Weyerhaeuser Company - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered net earnings of $83M ($0.11 diluted EPS) on $1.763B net sales; Adjusted EBITDA was $328M, up 12% sequentially, with neutral year-over-year comparisons driven by Timberlands strength and steady Wood Products profitability.
• Versus S&P Global consensus, EPS modestly beat (actual $0.11 vs $0.097*), while revenue was slightly below (actual $1.763B vs $1.767B*). EBITDA comparison is definition-sensitive; the company reports Adjusted EBITDA of $328M vs Street EBITDA consensus $312M*; see Estimates Context.
• Guidance: Q2 Timberlands EBITDA/Earnings expected ~$15M lower; Real Estate, Energy & Natural Resources (RE&NR) expected ~$50M higher EBITDA and ~$40M higher earnings; Wood Products expected slightly higher EBITDA excluding price changes; FY 2025 RE&NR Adjusted EBITDA maintained at ~$350M, with basis on real estate sales now 30–40%.
• Capital returns: Base dividend raised 5% to $0.21; ~$25M of Q1 repurchases with liquidity and debt profile strengthened; new $1B repurchase authorization announced in May (post-Q1), sustaining flexible cash-return framework.
• Key catalysts: Segment mix shift (RE&NR ramp in Q2), domestic log pricing resilience amid China log import ban minimal impact, and tariff developments affecting lumber/OSB pricing/ordering behavior; near-term narrative hinges on housing/R&R trajectory and trade policy clarity.

What Went Well and What Went Wrong

What Went Well

• Timberlands outperformed: Net contribution to pretax earnings rose to $102M and Adjusted EBITDA to $167M (+$41M q/q), powered by significantly higher Western domestic sales realizations and healthy demand; shifting volumes away from China and toward domestic/Japan helped mitigate export headwinds.
• RE&NR strength and outlook: Q1 EBITDA rose to $82M on favorable real estate mix (higher price per acre, lower basis); management guided Q2 EBITDA +$50M and earnings +$40M, and maintained ~$350M FY EBITDA target, with basis expected at 30–40% for the year.
• Capital allocation consistency: Base dividend up 5% to $0.21 and ~$25M of repurchases in Q1; liquidity intact and term loan refinancing extended maturities, reinforcing flexible cash return framework through cycles.

Management quote: “We delivered solid results across each of our businesses… our balance sheet is strong, and we continue to focus on driving operational excellence, capitalizing on strategic opportunities, and creating long-term value for shareholders” — Devin W. Stockfish, CEO.

What Went Wrong

• China log ban and export softness: WY paused all shipments to China in March after regulators imposed an import ban; volumes to China declined significantly though impact was “minimal” in Q1; export demand to Japan improved but vessel timing could lower Q2 volumes.
• EWP operational disruption: A fire-led multi-week outage at the Montana MDF facility reduced EWP results by ~$11M in Q1; facility returned to more normal operation, with residual small impact expected in Q2.
• OSB pricing and distribution volumes: OSB realizations decreased 1% q/q with elevated channel inventories and softer building activity; distribution EBITDA declined by $4M on lower volumes.

Transcript

Operator (participant)

Greetings and welcome to the Weyerhaeuser Q1 2025 Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. To ask a question during the session, you will need to press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin.

Andy Taylor (VP of Investor Relations)

Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's Q1 2025 Earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our earnings release and on the presentation slides, concerning the risks associated with forward-looking statements, as forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer, and Dave Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Devin Stockfish (CEO)

Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported Q1 GAAP earnings of $83 million, or $0.11 per diluted share, on net sales of $1.8 billion. Adjusted EBITDA totaled $328 million, a 12% increase over the Q4 of 2024. These are solid results considering elevated macroeconomic uncertainty in the Q1, and I'm pleased with the operational performance delivered by our teams. Turning now to our Q1 business results, I'll begin with Timberlands on pages five through eight of our earnings slides. Timberlands contributed $102 million to Q1 earnings. Adjusted EBITDA was $167 million, a $41 million increase compared to the Q4, largely driven by stronger domestic sales realizations in the West.

Turning to the domestic market in the West, log demand was healthy in the Q1 as mills responded to strengthening lumber prices and seasonally lower log supply. As a result, pricing for our gray logs increased, and our average domestic sales realizations were significantly higher compared to the Q4. Our domestic sales volumes increased moderately as we strategically shifted logs to domestic customers and paused shipments to China given the recent ban on US log imports. Fee harvest volumes were moderately higher, and per unit log and haul costs decreased as we made the seasonal transition to lower elevation and lower cost harvest operations. Forestry and road costs were seasonally lower. Moving to our Western export business. In Japan, demand for our logs improved in the Q1.

This was largely driven by a recent decrease in shipments and inventories of imported European lumber, which has allowed our customers to increase market share. As a result, our sales volumes for export logs to Japan were significantly higher compared to the Q4, and average sales realizations were slightly higher. In China, log demand moderated in the Q1 in response to reduced consumption during the Lunar New Year holiday. Given this dynamic, coupled with improving Western domestic market conditions, we elected to significantly reduce volumes into China during the quarter. In early March, we paused all shipments in response to Chinese regulators announcing an immediate ban on log imports from the US. As a result, our sales volumes decreased significantly compared to the Q4, and average realizations were moderately lower.

It's worth noting that the log ban had a minimal impact on our Q1 results, and we don't anticipate this being a material headwind to our Western business in the near term. Given our diverse customer base, we were able to shift volumes to other buyers for our Western logs. I'll also note that we had reduced our China export program in the quarters leading up to the log ban, primarily due to ongoing consumption headwinds in the region and improving Western domestic market conditions. Turning to the South, adjusted EBITDA for Southern Timberlands decreased by $3 million as log markets were largely stable compared to the Q4. Southern saw log demand remain muted in response to ample log supply and mills continuing to align capacity with lower takeaway of finished goods. In contrast, Southern fiber markets were generally balanced.

