All right, good afternoon. I'm Anthony Pettinari with Citi Research, and we're very pleased to have with us Weyerhaeuser and CEO Devin Stockfish. This session is for Citi clients only, and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqna.com and enter code GPC25 to submit a question. Devin, I'm going to turn it over to you, and maybe you can start with a short introduction to Weyerhaeuser and the portfolio, and then we can jump into Q&A.
Sure. Well, glad to be here. Thanks, Anthony. Really high level, I think most folks are probably familiar with the story. We are one of the largest private owners of timberlands in North America, perhaps the world. We have 10,400,000 acres of timberlands in the United States. We manage another 14,000,000 acres in Canada under long-term license agreements.
We also have a Real Estate, Energy, and Natural Resources segment, which is really focused on looking across that portfolio and land base to make sure that we're maximizing the potential and returns from all of our acreage. We can dive into those specifics if you'd like.
That includes our Natural Climate Solutions business in that segment. And then lastly, we are one of the largest producers of wood products in North America. We manufacture lumber, oriented strand board, a variety of other engineered wood products, as well as 19 distribution facilities across the U.S. and Canada.
We manage all of these businesses at scale with industry-leading performance, and it's all underneath a very tax-efficient REIT structure. So that's at the high level. Maybe we'll keep it brief, Anthony, because I think there are probably lots of things to talk about today.
Yeah, yeah. So maybe we can start off, and if you can give us maybe a current state of the lumber market? And then we got two executive orders from President Trump over the weekend, one on lumber, the other on timber. Maybe we can start off with lumber and maybe talk about where the market is and then the impact of that executive order.
Yeah, sure, well, there's a lot going on in the lumber market today, and maybe I'll back up just a minute here to provide some context for what's going on in the market, so if you look at last year, it was a tough year in the lumber space. We saw repair and remodel demand down somewhere in the mid-single digits. We saw multi-family housing construction down a fair bit, and so overall demand for lumber last year was down, and it was a pretty challenging environment for most of the lumber industry.
What that resulted in over the course of the year was a pretty significant amount of mill closures across North America, so if you think about the North American manufacturing base, call it 72,000,000,000 board feet of capacity, about 4,000,000,000 board feet of capacity came out of the market last year. That was a little bit more weighted toward the back end of the year.
And so as we head into 2025, regardless of whether you see any meaningful uptick in demand, which we think we will, and we can talk about that a little bit more, just the overall supply-demand dynamics in North America will be more favorable for lumber this year just because there is 4,000,000,000 board feet less supply in the market.
So that's the backdrop. There's a lot going on with respect to the new administration, particularly around tariffs. And I want to just make sure everyone's clear. Tariffs are distinct from lumber duties, and both of these things do have some impacts on what's going on in the lumber market.
The tariffs are the 25% tariff that the president put in place here yesterday, and those impact all wood products coming into the United States. That includes lumber, oriented strand board, engineered wood products. Just for context, about 25% of the lumber that is used in the U.S. comes from Canada. About 30% of the OSB that is used in the U.S. comes from Canada. So there is a fairly material amount of wood that is flowing across the border into the U.S., and the tariffs will impact all of that coming in. If you look at tariffs by itself, that's one component.
Duties are another component, and that is specific to lumber, and that is a result of a long-standing dispute between the United States and Canada over how logs are priced in Canada. Currently, there is a 14.5% duty that's separate from the tariffs that applies to lumber coming into the U.S.
That lumber duty is going to go up later this year in August. That should go up to 25%-30%. And so those two things are different. The tariffs are pursuant to the executive order from the President. The duties are pursuant to a trade case. So putting all of that together, there's been some turmoil in the market.
We have seen lumber prices going up here recently. Now, that would have happened anyway because as you get into the warmer months and out of the winter months, that's when the building activity really starts to pick up. And so you'd see more demand as you head into the March-April timeframe anyhow. But we've also had that additional component of the tariffs in play as well. So it's been a dynamic market here recently, but we have seen lumber prices trending up recently.
Great. And to follow up on that, and just to be clear, you've got a duty that in this summer is going to go to 25%-30%. We're talking about a tariff of 25%. So it's possible, maybe probable, that there'll be a 50%-55% total import duty plus tariff on Canadian lumber this summer.
