Greetings, and welcome to Weyerhaeuser Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Andy Taylor, Vice President of Investor Relations. Thank you, Mr. Taylor. You may begin.

Thank you, Rob. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser's third quarter 2023 earnings. This call is being webcast at www.weyerhaeuser.com. Our earnings release and presentation materials can also be found on our website. Please review the warning statements in our press release and on the presentation slides concerning the risks associated with forward-looking statements. As forward-looking statements will be made during this conference call. We will discuss non-GAAP financial measures, and a reconciliation of GAAP can be found in the earnings materials on our website. On the call this morning are Devin Stockfish, Chief Executive Officer; and Davie Wold, Chief Financial Officer. I will now turn the call over to Devin Stockfish.

Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported third quarter GAAP earnings of $239 million or $0.33 per diluted share, with net sales of $2 billion. Adjusted EBITDA totaled $509 million, a 9% increase from the second quarter. These are solid results and I'm proud of the performance delivered by our teams during the quarter. Turning now to our third quarter business results, starting with Timberlands on Pages 6 through 9 of our earnings slides. Timberlands contributed $78 million to third quarter earnings. Adjusted EBITDA was $143 million, a $29 million decrease compared to the second quarter, largely driven by lower sales volumes in our Western and Southern operations and lower average sales realizations for Western export volumes. In the West, adjusted EBITDA decreased by $22 million compared to the second quarter. Turning to the Western domestic market, log supply was ample in the third quarter as the typical seasonal influx of logs from nontraditional timber owners came to market. Despite this dynamic, domestic log markets remained fairly balanced as mills maintain steady demand, driven by higher pricing and the takeaway of lumber early in the quarter, and mills building log inventories to mitigate potential supply risks and the peak wildfire season. Our average domestic sales realizations were comparable to the prior quarter. As expected, during the warmer and drier months, we transitioned to higher elevations and lower productivity harvest operations. Additionally, although wildfire activity was limited on our Timberlands, dry conditions across the Pacific Northwest resulted in harvest restrictions in certain areas. As a result, our fee harvest and domestic sales volumes were moderately lower compared to the second quarter. Our forestry and road costs were seasonally higher, and per unit log and haul costs were lower. Moving to our Western Export business. In Japan, elevated inventories of European lumber imports and reduced consumption continue to weigh on the Japanese log market. That said, our average sales realizations for export volumes to Japan were comparable to the second quarter, largely driven by stable log pricing in the Western domestic market. Our Japanese sales volumes decreased in the third quarter. This was partially due to reduced shipments to a customer that sustained fire damage at one of its sawmills during the quarter. While the mill is being rebuilt, our customer is in the process of adding shifts and production at different facilities and expects to recover most of the lost production from the damaged operations. It will likely take several quarters for this customer to ramp up the additional production. As a result, we're expecting lower shipments to Japan over the next several quarters. During this period, we expect to ship volume to other customers in Japan and the Western domestic market. In China, despite steady decreases in log inventories at the ports and reduction in log supply, the Chinese log market continued to be impacted by reduced consumption in the third quarter. As a result, our average sales realizations for export volumes to China decreased moderately compared to the second quarter. While demand for our logs continues to be steady, our sales volumes were significantly lower as we intentionally flex logs to the domestic market to capture higher margin opportunities. Turning to the South. Adjusted EBITDA for Southern Timberlands decreased by $6 million compared to the second quarter. Southern sawlog markets moderated slightly in the third quarter, and fiber markets continued to soften, largely in response to elevated mill inventories, a seasonal increase in log supply, and reduced demand for finished goods, particularly for pulp and paper products. As a result, our average sales realizations decreased slightly compared to the second quarter. Despite these market dynamics, demand for our logs remains steady given our delivered programs across the region. However, certain geographies did experience wetter than normal conditions at the outset of the quarter, resulting in moderately lower fee harvest volumes compared to the second quarter. Per unit log and haul costs were comparable and forestry and road costs were seasonally higher. In the North, adjusted EBITDA increased slightly compared to the second quarter due to significantly higher sales volumes resulting from a seasonal increase in harvest activity that is typical in the third quarter. Our sales realizations were moderately lower due to mix. Turning now to real estate, energy, and natural resources on Pages 10 and 11. Real estate and ENR contributed $56 million to third quarter earnings. Adjusted EBITDA was $94 million, a $24 million increase compared to the second quarter, largely driven by the timing and mix of property sold. Average price per acre decreased compared to the second quarter but remains elevated compared to historical levels as we continue to benefit from healthy demand for HBU properties, resulting in high value transactions with significant premiums to timber value. I'll now make a few comments on an exciting third quarter achievement in our Natural Climate