In general, takeaway for our logs remained steady in the Q1 given our delivered programs across the region. As a result, our average sales realizations were comparable to the Q4. Our fee harvest volumes and per unit log and haul costs were also comparable. Forestry and road costs were slightly higher. In the North, adjusted EBITDA increased slightly compared to the Q4 due to slightly higher sales realizations and volumes. Turning now to Real Estate, Energy, and Natural Resources on pages nine and ten. Real estate and ENR contributed $56 million to Q1 earnings and $82 million to adjusted EBITDA. Q1 EBITDA was $6 million higher than the Q4, largely driven by the timing and mix of real estate sales.

Real estate markets have remained solid year to date, and we continue to capitalize on steady demand and pricing for HBU properties with significant premiums to timber value. I'll now turn to our Natural Climate Solutions business and cover some exciting news on one of our previously announced carbon capture and sequestration agreements. Earlier this month, Occidental Petroleum announced an important milestone associated with our CCS project in Livingston Parish, Louisiana. They've signed a 25-year offtake agreement for approximately 2.3 million metric tons of CO2 per year from a third-party facility that's being constructed in the region. The emitting facility is expected to be operational in 2029, and subsurface injection of CO2 should commence around that time. This is an important step for our CCS project with Occidental Petroleum and represents tangible progress in advancing Weyerhaeuser's growth in the CCS space.

In addition, this underscores the importance of selecting sophisticated counterparties with strong technical, commercial, and project development expertise. Now moving on to Wood Products on pages 11 through 13. Wood Products contributed $106 million to Q1 earnings. Adjusted EBITDA was $161 million, which was comparable to our Q4 results. Starting with Lumber, Q1 adjusted EBITDA was $40 million, a $19 million improvement compared to the Q4. Although buyer sentiment remained cautious, the Framing Lumber Composite increased moderately in the Q1, largely driven by supply constraints from previously enacted curtailments and closures across the North American market, combined with a slight seasonal improvement in building activity into the spring months. Pricing was further supported by concerns and speculation around tariffs on Canadian supply, particularly SPF lumber products. I'll also note that we've seen a steady increase in Southern Yellow Pine lumber prices since January.

For our lumber business, average sales realizations increased by 5% in the Q1, largely in line with the framing lumber composite. Our sales volumes increased slightly compared to the Q4, and unit manufacturing costs were slightly lower as production levels increased. It is worth noting that both sales volumes and unit manufacturing costs were slightly unfavorable to our initial outlook for the quarter. This was primarily driven by temporary operational impacts from winter weather in January and a somewhat softer demand environment in the more uncertain macro backdrop. Our log costs were moderately higher, primarily for Western logs. Turning to OSB, Q1 adjusted EBITDA was $59 million, a $4 million decrease compared to the Q4. Benchmark pricing for OSB entered the Q1 on a downward trajectory, largely in response to elevated channel inventories and slower building activity in the winter months.

As the quarter progressed, demand and pricing improved slightly in anticipation of the spring building season, but later reversed as buyers weighed the potential impacts of tariffs on the economy and housing demand. This dynamic has persisted into April. For our OSB business, average sales realizations decreased by 1% in the Q1, which was favorable to the OSB Composite. This is largely due to the length of our order files, which results in a lag effect for OSB realizations. Given the softer demand environment, our sales volumes were comparable to the Q4. Unit manufacturing costs and fiber costs were slightly higher. Engineered wood products adjusted EBITDA was $53 million, a $16 million decrease compared to the prior quarter. I'll note that we experienced a multi-week outage at our MDF facility in Montana as a result of a fire event in February.

This impacted our Q1 EWP results by approximately $11 million. The facility resumed partial production in mid-March and is now back to a more normal operating posture. We plan to make up most of the lost volume over the course of 2025. Moving to our full EWP segment, average sales realizations for most products were comparable to slightly higher than Q4 averages. Our sales volumes decreased in the Q1, primarily for MDF and solid section products, whereas I-joist volumes were comparable. Unit manufacturing costs were lower for most product categories, excluding MDF, and raw material costs were higher. Turning to the overall demand environment, although our EWP sales volumes and pricing held up reasonably well in the Q1, demand was softer than our initial expectations.

That said, we have seen a slight uptick in our order files over the last several weeks, and we do expect our sales volumes to increase seasonally in the Q2. Moving forward, demand for EWP products will remain closely aligned with new home construction activity, particularly in the single-family segment. In Distribution, adjusted EBITDA decreased by $4 million compared to the Q4, largely driven by lower sales volumes. With that, I'll turn the call over to Dave to discuss some financial items and our Q2 outlook.

Dave Wold (CFO)

Thanks, Devin, and good morning, everyone. I'll begin with key financial items, which are summarized on page 15. We ended the Q1 with $560 million of cash and total debt of just under $5.2 billion. Q1 share repurchase activity totaled approximately $25 million, and as of quarter end, we had completed approximately $925 million of repurchase under our $1 billion authorization. We returned $152 million to shareholders through the payment of our quarterly base dividend, which we increased by 5% to $0.21 per share during the quarter. This marked the fourth consecutive year of increasing our sustainable base dividend by 5% or more. We continue to believe that our dividend framework, combined with opportunistic share repurchase, enhances our ability to drive long-term value by returning meaningful and appropriate amounts of cash back to shareholders across market cycles.

Capital expenditures for the quarter were $93 million, which includes $16 million related to the construction of our EWP facility in Arkansas. As we've previously communicated, CapEx associated with this project will be excluded for purposes of calculating adjusted FAD as used in our flexible cash return framework. In the Q1, we generated $70 million of cash from operations. It's worth noting that the Q1 is usually our lowest operating cash flow quarter due to seasonal inventory and other working capital build. During the quarter, we refinanced $210 million of high coupon debt at maturity by issuing a $300 million variable rate term loan. We have no additional debt maturing in 2025. Our balance sheet, liquidity position, and financial flexibility remain strong, and we are well positioned to navigate a range of market conditions. Unallocated items are summarized on page 14.

