Weyerhaeuser Company · NYSE:WY
Weyerhaeuser — Investor Day (June 2007)
85 slides from Weyerhaeuser's investor day presentation, Jun 6, 2007
Slide 1: Annual Analyst Conference New York
Annual Analyst Conference New York June 1, 2007
Slide 2: Forward-looking Statement
Forward-looking Statement The following presentations contain statements concerning Weyerhaeuser Company’s future results and performance that are forward -looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Some of these forward -looking statements can be
Slide 3: Agenda
Agenda Welcome Kathryn F. McAuley Vice President, Investor Relations Opening Remarks Steven R. Rogel Chairman, President and CEO Strategic Direction Patricia M. Bedient Executive Vice President and CFO Industry Outlook 2007 Lynn O. Michaelis Vice President, Markets & Economic Research Timberlands, C
Slide 4: Steve Rogel, Chairman, President and CEO
Steve Rogel Chairman, President and CEO
Slide 5: Strategic Direction
Strategic Direction Patty Bedient Executive Vice President, Chief Financial Officer
Slide 6: Fundamental Principles
Fundamental Principles Timberlands are core to the company Businesses must exceed cost of capital Continue capital spending discipline Maintain appropriate capital structure and dividend policy Annual Analyst Conference — June 1, 2007
Slide 7: Weyerhaeuser's Vision
Weyerhaeuser’s Vision “Weyerhaeuser releases the potential in trees to solve important problems for people and the planet” Annual Analyst Conference — June 1, 2007
Slide 8: Legislative Tax Reform
Legislative Tax Reform Industry sponsorship Timber Revitalization and Economic Enhancement (TREE) Act of 2007 introduced in Congress Bi-partisan support Immediate value and flexibility Annual Analyst Conference — June 1, 2007
Slide 9: iLevel Strategy
iLevel Strategy To be the undisputed leader in the Residential Structural Frame Market Annual Analyst Conference — June 1, 2007
Slide 10: Weyerhaeuser Real Estate Company
Weyerhaeuser Real Estate Company Disciplined growth in targeted markets Annual Analyst Conference — June 1, 2007
Slide 11: Fine Paper Transaction: Split / Merge with Domtar
Fine Paper Transaction: Split / Merge with Domtar Market leader created through unique tax-free transaction $1.35 billion in cash for debt reduction Over 25 million shares retired Shareholders given choice Annual Analyst Conference — June 1, 2007
Slide 12: Cellulose Fibers
Cellulose Fibers High-performance fibers Absorbent products Premium towel and tissue Proprietary technology Technical capability Annual Analyst Conference — June 1, 2007
Slide 13: Containerboard Packaging and Recycling
Containerboard Packaging and Recycling Accelerating implementation of new business model Considering broad range of strategic alternatives Hold and optimize Sell / divest Other combination Annual Analyst Conference — June 1, 2007
Slide 14: Financial Priorities
Financial Priorities Capital spending discipline 80% of depreciation Aligned with strategy Dividend policy Increased dividend 33% in the last 2 years Share repurchase 25 million shares retired through the Domtar transaction Repurchased 11 million shares Appropriate capital structure Annual Analyst C
Slide 15: Industry Outlook 2007
Industry Outlook 2007 Lynn Michaelis Vice President, Markets & Economic Research and Chief Economist
Slide 16: Agenda for Industry Outlook
Agenda for Industry Outlook Macroeconomic setting for forest products Housing Issues: National and regional Situation in Wood Products Cellulose Fiber (Pulp) Containerboard and Packaging Annual Analyst Conference — June 1, 2007
Slide 17: Outlook Summary
Outlook Summary Approaching the bottom of the housing cycle — but recovery pattern uncertain Wood product prices at bottom Long-term trend still positive for housing and wood products Very positive environment for softwood pulp Prospects for containerboard and packaging industries are mixed Annual A
