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Text: We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in the earnings materials on our website.
Adjusted EBITDA was $1.1 billion, a 68% increase over the fourth quarter of 2020 and a 167% increase compared to the year ago quarter.
This represents the highest quarterly adjusted EBITDA on record, surpassing the third quarter of 2020 by 48%.
I'm extremely proud of the operational and financial results delivered by our team, notwithstanding winter weather interruptions and supply chain challenges throughout the quarter.
The hard work we've been doing over the last several years has positioned us well to capitalize on these current favorable market conditions and we remain focused on delivering superior value for our shareholders.
Nancy brings more than 20 years of leadership and financial and operating roles across a broad range of industries.
She's hit the ground running and we're excited for the energy and expertise she is bringing to Weyerhaeuser and our leadership team.
With Nancy now on board, Russell Hagen has fully transitioned in his new role as Chief Development Officer.
I'm confident this organizational change will deliver meaningful portfolio management benefits as we align our Real Estate Energy and Natural Resources, acquisitions and divestitures and business development activities under one umbrella.
I am equally excited for the work this team is doing to support the company's increasing focus on emerging carbon and other natural climate solutions opportunities.
In a moment, I'll dive into our first quarter business results, but first let me make some brief comments on the housing market.
First quarter housing starts averaged 1.6 million units on a seasonally adjusted basis, an improvement of 2% over the fourth quarter.
Activity dipped briefly in February, driven by severe winter weather, but March activity rebounded sharply March housing starts totaled 1.7 million units on a seasonally adjusted basis, the highest level since 2006.
Single family starts in March, reached the highest rate for any month since June of 2007 at nearly 104,000 units.
Additionally, housing permits in the first quarter average nearly 8 million units on a seasonally adjusted basis, surpassing last quarter by 10%, and surging to its highest quarterly average since before the great recession.
Continued improvement in this key leading indicator points to increasing demand for new home construction in 2021.
With these encouraging tailwinds, our housing market outlook is very favorable and further supported by macroeconomic fundamentals that will continue to drive strong US housing activity, including record low supply of new and existing homes for sale, strong homebuilder sentiment, favorable demographic trends, flexible work arrangements, driving increased mobility and migration to the suburbs, higher savings rates, and continued post COVID improvements in GDP and unemployment.
Repair and remodel activity also remained robust in the first quarter.
Supported by rising home equity additional federal stimulus and limited resale inventory.
Feedback from our customers indicates a shifting trend from small do-it-yourself projects to larger professional remodels.
We expect repair and remodel demand to remain strong throughout 2021 as project backlogs continue to expand.
We are keeping an eye on certain cautionary factors including the impacts of increasing home prices and mortgage rates on affordability and challenges for homebuilders resulting from rising material costs, supply chain disruptions and labor availability.
However, we do believe the supportive fundamentals considerably outweigh these headwinds.
With the additional prospect of a federal infrastructure bill and growing demand for mass timber, we anticipate very favorable demand for wood products for the foreseeable future.
Turning now to our first quarter business results.
I'll begin the discussion with Timberlands on pages 6 through 8 of our earnings slides.
Timberlands contributed $108 million to first quarter earnings.
Adjusted EBITDA increased by $5 million, compared to the fourth quarter.
Turning to Western Timberlands starting with domestic market conditions.
Demand remained strong throughout the quarter as mills maintained healthy log inventories to capitalize on record lumber prices.
Log supply in the first quarter continue to improve as salvage harvest activity in Oregon increased substantially.
Similar to the fourth quarter, salvage operations resulted in an abundance of smaller diameter logs in the market.
This in turn is driving stronger demand and pricing for larger diameter logs.
Our fee harvest volume was comparable to the fourth quarter and our proportion of salvage volume increased significantly.
Average domestic log sales realizations were slightly lower than the fourth quarter as salvage operations resulted in a greater mix of smaller diameter logs.
We continue to make great progress on our 2021 salvage plan.
