Weyerhaeuser Company · NYSE:WY
Weyerhaeuser — Investor Day (June 2009)
116 slides from Weyerhaeuser's investor day presentation, Jun 3, 2009
Slide 1: 2009 Investor Meeting
May 29, 2009 2009 Investor Meeting Weyerhaeuser Company
Slide 2: Forward Looking Statement
Forward Looking Statement This presentation contains statements concerning the company’s future results and performance that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on various assumptions and may not be acc
Slide 3: Today’s presenters
Today’s presenters Dan Fulton President and Chief Executive Officer Patty Bedient Executive Vice President – Chief Financial Officer Tom Gideon Executive Vice President – Forest Products Larry Burrows President and Chief Executive Officer – WRECO Kathy McAuley Vice President – Investor Relations Lyn
Slide 4: Opening Remarks
Dan Fulton President and Chief Executive Officer Opening Remarks
Slide 5: Economic Overview
Lynn Michaelis VP – Chief Economist Economic Overview
Slide 6: Economic setting for 2009
Economic setting for 2009 U.S. in recession since early 2008, accelerated with financial crisis Aggressive fiscal and monetary policy are crucial to arrest the downward spiral
Slide 7: Decline in home prices triggered financial crisis
Decline in home prices triggered financial crisis
Slide 8: Dramatic shift in available credit and tougher standards
Dramatic shift in available credit and tougher standards
Slide 9: Fed taking actions to stabilize financial system
Fed taking actions to stabilize financial system
Slide 10: Aggressive action to stabilize financial system
Aggressive action to stabilize financial system
Slide 11: Economic setting for 2009
Economic setting for 2009 U.S. in recession since early 2008, accelerated with financial crisis Aggressive fiscal and monetary policy are crucial to arrest the downward spiral Dramatic drop in consumer spending has hit U.S. and global economies Consumer spending uncertain given employment and wealth
Slide 12: Change in U.S. Non-Agricultural Employment
Thousands 400 Level Change in U.S Non-Agricultural Employment 200 {Level Change, One Month Ago) 200 -400 -600 -800 2005 MwooTo2e 2006 2007 2008 2009 Monthly
Slide 13: Consumer confidence near record low
Consumer confidence near record low
Slide 14: Serious drop in consumer spending
Serious drop in consumer spending
Slide 15: Leads consumer to defer some purchases
Leads consumer to defer some purchases
Slide 16: Economic setting for 2009
Economic setting for 2009 U.S. in recession since early 2008, accelerated with financial crisis Aggressive fiscal and monetary policy are crucial to arrest the downward spiral Dramatic drop in consumer spending has hit U.S. and global economies Traditional sources of rebound are absent: Simultaneous
Slide 17: Crisis was a global event – serious recession in 2009
Crisis was a global event – serious recession in 2009
Slide 18: Net exports were helping, until late 2008
Net exports were helping, until late 2008
Slide 19: Economic setting for 2009
Economic setting for 2009 U.S. in recession since early 2008, accelerated with financial crisis Aggressive fiscal and monetary policy are crucial to arrest the downward spiral Dramatic drop in consumer spending has hit U.S. and global economies Traditional sources of rebound are absent Federal gover
Slide 20: Massive deficits to offset consumer spending decline
Massive deficits to offset consumer spending decline
Slide 21: Signs recession will end this year
Signs recession will end this year
Slide 22: Key Messages - Cellulose Fibers
Key Messages - Cellulose Fibers Pulp prices hit hard in late 2008 Rebound in the U.S. dollar against Euro and C$ Deterioration in pulp demand Corresponding surge in pulp inventories Recent weakness in dollar favorable for pulp prices
Slide 23: Fluff market is global and growing
Fluff market is global and growing
Slide 24: U.S. South primary source of fluff
U.S. South primary source of fluff
Slide 25: Excess inventory dampens prices
Excess inventory dampens prices
Slide 26: Fluff pulp prices held up better
Fluff pulp prices held up better
Slide 27: Softwood capacity declining
Softwood capacity declining
Slide 28: Expect dollar decline to continue