Slide 18: Macroeconomic Outlook
Macroeconomic Outlook World growth strong, despite U.S. slowdown Interest rates remain near current levels given inflation Dollar decline continues — helps U.S. industrial production Housing starts approaching bottom, but recovery pattern uncertain Annual Analyst Conference — June 1, 2007
Slide 19: Dollar Declines Further: Immense Current Account Deficit
Dollar Declines Further: Immense Current Account Deficit Euro Exchange Rate U.S.$/Euro (inverse) Forecast* 0.8 1.0 1.2 1.4 1.6 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Quarterly QMIEU09E Source: Wall Street Journal, *Weyerhaeuser Annual Analyst Conference — June 1, 2007
Slide 20: Stronger Industrial Growth Over 2004–07 Period
Stronger Industrial Growth Over 2004–07 Period Growth in Weighted** Index for U.S. Manufacturing Production Percent Change Forecast* 4 ** 80% non-durable; 20% durable excluding high tech 2 0 -2 - -4 -6 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Annual AMDIP09A Source: FRB, *Weyerhaeuser
Slide 21: Now in Correction Period — Unique Cycle
Now in Correction Period —Unique Cycle U.S. Single-family Housing Starts Million Units Forecast* 1.8 1.6 Demographic Trend 1.4 for 2000-10* 1.2 1.0 0.8 1996 1998 2000 2002 2004 2006 Annual Average Source: Census, *Weyerhaeuser Annual Analyst Conference — June 1, 2007
Slide 22: Surge in Total Housing Inventory Needs to be Worked off
Surge in Total Housing Inventory Needs to be Worked off; Partial Cause — Investors Exiting Inventory of Homes and Condominiums for Sale Million Units 5 Condominiums 4 New SF Homes Existing SF Homes +1.6 Million 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 Quarterly QMDHO79A Source: Nat’l Ass
Slide 23: Another Problem Needs to be Corrected; Risky Loans
Another Problem Needs to be Corrected; Risky Loans Mortgage Delinquencies Subprime Loans With Installments Past Due Percent 16 15 14 13 12 11 10 9 20002001 20022003 2004 2005 2006 2007 Quarterly QMDIR22A Source: MBA Annual Analyst Conference — June 1, 2007
Slide 24: Situation in Wood Products
Situation in Wood Products Wood products demand fell sharply with decline in single -family housing starts Current product prices are below cash costs for average mills —lumber and oriented strand board — driving production lower U.S. timber prices lag lumber prices and mill production Long-term pos
Slide 25: Canadian Mills Have Been Running Cash Negative
Canadian Mills Have Been Running Cash Negative Spruce-Pine-Fir 2x4 Lumber Price $/MBF 450 Trade 400 Case Begin 350 300 250 200 Reported Random 150 Lengths Estimated Mill Net Average Mill Cost* 100 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Quarterly QWDCLP07D Source: Random Lengths,*RISI
Slide 26: Expect C$ Appreciation to Continue
Expect C$ Appreciation to Continue Canadian Exchange Rate U.S.$/C$ (inverse) Forecast* 0.60 0.70 0.80 0.90 1.00 2000 2001 2002 2003 2004 2005 2006 2007 2008 Quarterly QMICA09G Source: Wall Street Journal, *Weyerhaeuser Annual Analyst Conference — June 1, 2007
Slide 27: Now Below Maximum Tariff Trigger Level
Now Below Maximum Tariff Trigger Level Framing Lumber Composite Price $/MBF 450 400 350 Maximum 300 Export Trigger YTD 250 1995 1998 2001 2004 2007 Annual AWDLOP02A Soure: Random Lengths Annual Analyst Conference — June 1, 2007
Slide 28: U.S. Product Prices Set by Canadian Imports
U.S. Product Prices Set by Canadian Imports Douglas Fir 2x4 Green vs. Spruce-Pine-Fir 2x4 Mill Lumber Price $/MBF 450 Douglas Fir (X=YTD) Spruce-Pine-Fir 400 350 300 250 200 1995 1997 1999 2001 2003 2005 2007 Annual AWDWLP03B Source: Random Lengths Annual Analyst Conference — June 1, 2007