Correct. Those two do stack on top of each other, yes.
Right. So what actually happens, or how do you see the market playing out? Do the Canadians kind of hold on? Do you see capacity closures? Do you see a supply response in the South?
Yeah, I mean, I think it's really a function largely of the demand environment, right? And so to the extent that the demand is there for lumber, there are only so many places that you can produce lumber, and so that would presumably cause some increase in pricing to accommodate that tariff for the Canadian producers.
If you see the demand environment wane, and you see just not enough price support for those marginal producers on the cost curve, presumably they will at some point have to take some of that capacity out, so further impacting the overall supply-demand dynamic in North America.
You said earlier you thought that there were some signs of improvement or hope for improvement in underlying demand. Can you talk a little bit about on the R&R side and on the new build side?
Sure. Yeah, so as we think about it, the primary drivers for our business are really residential construction and repair and remodel. We will look at last year. Multi-family was down quite a bit, but single-family actually was reasonably good with a 1,000,000 housing starts. That's not a bad year in single-family.
As we look out into 2025, our base case is a very slight improvement year over year in single-family. And the components of what makes that up, I do think you're going to continue to see the large national builders continue to take market share. They've shown a really strong ability to navigate this environment through offering different home sizes, amenity packages, buying down mortgages.
They've navigated this time period fairly successfully, and I see that continuing to happen. There's always the risk with interest rates. If that were to go meaningfully higher over the course of the year, obviously that's a headwind. And I think there's still some uncertainty in terms of how the tariffs will play into the overall affordability calculation.
But that all being said, this country needs to build a lot of houses, and I think the big national builders are inclined to keep churning them out as long as they can get a reasonable margin, and I think that will probably be the case for 2025.
Right. And can you talk a little bit more about your lumber footprint in terms of maybe your cost position in North America, where the assets are located, how you think you're positioned to meet the demand?
Yeah. So when you think about, and maybe I'll even just talk about our wood products manufacturing footprint in general, particularly relative to Canadian operations. So we have three lumber mills in Canada, and that represents about 20% of our overall production. Of that Canadian production, a relatively small percentage of that comes into the U.S.
About 20% of the Canadian manufactured lumber within Weyerhaeuser's footprint comes into the U.S. We send a fair bit to Japan and keep some locally in the domestic Canadian market. So obviously that 20% that comes over the border is subject to tariffs and duties.
On the OSB side, we have two mills in Canada. The majority of that production does come into the U.S., and so we'll have tariffs on that. Similarly, we have two engineered wood products mills in Canada. So there will be some pressure when you look at those individual mills, but the market as a whole is going to have to adjust to that. And our overall footprint is primarily in the U.S. So we'll have to deal with that around the margins for our Canadian operations, but the majority are in the U.S. and will not be subject to those tariffs.
Great, great. And we talked about the lumber market. Can you give us a brief overview of OSB and how the exposures are a little bit different and your footprint there?
Yeah. So again, the majority of our assets are in the U.S. on the OSB side. That market hasn't been quite as volatile as the lumber market here. Over the last few years, we've seen relatively strong OSB prices for the last several years. A little bit of a dip in the December-January timeframe, which is not unusual just because seasonally there's less building going on during the cold months. But overall, we've got a very low-cost production manufacturing asset base, and that's true for OSB, but really across the board.
We've been working for a number of years on our Operational Excellence initiatives, and we've really positioned all of our manufacturing businesses to be industry-leading from a margin standpoint. So we sit in a good place on the cost curve really across all of our manufacturing operations.
And rounding it out, engineered wood products. Can you talk about those product offerings? And you made an announcement of a large capacity project there.
Yeah. I mean, we're really pleased with how well our engineered wood products business is operating. Our Trus Joist brand within the engineered wood portfolio is a premium brand. We get premium pricing, very strong product offering. We have a variety of different products that we provide to the market, some of which LSL is more of a proprietary product, our Parallam product similarly, and others, LVL is similar to products that others produce. But overall, very strong product offering, good relationships with the builder.
