Why Weyerhaeuser Company (WY) Earnings Could Soar Higher

Weyerhaeuser Company (NYSE:WY) will release its quarterly report on Friday, and given the recent strength in the housing market, investors are hoping that the provider of forest products will benefit from greater demand for construction materials for the homebuilding market. Yet even though Weyerhaeuser earnings growth looks almost assured, the stock hasn’t reacted as favorably as shareholders would have hoped.

Weyerhaeuser Company (NYSE:WY) is structured as a real-estate investment trust, giving investors a nice dividend tied to the company’s results. With its combination of building materials and paper products, the REIT enjoys a business that features renewable resources to ensure perennial growth. Let’s take an early look at what’s been happening with Weyerhaeuser Company (NYSE:WY) over the past quarter and what we’re likely to see in its quarterly report.

Stats on Weyerhaeuser

Source: Yahoo! Finance.

How will Weyerhaeuser earnings fare this quarter?
In recent months, analysts have modestly reduced their views on Weyerhaeuser Company (NYSE:WY) earnings, cutting their June-quarter estimates by a penny per share and their full year 2013 and 2014 calls by $0.02 per share. The stock has remained subdued in response, falling by 1% since mid-April.

High lumber prices are the key driver of earnings growth for Weyerhaeuser, and in recent years, price trends in the industry have been quite strong. Infestations of mountain pine beetles have consumed about 12% of forested land west of the Mississippi, and that pushed lumber prices to levels not seen since the housing boom in the mid-2000s. Weyerhaeuser Company (NYSE:WY) rival Plum Creek Timber Co. Inc. (NYSE:PCL) has benefited even more from the trend, because unlike Weyerhaeuser, much of Plum Creek Timber Co. Inc. (NYSE:PCL)’s timberland is in areas not affected by the beetle. Nevertheless, Weyerhaeuser was able to triple its profits in the first quarter from the year-ago period, posting its best quarterly earnings in eight years.

During the second quarter, though, lumber prices plunged, with lumber futures falling from nearly $400 down below $300 before recovering somewhat in the past month. Futures prices don’t always get reflected immediately in spot prices, so the impact on Weyerhaeuser Company (NYSE:WY) earnings might not show up this quarter, but if prices remain lower, it’ll take a lot more demand from homebuilders in order to make up for falling margins.