position there. And so the margins that come from our San Diego homes are a lot higher and clearly, there's a significant component of that, that relates to the land. But I can't give you a rule of thumb across all markets because every market is different. And quite frankly, every project has some unique history to it as to who owned the land and how long it was owned and whether it was ours or someone else's.

Okay. And then the last question I had, Dan, was just on sort of offshore Timberlands. I noticed the pricing continues to be pretty low down there in Uruguay. I'm just curious as to whether that's because that's kind of timber that doesn't have a whole lot of outlets right now. And then I'm also interested in whether you want to expand offshore timber, whether it's more in South America or more maybe over in Asia.

Our offshore timber is really located in 2 markets. As you know, Uruguay is our largest position. We have roughly 345,000 acres. And then we've got a small joint venture in Fujian province in Southern China. That's about a 50,000-acre partnership. We are growing out the timberland in Uruguay. We started with rings land and planted it. It is now moving to a stage of harvest maturity. We're growing primarily to a soft timber regime in that market. We have one manufacturing facility, it's a plywood mill that we built where we are producing plywood. And I think it's an area of the world. Quite frankly, it could use some more conversion facilities in order to monetize the timber that is growing there. So we're well situated with our plywood mill. We've seen some improvement in performance out of that. That mill originally was built with the thought that the market would primarily be South Eastern U.S. And it just turned out because of the U.S. housing downturn, most of that product is being sold throughout South America and increasingly Mexico, with some outlet into Europe for higher-grade tropical panel replacement. So that's all the color that I can add. At this point in terms of expanding Timberlands ownership, our focus is, is U.S., it's not global for a variety of reasons. We know the U.S. the best, and U.S. is one of the few markets in the world where you can own the fee, which is important.

Next question?

Your next question comes from the line of Chip Dillon with Vertical Research.

When you look at the progression of Southern fee harvest levels, they just go up, and you mentioned they're going to go up again in the second quarter. But I just noticed they went up every quarter last year and further in the first quarter. And I know obviously from years past, you've talked about having greater ability or greater growth that you would harvest in the future. But it's up, I guess, roughly 25% year-over-year and with more to come. I would like to know sort of what's driving that, and sort of how we should think about the harvest there going forward.

We have -- prices have been relatively steady in that marketplace. We made a conscious decision, Chip, to increase the amount of third-party sales. So that was a market where historically most of the logs went to our own mills. We felt that we needed and wanted some diversification, and so we've consciously increased sales to third parties. They're roughly 20% to 25% of our Southern harvest. And then this year with the increasing lumber prices and some recovery in U.S. housing, we are flowing more of those logs to our own conversion facilities to take advantage of the increased activity or increased prices in lumber. So it's been a conscious decision on our part to increase harvest because we have profitable outlets for the logs.

Got you. And secondly, on just the tax rate. If you, your forecast is sort of, as you've given us the numbers, is roughly correct, and maybe you mentioned this and I missed it, what should the tax rate be in the quarter, and what would be your sort of range that you would use for the year? And I know it's a moving part based on how much Timberland contributes, but is there any kind of rule of thumb you can give us?

Sure, Chip. Let me maybe walk through a couple of things that could help you as you go forward. So as you mentioned, it is sensitive to the mix of REIT income versus TRS income and, of course, we don't provide for any tax, corporate tax on the REIT income. So as you think about the TRS income, which is primarily the income from our manufacturing businesses, Cellulose Fibers, Wood Products and our WRECO subsidiary. But also remember that the interest expense is at the TRS as well. So as we look forward for this year for the rate on the TRS results, we are looking at an effective rate of about 25%. And if you look at the first quarter, and now these are just broad rules of thumb, but if you looked at the first quarter and said take the contribution to pretax earnings and exclude the special items and then take away the Timberland earnings and take away the interest expense, you'd get a TRS loss of about $83 million. And then again if you exclude out of the tax benefit the impact of the special items, which you can get from Chart 2 in the package, you'll get about a 25% rate for the first quarter, and we would see that 25% rate being the effective rate for the year, again, depending upon what the ultimate mix of income is. That 25% is lower than what the U.S. statutory rate is because of the mix of U.S. versus non-U.S. earnings.

And I guess, if I heard you correctly, you would -- basically the REIT income, the Timberland segment income is fully nontaxable, in another words, all of the expenses whether it'd be unallocated or interest will be almost all allocated to the TRS.

Yes. So all of the interest expense is at the TRS. As it relates to Timberland results, there are pieces in both, but most of the Timberland income is at the REIT level. So if just as a broad rule of thumb, if you take the Timberland income away, you get pretty close.

Got you. So there should be probably no tax expense in the next quarter then?

Well, there won't be any cash taxes if that's what you mean. Next question?

Your next question comes from the line of Anthony Pettinari with Citi.

Just a follow-up to Gail's question on China. Understanding that we've seen slow activity in the first quarter and you expect some pickup in the second half of the year, when you look at kind of the full year 2012, would you expect Chinese log and lumber imports to be kind of up year-over-year or down or sort of roughly flattish, or how should we think about that?

