Weyerhaeuser and competitors Plum Creek Timber Co. Inc. (NYSE: PCL) and Rayonier Inc. (NYSE: RYN) are REITs, while smaller competitor Pope Resources LP (NASDAQ: POPE) is a limited partnership. Over the past 12 months, only Rayonier has significantly boosted its share price. Rayonier’s jump was almost entirely due to a 1-for-1.5 stock split in late July.

Wood products companies such as Louisiana-Pacific Corp. (NYSE: LPX), Universal Forest Products Inc. (NASDAQ: UFPI), BlueLinx Holdings Inc. (NYSE: BXC), Builders FirstSource Inc. (NASDAQ: BLDR), and Deltic Timber Corp. (NYSE: DEL) have performed better. These companies are more closely tied to the US homebuilding and remodeling market, which has been improving in the first quarter of this year.

But will that continue? The bigger companies like Weyerhaeuser, Plum Creek, and Rayonier depend on exports to China to keep revenues and profits up. Chinese log imports totaled $8 billion last year, and North American logs contributed 22% of China’s total imports in 2011.
The bad news is that Chinese imports fell -11% in the first three months of this year, but the losses hit New Zealand and Russia hardest. Canadian log exports to China rose 23% in the first quarter and US exports rose 2%. And those gains were due, at least in part, to lower prices for North American logs.

New home construction in the US will drive log and lumber prices. If more homes are built, US demand will rise and so will prices. The various indicators for increased homebuilding in the US are mixed, but the optimistic view that construction will increase is certainly problematic. A warm winter could have pulled some construction starts ahead into the first quarter. The same is true of remodeling projects that would have improved the first quarter performance of the wood products companies.

Weyerhaeuser, which also builds and sells houses, “anticipates a small loss from single family homebuilding operations” in the second quarter. The company’s first quarter revenue from home sales fell by about -50% sequentially. While that’s not a leading indicator for the rest of the country’s homebuilders, it could be the canary in the coal mine.

Weyerhaeuser’s shares are up 0.9% in pre-market trading this morning, at $21.06, in a 52-wekik range of $14.82-$23.91.

Paul Ausick

The unofficial closing bells put the DJIA down nearly 70 points to 12,217.18 (-0.57%), the NASDAQ fell more than 8 points (-0.33%) to2,605.15, and the S&P 500 fell -0.43% or more than 5 points to 1,257.60.

There were a few analyst upgrades and downgrades today, including Sears Holding Corp. (NASDAQ: SHLD) and Molycorp Inc. (NYSE: MCP) added to ‘strong sell list’ at Zack’s Investment Research; Rayonier Inc. (NYSE: RYN) and Reliance Steel & Aluminum (NYSE: RS) added to ‘strong buy list at Zack’s; and Windstream Corp. (NASDAQ: WIN) started as ‘neutral’ at Piper Jaffray.

There was just a single earnings report of note scheduled today: Pansoft Co. Ltd. (NASDAQ: PSOF) is down nearly -15% at $1.80 in the last half hour of trading.

Other standouts from today include the following stocks:

MoSys Inc. (NASDAQ: MOSY) is up more than 37% at $4.07. The memory chip designer has sold a portfolio of patents to a subsidiary of Tessera Technologies Inc. (NASDAQ: TSRA) for $35 million in cash.

Tegal Corp. (NASDAQ: TGAL) is up more than 40% at $3.24. The green energy product maker has sold patents valued at about $4 million.

American Realty Investors Inc. (NYSE: ARL) is up more than 19% at $1.80. The real estate investment company could be responding to technical breakthrough, or there could be some short covering going on.

Meru Networks Inc. (NASDAQ: MERU) is up nearly 22% at $4.17. The wireless networking company could also be gaining from short covering. As of December 15th, about 25% of the company’s shares were short.

Leap Wireless International Inc. (NASDAQ: LEAP) is up nearly 10% at $9.32. The wireless carrier has been mentioned as a possible takeover target for AT&T Inc. (NYSE: T) now that AT&T’s deal for T-Mobile USA has been abandoned.

US markets are closed Monday. Stay tuned for Tuesday. Here are the noteworthy events on the schedule (all times Eastern):

• 10:00 a.m. – ISM manufacturing index
• 10:00 a.m. – Construction spending
• 11:30 a.m. – 3- and 6-month Treasury bill auction
• 2:00 p.m. – Federal Open Market Committee minutes released

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Have a Happy New Year!

Paul Ausick

Gardner Denver, Inc. (NYSE: GDI) named as the Value Stock of the Day at Zacks Investment Research. HSBC Holdings PLC (NYSE: HBC) was named as the Bear of the Day and AGCO Corporation (NYSE: AGCO) was named as the Bull of the Day by Zacks Investment Research.

Warner Chilcott plc (NASDAQ: WCRX) lowered price target to $25 and Forest Labs Inc. (NYSE: FRX) target cut to $40 at Bank of America Merrill Lynch.

Windstream Corporation (NASDAQ: WIN) Started as Neutral at Piper Jaffray.