We're really pleased with the position that we have in the market, which is one of the reasons we had just announced a new mill that we're going to be building in Arkansas, a new TimberStrand facility. And just a little background about TimberStrand. Most engineered wood products are made by gluing veneer together to make a variety of beams, and those are really good products. But veneer comes from bigger saw logs, right? You need the bigger logs, they peel the veneer, and that's what you use as the input.
The thing that is really beneficial about TimberStrand is you can use lower value logs to make that product. So think pulp logs, which have a much lower input cost. And so you take the pulp logs, you generate these strands, which you glue together just at the right angles, and you get the strength profile you need to sell a high-value beam, but with a low input cost. And so that makes it one of our highest margin products.
It's very much in demand, has a lot of different end uses all over the home and single-family, industrial applications, all the way through to mass timber applications. So a lot of optionality, high-margin product. We're building it in Arkansas, which is an area with a lot of timberlands that we own. So 80% of the wood that feeds into that mill is going to be from our timberlands. But it's also a geography that has not very good pulp wood demand. There have been several pulp and paper mills that have closed down in that region.
And so this is an opportunity for us to get that integration benefit of putting that mill in an area where we have a lot of timber, which will tension up the pulp wood market there. So you get sort of that double benefit, both the returns that you get on the mill, but also the benefit and uplift you get in the timberland. So going to be a good project, $500,000,000 investment, generate $100,000,000 of EBITDA plus additional synergies on the timberland side when it's up and running. So really pleased with that product and looking forward to growing our EWP business.
Great, great. Maybe switching gears to timberlands. President Trump also had an executive order on timber, and I'm wondering if you could give us some context for that and if there's any potential impact direct or indirect to your business.
Sure. If you sort of step back, the good news story here for our industry is I think if you go back 40 or 50 years, you probably have not seen a president talk more about lumber than we've seen in this administration. And so while that does carry some risk around the margin, I think the important thing is this administration appreciates the importance of protecting the forest and managing them in a way to prevent forest fire, etc., and also the importance of having a strong domestic lumber manufacturing environment.
So I think there's some opportunity there, and that's something that we're excited about. In terms specifically of the executive order, there were two pieces of it. One was investigating essentially whether other countries beyond Canada are subsidizing their wood products manufacturing, and so that was one component.
The other component was looking into ways to facilitate more harvesting on federal forest. With respect to increasing harvests in the federal forest, there is a component of that that would be beneficial for everyone in the sense that there is a lot of forest management at the federal level that needs to take place to keep the forest healthy.
So think thinning, think clearing out underbrush to prevent forest fire, disease, pest. That's good for everyone. The reality is I don't know that it's practical in the near term to meaningfully increase the amount of harvest in the federal forest just because, one, there are still laws that people use to challenge harvests on the federal land. So think Endangered Species Act, NEPA, etc. Those are still in play. Additionally, I just think the mill environment has been created to manufacture a log that's a little smaller than typical logs on the federal forest.
We typically harvest in the West, I call it 40- 45-year age class because that's when it hits financial maturity, whereas in the federal forest, they've had a pretty extensive period of not harvesting. So those trees are just a little bigger, and most mills aren't really designed to take a log of that diameter. So I think probably limited here in the near term in terms of that component of the executive order.
Great. Yeah, please.
The tax on tariffs, the 25% tariffs on lumber coming into the U.S., is there the ability for the U.S. to ramp up production so that lumber that would have been imported shouldn't come into play? It could be all sorts here.
Yeah. To a degree, yes. To a degree, yes. So if you look at last year, most regions in the U.S. that manufacture lumber were operating at a reduced operating rate just because of the price environment. As you see prices go up, my expectation is the U.S. mill set is going to operate at or they might even push extra hours, more shifts to ramp up volume. So to a degree, there is some flex in the system to ramp up production.
Over time, if you think the demand is going to be there and these tariffs are going to stay in place for an extended period, people can add capacity to the system. Now, that takes a little time. You can't do that overnight. That would be over a series of years. But we have the trees available, particularly in the U.S. South, to increase lumber production in the U.S. if that is the policy of the U.S. to do that.