Adjusted EBITDA for Unallocated decreased by $13 million compared to the Q4, primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the Q2 are presented on page 17. In our timberlands business, we expect Q2 earnings and adjusted EBITDA to be approximately $15 million lower compared to the Q1 of 2025, primarily due to the seasonal increase in forestry and road costs in our Western operations. Turning to the West, we anticipate steady log demand in the domestic market in the Q2 as mills respond to improving lumber takeaway as we get deeper into the spring building season. At the same time, log supply is expected to increase as weather conditions improve seasonally. Given these dynamics, we expect a fairly balanced domestic log market and stable pricing for Douglas fir logs.

That said, we anticipate our average domestic sales realizations will be slightly lower compared to the Q1, largely due to mix. We expect our fee harvest volumes to be slightly higher given seasonally favorable operating conditions. Forestry and road costs are expected to be higher as we enter the spring and summer months, and per unit log and haul costs are expected to increase slightly as we move to higher elevation sites. Briefly, on our log export program to Japan, as Devin mentioned, shipments and inventories of imported European lumber have decreased, which has allowed our customers to take market share. As a result, we expect steady demand for our logs in the Q2. That said, we anticipate lower sales volumes compared to the Q1 due to the timing of vessels. Our average sales realizations are expected to increase moderately.

Turning to the South, on balance, we're expecting Southern log prices to be relatively stable during the quarter and our average sales realizations to be comparable to the Q1. Log inventories were ample at the outset of the Q2, but we expect a slight improvement in saw log demand as mills respond to the recent uptick in pricing and takeaway of lumber. In addition, we anticipate improving fiber demand through the quarter as mills transition from spring maintenance outages. Our fee harvest volumes and forestry and road costs are expected to be higher due to drier weather conditions that are typical in the Q2, and we anticipate moderately higher per unit log and haul costs. In the North, our sales realizations are expected to be moderately higher compared to the Q1, and fee harvest volumes are expected to be significantly lower given spring breakup conditions.

Moving to our real estate, energy, and natural resources segment, we continue to see solid demand for real estate properties and expect a consistent flow of HBU transactions with significant premiums to timber value. For the Q2, we expect adjusted EBITDA will be approximately $50 million higher, and earnings will be approximately $40 million higher than the Q1 of 2025 due to the timing and mix of real estate sales. For the full year, we maintain our adjusted EBITDA guidance of approximately $350 million for the segment, which includes our target to reach $100 million of EBITDA in our natural climate solutions business. We now expect basis as a percentage of real estate sales to be 30% to 40% for the full year.

In our wood products segment, we expect Q2 earnings and adjusted EBITDA to be slightly higher than the Q1 of 2025, excluding the effect of changes in average sales realizations for lumber and OSB as sales volumes increase seasonally across our wood products businesses. After a slower than expected start to the spring building season, I'll note that we are seeing signs of improving demand in certain end markets, particularly from the treater segment in the US South. In addition, order files for our EWP products have improved over the last several weeks. As shown on page 18, our current and quarter-to-date average sales realizations for lumber are moderately higher than the Q1 average. This is largely in response to the steady increase in pricing for Southern Yellow Pine lumber products.

Conversely, for OSB, our current and quarter-to-date realizations are moderately lower compared to the Q1 average. For our lumber business, we expect slightly higher sales volumes and log costs compared to the Q1. Unit manufacturing costs are expected to be comparable. For our oriented strand board business, we anticipate slightly higher sales volumes and fiber costs. Unit manufacturing costs are expected to increase due to more downtime for planned annual maintenance compared to the Q1. Turning to our engineered wood products business, we anticipate slightly higher sales volumes for all products in the Q2 and comparable average sales realizations. Unit manufacturing costs are expected to be lower, primarily driven by increased production at our MDF facility in Montana, which has returned to more normal operating levels, and raw material costs are expected to be moderately lower.

For our distribution business, we expect adjusted EBITDA to be slightly higher compared to the Q1 as sales volumes increase seasonally. With that, I'll now turn the call back to Devin and look forward to your questions.

Devin Stockfish (CEO)

Thanks, Dave. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets, starting with housing. For the Q1, housing held up reasonably well, with total starts averaging nearly 1.4 million units on a seasonally adjusted basis and single-family starts averaging around 1 million units in the quarter. However, home builder sentiment waned somewhat as the quarter progressed, and prospective buyers turned more cautious in response to elevated uncertainty surrounding tariffs and the broader economy. This cautious sentiment continued into April as trade policy actions accelerated and markets experienced elevated volatility. Given these dynamics, the spring building season has gotten off to a softer start than we were expecting at the outset of 2025. Moving forward, the housing market will ultimately be determined by the state of the economy and whether the employment picture remains healthy.

If the US economy and employment hold up reasonably well, there is no reason we cannot still experience a solid housing market in 2025. Further, if mortgage rates move down over the course of the year, we could even see some upside in housing activity. In the near term, however, I suspect we'll see some choppiness in the housing activity as trade negotiations continue and the economy adjusts to these policies. Putting the current environment aside, we remain bullish on housing over the long term, supported by strong demographic tailwinds, a vastly underbuilt housing stock, and historically low existing home inventories. Turning to the repair and remodel market, despite the seasonal decrease in activity that's typical in the winter months, R&R activity held up reasonably well in the Q1. Underlying demand fundamentals remain solid, and we're seeing the typical pickup in activity as the weather improves.

