Commodities & Metals

Timber Companies Follow Homebuilders (LPX, WY, BZH, PHM, DHI, XHB, CUT)

Perhaps one way to get a read on where housing construction in the US is headed is to look at the companies who supply the lumber that goes into new construction. Louisiana-Pacific Corp. (NYSE:LPX) reported first quarter earnings today, following last week’s report from Weyerhauser Co. (NYSE:WY).

Among homebuilders that have already reported, Beazer Homes USA Inc. (NYSE:BZH) and PulteGroup, Inc. (NYSE:PHM) both reported narrower losses than the year-ago quarter, and D.R. Horton, Inc. (NYSE:DHI) even posted a surprise profit.

Louisiana-Pacific reported an EPS loss of -$0.18, worse than analysts’ expectations of a loss of -$0.11. Sales were expected to total $292.55 million and LP exceeded expectations there, coming in at $297 million. Weyerhauser reported a smaller than expected loss for the first quarter.

The outlook for the lumber companies is tentative at best. LP expects a “bumpy recovery” with rising numbers of foreclosures and continued uncertainty about employment. Increased foreclosures mean that fewer new houses will be build and high unemployment means that no one can afford to buy either an existing or new home. The expired federal tax credit will also have an impact on the rest of the year.

Weyerhauser’s first-quarter results were upbeat due primarily to sales of “non-strategic timberland” and sales of two commercial partnership interests. Weyerhauser saw a 49% decline in real estate sales and the average realized home price fell. The company sees second quarter logging earnings to be lower and real estate earnings to be no better than flat.

LP shares are up about 0.5% this morning and Weyerhauser shares are up about 5.5%. With the S&P 500 up around 4% on the $900 billion bailout package in Europe, it’s no surprise that a rising tide is lifting all boats. Where equities were shunned last week, today they’re all the fashion again.

Without the rising tide, LP would certainly be trading down and Weyerhauser would be up only slightly. Beazer Homes is up more than 11%, Pulte is up nearly 8%, and DR Horton is up nearly 6%. The SPDR S&P Homebuilders ETF (NYSE:XHB) is up more than 6%, and the Claymore/Beacon Global Timber Index ETF (NYSE:CUT) is up nearly 6% as well.

Paul Ausick

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