Slide 29: Log Prices Lag Lumber Prices and Lumber Production
Log Prices Lag Lumber Prices and Lumber Production Douglas Fir Log Prices Export Log vs. Domestic #2 $/MBF 1200 (X= YTD ) 1000 Export Log 800 600 Domestic #2 400 1995 1997 1999 2001 2003 2005 2007 Annual ATLP70D Source: Log Lines, Weyerhaeuser Annual Analyst Conference — June 1, 2007
Slide 30: Eventually, Prices Rebound to Level that Covers Cash Cost
Eventually, Prices Rebound to Level that Covers Cash Cost North Central Oriented Strand Board 7/16” Price $/MSF 400 350 300 250 Average 200 Mill Cost in 2006* 150 YTD 100 1995 1998 2001 2004 2007 Annual AWDPNLP09F Source: Crow’s, *RISI Mill Survey Annual Analyst Conference — June 1, 2007
Slide 31: Situation in Cellulose Fibers
Situation in Cellulose Fibers Overall demand growth positive, especially for fluff and absorbent grades (U.S. Southern pine pulp) Capacity growth primarily in hardwood pulp Dollar decline supports positive prices for NBSK and fluff pulp — strong position for U.S. Southern mills Annual Analyst Confer
Slide 32: Weaker Dollar Makes U.S. Mills More Competitive
Weaker Dollar Makes U.S. Mills More Competitive Manufacturing Cash Costs for Bleached Softwood Kraft Pulp $/Tonne 600 Typical Mill 500 U.S. Canada Sweden 400 300 200 100 0 2002 2006 Source: Weyerhaeuser APLOTP84A Annual Analyst Conference — June 1, 2007
Slide 33: Pulp Prices Reflect Relative Operating and Exchange Rates
Pulp Prices Reflect Relative Operating and Exchange Rates Fluff vs. Eucalyptus Delivered Northern Europe $/Metric Ton 850 750 650 Fluff 550 450 Eucalyptus (X = April) 350 2001 2002 2003 2004 2005 2006 2007 2008 Quarterly QPLOTP39A Source: RISI Annual Analyst Conference — June 1, 2007
Slide 34: Gap Between Box Shipments Growth and Industrial Production
Gap Between Box Shipments Growth and Industrial Production — Higher Prices Weighted** Industrial Production and Annual Growth of U.S. Box Shipments Percent Change 4 **80% Nondurables, 20% Durables Industrial Production Excluding High Tech Box Shipments 3 2 1 0 -1 1993-1997 1998-2003 2004-06 Annual A
Slide 35: Relationship Between Linerboard and Box Prices Has Changed
Relationship Between Linerboard and Box Prices Has Changed U.S. Corrugated Box Price vs. Eastern U.S. Linerboard Price Box Liner $/MSF $/Short Ton 70 550 Box (left scale) 500 Liner (right scale) 60 450 400 50 350 300 40 250 (X=YTD) 30200 1995 19971999 2001 2003 2005 2007 Annual ACBOTG58F Source: FBA
Slide 36: The Global Industry: All New Capacity Has Been OCC Based
The Global Industry: All New Capacity Has Been OCC Based Fiber for World Containerboard Production Million Tons 150 Recycled Fiber 120 Virgin Fiber 90 60 30 0 1988 2005 Annual XCBOTG13G Source: P ö yry Annual Analyst Conference — June 1, 2007
Slide 37: Now at Limit of OCC-based Capacity
Now at Limit of OCC-based Capacity World Recovered Paper Content in Containerboard Percent 80 75 70 Calculated Limit* 65 60 55 50 45 40 * For current quality 35 19881992 1996 2000 2004 Annual ARCOCCG35D Source: P ö yry Annual Analyst Conference — June 1, 2007
Slide 38: Putting Upward Pressure on OCC Prices
Putting Upward Pressure on OCC Prices Recovered Paper OCC Price (Grade 11) (F.O.B. Packing Plant) $/Short Ton 120 100 Current Chip Price Equivalent 80 YTD Chicago 60 40 20 0 1996 1998 2000 2002 2004 2006 2008 Annual ARCOCCP02F Source: Official Boards Market, RISI Annual Analyst Conference — June 1,
Slide 39: Higher Price Levels may be Needed to Encourage Virgin Capacity Growth
Higher Price Levels may be Needed to Encourage Virgin Capacity Growth Fiber for World Containerboard Production Million Tons Forecast* 180 Recycled Fiber 150 Virgin Fiber 120 90 60 Virgin Softwood 30 Capacity Needed 0 1988 2005 2015 Annual XCBOTG13I Source: P ö yry (History) *4.5% per year growth, R
