Weyerhaeuser Company (WY) Q3 2014 Earnings Report, Transcript and Summary

Good morning. My name is Brent, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Third Quarter 2014 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Denise Merle, Senior Vice President of Human Resources and Investor Relations. Please go ahead.

Thank you, Brent. Good morning, everyone, and thank you for joining us today to discuss Weyerhaeuser's third quarter 2014 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. 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 the conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in earnings materials on our website. On the call with me this morning are Doyle Simons, Chief Executive Officer; Patty Bedient, Chief Financial Officer; and Beth Baum, Director of Investor Relations. I will now turn the call over to Doyle Simons.

Thank you, Denise. Welcome, everyone, and Happy Halloween. This morning, we reported strong third quarter results in each of our businesses as our employees continue to drive sustainable performance improvements through relentless execution of our operational excellence initiatives. Net earnings for the quarter totaled approximately $1.15 billion or $2.15 per diluted share on net sales from continuing operations of $1.9 billion. This includes a gain of approximately $970 million related to the July 7 divestiture of Weyerhaeuser Real Estate Company. Excluding discontinued operations and special items, we earned $178 million or $0.33 per diluted share, an increase of almost 31% compared with the year-ago quarter. Special items for the third quarter included an ongoing gain from a change to a post-retirement health plan and restructuring charges associated with our SG&A cost reductions. I will begin the discussion of our business results with some brief comments about market conditions. Housing starts continued to improve in the third quarter but at a measured pace. We now anticipate approximately 1 million housing starts for 2014. We are confident that housing markets will continue to strengthen, supported by employment growth and increasing consumer confidence. We are also encouraged by changes recently proposed by the Federal Housing Finance Agency that would improve mortgage credit availability. Looking forward to 2015, our outlook is in line with consensus forecasts, which anticipate 1.1 million to 1.2 million housing starts and an accelerated single-family recovery. Let me now turn to our business segments, starting with Timberlands, Charts 3 to 5. Timberlands contributed $136 million to third quarter earnings compared with $170 million in the second quarter. In the West, fee harvest volumes declined as we intentionally accelerated harvest during early 2014 in anticipation of lower price realizations in the third quarter. Realization for Western logs declined due to the normal -- due to normal seasonal increases in domestic supply and softer Asian markets. Inventories at Chinese ports, although down from their peak, are still elevated and takeaway remains below normal levels. Sales volumes to Japan increased due to timing of shipments. Our Longview Timber acquisition contributed $36 million of EBITDA in the third quarter and remains on track to achieve our 2014 target of $175 million to $185 million of EBITDA. In the South, fee harvest volumes increased due to improved weather conditions. Average realizations for southern logs rose slightly compared with the second quarter. Third quarter earnings included $19 million from disposition of nonstrategic timberlands, a decrease of $5 million compared with second quarter. Operational excellence initiatives to optimize truck scheduling, road construction and maintenance and silviculture practices contributed to Timberlands' strong performance in the quarter. Wood Products, Charts 6 and 7. Wood Products earned $105 million in the third quarter, a slight improvement compared with the second quarter. EBITDA increased to $135 million. In lumber, EBITDA improved by $8 million compared with the second quarter. Average price realizations improved approximately 1% as higher realizations for narrow lumber were partially offset by lower prices for wide dimension lumber. Log cost for our western mills declined and operating rates fell slightly. This business continues to implement operational excellence initiatives focused on reducing manufacturing cost net of logs. In OSB, EBITDA decreased by $3 million compared with second quarter as a decline in average realizations was partially offset by lower manufacturing cost. This business remains focused on lowering cost, improving operating reliability and increasing sales of higher-value products. Engineered wood products reported third quarter EBITDA of $27 million, a slight decrease compared with second quarter. Average sales realizations improved for solid section products in TJI joists as we captured the value of our announced second quarter price increase and benefited from a favorable sales mix. These improvements were offset by lower sales volumes across most product lines as second quarter included prebuying in advance of the price increase and customers managed inventories tightly during the third quarter. The distribution business reported EBITDA of $5 million in the third quarter, an improvement of $2 million. This business remains focused on improving margins and lowering costs. Our engineered wood products and distribution businesses continued to make strong progress against their operational excellence targets, and we remain confident that both of these businesses will improve EBITDA by $30 million to $40 million in 2014 compared with 2013. Cellulose Fibers, Charts 8 and 9. Cellulose Fibers contributed $59 million to earnings, down from $91 million in the second quarter. Fluff pulp markets remained strong through the third quarter, and average realizations for pulp and liquid packaging board increased. This was offset by substantially higher maintenance costs due to a scheduled increase in maintenance outage days within the pulp mill system and an extended planned outage at our liquid packaging board facility. Our liquid packaging board facility restarted in early October and is running well following the safe and successful completion of several maintenance and capital projects. The Cellulose Fibers business continues to demonstrate excellent offer -- excellent operational performance. Let me now switch gears briefly to SG&A and other matters. Our SG&A initiative remains on track, and I am highly confident we will achieve our $70 million run-rate reduction target by year-end. On August 13, our Board of Directors approved a 32% increase in our quarterly dividend and authorized a $700 million share repurchase program. During the third quarter, we repurchased nearly 19% of that authorization. Our foremost priority for capital allocation is returning cash to shareholders, and these actions demonstrate that commitment. Also in August, we announced we will move our corporate headquarters from Federal Way, Washington, to Seattle. We expect the move to occur in mid- to late 2016, when construction of our new leased building will be complete. Although our existing campus has served us very well over the years, it is too large and too costly for our current needs. Our move to Seattle is an important step forward and will help position Weyerhaeuser for future success. I will now turn it over to Patty to discuss our fourth quarter outlook.