That said, we are still experiencing some headwinds in this market, namely higher interest rates and fewer existing home transactions due to the lock-in effect, and more recently, weakening consumer confidence. As we look forward, while repair and remodel activity may experience a little turbulence here in the near term as the economy adjusts to tariff actions, we do expect demand to pick up as the year progresses. As we look out over the medium to long term, many of the drivers for R&R activity are still very much in place, including significantly increased levels of home equity and an aging housing stock. In addition, we've largely worked through the pull forward of projects that occurred during the pandemic and, in fact, are now seeing project deferrals for R&R projects. This should be a tailwind for repair and remodel activity as the macro environment improves.

In closing, we delivered solid results across our businesses in the Q1. In addition, we increased our quarterly base dividend for the fourth consecutive year and recently reached an important milestone in our CCS agreement with Occidental in Louisiana. Looking forward, we're well positioned to navigate a range of market conditions in the near term, and we remain confident in the longer-term demand fundamentals that support our businesses. Our balance sheet is strong, and we continue to focus on driving operational excellence, serving customers, capitalizing on strategic opportunities, and creating long-term value for our shareholders through our disciplined and flexible capital allocation framework. With that, I think we can go ahead and open it up for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you'd like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you'd like to withdraw your question. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we poll for questions. Our first question comes from Susan Maklari with Goldman Sachs. Please proceed with your question.

Charles Perron (VP and Equity Research Analyst)

Good morning, everyone. This is Charles Perron for Susan. Thanks for taking my question.

Devin Stockfish (CEO)

Morning. Yeah, good morning, Charles.

Charles Perron (VP and Equity Research Analyst)

Good morning. Just first, I want to talk a bit about what you're hearing on demand for lumber as we enter the building season. I think we've heard from the builders taking down their closing skies for the year and the choppy DIY demand in your prepared remarks. What are you hearing from retailer demand through the spring and their willingness to ramp inventory given the demand uncertainty against the expectations for higher tariffs later this summer? Specifically, given the risks of tariffs on Canadian lumber, do you see any shift in order patterns between SPF and Southern Yellow Pine that could sustain over time?

Devin Stockfish (CEO)

Sure. Yeah, let me unpack there. A few questions in there. Just in terms of overall lumber demand, I would say it's steady right now. You noted there has been a little bit of pullback, and you've seen that in the builder confidence levels here recently. I would say it's not maybe as strong as we had anticipated heading into the year. The flip side of that is we saw somewhere in the neighborhood of 4 billion board feet of capacity come out of the system last year. That did balance the supply demand a little bit, and we're seeing that in today's environment, even with a little bit more muted demand overall. That being said, as we roll into spring, we're seeing the typical increase in demand, and we're starting to see the R&R market move up a little bit.

As Dave noted, we've seen a little bit more interest from the treater environment here of late. As we think about this in the broader sense, I do think with just the lack of clarity around where housing is going to go, we've seen this in lumber, OSB, to some extent EWP. We're not seeing people build inventories to the same level you ordinarily would see heading into the spring. I think that's partially uncertainty just around what's going to play out over the next several months. Right now, there is sufficient supply to meet that demand, so it's not causing any significant disruptions in the supply chain.

I will just note, and we've seen this many times in the past, to the extent that you don't have meaningful inventories heading into this time of year, and we do see an uptick in building activity, that typically will cause some short-term supply shocks that'll cause pricing to go up. That is something that we're watching. There's a lot going on with tariffs and duties. Obviously, that's certainly on the mind of a lot of the buyers. I think we're in this period of, I think we're going to wait and see here for a little bit. The softwood lumber duties increase will not come until a little bit later this summer. I don't know that that's necessarily driving a lot of buying activity today. Obviously, there's a lot going on besides the softwood lumber duties with tariffs, including the 232 investigation.

I'm not sure that's driving a lot of activity today. That probably will more so be the case as you get toward the end of the quarter. I will say just the whole dynamic with duties, but also just with the amount of Southern Yellow Pine production that's been put in place all across the South over the last several years. Southern Yellow Pine is a bigger percentage of the overall pie these days. You are starting to see more inquiries around transitioning from SPF to Southern Yellow Pine. Still early days, I would say there, but we are getting somewhat more inquiries around that just in anticipation of what's to come.

Charles Perron (VP and Equity Research Analyst)

Got it. That's helpful, Devin. I want to talk a bit about EWP. It was encouraging to see that you were able to get a little bit of pricing lift sequentially across both solid section and I-joists this quarter. Despite the builders trying to cut costs and find savings wherever they can, given the affordability issues, how do you see the outlook for your realization for EWP going forward? I know I think you got it for comparable for the Q2, but considering the dynamics with the builders looking for savings against rising inflation in some of the raw and overall the market, what do you see the impact for realization and the expectations for volume for those products going forward as well?

Devin Stockfish (CEO)

Yeah. I mean, as we said, our view here in the near term is that pricing is more or less going to be comparable here in the near term. We are expecting to see volumes go up somewhat in the Q2, just primarily as a function of just the pickup in building activity as you get into the warmer months. As you look out over time, I mean, it all comes down to the value proposition for the home builders. And we do provide a lot of support around our product. We have a very high-quality product that's typically in pretty high demand. And so that's a conversation that's ongoing at all times with our customers. You have to create value, ultimately, if you're going to be satisfying your customer base.

To the extent that housing holds up reasonably well and/or improves, that will be a tailwind for pricing, and the converse is also true. That will be an ongoing discussion. Ultimately, it's about providing value and supporting your customers, and that's what we're focused on every day.

Operator (participant)

Our next question comes from George Staphos with Bank of America. Please proceed with your question.

George Staphos (Managing Director and Senior Equity Analyst)

Hi, everyone. Good morning. Thanks for the detail.

Devin Stockfish (CEO)

Morning.

