Weyerhaeuser Company (WY) Q3 2018 Earnings Report, Transcript and Summary

Good morning. My name is Dennis, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weyerhaeuser Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks there will be a question-and-answer session. [Operator Instructions] I will now turn the call over to Ms. Beth Baum, Senior Director of Investor Relations. Please go ahead.

Thank you, Dennis. Good morning, everyone and thank you for joining us today to discuss Weyerhaeuser’s third quarter 2018 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 this conference call. We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Doyle Simons, Chief Executive Officer; Russell Hagen, Chief Financial Officer and Devin Stockfish, Senior Vice President of Timberlands. I will now turn the call over to Doyle Simons.

Thank you, Beth and welcome everyone. This morning Weyerhaeuser reported third quarter net earnings of $255 million or $0.34 per diluted share on net sales of $1.9 billion. Third quarter results include a $41 million tax benefit related to our previously announced U.S. pension plan contribution. Excluding this special item, we earned $214 million or $0.28 per diluted share. Adjusted EBITDA for the company totaled $505 million. Our third quarter results reflect solid operating performance in the face of challenging headwinds, including severe weather and certain Chinese trade policy and unusually volatile markets for lumber and oriented strand board. Our business is adapting changing conditions throughout the quarter and we remain relentlessly focused on the things we can control, improving our relative performance versus the competition and delivering on our commitment to disciplined capital allocation. During the quarter, we demonstrated our discipline commitment to capital allocation, by increasing our quarterly dividend by 6.3% to $0.34 per share, repurchasing $290 million of common shares and announcing a series of actions to substantially reduce our pension liabilities. In August, we also announced that I have elected to retire in early 2019 and that Devin Stockfish, currently Senior Vice President of Timberlands has been appointed President and Chief Executive Officer, effective January 01. Adrian Blocker, who leads our Wood Products business will succeed Devin as Senior Vice President of Timberland and Keith O'Rear, who leads our Wood Products sales and marketing organization will become Senior Vice President of Wood Products. As Beth mentioned, Devin is here in the room with us this morning. He will be participating in the Q&A and will make some remarks afterwards to close the call. Right now, let me give some more detail on our business results. I'll start with a few comments regarding the housing market. Significant discussion is occurring regarding the trajectory of the U.S. housing market. The market continues to grow. Total start increased nearly 4% year-over-year in September, despite disruption from Hurricane Florence. On a year-to-date basis, single-family and total starts have risen 6%. Repair and remodeling activity, which drives about 40% of lumber demand, is up 7.5% compared with the year ago. However, recently monthly housing statistics have been volatile and in some cases softer than expected. We see no evidence of a change in underlying demand for housing. Employment and wages continues to rise -- employment and wages continue to rise with unemployment at the lowest level since 1969. Consumer confidence began 2018 about previous session highs and has increased sharply as the year has progressed. Builders reports strong demand at entry-level price points and indexes of builder sentiment remained very positive. However, the rate of housing market growth appears to have moderated slightly, indicating a potential mismatch between demand and available supply. However, mortgage rates remain relatively low on a historical basis, continued increases in home prices and interest rates may be causing buyers at higher price points to recalibrate their expectations if they take affordability into account. We expect will resolve as buyers and builders adjust product in response to the changing market backdrop. For 2018, we anticipate total housing starts will be slightly less than 1.3 million and we expect continued market growth in 2019. Let me now turn to our business segments. I will begin the discussion with Timberlands charts four to six. Timberlands contributed a $126 million to third quarter earnings and $206 million to adjusted EBITDA. Western Timberland delivered $121 million of third quarter EBITDA, $31 million lower than the second quarter. Average log sales realizations declined, fee harvest volume decreased 2% and row costs were seasonally higher. Unit logging and hauling cost also increased as we do more high elevation harvesting during the summer months. Compared with a year ago quarter however, Western EBITDA increased $10 million due to higher domestic and export log price realizations. Western domestic log markets were highly tensioned throughout the first half of 2018. As we enter the third quarter, strong lumber pricing and fear of another challenging fire season drove many Western mills to build larger than normal log decks to avoid the risk of downtime. Although the Pacific Northwest fire season arrived early, it was not severe and logging conditions remained very favorable throughout the third quarter. By early August, momentum in the domestic log market had reversed. Strong log supply, declining lumber prices and a pause in Chinese log demand due to the trade dispute put downward pressure on prices and domestic log realizations declined through the remainder of the third quarter. Turning to our export markets, Chinese construction activity remained solid during the third quarter. Log inventories at Chinese ports continued to decline, ending the quarter at approximately 3.7 million cubic meters, 12% below second quarter levels. In early August, the Chinese government announced its intent to impose a tariff on Western logs. Our China export log volumes declined in response to the uncertainty regarding implementation. The tariffs were implemented on September 24 and our Hemlock and Douglas fir log exports to China are assessed at a 5% rate. Average realizations for the third quarter were off slightly compared with the second quarter as we adjusted pricing in response to the tariff. Compared with a year ago China log sales volumes were lower due to the trade dispute, but average realizations were slightly higher. In Japan, demand for our logs remained solid but log sales volumes decline modestly due to timing as typhoon activity delayed ships during the month of September. Average log sales realizations were comparable to the second quarter. Compared with a year ago quarter, sales volumes to Japan were modestly lower and realizations improved substantially. Moving to the South, Southern Timberlands contributed $80 million to third quarter EBITDA, $4 million less than the second quarter. Average realizations southern saw logs increased slightly compared with the second quarter and average pulpwood realizations were flat. Sales volumes declined compared with the second quarter as hurricane Florence felt weather-related downtime for third-party customers as well as our