Slide 40: Outlook Summary
Outlook Summary Approaching the bottom of the housing cycle — but recovery pattern uncertain Wood product prices at bottom Long-term trend still positive for housing and wood products Very positive outlook for softwood pulp Outlook for containerboard and packaging industries is mixed Annual Analyst
Slide 41: Timberlands, Cellulose Fibers and Containerboard, Packaging & Recycling
Timberlands, Cellulose Fibers and Containerboard, Packaging & Recycling Rich Hanson Executive Vice President, Chief Operating Officer Annual Analyst Conference — June 1, 2007
Slide 42: Safely Making Money
Safely Making Money Total Company Recordable Incident Rate RIR 2000–2007 March Year-to-Date 6.0 5.0 4.0 3.80 3.0 2.61 2.46 2.48 2.27 2.0 2.28 1.67 1.0 1.19 0.0 2000 2001 2002 2003 2004 2005 2006 2007 Mar. YTD Annual Analyst Conference — June 1, 2007
Slide 43: Timberlands
Timberlands Annual Analyst Conference — June 1, 2007
Slide 44: Operational Excellence in Timberlands
Operational Excellence in Timberlands Generating industry-leading returns Superior silviculture strategy Superior execution – Forestry efficiency and low operating costs – Log allocation to the highest return market – Portfolio management Enhancing total return per acre Annual Analyst Conference — J
Slide 45: Diverse Timberlands Ownership
Diverse Timberlands Ownership 6.4 million acres in U.S. 0.7 million acres in Southern Hemisphere* *includes joint ventures Annual Analyst Conference — June 1, 2007
Slide 46: Innovative Silviculture
Innovative Silviculture Grow bigger sawtimber faster, better, cheaper than competitors Invest in silviculture to enhance timberland returns Innovations in bedding and planting stock Precision silviculture — Vision Forestry in the South Optimal harvest scheduling Strength & Thinning Stiffness Testing
Slide 47: Maximizing Harvest Value
Maximizing Harvest Value Optimizing log revenue Log allocation to markets (export, lumber, veneer and fiber) helps achieve full value potential Internal vs. external customer choices enhance values —“right log to the right mill” Minimizing harvest costs Scale and concentration provide for efficient
Slide 48: Optimizing Timberlands Portfolio
Optimizing Timberlands Portfolio Returns improved through Portfolio Yield Curve active portfolio management Acquisition Increased ownership by 1.5 Targets million acres since 2000 Market Major strategic to acquisitions Return Divestment Targets Regional dispositions including HBU land Acres Growing
Slide 49: Maximizing the Value per Acre
Maximizing the Value per Acre 2006 Timberland activities other than harvest generated more than $225 million of earnings Current activities include Traditional small timberlands sales and exchanges Sales of lands with enhanced real estate values Mineral and oil and gas extraction Other earnings (hun
Slide 50: Generating Industry-leading Returns
Generating Industry-leading Returns U.S. Timberlands EBITDA* Per Acre Owned (2006) 30 0 25 0 20 0 15 0 10 0 50 0 WY West NCREIF WY South NCREIF PNW South *Non-GAAP measure; reconciliation on weyerhaeuser.com Annual Analyst Conference — June 1, 2007
Slide 51: Cellulose Fibers
Cellulose Fibers Annual Analyst Conference — June 1, 2007
Slide 52: Cellulose Fibers — Products
Cellulose Fibers —Products Advanced absorbent fibers used in diapers and other personal care products are chemically modified for superior performance Fibers used in premium towel and tissue products, specialty and publication papers Specialty fibers used in textiles and non-wovens Annual Analyst Co
Slide 53: High-performance Cellulose Fibers