Expect dollar decline to continue
Slide 29: Summary - Cellulose Fibers
Summary - Cellulose Fibers Fluff pulp prices have held up relative to NBSK prices Dollar decline is critical to price outlook
Slide 30: Cellulose Fibers
Tom Gideon Executive Vice President – Forest Products Cellulose Fibers
Slide 31: Cellulose Fibers business
Cellulose Fibers business End Uses Operations 6 Manufacturing Facilities ~1.9MM Tons “ Primary ” Mills Bales Rolls Bales Grande Prairie, AB Flint River, GA Pt Wentworth, GA Columbus, MS New Bern, NC 6 Manufacturing Facilities ~1.9MM Tons “ Primary ” Mills “Converting” Plant Columbus, MS ( “CMF”) Bal
Slide 32: Cash cost of goods sold in 2008
Cash cost of goods sold in 2008 Fiber 31% Chemicals 14% Freight 16% Maintenance 14% Labor Cost 10% Energy 8% Packaging, Supplies & Other 7%
Slide 33: Addressing the short-term, positioning for the long-term
Addressing the short-term, positioning for the long-term Continuing our leadership position with key customers Aggressively reducing costs Slowed back each mill to achieve lowest cost position Reduced chemical and other costs Cut all discretionary spending Extended salary freeze to hourly workers
Slide 34: Economic Overview - Housing
Lynn Michaelis VP – Chief Economist Economic Overview - Housing
Slide 35: Key messages – housing industry
Key messages – housing industry At bottom, expect slow rebound in 2009 High inventory, foreclosures and tougher lending standards Increase in existing home sales is a bright spot The bubble markets were hit hard But low prices and improved affordability are resulting in a surge of existing home sale
Slide 36: At bottom in 2009, but gains momentum in 2010
At bottom in 2009, but gains momentum in 2010
Slide 37: Foreclosure rate remains high
Foreclosure rate remains high
Slide 38: High vacant stock of units for sale
High vacant stock of units for sale
Slide 39: Affordability is now at record levels
Affordability is now at record levels
Slide 40: All WRECO regions are below 2002 levels
All WRECO regions are below 2002 levels Single - family Building Permits (Thousands) 2002 2005 2008 Las Vegas Phoenix Washington DC Seattle Houston Source: Census
Slide 41: California housing seriously challenged
California housing seriously challenged
Slide 42: Housing prices down 65% from peak
Housing prices down 65% from peak
Slide 43: Housing affordability at record levels
Housing affordability at record levels
Slide 44: At current prices, houses are selling
At current prices, houses are selling
Slide 45: Summary - housing
Summary - housing Another challenging year in 2009, but most of house price decline is behind us Varies by region Variety of factors helping stabilize housing and construction market in 2009 Recent home sales are encouraging Single-family housing starts double by end of 2010, with upside potential
Slide 46: Weyerhaeuser Real Estate Company (WRECO)
Larry Burrows President and CEO — Weyerhaeuser Real Estate Company Weyerhaeuser Real Estate Company (WRECO)
Slide 47: WRECO’s competitive strengths
WRECO’s competitive strengths Geographic diversity Local value propositions Land entitlement and development expertise Customer satisfaction
Slide 48: Located in diverse and high-growth geographies
Located in diverse and high-growth geographies
Slide 49: Unique brands with distinctive value propositions
Unique brands with distinctive value propositions
Slide 50: High levels of customer satisfaction
High levels of customer satisfaction Willingness to Refer 2007 2008 Q1 2009
Slide 51: Creating value through entitling and developing land
Creating value through entitling and developing land
Slide 52: WRECO residential lot position
WRECO residential lot position Total lots owned – 44,000; an additional 72,000 lots are controlled via option agreements Number of lots owned as of 3/31/09 5,000 10,000 15,000 20,000 25,000
Slide 53: WRECO residential lots – dollars invested
WRECO residential lots – dollars invested * Historic cost includes land purchase price, entitlement and development costs, taxes, and capitalized interest Consolidated Totals ($ Millions) Historic Cost * $2,500 Impairments to historic cost -$900 Current book value of residential lots $1,600 Balance