own mills. Our operations along the Atlantic Coast curtailed harvesting for up to a week to ensure employing contractor safety during the slow-moving storm and fee harvest declined 2% compared with the second quarter. Per unit harvest and hauling cost increased as we harvested a greater mix of things in the quarter and also incurred longer hauling distances as we flexed harvest operations to available wet weather ground. Southern log export volumes increased compared with the second quarter, although demand eroded following Chinese implementation of a 25% tariff on Southern panel logs on August 23. Average realizations for southern export logs declined as we adjusted pricing to offset a portion of the tariff. Export logs represent less than 2% of our southern fee harvest volume. Compared with the year ago quarter, Southern Timberland's EBITDA declined due to lower harvest volumes associated with hurricanes and higher fuel cost. Northern Timberlands contributed $4 million to EBITDA a $1 million more than the second quarter and comparable to a year ago. Fee harvest volumes improved seasonally in most areas and average realizations increased modestly due to mix. The Timberlands business continues to make good progress against its 2018 operational excellence initiatives and is on track to achieve its $40 million to $50 million OpEx target for the year. Key focus areas include improving the productivity of harvesting and hauling operations, reducing road cost, optimizing forestry spending and maximizing the revenue from every log we harvest. Real Estate Energy and Natural Resources, Charts 7 and 8; Real Estate & ENR contributed $36 million to third quarter earnings and $86 million to adjusted EBITDA. EBITDA increased by $39 million compared with the second quarter and [technical difficulty] compared with a year ago. Real estate sales increased significantly due to typical seasonality. Third quarter also included a large acreage transaction in Montana, which accounted for approximately half of the acres sold in the third quarter. Average price per acre declined due to mix as Timberland prices in Montana are regionally lower. Average land basis on property sold was modestly higher than second quarter and significantly higher than third quarter 2017 due to the greater mix of Montana acres. As a result, the segment's third quarter contribution to earnings increased $14 million compared with the second quarter, but it was $11 million lower than a year ago. The real estate business is solidly on track to meet or exceed its targeted 30% premium to timber value for 2018. Wood Products, Charts 9 and 10; Wood Products contributed $213 million to third quarter earnings compared with $329 million in the second quarter. Adjusted EBITDA totaled $250 million. EBITDA for lumber totaled $118 million, $77 million lower than the second quarter and comparable to a year ago. Lumber prices have experienced record volatility in 2018. The framing lumber composite hit record highs in the first week of June, peaking at $582 before decreasing due to improving logistics and seasonally slower lumber usage. Pricing continue to fall through the third quarter as hurricanes and general market volatility, further dampened demand. From July through September, the composite lumber price drop approximately $140 or 25%, the steepest quarterly decline own record. Our third quarter average sales realizations decreased 9% compared with the second quarter, while the framing lumber composite declined 13% compared with the second quarter average. Lumber sales volumes declined 6% and manufacturing cost increased primarily due to lower operating rates. Although our lumber mills sustained no damage from hurricane Florence, our North Carolina mills lost several dozen ships as we took downtime to ensure the safety of our employees and equipment and regional flooding limited access and operations at some locations. Canadian log costs were higher, especially in Alberta, where an unusually wet weather has increased hauling cost and limited log availability. Third quarter EBITDA includes $6 million of charges for countervailing and antidumping duties on Canadian softwood lumber, comparable to the second quarter. Comparing our third quarter results with the year-ago quarter, higher average sales realizations for lumber were largely offset by higher log cost. Manufacturing costs were flat as we offset cost inflation, with operational excellence improvement. OSB contributed $77 million to EBITDA, $52 million less than the second quarter and $25 million less than a year ago. OSB prices began to fall at the beginning of the third quarter and benchmark north-central pricing decreased $110 or 25% from July through the end of September. Compared with the second quarter, our average sales realizations decreased 13%. Sales volumes decreased 11% due to an extended scheduled outage to replace the press [ph] at our Grayling Michigan mill. Including log sales volumes and other project expenses, the outage reduced EBITDA by approximately $25 million. Compared with the second quarter, fiber costs also increased. Comparing our results to the year-ago quarter, average sales realizations for OSB decreased 2% and sales volumes decreased 10% due to the Grayling outage. Excluding the $25 million outage cost, OSB EBITDA would've been comparable to the prior year as OpEx initiatives offset cost inflation. Engineered Wood Products contributed $48 million to EBITDA, $10 million less than the second quarter and comparable to a year ago. Average sales realizations improved approximately 2% compared with the second quarter and 89% compared with one year ago, as we continue to capture the benefit of our early 2018 price increase. Sales volumes decreased as hurricane activity and heavy rains in Texas slowed demand and what are usually strong growth markets. Distribution contributed $3 million to third quarter EBITDA, $9 million lower than the second quarter and $9 million lower than a year ago. Declining commodity pricing throughout the third quarter compressed margins and our Southeast distribution centers, lost multiple shipping days due to hurricane activity. The business also incurred $4 million of expense from wildfire damage at its Redding California facility. Through its continued focus on OpEx, our distribution business made money in the quarter, despite one largest quarterly commodity price declines ever recorded. The business remained highly focused on managing cost and product margins. The wood products business has made good OpEx progress on its 2018 initiatives to improve fiber cost and recovery, reduce certain controllable cost and capture the benefit of focused capital investment. However, efforts to improve mill reliability, which is our largest opportunity area have been hampered by weather as facilities have coped with unusual winter weather, flooding and hurricane this year. Our teams remain highly focused on reducing controllable costs, increasing fiber recovery, improving mill reliability, enhancing product margins and maximizing the benefit of our capital investment. However, there is still significant work to do to achieve the segment's full-year target of $40 million to $60 million. I will now turn it over to Russell to discuss some financial items and our fourth quarter outlook.