Thanks, Doyle, and good morning, everybody. The outlook for the fourth quarter is on Chart 11. I will begin my comments with Timberlands. Starting with log exports in the West. Log inventories at Chinese ports are still at elevated levels, which will likely result in somewhat lower sales volumes to China this quarter. We also expect lower sales volumes to Japan, primarily as a result of timing of shipments, and realization for our Japanese exports are expected to increase modestly due to mix. Sales realizations for domestic logs in the West are expected to increase compared to the third quarter. In the South, we anticipate volumes will increase slightly with flat pricing. Silviculture costs are expected to increase seasonally. Earnings from nonstrategic Timberlands sales and miscellaneous items are anticipated to be approximately $15 million lower in Q4 compared to Q3, primarily as a result of timing. Excluding these items, we expect fourth quarter earnings in our Timberlands segment to be comparable to the third quarter. In our Wood Products segment, the fourth quarter is the seasonally weakest quarter of the year. Because of the seasonal slowdown, we expect lower sales volumes across all product lines. Average sales realizations for both lumber and OSB are expected to weaken relative to the third quarter. Log costs are anticipated to increase somewhat with seasonal inventory build and weather-related restrictions. Production volumes in the fourth quarter will decrease due to the holiday season and scheduled downtime to complete maintenance and capital projects. This downtime will result in higher per-unit manufacturing costs. Consistent with the normal seasonal pattern, we expect fourth quarter earnings in our Wood Products segment to be lower than the third quarter, and likely comparable to the fourth quarter of last year. Moving on to Cellulose Fibers. Worldwide inventories for softwood pulp at the end of the third quarter were at 27 days, slightly below normal levels. Demand for our products continues to be strong, especially for our fluff pulp, and we expect mostly -- pricing to be stable in the fourth quarter. Sales realizations for liquid packaging board are expected to be somewhat lower due to grade mix, and fiber costs are expected to be higher. Total maintenance expense for the segment will be much lower in the fourth quarter compared to the third quarter. As I discussed on our last quarter call, we had an extended planned shutdown at our Longview operation during the third quarter for maintenance and installation of capital equipment. We had a very successful startup of the mill, which was completed during the first week of this month. The mill is running well, and customer response has been very positive. During the fourth quarter, we planned only one mill down for maintenance. That shutdown was completed earlier this month, and that mill is also back up and running well. We expect earnings on our Cellulose Fibers segment to be significantly higher in the fourth quarter compared to the third. Now I'll wrap up with some overall financial comments. As shown on Chart 12, during the third quarter, we invested approximately $112 million in capital expenditures in our businesses. This brings our year-to-date expenditures through the third quarter to $271 million, and we still estimate total expenditures for the year, including reforestation, to be approximately $400 million. As reported earlier, we completed the divestiture of our home building business in early July. As a result of the transaction, we retired approximately 59 million shares of our common stock and received cash proceeds of over $700 million during the third quarter. These proceeds, combined with strong cash flow from operations during the quarter, resulted in a cash balance of approximately $1.6 billion as of the end of the third quarter. Chart 13 details significant actions we are taking to deliver on our commitment to return cash to shareholders. In August, the board increased our quarterly cash dividend by 32% to $0.29 per share or $1.16 on an annual basis. Based on the closing stock price at the end of the third quarter, that equates to a 3.6% yield. In August, the board also authorized a $700 million share repurchase program. During the third quarter, we repurchased approximately 4 million shares, using approximately $130 million, at an average price of $33.63. As a result of the WRECO divestiture and of the share repurchase program, we reduced our outstanding share count during the quarter by over 10%. Now I'll turn the call back to Doyle.