Slide 54: WRECO residential lots – California by sub-markets
WRECO residential lots – California by sub-markets * Historic cost includes land purchase price , entitlement and development costs, taxes, and capitalized interest Totals ($ Millions) Historic Cost* $1,100 Impairments to historic cost -$300 Current book value of residential lots $800 Mennifee Prese
Slide 55: Managing through the cycle
Managing through the cycle Adjusted staffing 40% reduction since Q1 2008 Additional 20% reduction by year end Reduced unsold completed inventory by 30% from Q1 2008 Selectively selling non-strategic residential lots Curtailing spending on land acquisitions and development
Slide 56: Repositioning product to meet market conditions
Repositioning product to meet market conditions 2007 – Fairbrook Plan #2 2009 – Montclaire Plan #2 Priced at $420,000-$560,000 Priced at $320,000-$410,000
Slide 57: Offering a second product line to expand buyer pool
Offering a second product line to expand buyer pool Cascade 2440 Classic Collection 3450 Priced at $360,000 to 480,000 Priced at $490,000-580,000
Slide 58: Repositioning product to meet emerging trends
Repositioning product to meet emerging trends Designed for the “ages” with enhanced green features
Slide 59: Improving signs in April
Improving signs in April Average Sales per Week 2007 2008 2009 Cancellation Rate 2007 2008 2009
Slide 60: Addressing the short-term, positioning for the long-term
Addressing the short-term, positioning for the long-term Long-term single-family housing fundamentals are favorable WRECO is well-positioned in desirable markets Market downturn is creating opportunities Major business imperatives Generate cash Reduce and rebalance land position Re-underwrite all op
Slide 61: Economic Overview – Wood Products
Lynn Michaelis VP – Chief Economist Economic Overview – Wood Products
Slide 62: Key messages – Wood Products markets
Key messages – Wood Products markets Unprecedented demand drop has driven prices to levels below cash operating costs Prices should rebound to cover cash operating costs for an average mill For lumber, need to see prices cover Canadian mill costs Canadian dollar is a major issue for both the lumber
Slide 63: Severity compared to earlier cycles
Severity compared to earlier cycles
Slide 64: All regions curtailed output, but bigger hit for Canada
All regions curtailed output, but bigger hit for Canada
Slide 65: Prices fell below cash cost to force closures
Prices fell below cash cost to force closures
Slide 66: Another anomaly: Douglas Fir below Spruce
Another anomaly: Douglas Fir below Spruce
Slide 67: In nominal dollars, prices back to 1982 levels
In nominal dollars, prices back to 1982 levels
Slide 68: But adjusted for inflation — 1935?
But adjusted for inflation — 1935?
Slide 69: Canadian lumber delivered costs drive U.S. lumber and log markets
Canadian lumber delivered costs eventually drive U.S. lumber and log markets U.S. lumber production not sufficient to meet U.S. demand Cost structure in Canada is primarily operating costs, not stumpage Canadian exchange rate can significantly shift relative cost structure between U.S. and Canadian
Slide 70: Canada accounts for over 25% of U.S. needs
Canada accounts for over 25% of U.S. needs
Slide 71: Different cost structure in Canadian lumber industry
Different cost structure in Canadian lumber industry In Canada, labor and energy costs account for 75-85% of total lumber costs Much higher delivered log prices due to harvest and haul costs Stumpage is formula driven In U.S., labor and energy costs account for only 40-50% of labor cost Stumpage pri
Slide 72: For average mill to breakeven, need $25/mbf price lift
For average mill to breakeven, need $25/mbf price lift Production Costs and Margins for an Average B.C. Interior Mill 2007 Q 2008 April 2009 Cash Costs in C$** Cash Costs in U.S.$** SPF 2x4 Price* Less Export Tax Mill Net Implied Margin for Avg. Mill (20) * Random Lengths **Based on RISI Survey – Av
Slide 73: Expect C$ to hold or strengthen in 2009
Expect C$ to hold or strengthen in 2009
Slide 74: Drop in housing revealed structural change
Drop in housing revealed structural change
Slide 75: Reason Canadian output has collapsed