When I think about lumber and OSB, the percentage of the overall home cost, how much [inaudible] if you have a 25%-30% tariff on that, how much is that increasing the overall?
The cost of lumber specifically, and I don't have the all-in, all of the wood used in a house off the top of my head, but the percentage of the overall cost of a house just for the lumber is 1.5%. So it's not as impactful perhaps as some might have you believe. Now, obviously, the engineered wood and the OSB is an addition to that, but there are a lot of other components within a house that are a bigger driver of the cost than the wood.
Devin, maybe to give a sense, if one were to build a greenfield lumber mill in the US South, how long would it take? How much would it cost? Just to give a.
Yeah. I mean, so generally speaking, you can probably get one built in 18 to 24 months if you're really hustling and you can get all the permits and you don't have to deal with any wetland issues.
That's generally speaking kind of where you are now. Going back to the pandemic, that got extended a little bit just because the order files with everybody doing all these big capital investments, that got a little stretched out, but that has largely normalized at this point, so you can move it along a little bit more quickly. In terms of the cost, it sort of depends on how big of a mill you're talking about, but $180,000,000-$200,000,000 is probably in the right ballpark for a medium-sized saw mill.
Got it. Got it. And we were talking about your timberlands portfolio. For your 10,000,000-1 0,500,000 acres, can you tell us about where those are located in the South, Pacific Northwest, and sort of some of the characteristics of those markets?
Yeah, sure. I mean, we really do have a unique portfolio. It would be nearly impossible to recreate that, both in terms of the scale, but also the quality since we've been working on this portfolio for 100 years. So 2,500,000 acres are in the Pacific Northwest. For those of you that are familiar with Washington and Oregon, all of the lands that we have are on the west side of the Cascade Mountains. You get a lot more rain. These are really, really good growing regions in the Pacific Northwest, some of the best in the world for growing trees.
So we have a pretty significant component of our ownership that's in the Pacific Northwest, really good for growing trees, really strong domestic-grade markets, as well as access to export markets in Japan, China, Korea, etc. So that's a really important component. We have about 7,000,000 acres of timberlands across the U.S.
South that kind of go from Texas all the way up the coast to Virginia. Really, the U.S. South grows trees really fast. Those are Southern Yellow Pine trees that are used in a whole host of different construction applications, really favorable regulatory environment.
Labor costs are more competitive in the South, so a really good place to own timberlands. We're growing an export program out of the South as well to supplement that customer base. And then the remainder are timberlands up in the Northeast, a little different type of timberlands there, more of a mix of different types of hardwoods. And so forestry is a little different there, lower input costs, but not quite as productive in terms of volume growth as some of the other regions.
Great. And can you say a few words on log price trends in those regions and maybe what drives log prices in the South versus Pacific Northwest?
Yeah, sure. Well, one of the benefits of owning timberlands in the Pacific Northwest is that it is a very tensioned, constrained wood basket, meaning generally speaking, if all of the mills are running full out, there aren't enough logs to go around.
So what that means in practice for log prices is you see a much tighter correlation between lumber prices and log prices in the Northwest. So as you see lumber prices go up, and we've seen this here just recently, western species lumber has been on a nice little run here, you see log prices following close behind that. The U.S. South in general is a different story.
Coming out of the Great Recession, there were just a lot of sawmills that shut down, and so there was a lot of buildup in forest inventory over the last decade or so. And so in a lot of wood baskets, it's oversupplied. So you don't necessarily see that same correlation when lumber prices go up.
The general price in the South, if you look at an average, has been pretty stagnant for, call it 10 years plus. We are seeing signs of improvement in specific wood baskets. And generally, what happens is when you get a new sawmill, and there has been a lot of new capacity coming into the South for that very reason, it's got affordable logs to manufacture lumber.
When you see a new mill come into a region, generally speaking, you can draw an 80-mile circle around that mill, and you're going to see tensioning in that particular wood basket, and you'll see some uplift in price. And so ultimately, what's going to happen over time, and it has been slow going, admittedly, as new mills continue to come into the region, as we can grow export programs, that will wood basket by wood basket tighten those markets and ultimately put upward pressure on pricing. But it doesn't move nearly as quickly as the West.