Thank you, Patty. As many of you have heard me say over the past few months, we are relentlessly focused on performance and capital allocation to grow shareholder value. The pace with which we have begun to execute our share repurchase program illustrates our commitment to disciplined capital allocation. Through our operational excellence initiatives, we remain focused on driving performance to sustainably grow earnings and cash flow and deliver additional value to our shareholders. And now I'd like to open it up for questions.

[Operator Instructions] Your first question comes from the line of Anthony Pettinari with Citi.

Just a question on Wood Products. If I look year-to-date, it seems like your third-party sales volumes in lumber and OSB are sort of flat with the first 3 quarters of 2013. And if I think that housing starts are growing, and maybe your operating rates are in the low 90s and you have maybe some room to ratchet them up, is there a reason that your volumes in lumber specifically aren't up more year-over-year? And by that same token, if we do 1.1 million to 1.2 million starts next year, would you expect your volumes to be up in 2015 by a decent amount?

Anthony, as we look at our volumes for lumber, I think, year-to-date -- based on year-to-date, we were pretty flat, as you said. But I think that the third quarter, we probably produced a little bit less than what we thought we would. And as we look at 2015, I think that we have the ability to increase with the market, which, as Doyle said, we don't have a real robust outlook for housing starts, although they will continue to improve as we move forward.

Okay. Okay. And then, Doyle, last week, one of your competitors in fluff pulp said it was exploring the possibility of putting their mill system in an MLP structure. And I was wondering, obviously, Weyerhaeuser's a REIT, and the Cellulose Fiber's business is in a TRS. But is the MLP angle something that you've looked at? Or do you have any thoughts you can share on whether this structure might ultimately be appropriate for Cellulose Fibers?

Yes, and that, Anthony, is something we have looked at, and I'll ask Patty to give a little bit more color on that, because she's coordinating that effort for us.

Anthony, we are actively looking at the applicability of the structure. As you know, there are a number of uncertainties, and not the least of those is the fact that the IRS has put on pause issuing any additional private letter rulings until they've completed a thorough review of the MLP structure overall. We don't have clarity on when that will be, but we do continue to monitor the situation. And if we think it will add value, we'll move forward with our review. We have consulted our advisers, and we have included their input into our review. As you probably know, a number of years ago, there was a private letter ruling for pulp, but private letter rulings are fact-specific, and technically, can only be relied on by the taxpayer that's making that particular application. And given the fact that the IRS is now undertaking an in-depth review, we don't think it would be prudent to move forward without a ruling. And so we're sort of on pause, waiting to see what happens. We haven't made any decisions one way or the other, but we'll continue to monitor the situation.

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

Doyle, Patty. Doyle, the progress that you're making in the Wood Products business is pretty impressive. I wondered if you could give us a sense of where you think the gains are coming from. Is it kind of better commercial performance, just better operating performance, reduced cost? And where do you think you are on a sort of a scale of 1 to 10, in terms of optimizing those wood businesses?

So Mark, thanks for that comment. And there is a lot of really good work going on in our Wood Products businesses. In terms of the progress we're making, as we've identified, and starting with lumber, we said that we think there's $100 million opportunity there, and as we've previously said, we'll think we'll get $30 million to $40 million of that in 2014. And then part of what we're going to be doing on December 9, Mark, on our Investor Day is being -- laying out more details of what we think the opportunity is and the timing is in that business and our others going forward. In OSB, similarly, we've made some progress there. More work to do, but again we've identified 50 to 60 of operational excellence opportunities, and more work to do there. We will get 5 to 10 of that, we believe, in 2014. In ELP and distribution where we had, in my opinion, and I think most people's opinions, the biggest opportunity to improve. As I said in my comments, very encouraged by the progress we are making in both of those businesses, and we believe we're going to improve. Despite not great housing starts, we think we're going to improve both the EBITDA in both of those businesses by $30 million to $40 million in 2014 versus 2013, and we're on track to do that. I would tell you, Mark, to your exact question, there's still a lot of work to do in both of those businesses and opportunities. With the $30 million to $40 million, the way we think about it proves that we -- or shows that we've earned the right to be in those businesses, and our next step is to show that we can win in those businesses, and part of winning, of course, is earning above cost of capital over the cycle. So good progress there, very encouraged by all the hard work that our employees have done, but still a lot of work to do in both of our ELP and distribution businesses.

Okay. And if I could, as a follow-on, just for Patty, even if we assume the rest of the share repurchase were to happen in the fourth quarter, it still looks like you're going to be sitting on over $1 billion of cash. Can you talk to us about how much cash you want to carry going forward? And just thoughts on the use of that residual cash.