At this point, I don't think we have enough visibility, Anthony, regarding the second half. All of our intelligence suggest that it should be picking up the second half. 2011 was such a strong year in terms of exports to China. I would be surprised if our volume would for the full year be equivalent to what it was in 2011, but I really can't speculate.

Okay. Okay, that's helpful. And you talked about other export markets are cultivating markets outside of Japan, China, Korea. Can you talk a little bit about that or give us some color there? I know that some of your competitors have maybe talked about exporting out of the South into the Mediterranean and the Middle East. Do you have plans there, or is there any kind of opportunity that you can give us details on?

I don't have specifics that would provide a lot of guidance for you. We are exploring opportunities for other markets in Asia, both off the West Coast and to some extent out of the South. We are engaged in some initial activity and shipments into the Mediterranean from the U.S. South, and not only for logs but limited extent to lumber. And so we are exploring opportunities both in the West and the South. We've never been really an exporter out of the South. We're very limited, but we are finding some opportunity given that we are growing high-quality sawlogs, and Southern yellow pine and given the size and the nature of the "clear" wood in those logs, they become attractive for some other markets, and so not enough specific to give you much help but we are in fact -- got some pilot activity both other countries in Asia as well as in Europe.

Next question?

Your next question comes from the line of Steve Chercover with D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: A couple of quick questions. First of all, I appreciate the color on China log volumes. Do you have a longer-term view on the opportunity? Could it be a 10-billion square foot or sorry -- yes, board foot market on a sustainable basis maybe in 5 years or so?

I can't speculate. We do see growing demand. They have -- if you just look at their GDP, they are going to need fiber for a lot of purposes. The big breakthrough for China would be if we started to see some increased activity in wood frame construction. Canadian Wood Products Council has been leading that initiative for some period of time, and that will be very significant if that were to occur. We expect the activity to increase over time. They also pull logs from New Zealand. Russia, we talked about a lot, it's a question. But the West Coast is very well situated to supply China. And we would expect that given the growth over time, it'll become a more significant market for all of us in North America. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. And then switching gears, it occurs to me that multi-family residential is going to lead the housing recovery not just because of government mandates. So are you in a position to build multi-family yourself, or do you sell the land to builders with more expertise in that area?

Multi-family is a broad category, so it captures attached housing generally, some of which is for sale and some of which is rental. So we build a limited amount of multi-family in primarily townhouse structures. We've always been active in the Washington DC market, for instance. In Maryland and Virginia, we build townhomes. And we have the ability to build multi-family. We've done it in the past. We are not an apartment developer, but we have the ability and have in the past built for sale attached housing that would be low rise. Generally, when we have land in a master-planned community with multi-family, we sell it to a multi-family developer. And so when we report land sales in some cases we had some last year, we're selling to apartment developers. For our business model, we prefer for sale housing rather than rental. And so it would be a significant change for us to jump into that business. Actually, I'm more bullish on single-family starting to show some recovery. Steven Chercover - D.A. Davidson & Co., Research Division: I hope you're right. And then, final quickie. You referred to TJIs a couple times, Dan, as opposed to iLevel. So is this a reversal in the brand strategy, or you're just calling them what the market calls them?

That's a strategy that we reversed last year. So we had been going to market under the umbrella of iLevel for all of our Wood Products. And last year, we made a determination to revert to our strongest brand, which is Weyerhaeuser and the Trus Joist brand. In the marketplace, everyone calls them TJI's units, they're not ours probably. It is a -- we got the leading brand in the business, and we're building on that and taking advantage of it. So we're going to market under the Weyerhaeuser name and under the Trus Joist name because we believe that's our strength and that's the reputation, and quite frankly, our customers tell us that, that's what they prefer. Steven Chercover - D.A. Davidson & Co., Research Division: I think that's true. I think TJIs are like Kleenex and Xerox. That's what people call them.

Next question?

Your next question comes from the line of Mark Weintraub with Buckingham Research.

Pulp maintenance expense, if you could just tell us what it was in the first quarter. And I think you said it'd fairly similar in the second quarter, and then does it pretty much go away in the third, fourth quarters for this year?

We'll have a similar amount of maintenance in terms of costs compared to the first quarter with the exception of a couple of the mills, one which had in their maintenance shut that carried over into the second quarter for a day or 2. And then one of our mills were actually finishing up some power boiler expense, so the mill is up and running, but we're finishing up some maintenance there. So I would expect that quarter-over-quarter, we'll be up in maintenance somewhere around $5 million to $10 million, probably closer to $5 million when you look at quarter-over-quarter. In terms of the total maintenance in the first quarter for Cellulose Fibers, I think we were somewhere around low 20s for maintenance costs. And then you have to add on top of that the lost productivity, some a little bit of additional chemicals, et cetera. I don't have the exact number for that, Mark.

Okay. And does that -- do you have any maintenance schedule for the second half of the year?

Yes. We'll have a similar amount of maintenance in the second quarter, and we had 2 mills down in the first, so about similar in the second quarter to the first quarter. So we'll have some maintenance, but it'll be much less in the second half. Most of it will be done in the first half.