Got it. A couple of follow-ups there. When you harvest logs in the South and Pacific Northwest, what percentage roughly of those logs are going to go to a warehouse or sawmill versus selling it to a competitor sawmill or putting it on a boat or?
Yeah. Well, I'll answer that in two ways. If you look at it from the timberlands perspective, about 25% of our overall harvest will go into a warehouse or mill. Now, if you're looking at it from the lumber perspective, about 50% of the logs that we manufacture in our lumber manufacturing facilities come from warehouse or land.
So the piece that makes that you have to remember in the South, when you think about the harvest, about 50% of the harvest is going to go to manufacturing lumber and plywood and veneer, and 50% is going to go into a pulp and paper end-use application. And we got out of the pulp and paper business. So all of the pulp wood is going to go to a third-party manufacturer. So if you take that out of the equation, a little bit heavier mix in terms of grade will go into our internal mills.
Got it. Got it. And then the South, obviously a bigger geographic region than Pacific Northwest, are you seeing any regional variations that are worth noting in terms of coastal versus inland or states that are stronger than others or where you've?
Yeah. Each individual geography has its own dynamics. The Eastern Seaboard has been stronger from a pricing standpoint for a number of years. Part of that is there are a lot of pulp and paper mills along the Eastern Seaboard.
And oftentimes, when they get jammed up for wood, they'll buy not just pulp wood, but Chip-N-Saw logs, which kind of raises the price of grade wood overall. And also, when you think about being on the coast, instead of having a sourcing region that's 360 degrees, you only have 180 degrees. So that puts a little bit of log pricing pressure on the Eastern Seaboard.
In terms of other geographies, I would say Oklahoma in the areas that we are in, you've seen some good log price appreciation. There are spots in Arkansas, some sub-regions in Mississippi, a little bit in northern Louisiana. I mean, again, if you look at where the new mills are coming in, that's generally speaking where you're going to see things tensioning up from a log price standpoint.
Got it. Got it. And so we've talked about the market for lumber and OSB and the market for logs. Can you talk about the market for the timberlands themselves in terms of dollar-per-acre values or just the amount of transactions, kind of average price of transactions?
Yeah. Well, I mean, what we've seen here really over the last several years is pretty strong pricing for high-quality timber packages. That's been true really for years, and it's equally true today. I think for the quality timberland packages, you have all of the traditional buyers, the REITs, the TIMOs, private entities that have manufacturing. You're also seeing some new participants. So there's money coming in from Europe into the space, some Asian investments as well, some folks that are looking at timberlands for a climate play.
So there have been some acquisitions here recently where they're looking to do carbon projects on the land base. So it's pretty active, more people at the table, particularly for projects that go out to auction. So pretty strong demand. You can see that in the price per acre trend that you've seen both in the west and in the south. Those continue to tick up and have for a number of years.
The one nuance I would say that's a little different maybe versus the peak in the pandemic was lower quality packages during the pandemic were getting bid up perhaps beyond what was reasonable. I think people have kind of gotten a little more rational around the lower quality timber packages that have come to market. But for the quality stuff, the prices are still very, very strong and lots of people at the table.
Great. Great. And that really segues into Natural Climate Solutions. Can you talk about you had the investor day where you laid out a target for Natural Climate Solutions? Can you talk about sort of what makes up that target and your progress there?
Yeah. Making good progress. So Natural Climate Solutions encompasses a bunch of sub-businesses. So it's things like conservation, mitigation banking, solar, wind. It captures our forest carbon business as well as carbon capture and storage. So a lot of things that fall under that umbrella. We really created this business back in 2021. We came out with goals and a target to get to $100,000,000 of EBITDA by the end of 2025.
We saw a pretty meaningful jump last year, up to $84,000,000 of EBITDA in that business, and I think we're on track to get to $100,000,000 . I would say looking back to where we thought we would get some of that revenue when we kicked this off, the one area that is slower, I think, than we had anticipated is the carbon capture and sequestration component.
I absolutely think that's going to be a big business for us someday, but the timeline to get those projects through the permitting process has been painstakingly slow, and so I still think it's a big opportunity, but today it's not as big as we had originally planned, but that being said, we've seen some nice growth in mitigation banking.