George Staphos (Managing Director and Senior Equity Analyst)

How are you, Devin? I guess the first question I had for you, given what's been the softer pickup to the summer building season, demand being a little bit soft just given the uncertainties that you mentioned, have you adjusted your harvest profile at all, or should we still be expecting the 35.5 million tons, and can you give us a bit more color in terms of what you're seeing in terms of the profile and what you're going to do relative to what you might have been looking at two, three months ago?

Devin Stockfish (CEO)

Yeah. You know, George, really outside of a very meaningful recession type environment, our harvest levels are what they are. We set those to really be within sustainable harvest levels over time. I wouldn't anticipate any change to our full-year harvest levels. We don't typically have an issue moving volume. Sometimes around the margins, there can be some pricing dynamics given what's going on in our end markets, whether that's lumber, pulp, and paper. Generally, we set our harvest plans that are pretty stable over time.

George Staphos (Managing Director and Senior Equity Analyst)

Okay. Fair enough. Appreciate that. You mentioned the Occidental Petroleum Agreement. Can you give us a bit more color relative to what we should be expecting in terms of cash flows, milestones, timing in that regard? I'll turn it over with that. Thank you.

Devin Stockfish (CEO)

Yeah. Yeah. Thanks for the question. We're really excited about this. As we've said for a number of years, I think CCS is going to be a very big opportunity for us over time. It's progressed more slowly than we had originally anticipated, I think, just as the industry is trying to figure out what are the economics behind some of these offtake agreements. The permitting process has been much more extended, I think, than anyone had expected. I think this is a concrete data point that this is going to happen. We're really excited about this project. I believe this is one of the largest, if not the largest, offtake agreement in the CCS space in North America. Really excited about that. Again, I just reiterate, that's why you pick partners like OXY, because they're very sophisticated and they know how to do this.

We're not providing the specific economics on a deal-by-deal basis, George, and really the rationale there is we're out trying to sign more CCS agreements, and we want to make sure we're getting the best economics that we can. We will obviously provide more detail about that as these things start coming online. From a timing standpoint, I think they're in the process of getting their permits through the process. I think it's making its way through the process is what we understand, and I expect they will start building out the infrastructure here over the next couple of years to be ready for first injection in 2029.

George Staphos (Managing Director and Senior Equity Analyst)

Okay, Devin. In terms of just the cash flows, recognize you're not going to quantify. We're looking at sort of 2029 and then next decade in terms of when we'll start seeing it actually show up in the P&L then?

Devin Stockfish (CEO)

Yeah. I mean, I would expect it to start showing up in the P&L in 2029 once you have first injection.

George Staphos (Managing Director and Senior Equity Analyst)

Okay. Thanks. I'll turn it over.

Devin Stockfish (CEO)

Yes.

Operator (participant)

Our next question comes from Matthew McKellar with RBC Capital Markets. Please proceed with your question.

Matthew McKellar (Equity Research Analyst)

Hi, good morning. Thanks for taking my questions. Maybe first, if we do see some meaningful Section 232 tariffs on wood products announced, how would you think about the likely impact to timberland valuations over the medium term?

Devin Stockfish (CEO)

Yeah. I mean, that's a great question. First, what I would say is just with respect to the 232 investigation, really not a whole lot of clarity on how that's going to shake out, what products that's going to cover, what level of tariffs they would cover if that does end up being the result. Hard to make any sort of real definitive determinations around that until we get more information. That being said, in terms of timberland valuations, I don't expect that would have a meaningful impact in the near term.

That is just primarily because unless and until you have good clarity on how long those kinds of tariffs would be in place, I suspect people are not going to be building that meaningfully into the valuation of timberlands because, again, it is just a very long-term asset class, and people tend to look out over the course of decades rather than in two and three-year increments. I do not know that it would necessarily have an impact on timberlands values, or at least not anything material.

Matthew McKellar (Equity Research Analyst)

Okay. Thanks for that, Color. Last for me, just in the OSB business, you mentioned some planned annual maintenance in the quarter. I recognize this is planned maintenance, but had you been intending to perform this maintenance in Q2 for some time, or are you pulling forward any maintenance maybe based on what you're seeing in the market?

Devin Stockfish (CEO)

No. I mean, this was part of our annual plan. As a general matter, we plan the annual maintenance work well in advance. If you have to order equipment, you have to schedule outside contractors. We typically come up with a plan to cover the year. Absent something really meaningful changing in the environment, we typically stick with those plans. You typically incur some extra costs if you start moving that around late in the season.

Matthew McKellar (Equity Research Analyst)

Okay. Thanks very much. I'll turn it back.

Devin Stockfish (CEO)

All right. Thank you.

Operator (participant)

Our next question comes from Mark Weintraub with Seaport Research Partners. Please proceed with your question.

Mark Weintraub (Senior Equity Research Analyst)

Thank you. A few quick thoughts. One on that OSB annual plan maintenance outage. Order of magnitude, how much impact would you expect that to have in Q2?

Devin Stockfish (CEO)

Yeah, Mark. Not a meaningful impact. I mean, I think we're still expecting that operating rates would be in the kind of the low to mid-90%, which is consistent with where we were in the Q1.

Mark Weintraub (Senior Equity Research Analyst)

Maybe $10 million or something, or less?

Devin Stockfish (CEO)

No, no. Less than that.

Mark Weintraub (Senior Equity Research Analyst)

Less than that. Okay.

Devin Stockfish (CEO)

Not a huge impact.

Mark Weintraub (Senior Equity Research Analyst)

Okay. In terms of the EWP, the fire impact, that was $11 million in the Q1. Does that $11 million disappear in the Q2? You actually hope to recoup some of it with stronger volumes in the back half of the year, all else equal?

Devin Stockfish (CEO)

Yeah, Mark. The $11 million was the impact to the Q1. We have largely returned to more normal operating levels at this point. There is going to be a small impact on the Q2, but as we said, we do expect to get most of that volume back over the course of the year. Some of that will come back in Q2 potentially, but likely over the second half of the year.