Solutions Business. I'm pleased to report that we received approval from ACR for our first forest carbon credits in Maine. The project covers approximately 50,000 acres, has an initial issuance of nearly 32,000 credits, and is expected to generate 475,000 credits over a 20-year crediting period. I want to thank our team for their exceptional work and diligence in completing this initial project and building the foundation to scale this business as the market continues to mature. Our goal is to develop and bring to market forest carbon projects that generate meaningful carbon additionality with measurable climate benefits. This initial project is an important milestone for Weyerhaeuser and demonstrates our commitment to offering only the highest quality credits. Looking forward, we are developing several additional forest carbon projects within our U.S. Timberlands, including two in the South slated for approval in the first half of 2024. As we've demonstrated since launching our Natural Climate Solutions business, Weyerhaeuser is uniquely positioned to lead in this space, given our expertise and unmatched Timberlands portfolio. We have established a target to grow this business to $100 million of EBITDA by year-end 2025, and we've made solid progress to date towards that target. And beyond 2025, we see significant upside from Natural Climate Solutions as markets continue to develop, particularly in the carbon and renewables businesses. From our perspective, there is no other company in this space with the capabilities or asset base to deliver on this value creation opportunity at scale like Weyerhaeuser. Moving to wood products on Pages 12 through 14. Wood Products generated $277 million of earnings in the third quarter and $328 million of adjusted EBITDA. Third quarter EBITDA was a 21% improvement from the second quarter, largely driven by an increase in OSB sales realizations. Before diving into the business results, I would like to take a moment to highlight the operating performance improvements that we've made in our Wood Products segment over the past several years. To illustrate the point, for the first half of 2023, we delivered peer-leading EBITDA margins across all of our wood products businesses. I'm incredibly proud of the work that our teams have done and for their unwavering commitment to our operational excellence initiatives, innovation, and the successful delivery of our ongoing strategic capital investments. Through these efforts, we've positioned our wood products business to deliver industry-leading performance. As we've demonstrated over the last several years, this has allowed our wood products business to generate significant cash flow for Weyerhaeuser. And despite a moderation in product pricing of late, this business remains well-positioned to navigate through a range of market conditions, and will continue to enhance our competitive advantage as a company, one that supports our commitment to returning meaningful amounts of cash to shareholders and enhancing the value of our portfolio over time. Turning now to lumber results. Adjusted EBITDA was $58 million in the third quarter, a 14% increase over the prior quarter. Benchmark pricing for lumber entered the third quarter on an upward trajectory, supported by improving demand, relatively lean inventories and the prospect of supply disruptions following an early start to the wildfire season in Canada. By late July, however, demand had softened as supply concerns dissipated, and buyer sentiment turned more cautious due to ongoing macroeconomic uncertainty. Despite lean inventories, orders were largely limited to necessity purchases throughout the quarter, and benchmark prices trended lower. For the quarter, our average sales realizations were comparable to the second quarter. Our sales volumes were slightly lower, resulting from reduced production at several mills, partially driven by temporary operating disruptions. Log costs were moderately lower compared to the second quarter and unit manufacturing costs were comparable. Adjusted EBITDA for OSB increased by $81 million compared to the second quarter, primarily due to the increase in commodity pricing. Benchmark pricing for OSB increased sharply at the outset of the third quarter, supported by resilient demand for new home construction activity, lean inventories, and supply concerns resulting from annual maintenance outages that are typical in the fall. Pricing remained elevated until mid-September and then decreased through quarter-end as buyer sentiment turned cautious in response to weaker-than-expected housing starts in August, as well as general concerns about the economy and the prospect of additional supply coming to market. For the quarter, our average sales realizations increased by 39% compared to the second quarter. Our sales volumes were moderately lower in this quarter. Unit manufacturing costs were slightly higher due to planned downtime for annual maintenance. Fiber costs improved slightly during the quarter. Engineered Wood Products adjusted EBITDA was $125 million, a decrease of $19 million compared to the second quarter. Strong demand for EWP products, which are primarily used in single-family home building applications, kept most of our EWP products on extended lead times for the entire third quarter. As a result, our sales volumes increased slightly compared to the second quarter, primarily for solid section products. Our average sales realizations for most products decreased slightly as supply and demand continued to rebalance in certain markets. It's worth noting that our current EWP prices remain above pre-pandemic levels. Unit manufacturing costs were slightly higher in the third quarter, and raw material costs increased primarily for OSB web stock. In Distribution, adjusted EBITDA was $31 million in the quarter, a $3 million decrease compared to the second quarter driven by lower EWP realizations in certain markets and lower sales volumes for some products. With that, I'll turn the call over to Davie to discuss some financial items in our fourth quarter outlook.