Sure, Mark. In terms of how much cash we carry, it's a function of where we are in the cycle, it -- we'll use some cash in the first quarter. At least, we hope to use some cash in the first quarter to build some working capital as housing recovers. So that's one place that we're looking. We also are continuing to utilize the share repurchase, as you said. As we look at capital allocation, our priorities for capital allocation, first and foremost, has been returning cash to shareholders. We increased the dividend, as we talked about. Continuing to execute on that share repurchase. And then, we'll also be investing in our businesses in our capital expenditure program. We'll give you a little more color on that when we get to our December Investor Day and then certainly on our earnings call for the fourth quarter. I would expect that may be a little higher than this current year, not a huge magnitude. And then obviously, as we've said before, we're looking to grow our businesses in a disciplined way. Our first priority there would be in Timberlands, but there's no imperative that I have to grow. So we're being very disciplined about looking at all areas where we would utilize that cash. In addition, we do have the credit line that doesn't expire until September of 2018. $1 billion that has not been utilized to this point. So we really feel very good about our opportunities to continue to provide value to shareholders as we go forward. So it's a nice place to be.

Your next question comes from the line of George Staphos with Bank of America Merrill Lynch.

Doyle, I guess my first question, maybe this is under the category of "no good deed goes unpunished." I mean, you've done quite well in Wood Products, Mark was noting that in his Q&A. If we look at Slide 7 of your deck, we generally see product prices that are flat to higher on average than where they were last year, OSB maybe being an exception there. We know the progress that you're making in cost reductions and operational excellence. So I was just curious why, if I heard you correctly, fourth quarter guidance and EBIT for Wood will be flat year-on-year, not to mention the progress you've already made this year-to-date? And then I had a couple of follow-ons.

George, I would say, just from a seasonal perspective, as you know, the fourth quarter is the slowest seasonal period. So that's going to have some pick on -- impact on our performance in the fourth quarter versus the third quarter. If you look year-over-year, we have made improvements, as you've said, and part of the year-over-year will be impacted by sales realizations. We'll -- it remains to be seen what happens in the quarter. I will tell you, currently, lumber prices are down roughly $10 in the fourth quarter versus the third quarter. OSB, down roughly $5 in the fourth quarter versus the third quarter. But part of it, of course, will be, if you look at pricing on the chart that you refer to, specifically in OSB, if you look at it year-over-year levels, pricing will be down fairly significantly in OSB fourth quarter of 2014 versus fourth quarter of 2013. So we'll see how that plays out for the balance of the year, but that's the biggest driver of what's going on.

Okay, and that's fair. We appreciate the thought. If we switch gears a little bit, but still within Wood Products, and I recognize, again, this is probably going to be something you'll talk more about in detail on December 9, can you give us a little bit of a flavor in terms of what kinds of investments you're making within the mills? Is it similar to what you did at your former shop in terms of automation and improvement of yield? But -- can you give us a little bit more color there? And then, my follow-on, and I'll turn it over, again, you're clearly getting improvement in SG&A, at least in terms of the numbers that we are seeing across the segment. Do you worry at all that with the cost reductions, and you're on target for your $75 million, that at some point in time, that begins to impact negatively your ability to be commercially more effective within Wood Products, i.e., you cut a little bit too much on the cost side, cut into the bone?

Thanks, George, for the questions. So in terms of what we're doing in investment in our Wood Products businesses, George, those are specific investments that will be made to lower our costs. This is proven technology that's in place in some of our mills, and we will be extending that to additional mills. But again, the key focus is on investments, improving technology that are focused on lowering costs. This is technology that we are comfortable with, we know how to put it in and are confident as we implement these capital expenditures that we will ultimately get the cost reduction associated with that. In terms of the SG&A, as I said earlier, we are on track to achieve the $75 million cost-reduction initiatives in SG&A. With that said, I am not worried at all about that cutting into the bone, as you said, in Wood Products. These are cost-reduction initiatives across the entire organization, and we are making sure that we are still very well positioned from a commercial standpoint and able to do what is necessary to service our customers going forward. So no concern regarding that.

Your next question comes from the line of Mark Connelly with CLSA.

Doyle, with all of the work on operational improvement, do you think we're going to see a faster rate of growth in profits in REIT income or TRS income over the next, say, 12 and 24 months, assuming housing continues the slow recovery?

Mark, as you know, we are looking at operational excellence across the entire organization, in our Timberlands business as well as our manufacturing businesses, and we've laid out specific targets for both. We've given an update on where we are on each of those for 2014 versus 2013. And we'll, as I said, in December 9, be giving more clarity on what 2015 looks like. So I think there's opportunity, Mark, and clearly on the REIT assets, on the Timberland, and encouraged by the progress we're making there, and there's also opportunities on the manufacturing side, both in Wood Products and Cellulose Fiber. If you look at it just from a dollar basis in terms of what we've laid out and add it up, the bigger numbers are, of course, in Wood Products and Cellulose Fibers combined, compared with the Timberland business, but we're focused on operational excellence across into -- our entire organization including, as you'd -- as we just alluded to, the $75 million of SG&A.