And as of the end of the first quarter, we've harvested approximately 40% of our planned salvage volume.
We did not experience any downgrades in realizations on our salvage logs during the quarter.
Log and haul costs increased slightly during the first quarter due to increased salvage activity and forestry costs were seasonally lower in the quarter.
Turning to our export markets.
In Japan, demand for our logs remained strong in the first quarter.
Reduced lumber imports into Japan, resulting from strong US domestic lumber markets and a global shortage of shipping containers, allowed our customers to increase market share and drove stronger demand for our logs.
Our Japanese log sales volumes increased moderately compared to the fourth quarter with a slight increase in realizations.
Similar to Japan, the market for US logs in China, remained strong in the first quarter as supply headwinds persisted, including lower overall lumber import volumes, a lack of container availability and restrictions on Australian log imports.
Log inventories at Chinese ports increased in February as manufacturing activity paused over the Lunar New Year period, but were drawn down rapidly in March as strong take away resumed.
Average realizations for our China export logs increased modestly compared with the fourth quarter, but this was offset by higher ocean freight rates.
Our sales volumes to China decreased significantly as we intentionally flex volume to the domestic market to capitalize on the strong pricing for our large diameter logs.
Moving to the South.
Southern Timberlands adjusted EBITDA increased $5 million compared with the fourth quarter.
Southern sawlog market strengthened in the first quarter as record lumber and panel pricing drove strong demand and supply was limited by severe winter weather and seasonally wet conditions.
Fiber markets also improved as demand increased following the fourth quarter maintenance outages by many of our pulp log customers.
Our fee harvest volume was slightly lower than the fourth quarter as we lost several operating days due to the snow and ice in February.
Average sales realizations were slightly higher than the fourth quarter due to improved sawlog and fiber log realizations as well as favorable mix.
Road and forestry costs decreased seasonally.
On the export side, we continue to see growing demand from both China and India.
Southern export log pricing increased substantially in the first quarter but volumes were comparable to the fourth quarter as container availability and increased freight rates were notable headwinds.
Northern Timberlands adjusted EBITDA increased $1 million compared to the fourth quarter due to improved sales realizations for hardwood logs.
Turning to Real Estate Energy and Natural Resources, Pages 9 and 10.
Real Estate ENR contributed $66 million to first quarter earnings and $96 million to adjusted EBITDA.
First quarter adjusted EBITDA was $73 million higher than fourth quarter due to timing of transactions.
Similar to 2020, our 2021 real estate sales activity is heavily weighted toward the first half of the year.
Average price per acre was down significantly compared to the unusually high fourth quarter, but still substantially higher than one year ago.
As was the case in fourth quarter, first quarter included a number of high-value retail -- retail transactions in the US South.
Wood products, Pages 11 and 12.
Wood Products contributed $840 million to first quarter earnings and $889 million to adjusted EBITDA.
First quarter adjusted EBITDA was 68% higher than the fourth quarter and surpassed by 45% the previous quarterly record, which was established in the third quarter of 2020.
Our lumber, OSB, and distribution businesses delivered the highest quarterly adjusted EBITDA on record during the first quarter.
Demand remained extremely strong across our product lines with continued strength in the new residential construction and repair and remodel end markets.
The framing lumber composite entered the first quarter near the record levels achieved in the third quarter of 2020.
After a slight pullback in January, prices reentered record territory and continued to increase as the quarter progressed, notwithstanding a low-end consumption in the south following the severe winter weather event in February.
Inventory and the distribution channels remained lean throughout the quarter as buyers delicately balanced their need to replenish inventory with buying at record high price levels.
Average lumber composite pricing increased 41% compared with the fourth quarter.
EBITDA for lumber increased $259 million compared with the fourth quarter, a more than 100% improvement.
Average sales realizations increased by 42%.
Cost for Canadian logs increased significantly and Southern log costs increased slightly during the quarter.
Our lumber production decreased slightly compared with the fourth quarter as a handful of mills lost production days due to severe winter storms in the US South.