Mark Weintraub (Senior Equity Research Analyst)

Okay. Lastly, just so you have a 16% tax rate in the Q1, which I assume means that you are expecting a healthy share of your income to come from your TRS this year, which presumably would mean that you're still pretty optimistic on how the wood products business is going to turn out for the rest of the year. Is that fair? If it ends up being a little bit weaker, does just the tax rate go down for the balance of the year? Is that how it would play out?

Devin Stockfish (CEO)

Yeah, Mark. I think you're right on the mechanics. The full-year projected tax rate, that's primarily driven by the mix between REIT and TRS earnings, with the TRS earnings being most significantly driven by the Wood Products business. Though, of course, there's other items that go into that from time to time, whether that be regional mix of earnings in Timberlands or Real Estate, Energy, and Natural Resources. Of course, always challenging to predict where commodity prices are going to move over the course of the year. In an environment like this, it gets even more challenging. That's why we're not giving full-year guidance there.

Yeah, I mean, to your point, given the strength of lumber prices we've seen to date, prospect of increased duties later in the year, all the things that Devin walked through earlier, if the employment and broader macro environment holds on, there's no reason this can't be a solid year in Wood Products.

Mark Weintraub (Senior Equity Research Analyst)

Got you. Thanks a lot.

Operator (participant)

Our next question comes from Ketan Memtora with BMO Capital Markets. Please proceed with your question.

Ketan Mamtora (Director, Building Products Equity Research)

Good morning and thanks for taking my question. First question, can you talk a little bit about the channel inventories as you guys see it in lumber, OSB, and EWP in the context of what we've discussed today with slower sort of start of the spring season, home builders sounding a little more cautious? How would you characterize inventories? Little, lean, more balanced, or probably a little bit kind of more than balanced at this point?

Devin Stockfish (CEO)

Yeah. I mean, so relative to what you would normally see this time of year, I would say the inventories are a little lighter than you would expect. Now, that being said, currently, by and large, the supply is meeting the demand. There is not a tremendous urgency on the part of the buyer community to build meaningful inventories on balance right now. I think things are fine as long as building activity continues along the current path. If things were to pick up, as I mentioned earlier, I think what that typically results in is you would see a little bit of a spike in pricing as people try to get out from under lean inventories.

Ketan Mamtora (Director, Building Products Equity Research)

Got it. That's helpful. Second question, good to see the progress on the CCS side. I'm just curious on forest carbon, Devin. Last quarter, you had talked about a pretty meaningful jump over 2024. Is that still on track for 2025?

Devin Stockfish (CEO)

It is. Yes. We have two projects that have already been approved. We have seven more in the pipeline in various stages of review by either the third-party auditors, or several of those are in for final approval with ACR. Everything is progressing. I mean, it's always hard to predict exactly when these things come through the process, but we're still looking forward to a pretty meaningful increase in forest carbon this year, somewhere in the 5X to 10X, depending on how quickly we can get these things through the audits. I think we're heading in the right direction. Seems to be good demand from the customers that we're talking to. It should be a nice pickup in forest carbon this year.

Ketan Mamtora (Director, Building Products Equity Research)

Perfect. That's very helpful. I'll jump back in the queue. Good luck.

Devin Stockfish (CEO)

All right. Thanks.

Operator (participant)

Our next question comes from Hong Hang with JPMorgan. Please proceed with your question.

Hong Hang (Analyst)

Yeah. Hey, thanks for taking my questions. I guess my first question, you've talked a little bit about the supply and demand dynamics that are causing weakness in OSB pricing. I guess in the near term, what do you think needs to change for us to see a stabilization in prices?

Devin Stockfish (CEO)

Yeah. I mean, I would say it's by and large pretty stable right now. It's obviously a little lower price than we saw a little while ago. I think right now the supply-demand dynamic is pretty balanced. We started the year in OSB with pretty light buying activity, particularly from the home improvement warehouse segment. That kept it pretty light. You saw that pick up a little bit over the course of Q1, but it's come back down here over the last several weeks. Feels like it's sort of stabilizing right now from a pricing standpoint. I would expect as we get deeper into the building season, remember, even though we had 1.4 million starts in Q1, that is on a seasonally adjusted basis.

In terms of the actual number of units that are going to get built, it will be higher as we get into Q2 and the summer months. You will see that activity pick up here. I think all things being equal, even on the current path, things are probably in a pretty stable range right now. Obviously, if you saw interest rates go down to have buying activity pick up, then obviously that would have some tailwind effect for pricing. Overall, it feels pretty stable right now.

Hong Hang (Analyst)

Got it. I guess my second question, the administration signed a lot of executive actions trying to increase timber production and has recently opened up, I guess, parkland or public land for timber harvest. How do you expect that to kind of play out in the timber market?

Devin Stockfish (CEO)

Yeah. First, just a reminder here, we don't do any logging on federal lands with the exception of a very, very small amount of wood in Montana. We don't buy timber off federal lands. We procure logs from our own timberlands and other private landowners. That's not an area that we really participate in. In terms of how this plays out, I think it's a little hard to say. I will say at the outset, and I think most people agree with this, there is an opportunity to make the federal forest more resilient to fire risk by doing some active management.

To the extent that through these executive orders, that helps the Forest Service be a little bit more proactive on some of these things to make sure that we do not see the number of acres burned every year, that is a positive for everyone, including Weyerhaeuser. Now, beyond that, I am not sure you are going to see a dramatic increase in logging activity on federal lands, at least not in the West, because the mill infrastructure really is not built for those larger logs. I think there are some other practical challenges that could limit a meaningful increase, just logging capacity, trucking capacity, etc. I am not sure that is going to have a big impact here in the near term. Obviously, the administration is focused on manufacturing jobs in the US That is a positive overall. We certainly agree with the administration on that front.