Okay. And just one more question. How much of the improvement that we saw in engineered wood this quarter was attributable to lower OSB prices? And should we assume that, that division has already seen the full benefits of the decline we've seen so far?

So only a minor part, Mark, of the -- of what you saw in the ELP was a result of the lower OSB prices. And yes, you should assume -- we'll see what happens to OSB prices from this point forward, but yes, you should assume most of that benefit has played through the system.

Your next question comes from the line of Tyler Langton with JPMorgan. Tyler J. Langton - JP Morgan Chase & Co, Research Division: Yes, just given things where housing starts are and where southern sawlog prices are and just with your thoughts on sort of housing starts for 2015, could you share some thoughts, I guess, on the type of harvest growth you may be planning for in the West and the South as we look out to 2015?

Yes. No, on the southern harvest, we have kind of been expecting, as we've talked to you about, a slow, steady increase in southern sawlog pricing for 2014. And that's generally what we've seen, up 3% to 4%. We continue to have consistent demand from our customers. So we're not planning, at this time, any type of deferral as we look into 2015. We'll continue to keep a close eye on market conditions. Just in terms of how we think about our harvest overall, what we look at is the financial maturity of -- and the expected market demand, and those are the factors that we use to build our harvest plans going forward, and we're working on those for 2015. We also, as you know and we've talked about, have the ability to flex some during a year and during a specific quarter. And you saw some of that earlier this year as we capitalized on stronger export prices in the first half of 2014 and 2015. And we'll continue to hopefully capitalize on those opportunities in 2015 and beyond. Tyler J. Langton - JP Morgan Chase & Co, Research Division: Okay, great. That's helpful. And then just on the Wood Products side, I don't know if you could kind of quantify the type of volume declines you're looking for in the fourth quarter. And then, I mean, is this -- are these declines just sort of typical seasonal declines? Or are they driven by, I guess, a greater-than-expected drop in demand at all?

No, these -- what we are talking about, Tyler, is just your typical seasonal-type slowdown in the fourth quarter. As Patty said in her comments, the fourth quarter is typically the slowest seasonal period from a Wood Products perspective.

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

Maybe tagging on, on the question of kind of 2015 outlook, and again, I appreciate we'll get more either in December or January, but given the housing outlook that you put out for 2015, how do you think that affects the trajectory of sawlog pricing in the South? Do you think it's kind of more of the same? Do you see any chance for acceleration?

Gail, our best guess on southern sawlog pricing is we will continue to see slow, steady improvement. I think the range we gave on housing, 1.1 million to 1.2 million; at the upper end of that range, I think you could see maybe an acceleration in pricing in southern sawlog, even above the 3% to 4% that we anticipate for 2014. If it's at the lower end of that rage, then maybe it's more in the 3%, 4%, 5% range that we've seen for -- or we anticipate for 2014 versus 2013. So that's our kind of best guess on southern sawlogs in the near term.

Okay. And can you give a little more color on what you're seeing in terms of the log export markets? How severe do you think the inventory situation is in China? How long do you think it would take to normalize? And x the timing of volumes to Japan, can you give us a sense of kind of the underlying trend in Japan, particularly relative to -- has it fully worked through the consumption tax at this point?

Sure, Gail. This is Patty. As we think about China, as I've said, inventories are still at higher-than-normal levels, and the takeaway is going a little slower than probably what we would have expected last quarter when we were on the call. But they are working their way through. That'll probably take through the rest of this quarter. So we don't anticipate any significant change in direction for the quarter other than what I talked about earlier. In Japan, I think that, stepping back from that, too, you'd have to say there's the Japanese market overall, but then there's also the customers that we have. And the customers that we have worked with, as you know, for some of them well over 20 years, are really talking to us about making sure that they get the volume that they need to support their operations. So they're large customers. They have very efficient supply chains, both in terms of the supply for logs, but importantly as well, how they merchandise lumber in Japan. So volumes in Japan, as I said, are primarily down because of timing. We had a little better shipments in the third quarter, as Doyle talked about in his remarks. So we are still confident in our Japan volumes, although pricing will be impacted as we go forward based upon what things do overall. But we do expect our realizations to Japan for this quarter to be up a little bit because we'll have a little bit higher freight to Japan, relative.

Okay. And on engineered wood, do you think the volume you saw in the third quarter is reflective of kind of the underlying market? Or was it depressed due to payback from the outside strength in the second quarter?