Thank you, Doyle and good morning. The outlook for the fourth quarter is presented in Chart 13 of the earnings slides. In our Timberland's business, we expect our fourth quarter earnings and adjusted EBITDA will be approximately $15 million to $20 million lower than the third quarter. In our Western Timberland operations, we expect fourth quarter average sales realizations for domestic and export logs, to be lower than the third quarter average, while log sales volumes are expected to be slightly higher. Larger than normal domestic log decks built in anticipation of a challenging fire season, which did not materialize are expected to come down. We also typically see a seasonal reduction in the supply from nonindustrial landowners in the fourth quarter, due to less favorable weather. We anticipate that overall domestic supply in the West will come back into balance with demand by year-end. Japanese export log sales volumes are expected to be moderately higher in the fourth quarter, for some shipments scheduled for the third quarter were delayed due to typhoon activity. Fourth quarter average sales realizations will be lower. Chinese export volumes are expected to be comparable to the third quarter, while average sales realizations will be lower. We remain optimistic on Chinese demand for Western logs despite near-term volatility caused by uncertainty with tariffs and trade policy. We expect slightly higher unit logging costs in the West, while road and forestry spend will decline modestly. In the South, we anticipate fourth quarter average sales realizations will be comparable to the third quarter and fee harvest volumes are expected to be slightly higher as we return to normal production after third quarter hurricane activity. We own very little timberland in the areas of Florida affected by hurricane Michael and experienced minimal infrastructure and resource damage due to that storm. Civil culture and forestry spending in the South is expected to increase slightly as we deferred activities from the third quarter into the fourth quarter, due to severe weather. In the North, we anticipate higher fourth quarter harvest volumes and average sales realizations are expected to be comparable to the third quarter. Real estate and energy and natural resources, earnings and adjusted EBITDA for the fourth quarter are expected to be comparable to the third quarter. Markets remain active across our ownership and we continue to see strong interest in higher and better used properties. We now expect EBITDA for our real estate and energy and natural resources segment will be approximately $260 million for the full year 2018. In the third quarter, land basis as a percentage of real estate sales was higher than our full year guidance of 40% to 50% due to the mix of acres sold. We now anticipate that land basis will be approximately 55% for the full year 2018. Wood products market prices for lumber and oriented strand board have continued to decline in the fourth quarter. Logistical challenges improved over the summer, allowing supply to reach the market as seasonal demand moderated. In addition, hurricanes and general market volatility have continued to dampen demand. We expect fourth quarter earnings and adjusted EBITDA will be significantly lower than the third quarter. For fourth quarter to date, our lumber realizations are $80 lower than the third quarter average and current realizations are approximately $100 lower. For oriented strand board our quarter-to-date realizations are $35 lower than the third quarter average and current realizations are approximately $50 lower. As a reminder, every $10 change in lumber realizations is approximately $11 million of EBITDA on a quarterly basis. Every $10 change in oriented strand board realizations is approximately $8 million of EBITDA on a quarterly basis. Western and Canadian log costs are expected to be lower in the third quarter and we anticipate improved unit manufacturing costs for lumber due to less weather-related downtime. Our Dierks sawmill was commissioned in mid-October and will begin ramping up to full capacity throughout 2019. We restarted our Grayling, Michigan-oriented strand board mill on October 21, following the completion of the scheduled press replacement. We will be ramping up to existing capacity through the end of the year. We anticipate higher operating rates and increased sales volume through oriented strand board in the fourth quarter. Sales volumes for engineered wood products are expected to decline seasonally, compared with the third quarter. Chart 11 outlines the major components of our unallocated items. Contribution to earnings decreased $4 million in the third quarter, primarily due to an expected increase in our unallocated pension and postretirement benefit cost. The second quarter included a favorable true up to finalize prior yearend estimates for pension plan assets and liabilities. We expect non-operating pension and postretirement expense of $17 million for the fourth quarter. Now I'd like to turn to an update on our key financial items, which are summarized on Chart 12. Capital expenditures total $105 million from the third quarter. We continue to expect total CapEx for the full year 2018 will be approximately $420 million, $300 million wood products and $120 million for Timberlands. As a reminder, the fourth quarter is historically the highest quarter of capital spending. Moving on to debt, we ended the quarter with approximately $5.9 billion of debt outstanding. We have no remaining maturities in 2018 and we expect fourth quarter interest expense to be comparable to the third quarter. For taxes, we continue to expect our 2018 effective tax rate to be between 11% and 13% based on the forecasted mix of earnings, excluding third quarter special tax benefit. In August, we announced a series of actions intended to reduce the liabilities of our US qualified pension plan, while maintaining its current funded status. As previously disclosed, we made a $300 million cash contribution to the plan in the third quarter. We also offered certain planned participants the opportunity to elect an immediate lump-sum distribution of their pension benefits. Upon completion of this lump-sum offer in the fourth quarter, we expect to record a one-time non-cash settlement charge. We currently estimate this non-cash charge will be approximately $200 million pretax based on current actuarial assumptions. Cash from operations during the third quarter was $87 million. Excluding the $300 million pension contribution, cash flow from operations would be $387 million. During the quarter, we repurchased approximately 8.6 million shares of common stock for $290 million. We ended the quarter with a cash balance of $348 million. As of the end of the third quarter, we had $210 million remaining on our share repurchase authorization. Now I'll turn the call back to Doyle and look forward to your question.