Rayonier Inc. (NYSE: RYN) and Reliance Steel & Aluminum (NYSE: RS) were added to the #1 (Strong Buy) List at Zacks Investment Research.  The Zacks additions to the #5 (strong Sell List are as follows: Agnico-Eagle Mines Ltd. (NYSE: AEM); Badger Meter Inc. (NYSE: BMI); Kellogg Co. (NYSE: K); and Sears Holdings Corporation (NASDAQ: SHLD). 

Molycorp Inc. (NYSE: MCP) is one where we said earlier in the week that the efficient market theory cannot be applied, and Zacks included it on the Strong Sell ratings list this morning to close out 2011.

JON C. OGG

The company is selling its hardwoods and shipping lines businesses as it tries to deal with continuing problems with demand for lumber in the US housing market. And while Weyerhauser is shedding assets, other companies in the forest products industry are trying to acquire some. The most noticeable is International Paper Co. (NYSE: IP), which has taken an already rejected offer of $3.3 billion for Temple-Inland Inc. (NYSE: TIN) directly to Temple-Inland shareholders. Rock-Tenn Co. (NYSE: RKT) recently completed its acquisition of Smurfit-Stone Container Corp. and Boise Inc. (NYSE: BZ) has also picked up another packaging firm.

In a recent report, Standard & Poor’s showed that strong balance sheets and attractive financing terms will increase M&A over the next several quarters in the forest products industry in North America.  S&P believes that all of the action will occur in the paperboard and packing sectors, but that consolidation in the wood products sector is unlikely due to the weak recovery in the housing market.

That sounds about right. Weyerhaeuser isn’t the only lumber company that’s having earnings troubles. Lumber Liquidators Holdings Inc. (NYSE: LL) recently cut its forecast and the stock got pounded. Weyerhaeuser, Plum Creek Timber Co. (NYSE: PCL), and Rayonier Inc. (NYSE: RYN) are all trading below 52-week highs. Pope Resources LP (NASDAQ: POPE) has posted a share price gain of around 80% in the past twelve months, but its market cap is still only about $205 million, far smaller than any of the others.

Rayonier missed estimates yesterday and Plum Creek missed estimates earlier this week.

S&P suggests that “[a]cquisitions that result in further industry consolidation could potentially improve our business risk assessments” in the forest products sector. But with the possible exception of Pope, with its low market cap, it doesn’t appear that any large-scale deals are on tap for the lumber business.

Weyerhaeuser shares are trading up fractionally just before noon today, at $20.06, within a 52-week range of $15.06-$25.33. The Guggenheim Timber ETF (NYSE: CUT) is trading down fractionally, at $19.62, within a 52-week range of $17.26-$23.56.

Paul Ausick

Traditionally, homebuilding soaks up a lot of U.S. timber production, but the market for new houses is very soft and has been for two years or more. Timber companies have been supported primarily by exports to Asia and real estate sales. Timber producers like Pope Resources LP (NASDAQ: POPE), Rayonier Inc. (NYSE: RYN) and Plum Creek Timber Co. Inc. (NYSE: PCL) have seen share prices rise from nearly 20% to more than 80% in the past 12 months. The Guggenheim Timber ETF (NYSE: CUT) is also up more than 20% in the past 12 months. Weyerhaeuser Co. (NYSE: WY) and Lumber Liquidators Holdings Inc. (NYSE: LL) have seen stock prices fall — Weyerhaeuser when it converted to a REIT in July 2010, and Lumber Liquidators last week when the company cut its forecast for 2011.

The exports to Asia aren’t leaving the docks without controversy however. In 2010, timber exports to China doubled to $270 million when total log shipments to Asia reached a 14-year high of 1.1 billion board feet from Pacific Northwest ports, up from 700 million board feet in 2009. Prices for logs have gone up for Pacific Northwest timber, but prices in the southeast U.S. are at their lowest point in 15 years.

In the logging country of Oregon and Washington, the central issue of log exports becomes jobs. When whole logs are shipped instead of milled lumber, mills close and jobs are lost. By one estimate, for every million board feet of log exports the Northwest loses 12 jobs, mostly in family-owned and operated mills. In the past two years more than 20,000 jobs have left for Asia, and as many as 26,000 could depart in 2011, when shipments to Asia could top 1.5 billion board feet. It is important to note that logs exported to Asia are cut from private land only because U.S. law forbids exporting logs cut on public lands.

Timber companies ship more logs to Asia because demand within the U.S. for milled lumber has dried up. China, Japan, and Korea operate their own mills and want to employ their own citizens to mill the lumber imports from the U.S. Demand for lumber in Asia keeps the price of U.S. logs high.

And with high export prices come higher prices for the commodity lumber contract. Timber producers in the southeast U.S. are selling to pulp and paper mills at lower prices than milled lumber, while northwest timber producers drive up the cost of lumber even though U.S. domestic demand is very weak. It’s an unusual situation, to say the least.

Lumber Liquidators has set another 52-week intra-day low today, at $18.04, down more than 3% from Friday’s close. The shares are threatening a two-year low of around $17/share. The Guggenheim Timber ETF (NYSE: CUT) is also down more than 3% to $20.54, and the 52-week range is $17.26-$23.56.

Paul Ausick

Jon C. Ogg
October 1, 2007