Thanks, Devin, and good morning, everyone. I'll be covering key financial items and third quarter financial performance before moving into our fourth quarter outlook. I'll begin with key financial items which are summarized on Page 16. We generated $523 million of cash from operations in the third quarter, and ended the period with approximately $1.8 billion of cash, cash equivalents, and short-term investments, which includes amounts raised from our debt issuance that pre-funded the majority of our 2023 maturities. In July, we used a portion of the debt issuance proceeds to repay $118 million of notes at maturity. Total debt at quarter-end was approximately $5.7 billion, including $860 million that matures in December. Capital expenditures for the quarter were $99 million, which is a typical level for the third quarter, and we remain on track to invest approximately $440 million of capital for the full year. We returned $138 million to shareholders through the payment of our quarterly base dividend and remain committed to growing this by 5% annually through 2025. In addition, we returned $25 million to shareholders through share repurchase activity in the third quarter. These shares were repurchased at an average price of $32.67. As of quarter-end, we had completed $733 million of repurchase under our $1 billion authorization. Looking forward, we will continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value. As highlighted on Page 18, adjusted funds available for distribution for the third quarter totaled $424 million, and we have generated $894 million of adjusted FAD year-to-date. Third quarter results for our unallocated items are summarized on Page 15. Adjusted EBITDA for this segment decreased by $13 million compared to the second quarter. This decrease was primarily attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the fourth quarter are presented on Page 19. In our Timberlands business, we expect fourth quarter earnings and adjusted EBITDA to be comparable to the third quarter of 2023. Turning to our Western Timberland operations, we expect log demand and the domestic market to soften in the fourth quarter as mills adjust to lower pricing and take away of lumber and work through elevated log inventories. As a result, our domestic sales realizations are expected to be moderately lower compared to the third quarter, absent weather-related log supply disruptions. Our fee harvest volumes in forestry and road costs are expected to be comparable in the fourth quarter, and per unit log and haul costs are expected to be moderately higher. Moving to the export markets, starting with Japan. As Devin mentioned, we are expecting fewer export shipments into the Japanese market over the next several quarters in response to the operational disruption experienced by one of our customers in the region. As a result, we expect fourth quarter sales volumes to be moderately lower compared to the third quarter. Our Japanese log sales realizations are expected to be slightly higher. In China, log supply into the region has adjusted to lower consumption levels, and the market is trending toward a more balanced state. As a result, we anticipate fairly stable pricing for our logs shipments into China for the balance of the year. For the quarter, our average sales realizations are expected to be slightly lower compared to the third quarter average. Given steady demand for our logs coupled with moderating conditions in the Western domestic market, we expect to increase our sales volumes into China in the fourth quarter. In the South, we expect stable log markets in the fourth quarter, as mills maintain healthy log inventories ahead of wetter conditions that are typical in the winter months. As a result, we expect our sales realizations to be comparable to the third quarter. Our fee harvest volumes and per unit log and haul costs are also expected to be comparable, and we anticipate seasonally lower forestry and road costs in the fourth quarter. In the North, our fee harvest volumes are expected to be significantly higher compared to the third quarter. We anticipate slightly lower sales realizations due to mix. Turning to Real Estate, Energy and Natural Resources, real estate markets have remained solid year-to-date, and we've capitalized on steady demand and pricing for HBU properties. As a result, we are revising our guidance for full-year 2023 adjusted EBITDA to $310 million, an increase of $10 million from prior guidance. We continue to expect basis as a percentage of real estate sales to be 35% to 40% for the year. For the fourth quarter, we expect earnings and adjusted EBITDA to be lower than the third quarter of 2023 due to the timing and mix of real estate sales. For our Wood Product segment, we expect fourth quarter earnings and adjusted EBITDA will be moderately lower compared to the third quarter of 2023, excluding the effects of changes in average sales realizations for lumber and OSB. Benchmark prices for lumber and OSB entered the fourth quarter on a downward trajectory resulting from cautious buyer sentiment in response to a seasonal reduction in housing construction activity and ongoing macroeconomic headwinds. However, benchmark prices for OSB have stabilized in the last couple of weeks. As shown on Page 20, our current and quarter-to-date average sales realizations for lumber and OSB are lower than the third quarter averages. For our lumber business, we expect moderately higher sales volumes in the fourth quarter and slightly lower unit manufacturing costs. Log costs are expected to be comparable to the third quarter. For our oriented strand board business, we anticipate sales volumes to be moderately higher compared to the third quarter with slightly lower unit manufacturing costs. Fiber costs are expected to be slightly higher in the fourth quarter. Turning to our Engineered Wood Products business, as Devin mentioned, we continue to see strong demand for EWP products given resilient single-family construction activity year-to-date. As a result, our order files are extended well into the fourth quarter and product pricing is expected to be fairly stable through year-end. For the quarter, our average sales realizations are expected to be lower compared to the prior quarter average. Our sales volumes are expected to be slightly lower, primarily for solid section products resulting from an increase in planned downtime for annual maintenance in the fourth quarter. However, we anticipate an increase in sales volumes for I-Joist products. Raw material costs are expected to be slightly higher compared to the third quarter primarily for OSB web stock. For our Distribution business, we expect adjusted EBITDA to be lower compared to the third quarter, primarily driven by a decrease in commodity realization. With that, I'll now turn the call back to Devin, and look forward to your questions.