Sales volumes decreased by 5% compared with the fourth quarter as customer takeaway and supply chains in the South were temporarily disrupted following the severe winter weather.
OSB markets performed at an unprecedented pace in the first quarter.
Limited resin availability added incremental constraints to an already lean supply of OSB in the market.
This dynamic, coupled with continued strong demand, resulted in a record setting price run that persisted for the entire quarter.
Average OSB composite pricing increased 30% compared with the fourth quarter.
OSB EBITDA increased $80 million compared to the fourth quarter, a 36% increase.
Average sales realizations improved by 22%.
Production and volumes increased slightly compared with the fourth quarter and unit manufacturing costs improved, as a reduction in planned maintenance more than offset weather-related downtime at one of our Southern mills.
Although resin availability was a challenge across the OSB market, our supply chain and transportation teams did a fantastic job of effectively navigating the disruption, resulting in no material impact to our OSB production volumes or mix in the first quarter.
We continue to benefit from proactive initiatives to diversify our resin supply.
Engineered Wood Products EBITDA increased $5 million compared to the fourth quarter.
Average sales realizations for solid section and I-joist products improved, as we continue to benefit from our August 2020 price increase and quickly began capturing the benefit of a second increase announced in January.
This was partially offset by higher raw material costs for oriented strand board web stock, resin, and veneer.
Production volumes also decreased slightly across several product lines as a result of weather-related downtime.
In distribution, EBITDA increased $15 million compared to the fourth quarter as strong demand drove sales volumes across all products and the business captured improved margins.
Turning briefly to operational excellence.
After exceeding our 2020 operational excellence target, we remain focused on opex in 2021, targeting another $50 million to $75 million across our businesses.
With one quarter of 2021 behind us, we are on track to achieve our full year 2021 target and look forward to sharing some accomplishments as the year progresses.
Finally, I'd like to comment briefly on two recent timberland transactions.
As we've noted previously, we're continuously evaluating opportunities to optimize and grow the value of our timberland holdings.
Today, we reported the closing of our previously announced acquisition of 69,000 acres of Alabama Timberlands.
These are high-quality acres that are accretive to our portfolio and exhibit strong [Technical Issues] to our existing footprint.
Hampton is a strategic buyer with a complementary manufacturing footprint in the area.
This transaction is part of a multi-year effort to strategically optimize our Western Timberlands portfolio and completes our targeted large scale divestitures in the region.
The North Cascades is our least productive acreage in the West.
It's primarily high elevation white wood with high operating costs and is not serving any of our internal mills or export customers.
This property does not materially contribute to EBITDA.
It was not expected to generate a competitive return within our portfolio, even considering future alternative sources of value.
We're really pleased with this transaction and plan to redeploy the proceeds in line with our priorities for opportunistic capital allocation, including continue to enhance and grow our Timberlands portfolio in a disciplined manner.
I'm looking forward to meeting many of you in the coming months.
Over the past two months, I've spent a great deal of time with the senior leadership team, as well as the finance team here at the company, immersing myself in the business and getting to know our employees and operations.
I've come away from that with tremendous excitement about the future and our ability to create significant long-term value for shareholders.
I'm looking forward to the work ahead.
I'll begin with the first quarter results for our unallocated items as summarized on page 13.
First quarter adjusted EBITDA for this segment improved by $7 million compared to fourth quarter 2020.
This improvement was mainly due to lower corporate function and variable compensation expenses, partially offset by higher charges for the elimination of intersegment profit in inventory and LIFO.
This charge was primarily driven by higher lumber inventory in the South, where customer takeaway was disrupted after the severe winter weather.
Turning now to our key financial items, which are summarized on Page 14 cash from operations totaled nearly $700 million for the first quarter.
This is our highest quarterly operating cash flow since fourth quarter 2006, and our highest first quarter cash flow on record.
We generally expect cash from operations to decrease significantly in the first quarter, primarily due to seasonal working capital increases.