Whether the opening up federal forest means meaningfully more logs coming out in the near term, I'm not sure about that. We'll watch it. Others that are deeper in the space of logging on federal lands may have more insight there. That's just not something we typically do.

Hong Hang (Analyst)

Yeah. Thank you.

Operator (participant)

Our next question comes from Hamir Patel with CIBC Capital Markets. Please proceed with your question.

Hamir Patel (Managing Director and Senior Equity Analyst)

Hi. Good morning. Devin, you mentioned more inquiries around transitioning to customers looking to transition to Southern Yellow Pine from SPF. Can you speak more to perhaps where you're seeing that interest? Is that more larger public builders versus the privates? Any maybe differences across regions?

Devin Stockfish (CEO)

Yeah. I mean, I would say regionally, it's kind of those Midwest regions where they've traditionally been SPF markets. And you've had a little bit of Southern Yellow Pine moving in there, but primarily in SPF markets. So regionally, that's kind of where you're seeing it. It's across the board, though, from dealers to even the home improvement warehouse customers. As you look forward, it's clear that there is going to be less SPF on the market, whether that's because of beetle infestations, fires, government policy, trade issues, etc. That seems to be the case. Obviously, there's been a lot of Southern Yellow Pine lumber capacity that's been coming into the market. Ultimately, that is going to happen.

I think people are seeing the future and realizing that this may be the time to start dipping your toe in the water and getting your arms around Southern Yellow Pine. Again, I wouldn't say we're all that far down that road, but we're in the early innings, I think, and you're starting to see more inquiries on that.

Hamir Patel (Managing Director and Senior Equity Analyst)

Okay. Thanks. That's helpful. You also indicated you expected R&R activity to pick up later this year. Do you think that end market for wood products experiences growth this year, just given the sluggish pace year to date?

Devin Stockfish (CEO)

Yeah. I mean, it's puts and takes, right? Because from a housing standpoint, obviously, it's hard to know. We're still early in the year. Just given the general commentary that we've heard from some of the builders, whereas we were thinking initially maybe housing was up slightly, maybe that's perhaps down to flat or even slightly down overall. From an R&R standpoint, I think where we're coming from is we've got massive amounts of home equity out there. I do think we've seen a little bit of a headwind from activity during the pandemic that was a little bit of a drag. I think we've worked through that pull forward. That should open up a little bit more. As interest rates, particularly on the short end, open up a little bit more financing activity, I think that could be another tailwind as well.

We are expecting things to pick up, all things being equal. Obviously, if we're in a recession or there's some other meaningful impact to the economy, then of course, that would impact our view. If things stay relatively stable, then I think that can be some upside over the course of the year. Just whether that balances out slightly softer housing, I think it's hard to say. It really depends on how much uptick you get on R&R. Again, there's a lot of negativity out in the market right now. I understand that. There's uncertainty, clearly. Sitting here today, I mean, we're still looking at having a good year this year. Our views on that haven't really changed. There may be some bumps in the road along the way, but businesses are operating well. The pricing environment is still reasonably good.

We're not maybe as pessimistic as some other folks.

Hamir Patel (Managing Director and Senior Equity Analyst)

Okay. Fair enough. That's all I had. I'll turn it over. Thanks.

Devin Stockfish (CEO)

All right. Thank you.

Operator (participant)

Our next question comes from Mike Roxland with Truist Securities. Please proceed with your question.

Michael Roxland (Managing Director and Senior Equity Research Analyst)

Yeah. Thank you, Devin, Dave, and Andy for taking my questions. Devin, I just wanted to follow up on the sense of what's driving the slight uptick in order files in EWP over the last several weeks. You mentioned seasonality. Have you seen a pickup in building activity? Because it certainly doesn't sound from your comments that there's been much in the way of restocking. Is it seasonality or pickup in building activity that's led to better order files in EWP? Can you remind us the operating rate you ran at in EWP in Q1 and what you expect for Q2?

Devin Stockfish (CEO)

Yeah. I mean, I think it's largely seasonality, right? It's what are you comparing it to? Q1 is always the slowest season of the year just because of the weather. As the weather improves, you see a pickup in building activity. Maybe it's not as strong as we had thought it would be coming into the year, but it's still stronger than Q1. I think that's really what's driving the uptick right now. From an operating rate standpoint on EWP, we were sort of in that low 70s, 70% range. We do expect that to improve as we go into Q2.

Michael Roxland (Managing Director and Senior Equity Research Analyst)

Got it. Okay. Congrats on the Occidental progress and the progress overall for CCS. Just on a recent conference, you mentioned that, and you said it again today here, that CCS is a big opportunity, but not as big as you originally planned. Can you give us a sense of the scale of the opportunity as you now see it and how that compares to your original outlook? Why the change in expectations? Is that solely due to the permitting process?

Devin Stockfish (CEO)

Yeah. Just.

Michael Roxland (Managing Director and Senior Equity Research Analyst)

Your overall losses? I'm sorry. Go ahead.

Devin Stockfish (CEO)

Just to be clear, I do not view it as less overall opportunity. In fact, I think the opportunity set for CCS is fairly significant. So our views on the magnitude of the opportunity have not changed. The only thing that has really changed is just the timeline. We had originally thought we would start seeing injections in kind of 2026, 2027 timeframe. That has been pushed back by a few years. The timeline to get these things up and running is a brand new business for everybody involved. It has just taken longer to come to fruition. The magnitude of the opportunity, we still think is fairly significant. Any heavy manufacturing is going to need CCS if you are going to reduce your greenhouse gas emissions. There is just really no other way to do this cost-effectively. I think this is going to happen.

It's going to happen in a big way. It's just going to come to fruition over a little bit longer timeline.