Thanks, Davie. Before wrapping up this morning, I'll make a few comments on the housing and repair and remodel markets. Our macro view on the housing market is largely unchanged. Although we have seen some recent headwinds in the multifamily segment in response to increasing interest rates. Importantly, however, the single-family segment has remained resilient year-to-date. In fact, despite the elevated mortgage rate environment, single-family starts increased 3% quarter-over-quarter, and new home sales were up in September. As a reminder, single-family construction is a much more important demand driver for our business relative to multifamily. In the near term, we continue to believe that the underlying housing demand is solid. Even at higher interest rates, we expect single-family demand to hold up reasonably well given the limited inventory of existing homes on the market, combined with home builders' ability to offer mortgage rate buy downs and other incentives. That said, buyer sentiment will continue to be influenced by affordability challenges brought about by increased mortgage rates and elevated home prices, as well as the state of the overall economy. As a result, we continue to anticipate a choppier housing market in the near term relative to the last couple of years. I will note, however, our long-term view on housing fundamentals continues to be very favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to the repair and remodel market, activity remained steady in the third quarter and has held up well year-to-date. Although we're likely to see a seasonal reduction in repair and remodel activity over the winter months, we believe underlying demand fundamentals are solid, supported by prospective homebuyers choosing to remodel in lieu of purchasing a new home and a higher mortgage rate environment. Looking beyond 2023, most of the key drivers supporting healthy repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock. In closing, we delivered solid results across our businesses in the third quarter. We also achieved an important milestone in our natural climate solutions growth program with the approval of our first forest carbon credits. Looking ahead, although near-term market conditions have moderated, we remain constructive on the longer-term demand fundamentals that support our businesses. Our balance sheet is exceptionally strong and we remain focused on maintaining our industry-leading operating performance, serving our customers and delivering superior long-term value and returns for our shareholders. With that, I think we can go ahead and open it up for questions.