However, operating cash flow improved by over $250 million compared with the fourth quarter, as these factors were more than outweighed by higher pricing for lumber and oriented strand board.
We reinvested a portion of this cash in our Timberlands and Wood Products businesses through capital expenditures, which totaled $53 million for the first quarter.
Adjusted funds available for distribution or FAD, for first quarter 2021, totaled $645 million as highlighted on Page 15.
In the first quarter, we returned $127 million to our shareholders through payment of our first-quarter base dividend of $0.17 per share.
As a reminder, we plan to target a total annual return to shareholders of 75% to 80% of our annual adjusted FAD.
We will deploy the remaining 20% to 25% of our annual FAD consistent with our stated priorities for opportunistic capital allocation.
Turning to the balance sheet, we ended our first quarter with over $1 billion of cash, an undrawn line of credit, and just under $5.5 billion of outstanding long-term debt.
As a reminder, we have cash earmarked to repay our $150 million 9% note, when it matures in the fourth quarter.
Our strong balance sheet position, in addition to our record EBITDA performance, has resulted in a net debt to adjusted EBITDA leverage ratio of 1.5 times.
Although our leverage ratio is significantly below our over the cycle target of 3.5 times net debt to EBITDA, we believe that's appropriate given the extremely strong commodity markets we're experiencing today.
Looking forward, key outlook items for the second quarter are presented on page 16.
In our Timberlands business.
We expect second quarter earnings and adjusted EBITDA will be comparable to the first quarter.
In our Western Timberlands operations, we expect our second quarter domestic log sales volumes will be significantly higher than the first quarter.
Domestic mill inventories ended the first quarter at moderate level and log demand in the West remains favorable due to strong lumber market.
Domestic average sales realizations are expected to be moderately lower compared with the first quarter.
Additionally, while we expect average sales realizations for large logs to improve, we believe that this will be offset by an unfavorable mix of small logs as we continue to work through salvage wood.
We anticipate second quarter fee harvest volumes will be significantly higher and that forestry and road spending will increase as we enter the spring and summer months.
Moving to the export markets.
In Japan, log demand remains strong.
Japanese Douglas-fir lumber producers continue to experience very favorable demand as lumber imports into Japan remained limited due to the high price of US lumber and low availability of shipping containers.
Our second quarter average sales realizations on log imports to Japan are expected to increase modestly compared to the first quarter.
Our average sales volumes are expected to be comparable in the first quarter.
For China, average export log sales realizations are expected to increase significantly.
Demand for imported logs is strong due to significant economic growth, limited lumber imports, and continued disruptions in the supply of imported log.
However, our average log sales volumes are expected to be lower compared with the first quarter.
With strong US domestic demand for large log and high ocean freight cost, we'll flex more logs to the domestic market to capture the highest margin.
In the South, we anticipate fee harvest volumes will be significantly higher than first quarter due to seasonally higher thinner activity -- thinning activity, as well as the deferred harvest activities related to the adverse weather we experienced during the first quarter.
We expect average log sales realizations will be comparable to first quarter.
Forestry spending in the South is expected to increase, which is typical coming into the spring months.
In the North, average log sales realizations are expected to increase slightly compared to first quarter while fee harvest volumes are expected to be significantly lower as we enter the spring breakup season.
I'll wrap up the Timberlands segment with a few comments on our recent timberland transaction.
In the second quarter, we will report a cash outflow of approximately $149 million for the 69,000 acre Alabama Timberlands acquisition that we completed this week.
And as Devin mentioned, we have also announced the sale of our North Cascades acreage and we expect to complete that transaction in the third quarter.
The gain on sale will be reported as a special item within the Timberlands segment.
Turning to our Real Estate Energy and Natural resource segment.
Real estate markets remain strong into the second quarter, as the sale preferences during this time, continue to drive robust demand for rural recreational properties.
We expect second quarter net earnings and adjusted EBITDA to be moderately lower than first quarter due to timing of transactions.