High-performance Cellulose Fibers End Use Markets Incoming Raw (~65% Export) Material Manufacturing Fiber Tons Fiber Treatment MM Towel / Tissue Selection Bales Carrier ~0.4 Downstream Specialty Tons Textiles Specialty MM Chemicals 5 Locations ~0.2 Filter Media ~1.9 MM TonsRolls Absorbents Tons R&D
Slide 54: Cellulose Fibers Operations
Cellulose Fibers Operations Grande Prairie NBSK SBSK New Bern Port Wentworth Columbus Flint River Annual Analyst Conference — June 1, 2007
Slide 55: Cellulose Fibers — Operational Excellence
Cellulose Fibers — Operational Excellence Absorbent Product Mills 2006 Improvements over 2005 Manufacturing Efficiency 4% Manufacturing Cost $36/ton Annual Analyst Conference — June 1, 2007
Slide 56: Containerboard, Packaging and Recycling
Containerboard, Packaging and Recycling Annual Analyst Conference — June 1, 2007
Slide 57: Containerboard Packaging and Recycling Operations
Containerboard Packaging and Recycling Operations 9 Containerboard Mills —6.2 million tons 75 Packaging Plants —98 BSF; 10 Specialty Plants —Bulk, Inks and Plants, Preprint, Retail 4 Bag Plants —160,000 Tons 19 Recycling Plants —6.8 million tons Annual Analyst Conference — June 1, 2007
Slide 58: The Business Model
The Business Model Market segments as profit centers Demand-driven, customer-focused model Operating as an integrated supply chain (mills / box plants) Delivering against demand at the lowest cost Leveraging scale Annual Analyst Conference — June 1, 2007
Slide 59: Accelerating Implementation
Accelerating Implementation New leadership Achieving more responsive and coordinated sales organization Applying lessons from business model pilot Focusing on margin improvement and profitable volume growth Annual Analyst Conference — June 1, 2007
Slide 60: Targeted Earnings Improvements Through 2008
Targeted Earnings Improvements Through 2008 $230 Million · Labor reductions Mill · More efficient maintenance spending Initiatives · Lower energy consumption $65 MM · Lower chemical consumption Converting • Rationalization / machine efficiency Initiatives • Decreased fixed costs $65 MM • Reduced tra
Slide 61: iLevel
iLevel Lee Alford Senior Vice President, Residential Wood Products Annual Analyst Conference — June 1, 2007
Slide 62: 2006 Wood Products Segment Sales
2006 Wood Products Segment Sales International 3% Commercial 2% Industrial 7% Repair & 17% Remodel 71% New Residential (iLevel Focus) Annual Analyst Conference — June 1, 2007
Slide 63: The Vision for iLevel
The Vision for iLevel To be the undisputed leader in the To be the in the Residential Structural Frame market Annual Analyst Conference — June 1, 2007
Slide 64: Repositioning Wood Products
Over the Last 3 Years We Have Been Repositioning Wood Products Repositioned assets Retooled Reduced costs Improved safety 50% and ... Generated over $2.4 billion cash flow Annual Analyst Conference — June 1, 2007
Slide 65: The Residential Structural Frame Complex
The Residential Structural Frame Annual Analyst Conference — June 1, 2007 Complex Channel to Market is Evolving Framers Contractor Yards Builders Builders Primary and Pro Dealers Primary Manufacturing Manufacturing Truss and Panel Plants Home Buyer Annual Analyst Conference — June 1, 2007
Slide 66: Complex Channel to Market is Evolving
Complex Channel to Market is Evolving Framers Contractor Yards Builders Builders Primary and Pro Dealers Primary Manufacturing Manufacturing Truss and Panel Plants Home Buyer Annual Analyst Conference — June 1, 2007
Slide 67: Complex Channel to Market is Evolving
Complex Channel to Market is Evolving Framers Contractor Yards Builders Builders Primary and Pro Dealers Primary Manufacturing Manufacturing Truss and Panel Plants Home Buyer Annual Analyst Conference — June 1, 2007
Slide 68: Complex Channel to Market is Evolving