Thank you, Russell. After the Q&A, we'll make a few comments on owned succession to close the call, but at this time, I'd like to open the floor for questions.

[Operator Instructions] And your first question is from line of Anthony Pettinari with Citi. Please go ahead.

Good morning and congratulations Doyle and Devin. Congratulations to you and Devin on the transition. I am wondering if you could talk more about the cost inflation that you're seeing in Timberlands. I think your outlook indicates Western log prices will fall sequentially in 4Q, but even with that, it seems like Western prices are still going to be significantly above where they were say at the end of '16, but I think the segment EBITDA guidance is expected to be down maybe 10%, 15% versus where you were at the end of '16. I guess this is cost-driven. So is there a lag in terms of passing through these costs? Is there a reason to think that maybe some of them will roll off in next year? Just kind of any color you could give on cost in Timberland would be helpful?

Yes sure and so I guess just at a high level, certainly we are seeing some inflationary headwinds in the Western business. I would say on a year-over-year basis, if you think about the logging side as probably around 3%ish cost inflation year-over-year. On the trucking side and this is more across the business as a whole, it's closer to 7% or 8% and that's largely driven just by contractor and trucking availability and some fuel price inflation as well and I would say, we're doing everything we can to do battle that inflationary headwind with our OpEx and certainly that's a big part of how we are operating really business wide, not just in the West.

Okay. And in terms of a timeline for recovering those costs, would that be first half of next year or any sort of -- any kind of thoughts you can give on the timing?

So if you think about passing those through really it ties back to what we're seeing on log prices and generally it's less specific to cost inflation and really just market dynamics with log prices and certainly as Doyle and Russell mentioned, I do think some of the supply-demand dynamics that we've seen in the Western market is going to be coming back into balance as we get into Q4 and I would expect to get back up to more normalized pricing in the West as we get into the back half of Q4 and into 2019.

Okay. That's very helpful and then just kind of a question on whether I think you identified that as an impact in the South for both the Timberlands business and the wood product business. Is it possible to quantify for the two segments how much of a hit weather was in the quarter?

Sure. And we think weather total impact on the quarter Anthony was approximately $15 million and that includes from the hurricane, the Japan typhoon, the Redding fire at our distribution facility and higher Canadian log costs because of very wet weather. If you take that $15 million and you break it down, about $5 million of it was in Timberlands, half of that from hurricane, half of it from the typhoon and approximately $10 million of it was in wood products. So that's how we would break that down.

Okay. That's very helpful. I'll turn it over.

Your next question is from the line of George Staphos with Bank of America. Please go ahead.

Thanks everyone. Good morning. Thanks for the details and Doyle, congratulations to you and Devon and Adrian and Keith on the transition and the best of luck to everyone. I guess my first question on wood products, can you comment at all in terms of how production might run relative to shipments in the fourth quarter? Do you anticipate maybe having to take inventory down a bit further and that being something we need to consider in terms of our models beyond pricing and shipments and broadly where to say inventories are right now within wood products?

I think generally in wood products across the system, I would say inventories are normal to slightly elevated, but headed in the right direction. What I would tell you George, in the fourth quarter versus the third, I would actually anticipate our volumes would improve. In lumber for example, our operating rates in the third quarter were in the high 80s versus where they were in the second quarter, which was the mid-90s that was a result of all the disruptions we saw from weather and primarily in the South in the third quarter. So as we move into the fourth quarter George, we would anticipate operating rates returning to more normalized levels. So that's how we're currently thinking about it.

Okay. So ultimately, doesn’t sound like you have to take any production down time to get the inventories balance, you just think demand will more or less take care of it from what we could see?

That is correct. We have no current plan for downtime and part of our overall velocities George has been to focus on cost and our current cost position allows us to continue to run our mills when it may not make sense for some others to do so. So that's kind of how we're thinking about it at this point in time.

Okay. Thanks for that Doyle. I appreciate the comments on the West in terms of Timberland. Those are very helpful. If it's possible, could you give us a bit more granularity on how Chinese log realizations trended in the quarter versus your expectations? I know you said they are up year-on-year. You said they were down in this quarter. Where do they wind up maybe in absolute levels and where do they wind up relative to your expectations and I had one more question to follow up after that?