Reason Canadian output has collapsed
Slide 76: Shift has kept prices below cash operating costs
Shift has kept prices below cash operating costs
Slide 77: Summary - Wood Products
Summary - Wood Products Another challenging year given housing starts and excess capacity Prices need to reflect cash operating costs for average mills eventually Log prices moved sharply lower in late 2008—will help U.S. sawmill cost position in 2009 Very challenging for OSB and engineered lumber i
Slide 78: Wood Products
Tom Gideon Executive Vice President – Forest Products Wood Products
Slide 79: Aggressive actions this year
Aggressive actions this year Actions Impact Lumber Announced closure of 4 mills Announced shift reductions at 5 mills Total capacity reduction of 1.2 bbf OSB All mills now operating at 5/2 Total capacity reduced by 2.7bsf 550 msf since Jan Veneer 5 mills closed Capacity Reduction 25% reduction in TJ
Slide 80: Cash cost of production in 2008
Cash cost of production in 2008 Raw Materials* Salaries / Labor Energy Resins & Additives Other Lumber OSB EWP - TJI 64% 19% 4% 0% 13% 31% 17% 8% 24% 21% 79% 10% 1% 4% 6% * Raw materials are Logs for lumber and OSB LVL and OSB for TJI
Slide 81: Production response to lower housing starts
Production response to lower housing starts Volume as a percentage of 2006 levels
Slide 82: Addressing the short-term, positioning for the long-term
Addressing the short-term, positioning for the long-term Significant short-term challenges Adjusting the controllable variables Relentlessly reducing costs Ensuring the best balance between demand and supply Maintaining pricing discipline across all product lines
Slide 83: Economic Overview – Timberlands
Lynn Michaelis VP – Chief Economist Economic Overview – Timberlands
Slide 84: Key messages - Timberlands
Key messages - Timberlands Log prices in the West fell over 25% during the last two months Log prices in the South are also adjusting, but not as severely Timberland prices remain stable reflecting favorable long-term outlook
Slide 85: Douglas Fir Domestic #2
Douglas Fir Domestic #2 Log Price MBF 700 00 600 400 April x 300 1 1998, 2000 2002 2004 2006 2008 2010 Quarterly ovip2aa, Sourve:teg Lines
Slide 86: Western production now below early 1990’s
Western production now below early 1990’s
Slide 87: Southern log prices have held up better
Southern log prices have held up better
Slide 88: Timberland prices reflect long-term outlook
Timberland prices reflect long-term outlook Financial owners taking longer term view Long-term trend appreciation based on: Historic returns and expected rebound in housing starts Decline in Canadian harvest due to Mountain pine beetle Additional revenue from non-traditional sources
Slide 89: Housing demand driven by formation of households
Housing demand driven by formation of households
Slide 90: Share of single family determined by ownership trend
Share of single family determined by ownership trend
Slide 91: Expect favorable single-family housing starts even if ownership trends lower
Expect favorable single-family housing starts even if ownership trends lower
Slide 92: Given trend demand range for housing — lumber approaches peak
Given trend demand range for housing — lumber approaches 2005 peak
Slide 93: Reason lumber capacity expected to decline by 2015
Reason lumber capacity expected to decline by 2015
Slide 94: Trend value for U.S. timber driven by Canadian costs
Trend value for U.S. timber driven by Canadian costs U.S. needs Canadian supply to meet lumber demand Marginal supply has price setting role U.S. producers bid improving lumber prices back to log prices
Slide 95: U.S. needs Canadian lumber through the cycle
U.S. needs Canadian lumber through the cycle
Slide 96: Trend price logic: step one
Trend price logic: step one Production Costs for Average B.C. Interior Mills 2008 - * In Canadian $ /MBF Net Wood Cost Manufacturing Margin __ __ ___ ___ __ ___ Total Long - Term Cost Duties ____ __ ___ _ _ ___ SPF 2x4 in C$ /MBF Exchange Rate (C$/US$) 1.02 1.25 __ __ __ ____ _ _ __ SPF 2x4 (US$ /MB
Slide 97: Trend price logic: step two