Complex Channel to Market is Evolving Framers Contractor Yards Builders Builders Primary and Pro Dealers Primary Manufacturing Manufacturing Truss and Panel Plants Home Buyer Annual Analyst Conference — June 1, 2007
Slide 69: Complex Channel to Market is Evolving
Complex Channel to Market is Evolving Framers Contractor Yards Builders Builders Primary and Pro Dealers Primary Manufacturing Manufacturing Truss and Panel Plants Home Buyer Annual Analyst Conference — June 1, 2007
Slide 70: Componentization is a Growing Trend
Componentization is a Growing Trend Annual Analyst Conference — June 1, 2007
Slide 71: iLevel by Weyerhaeuser
iLevel by Weyerhaeuser Annual Analyst Conference — June 1, 2007
Slide 72: Executing the iLevel Strategy
Executing the iLevel Strategy Market to the Builder with unique building solutions Framers Contractor Yards Builders Builders and Pro Dealers Truss and Panel Plants Home Sell to the channel to Buyer deliver solutions to Builder Annual Analyst Conference — June 1, 2007
Slide 73: Positioned to be Undisputed Leader — Brand and Scale
Positioned to be Undisputed Leader in the Structural Frame Market — Brand and Scale A leading producer of solid wood products and panels Largest engineered wood products producer National distribution footprint Most recognized and trusted product brands Annual Analyst Conference — June 1, 2007
Slide 74: Positioned to be Undisputed Leader — Technology / R&D
Positioned to be Undisputed Leader in the Structural Frame Market — Technology / R&D Strength of Innovation Software Solutions Site Solutions Annual Analyst Conference — June 1, 2007
Slide 75: Dealing with the Here and Now
Dealing with the Here and Now Executing the iLevel strategy while managing through the downturn and positioning for the upturn Adjusting operating posture 71% of our facilities are taking downtime Inventory aligned with demand Reducing SG&A Annual Analyst Conference — June 1, 2007
Slide 76: iLevel Gaining Traction Across the Channel
iLevel Gaining Traction Across the Channel Market to the Builder with unique building solutions Framers Contractor Yards Builders Builders and Pro Dealers Truss and Panel Plants Home Buyer Sell to the channel to deliver solutions to Builder Annual Analyst Conference — June 1, 2007
Slide 77: Positioned to be the Undisputed Leader in the Residential Structural Frame Market
Positioned to be the Undisputed Leader in the Residential Structural Frame Market Annual Analyst Conference — June 1, 2007
Slide 78: Weyerhaeuser Real Estate Company
Weyerhaeuser Real Estate Company Dan Fulton President and CEO, WRECO Annual Analyst Conference — June 1, 2007
Slide 79: WRECO Operations
WRECO Operations Annual Analyst Conference — June 1, 2007
Slide 80: WRECO 2006 Rankings
WRECO 2006 Rankings 15 th by Closing Volume 15 th by Revenue 6 th by Pre-Tax Earnings 2 nd by Gross Margin Source: SEC filings Annual Analyst Conference — June 1, 2007
Slide 81: Homebuilding Operating Indicators
Homebuilding Operating Indicators 2005 2006 2007 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 —— —— —— —— —— —— -— —— — Traffic (in 000’s) 64 90 90 63 72 62 53 45 61 New Orders, net 1,378 1,525 1,608 1,174 1,472 1,325 906 838 1,684 Cancellation Rate 15 % 12 % 17 % 22 % 19 % 26 % 36 % 36 % 16 % Single Family Gross Mar
Slide 82: Key Business Drivers
Key Business Drivers Local value propositions Geographic distribution of operations Annual Analyst Conference — June 1, 2007
Slide 83: Key Business Drivers (cont.)
Key Business Drivers (cont.) Land entitlement: core competency Industry leading margins Flexible business model Management tenure ROI alignment Annual Analyst Conference — June 1, 2007
Slide 84: Steve Rogel, Chairman, President and CEO
Steve Rogel Chairman, President and CEO
Slide 85: Annual Analyst Conference New York
Annual Analyst Conference New York June 1, 2007