Our first question comes from George Staphos with Bank of America. Please proceed with your question.

Hi, thank you. Good morning, everybody. Thanks for the details. I wanted to …

Good morning.

Good morning. I want to start the discussion with a couple of questions about wood, particularly focusing on EWP. Devin, we've heard that lead times for EWP have increased. Do you believe this is something unique to your company or is the entire industry experiencing similar challenges? Have there been any specific developments at Weyerhaeuser regarding EWP that have contributed to these longer lead times? Have you managed to gain market share in distribution that has influenced your demand in EWP? Any insights on this would be appreciated. Additionally, if we take a step back to examine your EBITDA trends over the past several years, Weyerhaeuser's performance in manufacturing has been impressive. Do you still consider your mill system to be operating at capacity, especially given the significant inflation in costs, aside from fiber, which may present challenges if we encounter a more severe downturn? How should we approach these two points?

Sure. Well, I'll take EWP first, George. Really, it's a combination of two things, and I'm speaking primarily with respect to Weyerhaeuser and not necessarily other participants in the market. For us, we candidly got a little behind the curve earlier in the year. Remember, back to the beginning of 2023, our view was that single-family housing was going to struggle a little bit in a higher mortgage rate environment. And so we did adjust our operating posture somewhat to reflect what we thought was going to be a softer housing environment. Well, what turned out to be the case was single-family held up remarkably well. And so we have ramped up our production to try to get back on track. But to some extent, that higher level of single-family construction activity combined with us dialing it back a little bit at the first of the year, put us behind a little bit. And so we've been managing through it. I think we're catching up. I will say, even though at this point, we do still have fairly extended lead times, but I think we're making good progress against that. In terms of the question around black at the bottom, there's no question that over the last several years in the inflationary environment that we've seen the underlying cost structure has gone up, not just for us, but I would assume for the entire industry. And what I would say, though, is I still have a high degree of confidence in our black at the bottom approach. We continue to be, in my view, the low-cost producer across all of our business lines. And so even if we do see a more material downturn, I do think we will weather that much better than the rest of the industry, and I would expect us to stay black at the bottom across each of our businesses. Now that being said, there are going to be presumably if we see a material downturn, there will be a few mills that will struggle to stay cash flow positive across the entirety of the year. I'll just highlight the Pacific Northwest and British Columbia, our two markets where it can be challenging. Just primarily because the dynamic in how log costs come down is oftentimes slower than how quickly lumber prices can move. And so we've seen that a few times when you've seen lumber prices move down quickly, particularly in those markets, the log prices come down a little bit more slowly, which can make the economics challenged for a brief moment in time. But we do still feel confident in black at the bottom. Our organization is focused every day on keeping costs out of the business, improving efficiency and overall driving down our cost structure. I think that will serve us well across all points in the market, whether times are good or times are a little more challenged.

Thanks, Devin. My last one, and I'll turn it over. If we go to Slide 8 in the upper left-hand corner when we look at realizations for the West. And obviously, it's not a new development, it's been occurring. But I guess the question I had is, if we go back to Q2, what your view has been the reason why we've seen this steady erosion in realizations in the West? And in your view, what would be the single biggest factor to reversing that trend if we look out over the next 2 to 4 quarters? Thanks and good luck in the fourth quarter.