Your next question comes from line of Joshua Barber with Stifel, Nicolaus. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Can you talk a little bit more about your pulp mill capital projects to get the maintenance downtime a little bit more extended? I know you said that was the reason for some more prolonged shutdowns this year. Is that actually anticipated to be completed by the end of the year, and 2013 will have that extended maintenance schedule? Or is that more of a 2014 event?

The transition to that extended schedule will take place over likely a 2- to 3-year period. The scheduled annual maintenance that we have today is not focused on that transition. It is normal maintenance that we need to do for the safety and longevity of our equipment. But we are taking advantage of those annual shutdowns in order to make some incremental changes and improvements that would allow us to accomplish this transition, so it will be a 2- to 3-year period. Joshua A. Barber - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And you mentioned in your prepared comments that you had seen volumes picking up in Japan might be a little bit weaker in the second quarter. Was that just Japanese economy get a little bit better, or is that a post-earthquake rebuild, or maybe some combination of the 2?

Well, as it relates to what's happening in Japan, we saw an increasing amount of activity late in the year and first quarter was relatively steady. We expect Japan to maintain, perhaps pick up a bit. We're not seeing any significant earthquake rebuild activity that's driving increased volumes. Some of that may be happening, but it's not obvious to us. We anticipated that the rebuild would take some period of time because of the need to initially rebuild infrastructure. The initial response in Japan was focused on temporary housing. That's been accomplished. That was mostly modular. And there was -- some amount of wood product involved in that but not significant amounts. The areas that were most hard hit by the tsunami and the earthquake were rural and not have heavily populated. And so most of the rebuild activity will be longer term. And we expect not to see anything like we did, Josh, in response to the Kobe earthquake, which was a heavily urbanized area, and a lot of rebuilding had to take place over the 2- to 3-year period. So I'm sure it had some incremental volume over time, but it's not terribly significant.

Josh, just to be clear in terms of the second quarter outlook, we said that volumes would be pretty much flat. It's just the realizations we said that might soften somewhat, and that's really more of a currency statement in terms of competitive pressure from European supply because of the weaker euro. So our volumes to Japan should be very stable in second quarter.

We have time for one more question.

Your next question comes from the line of Paul Quinn with RBC Capital Markets.

Just a follow-up on the earlier question on price declines in your backlogs of WRECO. That's sort of consistent with sort of smaller home sizing and lower percentage of single-family houses and sort of, I guess, less bells and whistles on houses overall. The question is, do you see that as a cyclical or a structural shift to the market?

The mix shift that we're seeing is primarily related to geography, Paul. We've been through a period where over the last 2 to 3 years, we had some decline in square footage, and certainly a lot of the upgrades had disappeared from these homes. But interestingly, in a market-by-market basis, we're seeing some increased activity in higher-priced homes. So in Phoenix where we've had terrific sales, we are not a first-time buyer of product there. We sell second -- first-time move-up, second-time move-up. In the Puget Sound area, our Quadrant operation has actually moved its price point up and is providing really a higher quality, more amenitized house than they were 4 or 5 years ago. Our most recent openings in Las Vegas have been higher-priced homes, 4-car garage, price range $350,000 to $400,000, plus or minus. So that's not to say that's happening everywhere but in our own mix, the primary factor ends up being where that house is, and where the sales are occurring as we start to look at the relative percentage of where our sales are coming from or where the closings are coming from in any one period. We've seen that shift and so, plus or minus 5% of total closings. We saw on a quarter-over-quarter basis, a percentage of our closings dropped 5% in San Diego, went up 5% in Phoenix. And those kinds of shifts will be enough to throw off the weighted average of either margin or price. So it gets a little bit complicated to have a broadbrush explanation for what's going on. We are not seeing a rush to the bottom in terms of price or removing amenities. In fact, I think what's happening now is there had been a lot of foreclosed houses on the market. People that are coming into new home sales offices are looking for a home that is more customized, that probably has more features and it meets their needs much more closely than buying -- trying to buy a foreclosed house either from a bank or in an auction. And we view that as being very positive.

Well, pretty interesting answer. Just last question on Japan housing in your leverage there. If I take a look at housing stats, they're sort of down 8.1% annually over the last 5 years. Wooden has held up a lot better, down 3.5%. Are you guys taking market share with your sort of growing export to Japan?

Can you restate the question? I don't think I understood.

If I look at Japanese housing starts, I see a downtrend over the last 5 years. I would say wooden starts has held up a lot better. Your business seems to be holding pretty steady that suggests that you're taking market share. Have I got that right?

I believe our customers are taking market share.

As you think about who we export to, Paul, we're exporting. Most of our product is export of logs and certainly, our customers in Japan especially our largest customer's taking market share.

Okay, let me just provide one minute of wrap-up comments here. I want to thank everybody for your questions and your comments. Patty mentioned that we have our New York Analyst Meeting coming up. It's just less than 2 weeks away, and so we hope that we'll see you there. If you have questions following this call, I encourage you to follow up with Kathy. And finally, I thank all of you for taking the time to join us this morning and for your continued interest in Weyerhaeuser Company.

Thank you.

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