Yes, so just a little bit of context around China. So when you think about the Chinese export program off of the West, really as Doyle mentioned, when the trade dispute really started picking up steam mid to late summer timeframe, what that really did was it put a little bit of a pause into that market, just as people were trying to react and figure out how that was going to be implemented. And so you saw a little bit of slow down into the China market. I would say that, that is beginning to normalize. At this point, if you think about a 5% tariff, that's really not enough to meaningfully impact the volume that we're going to flow into China kind of in the short to mid-term. One thing to remember about China pricing however, is that there is a strong correlation to domestic markets in terms of how we price the China wood and that can really swing one direction or the other depending on what's going on in the domestic market and the Chinese demand. I will say just on the demand side, we're still seeing strong activity in China, the inventory levels at the port are coming down. According to our folks in China, there are still good take away from the ports and so we would certainly expect as we get to the back half of the quarter that we're going to continue to see good demand out of China.

So Devin, it would be fair to say that the trend in the quarter was really driven more by domestic market and less in terms of export trends and trade issues, would that be fair for Timberlands?

It's a little bit of both really. If you think about what happened in the West in the quarter, it was really, it was a perfect storm of events. You think about the fire season that the mills across the West were expecting and really they were putting that in the context of 2017 when we had a really severe fire season in the west and so across Washington and Oregon, everybody was planning for that in 2018, never materialized. Then you saw a lot of volume being built up at the mills and so very heavy large log decks. Additionally, with the high pricing that you saw in the West for the first half of the year that brought a lot of the marginal players bringing wood to the market, so that increased supply and then you overlay that with the trade disputes as some of the logs at least during a portion of the quarter that would have otherwise gone to China stayed into the domestic market. And so really what that did, it caused a little bit of a supply-demand dynamic that, that was a little out of balance and so as all of the things begin to normalize, we head into the winter weather where you're going to see less volume flowing into the market, that will all normalize and I think you get back into balance.

Okay. I'll turn it over. Thanks for the time guys and good luck in the quarter.

Thank you, George.

Your next question is from the line of Brian McGuire with Goldman Sachs. Please go ahead.

Hey good morning, everyone and I'll also add my congratulations Doyle on a great run and best of luck to Devin in the new role here.

Thank you.

Just following on from George's questions, I think and based on Russell's commentary around the pricing sensitivity, it seems like lumber for you guys will be close to breakeven in 4Q, maybe a little bit positive, but given you guys are one of the lower cost producers at this point, what do you think that kind of signals around current economics for call it marginal producers in the industry, you think more likely to see any capacity curtailments or getting that's just sort of normal fourth quarter seasonality and if we can little bit of rebound in pricing, you would expect nobody to really be thinking about taking an extended downtime?

I don't want to speculate on what others may do. As you know, as you probably know, there already have been some announcements as to downtime in the quarter. As I said our focus on cost and cost position puts us in a good position to continue to run our mills when maybe it didn’t make sense for some others to. I do think that the pricing scenario we're currently in will correct itself. Our best guess is by the end of the quarter, it will be headed back in the right direction. So we'll have to see how that plays out from a pricing perspective. So that's kind of how we think about it.

Okay. Just thinking about if prices don't recover, if they actually continue to slide in a worst case scenario, you're just thinking about the cash flow and the CapEx in particular. I know it's been elevated the last couple of years, there just been announcement on some wood products but could you maybe give us a sense of where that CapEx number could go, if we do get into more of an extended downturn here?

Sure. We have been spending approximately $300 million a year in CapEx in our wood products operation. We would anticipate that type of number in 2019 and then falling off to $250 million or so on a go forward basis. We've always said that maintenance CapEx is probably $150 million to $200 million, not suggesting this at all but you could lower it down to that price or to that level in the event that you made the decision that was the right thing to do. Again I'd go back to I think what we're seeing is a confluence of events that have led to this significant fall in the pricing including as Russell mentioned, a slug of supply coming in from Canada that was built up slower seasonal land hurricanes, a lot of events that we think will level out over time. So we're not predicting a precipitous fall in lumber prices for any extended basis, but in response to your question, we could lower CapEx significantly if we made a determination that we needed to do that.

Okay. Just trying to stress the model. I know you guys have set the dividend at a level where you think it's supported regardless of environment and do you think that's probably one of those components that would factor in there. Just last one for me, if lumber price is down, just wondering how you think that might impact either it be it prices, I know there is not a direct correlation per se there, but they did sort of compete with each other in some applications. So just wondering what your outlook is for either be bright EWP prices the rest of this year and into 2019?

Yeah, so EWP prices as we mentioned were actually up a little bit in the quarter that's a result of the price increase that we went -- that we put in earlier this year. So as you said, there is no direct tie between EWP prices. Those are done -- those price increases are set and implement over an annual basis, whereas lumber as we know it's price is determined every day. So at some point if you said there was a significant change in overall demand for lumber and/or EWP that could have an impact on pricing, but right now we anticipate prices will be steady for the balance of this year and into next year for EWP.

Okay. I'll leave it there. Thanks again Doyle.

Thank you.

Your next question is from the line of Collin Mings with Raymond James. Please go ahead.

Hey. Good morning.

Good morning, Collin.

