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Q3 Timber REIT Earnings, Part II: Soon-to-be-REIT WY Beats Consensus, PCH Lags

From the desk of Neena Mishra, Director of Equity Research:

Weyerhaeuser (WY) reported its Q3 2010 results before market open on October 29, 2010. Excluding the income tax adjustment of $1.035 billion (related to its impending REIT conversion), net earnings were $81 million or $0.25 per share, ahead of the consensus estimate of $0.10. Excellent performance by the Cellulose Fibers segment (improved volumes and pricing as well as lower costs) primarily contributed to the outperformance.  The Timberlands segment also improved as higher income from sales of non-strategic timberlands more than offset lowered earnings from timber operations (due to lower log pricing and seasonally higher expenses). Real Estate results reflected lower earnings from land and lot sales, slightly offset by higher income from single family homebuilding operations. The Wood Products segment continued to generate losses as the average sales realizations for lumber and OSB declined significantly. Management guided Q4 results towards lower earnings from Timberlands (excluding timberlands sales), Cellulose Fibers and Real Estate segments and comparable losses from Wood Products.

Potlatch (PCH) reported its Q3 2010 results before market open on October 28, 2010. Net earnings came in at $18.1 million or $0.45 per share, 14 cents below consensus. The positive point in the earnings report was improved performance by the Resource segment (sequentially higher volumes and improvement in both pricing and volumes year-over-year).  The Real Estate segment recorded higher operating income primarily due to the sale of 41,700 acres of non-strategic timberland to TIMO RMK for $29 million (first phase of the previously announced sale). Wood Products generated an operating loss of $600,000 mainly due to the decline in lumber prices during the quarter. The miss can largely be attributed to the poor operating performance by the Manufacturing segment. PCH Management does not provide earnings guidance but they lowered their harvest outlook towards the lower end of their previous guidance range (4.1 to 4.2 million tons from 4.0 to 4.4 million tons earlier) and stated that they will continue to defer sawlog harvest through Q4 2010 and most likely into 2011.

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