Yes. Great question. I mean it really comes down to lumber prices. In the Pacific Northwest, the market is very tensioned, and frankly, there are just not enough logs to cover all the demand. So the pricing for logs in the Pacific Northwest is really going to be governed by what happens with lumber prices. And so the mills, they will pay up to the point where they can still drive some margin across the mill set, and that's largely going to really support what log costs do. Now the one nuance there is we obviously have an export program to Asia, and that can supplement our realizations. They're tied. There is a correlation between what happens in the domestic log market in Japan and China. And so to the extent that we can get the Japanese market back up, which I think we're trending in that direction just because you've started to see a lot of that European lumber that had built up in Japan work its way through the system. But it ultimately comes back to what's going on with lumber prices in the Northwest.

Thanks, Devin. I will turn it over.

Great. Thanks and good morning, everyone.

Good morning.

Good morning, Kurt.

I want to start off by discussing capital allocation. In my opinion, you are currently trading at a significant discount to NAV. Timberland mergers and acquisitions continue to be a key component of the strategy. However, considering the competitiveness of deals and your stock's current position, how do you view the appeal of share buybacks compared to acquisitions? Additionally, if the NAV discount persists, how open are you to being more aggressive with share buybacks, perhaps beyond what the variable returns framework would typically allow?

Yes. You bet, Kurt. This is Davie. I'd just start out by saying, look, we are in a very fortunate position as you referenced. We have a lot of levers. So that includes M&A, investing in the business, paying down debt, dividend payments, among others, and we're constantly evaluating our views on capital allocation. But all the factors that go into that are dynamic. So it's something we always need to be watching. But as we've said, our capital allocation framework starts with that commitment to return 75% to 80% of our adjusted FAD back to shareholders via the base supplemental and share repurchase. So that portion is really earmarked for returning cash to shareholders. And with the remaining piece above and beyond that, i.e., the 20% to 25%, we can allocate that between acquisitions, share repurchase, and reducing our debt. So we do have our target to do $1 billion of timberland acquisitions here over the next few years. So that's something we're certainly intending to allocate a certain amount of our capital towards. We're being disciplined as we navigate that market that you referenced. But look, yes, as we look at share repurchase, certainly, that's something that we've said. It's a useful tool to return cash to shareholders in the right circumstances. And specifically, when our shares are trading at a meaningful discount. We've been quite active in that space. We've done $733 million against our $1 billion authorization that we announced a little over 2 years ago. So we'll continue to be opportunistic there. But in summary, while that's really an attractive lever right now, we are going to continue to weigh all those options and ultimately allocate our cash in the way that creates the most long-term value for shareholders.

Got it. And I guess just kind of a follow-up, just making sure I understand. So would you kind of be willing to go some threshold above 100% of adjusted FAD in a given year, kind of recognizing that you got to be cognizant of where debt levels are. But you would be willing to go above that 100% with kind of share repurchases, specifically if you felt like that kind of discount was widened?

Yes. So we do have the flexibility within our capital allocation framework for that. So any cash above and beyond the 75% to 80% that's committed to be returned to shareholders, that's available for growth, debt pay down, or incremental share repurchase. So as always, we are going to evaluate all those options and ultimately allocate our cash in a way that creates the most long-term value, but I'll also add that we're mindful in some periods of choppiness. Those might provide significant value creation opportunities. So we will be thoughtful and disciplined as we evaluate all those avenues moving forward.

Got it. Okay. Thanks for that. And then just my second one, in regards to the fire at your Japanese customer's facility, is there a way to kind of quantify what impact you expect that's going to have on kind of Japanese export volumes over the next couple of quarters?

