Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Why Weyerhaeuser Company (WY) Earnings Could Soar Higher

Weyerhaeuser CompanyWeyerhaeuser 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

Analyst EPS Estimate $0.30
Change From Year-Ago EPS 233%
Revenue Estimate $2.04 billion
Change From Year-Ago Revenue 14%
Earnings Beats in Past Four Quarters 3

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.

Weyerhaeuser hasn’t hesitated, though, to make some smart strategic moves. Last month, the company agreed to pay $2.65 billion to buy the Longview Timber business from Brookfield Asset Management Inc. (USA) (NYSE:BAM) and Brookfield Infrastructure Partners L.P. (NYSE:BIP). By selling, Brookfield will be able to reinvest proceeds into areas that are more consistent with its current focus. Meanwhile, Weyerhaeuser picks up timberland in the Pacific Northwest that has easy access to Asian export markets, letting it take further advantage of tight supply conditions caused by the mountain pine beetle’s huge presence further north in British Columbia.

In addition, Weyerhaeuser is managing long-term risk. With its innovative climate-change research, the company hopes to get information to help it manage and protect water resources while tailoring tree planting to handle potentially drier growing seasons.

In the Weyerhaeuser earnings report, watch to see what role incoming CEO Doyle Simons plays in the call. With Simons coming from the paper industry, it’ll be interesting to see whether he drives the company more toward paper products. With so much potential demand from building materials, though, it’s hard to see Weyerhaeuser Company (NYSE:WY) making major changes from its successful strategy thus far.

The article Why Weyerhaeuser Earnings Could Soar Higher originally appeared on Fool.com and is written by Dan Caplinger.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Brookfield Infrastructure Partners. The Motley Fool owns shares of Brookfield Infrastructure Partners.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.