First question for me just on the share repurchases over half the authorization was used in 3Q, I don't know if you can update us on how much has been purchased here 4Q today and maybe just more broadly update us on the appetite for repurchase activity just given the near-term cash generation isn’t what it was a couple months ago?

Collin as mentioned, we did repurchase $290 million in the third quarter. As we always do, we will report the amount that we repurchased in the fourth quarter and when we do the fourth quarter earnings call. So we still had $210 million under the current authorization and we of course will be working with our Board as we always do own capital allocation as we move forward.

Okay. And then just going back to roughly your comments as part of the sensitivity, just running some quick math, would it be fair to say if pricing stabilizes at this level that wood products, EBITDA generation would be maybe somewhere around the $100 million number, is there some other moving pieces we should consider in that or just some guidepost, would that be a fair way to think about it?

Collin I think as you look, clearly the pricing is pretty dynamic right now. As Doyle indicated, we would expect pricing to start improving coming into the latter part of the quarter, but as we stated in the prepared remarks, will be significantly down quarter-over-quarter.

Okay. And then just follow-up, going a little bit back to Anthony's question earlier, just as part -- a bit surprised by the Timberland guidance for 4Q just given that I would be a really multiyear low contribution from that segment, I get in the response some of the questions that you have this optimism as far as pricing recovering on the log front as we kind of move through 4Q, but just in terms of what you're seeing real time if you will, is pricing stabilizing? Is there still been further deterioration? Maybe just talk us through that a little bit both domestically and export.

Yeah so what I would say is that we still have reasonably high levels of inventory across the mill set in the West and so we're really just at the point now where we're starting to move into the rainy season here in the West and so that's going to take a little time for that to work its way through. I would expect you're going to continue to see the inventories at high level for the next several weeks and then as we get into the back half of Q4, I think you'll start to see that normalize and so I think we're still at a point where that's working its way through the supply demand dynamic getting back into balance, that will improve I think over the back half of the quarter. And that domestic pricing that certainly is correlated to the export pricing as well. So those things typically move more or less in tandem.

Okay. One last one for me and I'll turn it over. Just going back to some of the disruptions on the export market, a lot of has been made up over the last couple years really about the export opportunities out of the U.S., clearly some disruptions near term, recognizing again that the overall contribution from that is pretty de minimis for you guys. But just long term, how do you think about that business and are you actively exporting outside or out of the US out right now?

Yeah so obviously there's a difference between 5% tariff that we're seeing in the West and a 25% tariff on the South. The 25% tariff is certainly more meaningful to that business. Now as you said just for context, it is a relatively small part of our overall business, both in the South and then certainly Timberlands wide. We're continuing to ship out of the US South to China and India, that has gone down somewhat and certainly we're not ramping that up at the same pace that we had anticipated pre-trade dispute, but if you kind of step back and look at the opportunity over the long term, we're still very optimistic that that's going to be a good business for us. We've been on the ground talking to customers in China. I think Southern Yellow Pine is a market that will ultimately be developed in a much more meaningful way in China. I think the demand is there. Really I think in the short term we're going to have to just work our way through until this trade dispute gets resolved, but I would expect that it will get resolved as they always do and then there will be a very I think a bigger opportunity for us exporting out of the South.

Okay. I appreciate the color and again Doyle congratulations on your retirement and compliments at Weyerhaeuser and congratulations Devin on the new role.

Thank you, Collin.

Your next question comes from line of Mark Wilde with BMO. Please go ahead.

Good morning, Doyle, Devin, Russ.

Good morning.

Doyle, it's been about 25 years of earnings calls, I think you're probably happy to see them come to an end.

I would absolutely agree with you.

We've must be in the same boat with you. Three questions I want to ask about; first, there have been a couple of articles in the Wall Street Journal over the last couple weeks about kind of supply issues on Southern Timberland and I wondered if you guys would want to offer any thoughts on the substance of those articles, really had to do a kind of subsidies over the last 30 years for Timberland planting?

Yes sure Mark, this is Devin. Really that was getting to the Conservation Reserve Program that's in place -- been in place for a number of years and so really that's nothing new. We've all been aware of that program for long time and really it's just one factor that plays into the overall supply-demand dynamic going on in the south. It has certainly added some additional acreage over the years, but once again I think our optimism over the long-term is really about just the continued capacity coming online, the export opportunities over time, the diminishing supply from the Canadian lumber and the underlying continued improvement in housing. And so it's a piece of the puzzle, certainly not anything that everybody wasn't I think aware of already in terms of how they think about inventory levels across the South. So I guess that's how we would speak to that.

Okay. Fair enough. Second question I had I think we've all been surprised for the last 10 years about what's going on in the housing market. I think the notion that we're topping out here around 1.3 million starts is a big shock to a lot of us. I'm just curious if we are topping out here, can you talk about sort of the sustainability of the dividend if we don't see further improvement in the housing market?

Mark, first I would say I am not sure we agree with the premise and then I'll answer your question, go ahead.

No, I was just to say Doyle, I think a lot of us have kind of been assuming would at least get the 15 or 16, but if you look at the data over the last three or four months, it's not what it's showing us. So I am just saying if we're indeed topping out and I'm not arguing that we are, let's just talk about the dividend on that basis?

