Pardee parent’s profit rises on home building

James Gunsalus

Friday, Oct. 22, 2004 | 10:53 a.m.

Weyerhaeuser Co., the world's biggest lumber company, said third-quarter earnings surged more than sevenfold to $594 million on demand from homebuilders and higher paper and cardboard prices.

Net income increased to $2.45 a share, from $82 million, or 37 cents, a year earlier. Sales rose 13 percent to $5.8 billion from $5.2 billion, Federal Way, Wash.-based Weyerhaeuser said in a statement.

Weyerhaeuser's home-building operation, Pardee Homes, is a big player in the Southern Nevada building industry.

Wood products, Weyerhaeuser's biggest business, more than doubled profit in the quarter from a U.S. housing construction boom that caused the average third-quarter lumber price to jump 37 percent. The company's paper business benefited from economic growth and capacity shutdowns, helping to pull prices out of a three-year slump. Timberland sales also helped profit.

"Everybody has been surprised by the strength in lumber prices," said Steve Chercover, an analyst at D.A. Davidson & Co. "Lumber and panels have had a good run, but have probably peaked. I don't know what they can do for an encore in those businesses. Paper and packaging will continue to grow, though."

Chercover, who is based in Portland, Ore., has a "neutral" rating on the stock and doesn't own shares.

Excluding gains of 74 cents a share for the sale of land in Georgia, 7 cents for an agreement with the British Columbia government, and 5 cents to reduce a claim reserve; and a 3-cent cost to sell or close facilities, profit was $1.62. Weyerhaeuser was expected to post profit of $1.40, the average estimate of 17 analysts surveyed by Thomson Financial.

The company's shares rose $1.90, or 3.1 percent, to $63.04 at 10:08 a.m. in New York Stock Exchange composite trading.

Profit from wood products, including lumber and oriented- strand board, surged to $362 million in the quarter from $151 million a year earlier. Packaging profit almost doubled to $82 million and its paper business rebounded to a profit of $80 million from an $18 million loss a year ago.

While U.S. housing starts rose at an average annualized rate of 1.98 million in July and 2 million in August, the rate fell to 1.90 million units last month, cooled by expectations of higher interest rates, according to government statistics. Even so, the pace through September is enough to end the year with the most housing starts in 26 years.

Fourth-quarter earnings from wood products will be lower than the third quarter, as lumber and structural-panel prices decline, Weyerhaeuser said. Profit from pulp and paper also will fall, while packaging profit will rise on increasing prices.

Chief Executive Steven Rogel has been idling some capacity to reduce manufacturing costs. He is selling timberland to reduce debt, which swelled with the 2000 acquisition of Willamette Industries Inc.

Weyerhaeuser said it reduced its debt by about $270 million to $11.4 billion in the third quarter. The company had $1.2 billion in cash and short-term investments at the end of the quarter, which it plans to use for debt repayment.