I think, the -- we clearly saw, as we indicated after the second quarter -- or on the second quarter call, Gail, some pre-buying in the second quarter, due to the price increase that went in late in the second quarter in our engineered wood business. So I think maybe if you average the 2, that would probably be kind of the normalized rate. But clearly, we had some pre-buying in the second quarter versus the third.

Okay. And just one last quick one. Patty, can you possibly quantify, particularly since it seems like you're already done, what the outage expense would be for the fourth quarter in Cellulose?

Sure, Gail. As we looked at Cellulose Fibers, if you look at Chart 9, where we detailed the maintenance expense and outage days, so in the third quarter, we had about 38 days of maintenance downtime. We would expect, because we are now complete, that, that would be about 14 days for the fourth quarter. So that's a difference of around 24 days. And as I've said in the past, each day is usually about $1 million. So it's around a $20 million delta from third quarter to fourth quarter, which is the primary difference between our outlook for the fourth quarter as it compares to the third.

Your next question comes from the line of Alex Ovshey with Goldman Sachs.

Doyle, engineered wood products, could you just talk about how engineered wood is performing in the marketplace relative to lumber in single-family construction? And any progress, if any of those been made, in further penetrating the multifamily end market with engineered wood?

Sure, so in engineered wood, we continue to be, as I mentioned earlier, about the -- encouraged by the progress that we're making. As you see from our overall shipment numbers, we continue to gain in terms of capturing profitable share going forward. And some of that is coming from multifamily. Still, the -- I don't want to mislead you. The key driver for engineered wood has been and will continue to be single-family, but we have had some successes in moving into multifamily in terms of our engineered wood products.

Got it. And then, at the Analyst Day last year, we talked about the performance in engineered wood and distribution, that it materially improved, and that potentially, those businesses will not be part of the portfolio longer term. Obviously, we've seen very meaningful improvement in those businesses. So are we at a point now where the improvement is enough where we would -- we can say that engineered wood and distribution will be part of Weyerhaeuser for the long term?

Alex, the way I would answer that is -- and I think I said this earlier, is the $30 million to $40 million was necessary to show that we deserve the right to be in those businesses. I think we are delivering on that. So our next step now is to show that we can win in these businesses, and again, we define winning as showing that we can earn above cost of capital in each of these businesses over a cycle. That's going to take some additional work in each of these businesses going forward, but that's what we're focused on doing, winning both from a cost of capital perspective and showing that we can be the leader in each of these businesses going forward. And that's the way we think about it.

Understood. I mean, just last one on share buybacks. So good to see that happen in the quarter. Should we read into an issue -- in terms of the amount and the timing, is that any sort of potential number that we could see consistently on a go-forward basis? Is that some sort of run rate that we can think about on a go-forward basis that you could -- you can buy back?

No, what I would read into it is the fact that we are committed to executing this share repurchase plan in a -- on a timely basis. The comment we made when we announced this authorization is this is one we fully anticipated completing on a timely basis. We will report to you, just as we did this quarter, the progress we're making going forward. But I wouldn't read into, just to say we're going to do this amount every quarter based on what we did for half a quarter in third quarter of 2014.

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

Doyle and Patty, first question is, we've seen a pretty interesting divergence of opinion in the last few weeks. And one way you guys can, of course, buy timber is just by buying your own stock, and it looks like we've seen 2 of your competitors, one step up and pay pretty close to peak prices, I guess, for southern lands, and another of your competitors decided to focus more on, not only maybe being buying back stock, but actually selling land into The Street to buy back stock. And I didn't know if you had an opinion on what you thought of land values. And I'm really thinking of the South at this point, where there seems to be a divergence of opinion, and whether we would see you step up now or hang back?

So Chip, I think you can look at our actions in terms of the way we think about things. Clearly, as we've already highlighted, we are in the market actively repurchasing our shares. So we are convinced that we are creating value for our shareholders for doing that. In terms of actively buying timberland, there's no doubt that there are lots of opportunities out there to do that in today's market. There's also lots of money chasing those deals. We look at those deals, each and every one of them that comes along. And as we've said before, we're going to be very disciplined in what we actually acquire. And to date, we have not made any acquisitions in the South. The type of transactions we're looking for, again, actions, are the ones that are along the lines of what we did in the Longview acquisition. And you can look at the type of returns that we are generating from that acquisition that we made last year. That's not a South-versus-West statement, Chip. We'd look for -- if the right opportunities are there, that where we think we can grow value for shareholders, we would look at making acquisitions, both in the West and in the South. But we're just going to continue to be very disciplined in the way we look at those potential acquisition opportunities going forward.

