The collapse of the housing construction business has not been kind to building products giant Weyerhaeuser Company (WY). The company this week took additional steps to reduce capacity as revenues and earnings continue to decline.
The company announced Tuesday that the closing of 2 mill operations in Oklahoma and Oregon as the demand for lumber continues to be depressed. The two closures bring this year’s total shutdowns by the company to ten. Operations at a number of other Weyerhaeuser plants have been substantially reduced.
In addition to the closing and production reduction at Weyerhaeuser plants, the company has shed assets through the 2007 sale of the fine paper operation to Domtar Corporation (UFS) and the more recent sale of the containerboard, packaging and recycling business to International Paper (IP).
Weyerhaeuser is one of the nation’s largest forest products company, employing nearly 20,000 people in 10 countries. The company’s operations are centered on the home building industry where Weyerhaeuser products have been a mainstay for builders throughout the country.
With over 22 million acres of forest land in its real estate portfolio, the company has one of the largest inventories of trees in the country.
Starting in 2007, the company has been in the process of reducing operations through plant closures and shorter hours of operation. Changes have come as a response to steadily declining revenues and earnings as the stock price for WY has declined from a high of $68.65 a year ago to below $20 just last week.
Company revenues and earnings have been in a tailspin, declining from $21.8 billion in 2006 to $16.3 billion in 2007 and $8.01 billion in 2008.Net income dropped from $4.5 billion in 2006 to a loss f $1.2 billion in 2008.
The price of the stock has increased by over 40% since reaching $18.67 on March 9. Market participants have concluded that the stock was way oversold and analysts have shifted their recommendation to buy in a number of instances.
Deutsch Bank this week raised the stock to a buy with the statement that “compared to relatively depressed valuations of (their) peers, WY now looks attractive.”
Weyerhaeuser has an exceptionally strong balance sheet to sustain itself until the new construction housing industry becomes active again. Current assets of $4.2 billion and current liabilities of $1.8 billion result in a favorable current ratio of 2.3. Long term debt of $4.76 billion should not present a debt service problem for the company.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