Trend price logic: step two Trend Price for West Coast Lumber and Logs - * SPF 2X4 (MBF) $ - $310 Plus historic spread Implied DF 2X4 (MBF) $ - $335 Less mfg Plus residuals Less margin Equals Wood Cost $246 - $261 Implied log price (MBF Scribner) $59 - $625 *RISI mfg costs, Random Lengths
Slide 98: More to timberland valuation story
More to timberland valuation story Finite resource capable of providing multiple values such as land appreciation, timber production and appreciation, and non-timber income Potential government actions could boost those values Timberland are part of the asset mix of many diversified portfolios
Slide 99: Summary - Timberlands
Summary - Timberlands Log prices fell into line with lumber prices Timberland prices have been relatively stable
Slide 100: Timberlands
Tom Gideon Executive Vice President – Forest Products Timberlands
Slide 101: Global footprint
Global footprint Thousands of Acres Fee Ownership Long-term Lease Total Fee and Lease License Arrangements U.S. West U.S. South Canada Uruguay China Total 2,220 2,220 3,433 4,129 15,178 5,974 6,696 15,230
Slide 102: Tree species
Tree species Loblolly pine in the South Fast early growth, resulting in younger harvest ages (compared to Douglas fir) Responsive to management to influence growth and reduce risk of insect loss Douglas fir in the West Manageable to increase yields Taller / older at normal harvest ages compared to p
Slide 103: Cash costs of production for 2008
Cash costs of production for 2008 Logging 23% Hauling & Roads 23% Export OSP 10% Forestry 10% Canadian Operations 18% Other 9% Marketing/Handling 4% International Operations 3%
Slide 104: Cash costs of production in 2008 by region
Cash costs of production in 2008 Logging Hauling & Roads Marketing & Handling Forestry Export OSP Other U.S. West U.S. South 30% 28% 8% 5% 19% 10% 32% 33% 3% 20% 0% 12%
Slide 105: Sustainable harvest availability
Sustainable harvest availability Actual Estimated Availability U.S. Timberlands Harvest 2004-2008 2009-2013 2014-2018 Commercial Thin Final Harvest
Slide 106: Millions of Cubic Meters
Millions of Cubic Meters Q1 2008 Actual Harvest Q1 2009 Actual Harvest
Slide 107: Minerals
Minerals Weyerhaeuser routinely reserves mineral rights when selling timberlands acreage – in the U.S. as of year end 2008 our managed assets included 6.4 million surface acres 6.8 million net minerals acres A leader in developing mineral, oil and gas revenue Royalty payments on oil and gas producti
Slide 108: Addressing the short-term, positioning for the long-term
Addressing the short-term, positioning for the long-term Flexing harvest volumes to meet market needs Capturing export market value Continuing cost reductions Consolidating export facilities and operating areas Optimizing silviculture investments on a site by site basis Continuing to develop all pot
Slide 109: Financial Overview
Patty Bedient Executive Vice President – Chief Financial Officer Financial Overview
Slide 110: Liquidity and debt maturities
Liquidity and debt maturities Over $1.7 billion cash and short-term investments at March 31, 2009 Near-term debt maturities (including WRECO) 2009 $458 million 2010 43 million 2011 30 million $2.2 billion in unused committed bank facilities BBB- (stable) / Ba1 (stable)
Slide 111: Reducing cash expenditures
Reducing cash expenditures Variable cost reductions $375 million SG&A target reached Froze salaries Eliminated 401-K match More actions to come Capital expenditures less than $200 million Quarterly dividend $0.25/share
Slide 112: REIT update
REIT update Actions taken to increase flexibility to consider REIT conversion Calendar year adopted Legal reorganization Wholly owned subsidiary of Weyerhaeuser Company holds manufacturing and real estate assets
Slide 113: Conversion unlikely in 2009
Conversion unlikely in 2009 Limitations on NOL carryback Low level of timber income reduces 2009 benefit Earnings and profit distribution
Slide 114: Other considerations
Other considerations REIT technical tests TRS market value less than 25% of gross REIT assets Dividends from TRS limited to 25% of REIT qualifying income Other income limited to 5% Monitoring potential tax policy changes
Slide 115: Closing Remarks
Dan Fulton President and Chief Executive Officer Closing Remarks
Slide 116: Questions
Questions