Weyerhaeuser Company (WY - Analyst Report) reported impressive results for third-quarter 2014. Adjusted earnings came in at 33 cents per share, increasing 43.5% year over year from 23 cents in the year-ago quarter and above the Zacks Consensus Estimate of 30 cents.

The year-over-year improvement can be attributed to lower share count due to retirement on divestiture of real estate business. Also, healthy segmental performance added to growth.

Including one-time gains, GAAP earnings in the quarter were $2.15 per share.

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Revenues

Weyerhaeuser generated net sales of $1,915 million, climbing 3.1% year over year. However, the top line lagged the Zacks Consensus Estimate of $1,939 million.

Weyerhaeuser reports its revenues under the following segments:

Revenues from the Timberland segment grew 3.1% year over year to $364 million. It accounted for 19% of net sales.

The Wood Products segment generated revenues of $1,048 million, up 1.7% year over year and accounting for 54.7% of net sales.

The Cellulose Fibers segment’s revenues totaled $503 million, increasing 6.1% year over year. It represented 26.3% of net sales.

Weyerhaeuser completed the divestiture of its real estate business to Tri Ponte Homes, Inc. (TPH - Snapshot Report) in the quarter, recording a gain of $1 billion.

Margins

Weyerhaeuser’s cost of sales inched up 1.7% year over year, representing 78.5% of total revenue versus 79.6% in the year-ago quarter. Selling, general and administrative expenses were 5.3% of total revenue, decreasing from 7% in the prior-year quarter. Research and development expenses were about $5 million as against $8 million in the year-ago quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) came in at $414 million versus $370 million in the year-ago quarter. EBITDA margin in the quarter was 21.6%.

Balance Sheet

Exiting third-quarter 2014, Weyerhaeuser had cash and cash equivalents of $1,620 million, soaring 91.7% from $845 million in the preceding quarter. Long-term debt was flat at $4,891 million.
 
Cash Flow

In third-quarter 2014, Weyerhaeuser generated net cash of $353 million from its operating activities, up 2.9% from $343 million in the year-ago quarter. Capital spending surged 52.2% to $105 million.

During the quarter, the company paid dividends amounting to $154 million while repurchasing shares worth $123 million.

Outlook: For fourth-quarter 2014, Weyerhaeuser anticipates lower earnings from the Timberland segment. Improved log realizations in the west U.S. will be offset by higher road maintenance costs. Also, earnings from disposition of non-strategic timberlands are expected to decline in the quarter.

For the Wood Products segment, sequentially comparable earnings are expected to decline, due primarily to lower realizations from lumber and oriented strand board. Also, sales volumes across all segments are expected to decrease.

For the Cellulose Fibers segment, management anticipates sequentially higher earnings due to lower maintenance expenses.

With a market capitalization of $17.7 billion, Weyerhaeuser currently carries a Zacks Rank #3 (Hold). Two better-ranked stocks in the building products industry include Boise Cascade Company (BCC - Snapshot Report) and Orion Energy Systems, Inc (OESX - Snapshot Report). While Boise Cascade sports a Zacks Rank #1 (Strong Buy), Orion Energy Systems carries a Zacks Rank #2 (Buy).

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