Got you. That's very helpful. And just a quick follow-up. Last year, I seem to recall that you all made a point of saying that lumber and OSB were a little bit more strategic and possible areas of growth through acquisition, than say, EWP and distribution. And I just wanted to know if you're still open to making acquisitions if the right thing comes along in those 2 businesses that you've mentioned. And if those other 2 businesses, EWP and distribution, continue to improve, as they've certainly done this year, could they also be areas that maybe in a couple of years you could see growing in?

Chip, I don't specifically remember making the comment that you just referred to, but let me talk about how we think about acquisitions generally. As we've consistently said, we think our biggest opportunities for acquisitions are going to be in our Timberland business. With that said, if we can add -- find acquisition opportunities in our Wood Products business, or Cellulose Fiber business for that matter, that will result in additional shareholder value, that's something we would look at. Now we don't feel compelled to grow any of our businesses. But again, if we can find bolt-on type acquisitions in Wood Products or Cellulose Fibers that we think add value for shareholders, that's something we would potentially consider. But again, we think our biggest opportunities for acquisition will be in our Timberland business.

Your next question comes from the line of Steve Chercover with Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: Just a couple of cleanups. In engineered wood, can you please tell us what your operating rate was in the quarter? And what you expect it to be in 2015?

The operating rate in the third quarter, Steve, continued to be in the mid-7 range -- so roughly 70%- to 75%-type range operating rates in EWP in the third quarter. And we'll see what happens to housing. But I don't think that number will -- so I would anticipate, if housing continues to improve, that number could go up going forward. Steven Chercover - D.A. Davidson & Co., Research Division: Yes, and I was going to say, given that housing has kind of underwhelmed over the last couple of years, is it appropriate to budget your production to the lower end of that 1.1 million to 1.2 million range? Maybe particularly with respect to OSB?

Well, yes. OSB is a different story, of course. And what I would tell you in OSB is we took 20 days of downtime in the third quarter. And in the fourth quarter, we would anticipate higher amounts of downtime due to normal seasonal factors, holiday season and some maintenance and capital projects that are going in place in terms of OSB in the fourth quarter. Steven Chercover - D.A. Davidson & Co., Research Division: Great. The final question, with respect to your understanding of MLPs, is converting logs into lumber panels in EWP also eligible? Or is it just for pulp-based businesses?

Steve, as I said before, that the IRS has a project, a very complete project that they've undertaken, and it seems they're taking even a little bit longer than maybe what was anticipated when they announced the project, which was back towards the beginning of this year. So I think it's difficult to know, really, where they'll come out on their deliberations. What we do know, as I said before, was a number of years ago, they did have a ruling on pulp. But whether or not they will modify that ruling and application going forward, and whether or not they would say anything about the other businesses is still yet to be known. So tough to give you any more clarity. I wish we all had a little more clarity at this point, but that's sort of what we know as we sit here today.

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

I too, like George, was looking at Chart 7, where you had Wood Products volumes and pricing. And I had something of a different question, and that's the lumber, engineered wood and if we threw plywood on here, it'd be the same. Prices have been pretty good over the last 1.5 years. Obviously, OSB has been a very different story. There was a lot of restarts last year, but that was a while ago. Any thoughts as to why it's taking so long for OSB to regain its footing and what needs to happen for the markets to get into balance and more profitable?

Mark, I think you said it right. There was significant additional supply that came online, I think in anticipation of maybe stronger housing starts than we've seen occur in the 2014-type time frame. So I think it's a simple supply-and-demand equation that appears to be out of balance currently, and that's what has resulted in the current pricing environment.

Do you think there are any structural impediments, though, to regaining balance? Because I'm not sure the operating rates in engineered wood are higher, or for that matter in gypsum, than in OSB. It just seems to be that the market struggles to adjust to the demand situation. Any thoughts as to what impediments might be in place?

No, Mark, I don't think there are any long-term structural impediments. OSB tends to be very volatile, as you very well know, over a cycle, and I think we're just in one of those periods of low pricing currently.

One thing I would say, Mark, that's different in the 2 technologies. OSB, when capacity comes on the market, comes on in pretty big chunks, and people seek to run those mills 24/7 because of the type of operation that they are. So I think when new capacity starts up, as we saw a number of mills earlier this year, it takes a longer time for the market to absorb it if the housing doesn't recover as quickly as I think what people anticipated as we started the year. So I think I would point to that as the difference between the 2 technologies. Lumber, similarly, also is a more fragmented business that capacity comes on in smaller chunks than what OSB does.

Fair enough. And certainly, I realize it's not your job to be prognosticating on price actions, et cetera, but given your housing starts forecast for next year, is it feasible that OSB gets into balance? Or do you think we're still a ways away?