Sure. Yes, we are thinking it's probably going to be in the neighborhood of 15% to 20% over the next couple of quarters. And then as 2024 moves on, we'll see that shrink down to probably around a 10% impact as they move production to other facilities. But I would just note, we do have other Japanese customers, so we are working to reallocate some of that volume and then you can typically get a nice premium in the domestic market for those high-quality Japanese logs. And so we've obviously got plenty of domestic customers that we can move that volume to. So net-net, we wouldn't anticipate a material impact to our margins from this.

Okay. Well, appreciate the color guys, and good luck here in Q4.

All right. Thank you.

Thanks, Kurt.

Good morning. You're expecting similar quarter-over-quarter realizations in the fourth quarter in the South. My first question is whether there is any impact from the mix or if this is simply like-for-like pricing. Additionally, prices for southern logs have been gradually decreasing for the last four to five quarters. Are there any indications that suggest stabilization or support from the cost curve, or does the uncertainty in end market demand and rates make it difficult to draw any conclusions?

Yes. In the South, it's typically a little bit easier to predict what's going to happen on realizations than it is in some other markets. The comparable really, the mix doesn't change dramatically quarter-over-quarter. I think our delivered model and the customer mix that we’ve, the demand has stayed pretty stable for us. There's still margin to be made on the lumber side. So the demand for sawlogs has remained pretty strong. Even on the fiber side, which certainly has drifted down over the course of the year as we've seen some softness in the pulp and paper markets. I don't know that we are necessarily anticipating a strong upturn here in the near term, but I will note we are starting for the first time in quite some time to hear a little bit of optimism for many of our pulp and paper customers that a lot of the destocking in their end markets has run its course and they're going to start rebuilding some inventory as we get deeper into the winter. So we may have bottomed in terms of some demand there. Now there are some regional differences. I think there are portions of the Southeast coastal markets just because of some mills that have closed down, that may take a little longer to recover. But on balance, I think, all things considered comfortable that we're going to see comparable realizations in Q4.

Okay. That's very helpful. Regarding the kraftliner mills that have shut down in the South and one in Washington State, does this specifically affect Weyerhaeuser? It seems it might impact some of your competitors. I'm curious about the potential effects on you, if any.

Yes. Obviously, any time you see a customer go out of business or take a mill down, that's not great for the market. That does ultimately have some impact on the overall demand level. But we generally try to work pretty proactively to have long-term agreements, both for residuals on the wood products side and the pulp logs on the Timberland side. So nothing that's happened to date would cause me a whole lot of concern that it's going to have a material impact to us specifically. But nevertheless, we do still need to find homes for those residuals and pulp logs. And so it's in everybody's interest to make sure that these customers are healthy long-term.

Got it. Got it. And then just maybe shifting gears to Wood Products and maybe a similar question on lumber. With random lengths around 375, are you seeing or do you anticipate any kind of supply response maybe were below cash cost for some of the higher cost producers? And then I guess one thing that we've heard this year is that some mills are hesitant to let go of labor because they feel like if they let them go, they may not be able to get them back in this kind of labor market. Has that been like a real dynamic that you think has impacted supply? And I don't know if you just have any more kind of broad comments about kind of lumber supply with prices where they are.

Sure. Yes. I mean, it's always hard to say what others are going to do, so I can't necessarily speak to that other than to just point out that historically, when we've seen lumber prices go below cash costs for any period of time, there ordinarily is some sort of supply response. Our estimation is that in certain regions, a decent amount of the ongoing supply is probably underwater from a cash standpoint. The issue with labor, I think that certainly has been a concern and that's probably something that's going to give producers a little bit of pause before taking material downtime. But that being said, ordinarily, you're only going to run so long losing money before you ultimately make those decisions. And I would say, although certainly not great, we have seen the labor market improve somewhat versus earlier this year. I think if we were having that same discussion in Q1 or Q2 of this year, I think you probably would have been even more reluctant because the market was so tight. But hopefully, that will continue to get better as we move forward.

Okay. That's very helpful. I'll turn it over.

Thanks.

Our next question comes from Susan Maklari with Goldman Sachs. Please proceed with your question.

Thank you. Good morning, everyone.