We continue to expect full year 2021 adjusted EBITDA of approximately $255 million, although we now expect land basis as a percentage of real estate sales to be approximately 35% to 45% for the year due to the mix of properties sold.
We continue to anticipate our 2021 real estate activity will be heavily weighted to the first half of the year, similar to our cadence in both 2019 and 2020.
For our Wood Products segment, new residential construction activity has remained at very favorable levels and our builder and dealer customers are anticipating a strong second quarter following the already strong first quarter.
In repair and remodel markets, we are seeing a shift from small do-it-yourself improvement project to larger remodel activity, further solidifying the demand for structural wood products within this market.
Excluding the effect of changes in average sales realizations for lumber and oriented strand board, we expect second quarter adjusted EBITDA will be significantly higher than the first quarter.
For lumber, we expect production volumes to increase during the quarter as operating rates are expected to improve following weather related mill downtime in the first quarter.
We expect these higher production volumes to have a favorable impact on our manufacturing costs.
We also anticipate this increased supply as well as higher seasonal inventory drawdown to drive higher sales volumes during the quarter.
Oriented strand board is expected to have a slightly lower production level and sales volume and slightly higher manufacturing costs due to an extended outage to complete a planned capital project at our Elkin OSB mill.
This equipment has been on-site but installation has been delayed multiple times due to COVID related travel restrictions and vendor resource availability.
Log costs are expected to be comparable to the first quarter.
Entering the second quarter, benchmark pricing for oriented strand board and the framing lumber composite has continued to rise beyond the record levels experienced in the first quarter.
For lumber, our quarter-to-date average sales realizations are approximately $105 higher and current realizations are approximately $130 higher than the first quarter average.
For OSB, our quarter-to-date average sales realizations are approximately $135 higher and our current sales realizations are approximately $185 higher than the first quarter average.
As a reminder for lumber, every $10 change in realizations is approximately $11 million of EBITDA on a quarterly basis.
For OSB, every $10 change in realizations is approximately $8 million of EBITDA on a quarterly basis.
For engineered wood products, we expect higher average sales realizations for our solid section and I-joist products as we continue to capture the benefit of price increases announced in August 2020 and January 2021.
Additionally, in March 2021, we announced a third increase, which ranges from 10% to 25% and will be captured over the next several quarters.
This will be partially offset by higher raw material costs.
I'll wrap up with a few additional comments on our total company financial items.
We continue to expect full year 2021 interest expense will be approximately $315 million.
Additionally, we continue to anticipate 2021 capital expenditures to total $420 million, with most large projects executing in the second half of the year.
Turning to taxes, we continue to expect our full-year 2021 effective tax rate will be between 18% and 22% before special items.
Based on our forecasted mix of earnings between our REIT and taxable REIT subsidiary.
As previously discussed, the $90 million tax refund, associated with our 2018 pension contribution, remains in process.
We anticipate receiving this refund in second quarter 2021.
Excluding this refund, we continue to expect our 2021 cash taxes will be generally comparable to our overall tax expense.
In closing, our first quarter financial performance was the strongest on record.
And I'm incredibly proud of the work our teams are doing to achieve these results.
Whether it's navigating winter conditions and supply chain disruptions, keeping our people safe through a pandemic, or the relentless focus to capture opex opportunities across our portfolio, our employees have done an outstanding job positioning the company to capitalize on the strong markets we're experiencing today.
Looking forward, the demand for our products is extremely favorable, supported by encouraging macroeconomic conditions, and continued resiliency in the US housing and repair and remodel markets.
We remain committed to serving our customers and delivering industry-leading performance across our operations.
When combined with a strong balance sheet and a dividend framework that returns meaningful cash to shareholders, we're well positioned to drive superior long-term value into the future.

user
sees q2 earnings and adjusted ebitda to be moderately lower than q1 2021 for real estate, energy & natural resources segment.
company expects q2 earnings and adjusted ebitda will be significantly higher than q1 for wood products segment.
expects q2 earnings and adjusted ebitda will be comparable to q1 for timberlands segment.

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