Mark, I think, as we move through 2015 and housing continues to improve, I think they're in the range that we laid out. You could see an environment -- and again, we're not prognosticators of pricing and we'll leave that to others, but I think you could see a point where that is more in balance going forward.

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

Yes, just following up on, I think, Chip's question on Timberland transactions and trying to get your viewpoint about your actions. If you could give us a little bit more color on your nonstrategic Timberland sales, where are those happening? Is it more West-based than South? And in terms of transaction values, are you seeing a steady increase over the last year?

Yes, so we have those in both the West and the South. I'll give you an example of one that was in the third quarter. It happened to be in Oklahoma. It was a tract that was roughly 760 acres, and it sold for $14,000-plus per acre. So that's an example of what we see occurring out in the marketplace right now. So some of it's truly nonstrategic, some of it's more HBU-type land, and that's what we've seen going on, and we think will continue to be opportunities for us going forward.

Okay, and just getting back to the Q4 outlook on lower lumber and OSB pricing. Just specifically on the OSB side, it looks like those prices bottomed out in September, and we've seen, depending on the region, about anywhere from 10% to 14% price lifts since that point. What's your level of confidence that prices will be lower quarter-over-quarter?

Again, we're not better than anybody else in predicting what's going to happen on prices. The number that I referenced earlier is, if you look at third quarter average versus October-to-date prices, October-to-date is down roughly $5 for our overall mix. So that's to give you some sense of where we are today. Now again, that third quarter average, you referenced end of the third quarter, but if you look at third quarter average versus October-to-date, that's where we ended up.

Ladies and gentlemen, we have time for one more question. Your final question comes from the line of Collin Mings with Raymond James. Collin Mings - Raymond James & Associates, Inc., Research Division: Just a couple of cleanups here. Just kind of a follow-up to Gail's question on Japan. You mentioned that you're seeing better realizations in 4Q due to mix. How are like comparable-quality log prices? Are they still falling in that market? Or are you actually starting to see some stabilization and lift on kind of an apples-to-apples basis there?

I would say that Japan is stable as it relates to price, overall. And as I said, both in terms of the volume to Japan, we are also very pleased with the customer relationships that we have that really are focused on making sure that they have adequate supply of Douglas fir logs in order to supply their large operations. Collin Mings - Raymond James & Associates, Inc., Research Division: Okay, Patty. And then, as far as the Cellulose Fibers guidance for 4Q, could you see, as far as from an earnings contribution, a bounce back all the way to what you saw in 2Q? Or is it probably going to fall out somewhere between what we had saw in 3Q and -- I'm sorry, between 2Q and 3Q?

Well, I think, as you look at that, the major difference between the third quarter and the fourth quarter is going to be that roughly $20 million of maintenance expense that I referenced when Gail asked her question. There are some puts and takes and other -- I said liquid packaging realizations will be down. Pulp pricing should be pretty stable. But the major difference between the 2 is that -- 2 quarters, is that $20 million of maintenance. Collin Mings - Raymond James & Associates, Inc., Research Division: Okay, Patty. And then just one last big-picture question, Doyle, and kind of a follow-up to both Chip's and Paul's questions. Just given the strong bid for timberland right now, have you thought about just becoming more aggressive as far as capital recycling within the Timberland business? More specifically, are there certain wood baskets in the U.S. South that you want to try and get more aggressive in and have a bigger presence in, and maybe exit some of the regions you are in now? Because just looking at your footprint in the region, there are some areas in states where you have a pretty large concentration, and then some other areas where we're seeing arguably a little bit better signs of a price recovery in sawlogs that you're not in. So are you looking at kind of shifting some capital around within Timberland from that perspective?

Yes, that's a good question. And as you, I think, know, and as we've talked about before, we're always looking to improve through trading and buying and selling the overall quality of our timberlands. And some of that may include, as you alluded to, potentially getting in markets maybe that we're not in, although we're in most of the markets currently. So those are things that we are [Audio Gap] to consider going forward. With that said, we have, as you know, a pretty good footprint in terms of -- both in the South and in the West in terms of where our strategic timberland is located. And we're convinced that through growing and harvesting trees on that strategic timberland, we're going to be able to drive value for our shareholders going forward. But we're always looking to improve the overall quality of our timberland base, and I think we've had some success in doing that historically, and we'll continue to look at opportunities to do that going forward. So as I understand it, that was our final question. As we wrap up this morning's call, I want to just remind everybody that we will be holding an investor meeting on December 9. That's going to be at the Mandarin Oriental Hotel in New York. Our business leaders will be participating in that meeting. We're looking forward to that meeting, and we look forward to seeing each of you there. So with that, thanks, everybody, for joining in on the call this morning, and we thank you for your interest in Weyerhaeuser.

Thank you. That concludes today's conference call. You may now disconnect.