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080208 Deutsche Bank Report - Weyerhaeuser's 4Q07 in 100 Words

Deutsche Bank - Equity Research

Weyerhaeuser {Ticker: WY.N, Closing Price: USD 62.34, Target Price: USD 95.00, Recommendation: Buy}.

Less than it seems. EPS net of special items = $0.42. DB @ $0.37, FC @ $0.33. However, land sale gains grew $49MM ($0.15) q/q. Comps: 3Q07 = $0.56, 4Q06 = $0.61. Real issue is 1Q outlook, which suggests EPS loss, compared to FC @ $0.31. FY08 FC @ $2.04 also needs to come down.

Segments (net of special items):

Timberland . EBIT= $133MM, 3Q07 = $167MM, 4Q06 = $168MM. Log prices down in the West. Dec storm will boost West costs for several qtrs. Guiding 1Q lower.

Wood. Even weaker than expected. EBIT = $(210MM), 3Q07 = $(109MM), 4Q06 = $(186MM). Vol's down sharply y/y in most commodities, and CN$ also hurting. Unless prices rally in second half of 1Q, results will be lower still.

Cellulose. Disappointing. EBIT = $80MM, 3Q07 = $81MM, 4Q06 = $56MM. Guiding 1Q slightly lower on more m'tce d'time.

C'board & Pkg. EBIT = $103MM, 3Q07 = $100MM, 4Q06 = $75MM. WY is "pleased with level of interest" in business. Guiding 1Q lower on higher costs & seasonality, but suggesting market remains in good shape. DB regards Smurfit or Temple as most probable buyers (we have discussed potential options for this business in previous bulletins -- e.g., May 7, June 4, and December 14, 2007).

WRECO. EBIT = $143MM, 3Q07 = $83MM, 4Q06 = $312MM. Q/q improvement driven by $49MM in add'l land sale gains. Guiding to a 1Q loss: this will be key factor driving earnings lower in 1Q.

Change in view? Housing-related segments are suffering even more than expected. Still, maintaining Buy - - - short-term trends do little to affect asset valuations. We expect restructuring to continue, whether Tree Act passes or not. Trimming est's: '08 goes from $2.10 to $1.00 [1Q = $(0.15)], '09 goes from $2.80 to $2.00.