Sure, so let's assume for a minute that we top out the housing currently where we are, I think clearly that's a sensitivity we ran when we were coming over the dividend, we make dividend decisions for the long-term. We all have to remember that just last quarter we had record EBITDA and our wood products operation and in very high levels of EBITDA across the company, and housing starts at one point to something. So clearly, wood product prices have fallen. Again I think that's a confluence of events that just happen to fall in the same part and push prices down in the third quarter into the fourth quarter, but under your assumption of 1.3 million housing starts, I think this company in the way we're positioned and are focused on cost can generate a significant amount of cash flow and would be very comfortable with the dividend level on a go-forward basis.

Okay. All right. That's good. That's what I wanted. Last thing I wanted to ask about it's just Northern Timberlands, we generated $13 million in EBITDA this year around 2.5 million acres. I'm wondering how you think about that piece of portfolio and I'm particularly wondering if this is just a kind of valuation arbitrage between kind of where warehouse or trades on an EBITDA basis and what you might be able to do with that Timberland generating a relatively modest amount of EBITDA?

So Mark, this is Russell, as we stated when we first completed the merger with Plum Creek that we are going to look at all of the components of the portfolio and that's the Uruguay operations kind of as part of that review and then we continue to look at the portfolio really in all regions and determine, which timberlands makes sense on a long-term basis, which are strategic and where we want to grow and where we might want to divest. Again that's an ongoing process. The one thing I will say about the North is there are very low input costs. So it's very low-cost type operations, but again we'll continue to review the portfolio and if makes economic sense, we'll act on them.

Okay. Fair enough. Doyle, enjoy your retirement.

Thanks Mark.

Your next question is from the line of Chip Dillon with Vertical Research. Please go ahead.

Yes. Good morning and Doyle congratulations. It's been quite a long time that we've worked together. We certainly enjoyed it. So all the best.

Thank you, Chip and I've enjoyed working with you and many others on this call as well. It's hard to believe it's been a number of years it has been. So thank you.

Exactly at least one us and that would be you haven't changed that much, but hey listen, I had a question about when I look at the Timberland, well we both have a few more gray hairs, but looking at Timberland in the segment, you've given us great detail in terms of the sequential expectation and yet when I look year-over-year, it looks down pretty sharply and I didn't know if you just step back from the fourth quarter of this year and how that looks versus the fourth quarter of last year, how would you break up that roughly, I don't know $50 million $60 million decline in EBITDA between what we see in terms of the export market on one hand and what we see in terms of the domestic market? And then I guess the third bucket would be just you mentioned the higher unit costs, which would suggest you're going to harvest a little less, but you still haven't fixed cost of all the folks that are involved with that?

I think the year-over-year story is primarily around volume. If you think from a pricing perspective, it's not going to be all that much different year-over-year for the quarter, but it's primarily around volume and there's also certainly some cost inflation, which I mentioned earlier a little more on the transportation side, but a little bit on the logging side as well.

I got you and then I know you probably it's hard to tell, certainly given the fragmentation of the housing construction of marketplace, but as you look into 2019 to the best of your intelligence, are you seeing builders going into next year with less to do or is this pause you think largely seasonal in terms of what we're seeing in the data? And if it is the case of they have left to do, is it because they just can't get the permits or the people to do the work or is it because there's truly perhaps the demand or affordability issue?

Yeah, so let me share with you kind of our view on housing and given it's a lot of thought and start with the fact that there's just a lot of noise out there. There is weather events. There is increase in interest rate, the political situation, the volatility in the stock market, but if you step back, housing fundamentals are still compelling. Employment and wages continue to rise, consumer confidence is strong and while we've seen growth in housing starts for a number of years, we're still below the $1.3 million, which was -- we're still below $1.3 million which is not enough to replace the housing stock and meet the ongoing household formation and while interest rates are up they're still at relatively low levels. Maybe more important Chip to your question when we talk to our customers, the big homebuilders out there, they're still optimistic about how -- they do have lot constraint, they do have labor constraints and I think that's the big thing holding them back. So what we believe we're seeing right now is kind of a short-term slowdown in the growth rate on housing rather than something structural. Again, when we look at it, when we talk to folks about it, we see continued strength in growth in demand in housing on a go-forward basis. The other thing I would mention is we're also encouraged by what we're seeing in the repair and remodeling market, which as you know is a key driver of lumber demand and that's up 7.5% or so this year and we anticipate that kind of growth in 2019 as well in that market. So that's kind of how we think about it.

That's very helpful. Thanks again, guys.

Thank you.

Our next question is from the line of Steven Chercover with Davidson. Please go ahead.

Thanks. Good morning, everyone. Just a couple of nitty-gritty questions on the Wood Product segment. So first of all on the Distribution segment, I was wondering if there was any kind of inventory write-down in addition to the fires and everything else that's contributed to the decline?

The decline in distribution was driven by a couple of things. Number one, as we mentioned, we did have the fire at our Reading facility that was $4 million as result of some damage to inventory and equipment there. So that was $4 million of the impact. Secondly, our Southeast distribution centers were down for a period of time because of the hurricane and then third is just when you have falling commodity prices throughout a quarter, that's going to have an impact on distribution. So those would be the three key drivers for the delta quarter over quarter.

