Lumber firm (Canada) off 86% on low prices, duties - US$13M US$91M
Weyerhaeuser Co., the world's leading lumber producer, yesterday posted a 86% drop in third-quarter earnings and warned of more hard times ahead for its wood products business as a result of low prices and the impact of U.S. softwood duties. "The fourth-quarter earnings outlook remains very uncertain due to an oversupply in the market," the company said in a statement.
It is hard to predict when conditions will improve because "the market is in a place it's never been before," said Dave Larsen, vice-president of government and public affairs for Weyerhaeuser Canada. "Volume has been driven higher after the [softwood] tariffs were introduced, higher than anyone ever expected. Clearly prices are quite low and we are going into a downturn in terms of the homebuilding season."
Weyerhaeuser, headquartered outside Tacoma, Wash., posted net income of US$13-million, or US6c a share, compared with US$91-million (US41c) a year earlier. The company attributed the 86% drop to slumping prices in the wood products market, costs related to its recent acquisition of paper-maker Willamette Industries Inc., and the explosion of a boiler at a mill in North Carolina.
Excluding a US$11-million charge for the integration of Willamette and a US$20-million charge for the boiler, the company said it had a profit of US$44-million (US20c). But most of the good news for the quarter came Weyerhaeuser's non-lumber operations. During the three-month period ended Sept. 30, the company's pulp and paper business had a profit of US$10-million thanks to improving pulp prices and higher demand for office paper.
The containerboard business had pre-tax earnings of US$88-million.
"As we look to the fourth quarter, we see some modest improvement in the paper and containerboard businesses," said Steven Rogel, chief executive. Meanwhile, the company's wood products division lost US$18-million in the quarter, before taxes. However, excluding the US$31-million Weyerhaeuser had to pay in softwood duties - it has significant operations in Canada - its wood products business would have earned US$13-million.
The Canada-U.S. lumber dispute has left the company in the difficult position. A diversified organization with operations in 18 countries, it is nevertheless heavily focused on Canada for its lumber production, with 19 sawmills on this side of the border. Despite being a U.S. company, Weyerhaeuser still has to pay the U.S. duties for allegedly benefiting from Canadian government subsidies.
The company's U.S. sawmills are not subject to the duties, but they are being hurt by the fallout of the duties. Instead of forcing Canadian producers to cut back on production, the duties have had the opposite effect, said Mr. Larsen and other observers. Canadian sawmills are ramping up production in an effort to cut costs, thus enabling them to hold on to profit margins even in a slumping market. That has depressed the price of softwood. Weyerhaeuser's Mr. Rogel said the company does not see an end to the softwood battle any time soon and in the meantime the company will continue to take steps to lower its costs.