Michael Roxland (Managing Director and Senior Equity Research Analyst)

Got it. I appreciate the clarity there. Just one last thing is, in terms of CCS, does it tend to be higher margin relative to wind, solar, and carbon credits and mitigation banking? Is CCS typically the highest margin product that you have in natural climate solutions?

Devin Stockfish (CEO)

Yeah. I mean, the margin is incredible, right? Because you're leasing subsurface space. We're not putting any of our own money into building out the infrastructure. We're not really managing it. There are very little in terms of cost from our standpoint around employees. We've got people managing the program, but it's a really, really low cost. It's virtually all upside because it's on top of the timberlands above ground. It's like wind in the sense that this is just pure upside to managing the land base.

Michael Roxland (Managing Director and Senior Equity Research Analyst)

Got it. Thank you very much.

Devin Stockfish (CEO)

Yes. Great.

Operator (participant)

Our next question comes from Buck Horne with Raymond James. Please proceed with your question.

Buck Horne (Managing Director, Housing/REITs and Equity Research)

Hey. Thanks. Good morning, guys. I just wanted to maybe zoom out a little bit, just take stock of where we're at in terms of the stock price performance and obviously the discount to NAV here, probably one of the widest discounts since the pandemic. Does that strategically give you any thoughts about are there any maybe non-core timber positions you would think about monetizing or could monetize in the near term and maybe accelerate some share repurchase activity to maybe close this NAV gap or take advantage of the dislocation?

Dave Wold (CFO)

Yeah, Buck. I mean, look, we're always looking at levers to create shareholder value. We've been balanced in our capital allocation approach. For us, it's not really a matter of having to choose between the various outcomes. We're not in a position where we've got to get to an appropriate leverage place or meet dividend requirements. We feel really good about those. Really, we're able to think about the various components and opportunities that are available to us separately. On the timberland side, as we've said, we've got a high degree of confidence that the value is going to go up over time. We're going to continue to be active there. That said, it is critical to be disciplined in our approach as we look at those transactions so we don't overpay.

We have not been afraid to make adjustments to our portfolio when we can find more efficient uses of capital, whether that be through the real estate program, whether that be through swap-like transactions like we did late in 2023, really looking to improve the quality of our portfolio, the cash flow generation capability. We have been active in share repurchase. We have nearly completed that billion-dollar authorization. We will continue to lean in and be opportunistic there. As always, it is a matter of looking at all the opportunities that are available to us and allocating our capital in a way that creates the most value for shareholders.

Buck Horne (Managing Director, Housing/REITs and Equity Research)

Gotcha. Appreciate that. Thanks, Dave. I just follow up on the solar leasing. Is there any update in terms of market momentum in terms of option conversions? How do you view kind of the opportunity set for solar uptake in the next couple of years?

Dave Wold (CFO)

Yeah. I mean, we're making great progress. We've got our first operating solar site. At this point, we got two more that are currently under construction that I suspect will be online later this year or at the latest early next year. The pipeline continues to grow. We're continuing to sign new agreements. We're really focused on signing up with counterparties that are big and sophisticated and can navigate whether it's the permitting process or ultimately with some of the challenges here from a supply chain standpoint, the folks that can navigate that. We feel good about the conversion rate in terms of the pipeline that we've developed. My expectation is we'll be adding several of these every year really over the next decade. We're expecting this to continue to become a bigger and bigger component of our NCS business over time. Very positive.

Buck Horne (Managing Director, Housing/REITs and Equity Research)

All right. Thanks, guys. Appreciate it.

Dave Wold (CFO)

Yes.

Operator (participant)

Our next question is from George Staphos with Bank of America. Please proceed with your question.

George Staphos (Managing Director and Senior Equity Analyst)

Thanks. A couple of quick follow-ons just on tariffs. To the extent you can comment, and I know it's really hard to parse this, Devin and Dave, do you think, and recognizing the tariffs are a moving target, has there been much from what you see and what you talk to in terms of the field impact from tariffs built into lumber pricing as you see it right now? The related question, given the fact that there's been so much capacity that's gone into the US over the last number of years and that gap between supply and demand has diminished, I recognize in a stronger housing market, that gap would widen out again. Do you think tariffs would have had much effect on lumber pricing as we sit here today? Thanks, guys, and good luck in the quarter.

Devin Stockfish (CEO)

Yeah. In terms of today, I do not think it is having a meaningful impact on pricing. It can. I think we saw that around the 2 April announcement. There was clearly some impact to lumber pricing in anticipation of that. You kind of saw the run-up. When it was determined that wood products would be exempted from the across-the-board tariff, you saw those prices come back down. I do think as you get closer to the August, September timeframe where the new duty structure will come into place, I suspect you will see some impact there. The wild card too is what happens in the broader tariff environment, whether that is the 232 or just the broad-based tariffs to the extent that those come into play. I mean, it will impact pricing around the margins for sure. Is it going to have a material impact?

I think that, to your point, George, is really just a function of where we are in the demand cycle. If demand is strong, that'll push pricing up. Tariffs may be put a little bit on top of that. If demand is weak, really what it does is just adjust where the cost floor is. That ultimately can impact capacity decisions. I think this will play out over time. There's a lot of uncertainty around it. I think to some degree, you may see some hesitancy, people building inventories, not knowing necessarily what's going to happen on tariffs, at least until we get closer to a more certain date on those new duties.

George Staphos (Managing Director and Senior Equity Analyst)

Thanks, Devin. Have a good quarter.

Devin Stockfish (CEO)

All right. Thank you.

Operator (participant)

There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments.

Devin Stockfish (CEO)

Okay. Thank you, everyone, for joining us this morning. Thank you for your continued interest in Weyerhaeuser. Have a great day.

Operator (participant)

This concludes today's teleconference. You may disconnect your lines at this time. We thank you for your participation.