Okay. Thanks for that Doyle and then next one is can Engineered Wood Products sustain the pricing momentum or even sustain current pricing when lumber has fallen so dramatically?

Engineered Wood Product pricing is going to be based on what happens on the demand side of the equation. Again we think housing is going to continue to improve, which will drive demand. We did see a falloff in demand in the third quarter. As we mentioned that was driven by weather. There was extremely wet weather and what are historically very strong markets for EWP especially in Texas, which had and continues to have a lot of rain. So the key driver for EWP is going to be what happens on the housing front and as demand continues to grow in housing, we think that demand will be in place, which will support current prices and could even potentially projecting it could potentially lead to further price increases as we move into 2019.

Okay. Thanks and final question on lumber. If lumber prices were to stay in the current price range, would that put pressure on log prices? I'm wondering from a chicken and egg perspective, due to nonintegrated producers bid logs, so they are going to earn a margin on their lumber or the types of the lumber is a function of the incoming log price?

Well as we've seen historically there has been a direct tie between lumber and log prices, but as we've seen in the South, that's no longer necessarily the case. So we'll see how it plays out, but I guess most importantly we're pretty optimistic about lumber pricing headed back in the right direction, because if you really step back from a lumber perspective, is we think as you move forward assuming housing continues to improve, you're going to be in a mode where you're going to have growth and demand of somewhere in the 2 billion board feet range a year and you're going have growth in supply, net growth in supply. So there is some coming out of Canada increases in the South of 1 billion board feet and that's going to be a pretty good dynamic on a go-forward basis.

Okay. Thanks Doyle and all the best to you.

Thank you.

Your next question comes from the line of Mark Connelly. Please go ahead.

Thank you, Doyle. Certainly want to add my congratulations. You've done impressive things at Weyerhaeuser. Two questions, with valuations in other wood-related businesses coming down, how do you think about the relative size of the TRS? Is this an opportunity maybe to scale up the TRS and also how do you think about Timberland assets in the market now in terms of relative value?

So in terms of the size of the TRS, we really don't have any significant constraints on the ability to growth at this point. As always n valuation is what will matter in terms of -- in terms of any potential acquisitions. We've said, we think our biggest opportunities would be on the Timberland side, but we would look for bolt-on acquisitions in wood products especially if they tied into our timber base. So that has not changed, but we will be very disciplined on acquisitions as we move forward. In terms of timberlands, valuations are still at pretty high levels, but we will continue to look for opportunities to grow our timberland where we think we can create value for shareholders.

Very helpful. Thank you, Doyle.

Thank you.

Today's final question will come from the line of Paul Quinn with RBC Capital Markets. Please go ahead.

Thanks. Just skidded under the wire here. Maybe just a question on whether you've noticed anything in the Timberland marking themselves in terms of valuations, whether they've come down at all due to the market drop in lumber and OSB prices over the year?

Paul, this is Russell. We really haven't seen a change in the overall market dynamics. It's actually been pretty busy second half of the year. As far as valuations, we're still seeing as Doyle mentioned strong valuations and high-quality timberlands are in demand and we're seeing those trade at good prices. So the short-term dynamic that we're experiencing in the second half of the year, we haven't seen it impact Timberland values.

All right. That's all I had. Congrats Doyle.

Thank you very much.

So as I understand, that was our final question. As I mentioned earlier, as we close the call this morning, we want to make a few comments on succession and I wanted to personally thank all of you for your support over the last five years and as we mentioned, for many of you it's been 20 or 25 years. I will say, it's been an absolute honor to lead Weyerhaeuser for the past five years. When I accepted the job, I told our Board that I would stay for five years and every day I would be relentlessly focused on five things; portfolio, performance, capital allocation, culture and people development. I'm very proud of the progress we've made to position Weyerhaeuser to drive value for shareholders and I couldn't be any more excited about the energy and vision Devon, Adrian and Keith will bring to their new roles as they continue to drive improved operational and financial performance. Those of you who know Devin, he is extremely smart, driven and dedicated. He shares my passion for developing people and getting results and he is also an outstanding role model for our core values. And with that, I'd like to turn it over the floor to Devin for a few closing remarks.

All right. Well, thanks Doyle. Well, first I want to take a moment just to thank Doyle for his tremendous leadership and contributions to Weyerhaeuser. During his time leading this company, we focused and enhanced our portfolio of assets, improved our operating performance and delivered on a commitment to disciplined capital allocation. It's been a real privilege to work with Doyle over the last five years and I certainly wish him all the best in his retirement. I am personally truly honored to be assuming the leadership of this great company. Our assets are world-class. Our employees are incredibly talented. Our strategy is sound and I'm privileged to be working with a terrific senior leadership team. In the coming months and years, we're going to build on this strong foundation to make Weyerhaeuser the world's premier timberland and forest products company. I am very excited about the opportunities in front of us as we continue working together to drive value for shareholders through a relentless focus on industry-leading performance and disciplined capital allocation. I've had the chance to meet many of you in person already and it certainly look forward to getting to know the rest of you better as I assume the role. So for now, thanks everyone for joining us this morning and thank you for your interest in Weyerhaeuser. And with that, I think we'll close the call.

Ladies and gentlemen, this does conclude the Weyerhaeuser third quarter 2018 earnings results conference call. Thank you for your participation. You may now disconnect.