The conservation market has stayed strong, and our renewables business continues to progress nicely. We've signed in the neighborhood of 70 agreements for solar projects. We've got our first operational project with two more in construction. We've got seven operating wind sites.
One more will be completed here shortly with a nice pipeline behind, and the beauty about those renewables projects is they just stack on top of each other Every new project you bring to fruition and completion, it's a revenue stream that lasts 20-30 years, and they stack on top of each other. So that will just continue to grow over time. Really pleased with the progress of our forest carbon business. So just real quick framework for what that is.
When you have a parcel of land, typically how we would manage it is to maximize the financial return. So you have a certain number of trees per acre, you have a certain harvest age that you target maximum financial return on that acre. If your goal was to create the most carbon on that acre, you can manage that differently. More trees per acre, longer harvest rotation.
That delta in how you manage it differently and the additional CO2 that that captures over the time of a harvest rotation, you can sell as a carbon credit. So all of these companies, financial institution, tech, oil and gas that are looking to offset greenhouse gas emissions, by far the most cost-effective way to offset that is through these carbon offsets.
We've spent a lot of time and energy building the credibility of these markets. I say we, and that's the industry, but specifically we Weyerhaeuser, and I think we've made a lot of progress there. We've done the work to build the pipeline. This is going to be an inflection year in that market. We should see our sales in carbon go up 5x to 10x this year. So really pleased with the development of that, and I think we're on track to not just get the $100,000,000 this year, but continue to grow that over time.
And have you seen any impact on climate solutions from the new administration in terms of, I guess, Trump giveth with the tariffs? Does he take it away on the climate solutions?
Yeah. I mean, it's going to be differential depending on which component of Natural Climate Solutions you're talking about. The rhetoric has changed, no question about it. When I look across the portfolio, it's not going to have an impact on the carbon offset business. CCS has tax credits, renewables have tax credits, and so to the extent that those change, we'll have to navigate through that.
But ultimately, longer-term story, if you're a heavily emitting facility, oil and gas, chemical, concrete, etc., there's really no other viable solution other than carbon capture and storage over time, which is why I think the people in that space are continuing to build out the infrastructure.
On the renewables business, yeah, there's no question that the rhetoric around renewables is different than under the prior administration. But ultimately, we have a need for power in the U.S. The delta between demand and supply is going to gap out at some point. If you want to go out and buy and build a new gas turbine, I mean, you can't get that equipment until 2029, 2030.
We've got a pretty significant need, particularly with all the data centers, to generate a lot more electricity, and renewables will have to be a part of that, notwithstanding some noise and some bumps in the road. The longer-term trajectory, I mean, that is what it is.
Right. And just to be clear on the solar and wind, when you engage in these projects, you're not committing any capital or there's.
To date, we're just leasing the land. So the way it works, a solar developer or wind developer will option a component of our land. They pay us an option fee while they assess the viability and while they're working through the process. If they go forward with the project, we'll take the trees off the land. We get the money for that.
They will put their capital to work, build the solar facility. It's usually a 30- to 40-year agreement after which they have to remove it, and then presumably we can replant. So what you're really doing is you're giving up a harvest rotation for a solar rotation at a higher value uplift.
Great, great. Any questions in the room? All right. Well, we're coming up on the shot clock. Devin, you're the largest private landowner in the U.S. You have, I think, the largest lumber business in the U.S. Seems like a very good place to be right now. Is there anything you just maybe leave us with as we end?
Yeah. The only thing I would say is we've been doing the work for the last several years to build the foundation, getting the balance sheet in the right place, getting the cash return framework in the right place, getting to a position where we have industry-leading margins across all of our businesses. We've been putting the resources into growing our manufacturing base.
We're going to start getting some tailwinds here at some point in the not-too-distant future, and I think you're really going to see that start flowing into the financial results. So we're excited about where we sit. There will be some bumps in the road, of course, but I think we're really well-positioned to start really turning the dial on some of the growth initiatives that we've been investing in over the last several years. So excited to see what comes this year and in the near future.
All right. Thank you, Devin.
Yep.
Thank you.
Thank you.