Good morning, Susan.

Good morning. My first question is staying with Wood Products. It seems like the move in volumes that you saw in a lot of those products over the course of the quarter is in contrast to the outlook that you gave for housing starts and especially, I think the commentary and the outlook that the builders have shared over the course of this earnings season. As you think about the setup for the industry going into the end of this year and maybe even into early 2024, how do you think that that will come together? And what could it suggest for your ability to operate and to gain share within that segment?

Our perspective on the housing market is shaped by many variables, but based on discussions with homebuilders, especially larger national ones, I believe they will continue to build. They will likely need to offer ongoing rate buy downs and other incentives to attract buyers, but the limited inventory on the market is a positive factor that helps mitigate the challenges posed by current mortgage rates. I suspect that big builders will increase their output slightly compared to 2023, while medium and smaller builders may face more difficulties due to high interest rates impacting their land financing and other costs. As a result, single-family home construction might see a minor increase next year, with larger builders expanding their market share. Our diverse customer base includes major builders, and we maintain strong relationships with them, which should support our growth alongside theirs. We also work with medium and smaller builders, so we will need to be flexible in directing our resources to the builders that are gaining market share. Despite the prevailing concerns about the housing market, there is significant demand for homes since we are underbuilt, and many individuals in their early 30s are eager to buy homes. Builders deserve recognition for successfully navigating this challenging environment, and we expect this trend to continue into next year.

And just building on that very quickly, Devin. How do you think about the channel inventories that are out there as we go into the fall? Is there anything you would highlight or call out there?

Yes. On lumber, it's still pretty lean. I think what we've seen is just nobody really has a good beat on the direction of building as we get into these winter months, and there's just a lot of negative commentary in the press. So I think people are fairly reluctant to build inventory. So people are keeping their inventories pretty light on the lumber side. I'd say on OSB relative to this time of year, it's probably at or maybe slightly below normal. So maybe not as lean as lumber, but certainly not big inventories either. And then AWP, like I said, at least from our vantage point, we're on pretty extended order files right now. And so not a whole lot of extra EWP in the system from our standpoint.

That's helpful information. I also want to congratulate you on getting the forest carbon project in Maine approved. Looking at the progress you've made and the $100 million EBITDA target you've set for the end of 2025, is that target based on volume, pricing, or a combination of both regarding where these credits could come in? Do you have any updated thoughts now that you've reached this milestone?

Sure. Yes. I mean, we are really pleased with this first carbon credit project. It's not a big number in and of itself, but we learned a lot and I think we are building the foundation to scale this. And so we've got two more in the south slated for approval in the first half of next year. We got three more in the pipeline behind that. And remember, these just continue to build. So each of these projects will have annual credit releases. So part of how we are going to get to the $100 million is we've got a lot of different levers and that's mitigation banking, conservation, renewables, carbon capture and storage and then the forest carbon. So I think it will probably be a little bit more heavily weighted to the existing businesses at the outset, but over time, we certainly think for us carbon, carbon capture and storage and renewables will make up a growing percentage of that. And as I said in our opening remarks, the more we learn about this market, the more people we talk to, the trajectory of the opportunity set, I think we have a lot of optimism that the size of this business is ultimately going to scale up into something more meaningful than $100 million.

Okay. Thank you for all the color and good luck.

Thank you.

Our next question comes from Mike Roxland with Truist Securities. Please proceed with your question.

Thank you, Devin, Davie, and Andy for taking my questions. First one, just a point of clarification on EWP pricing. I think you mentioned in terms of the 4Q versus 3Q trajectory that price realization should be moderately lower, but then I think there was a comment made that product pricing should be stable through year-end. So how do I reconcile it? I mean, is it really that 4Q is really not going to move all that much relative to 3Q, it will be down slightly and therefore, that's why product pricing should be stable? I'm just trying to reconcile a little bit of a discrepancy between the two comments.

Yes, that's right. And so remember, when we talk about EWP, I mean there are a number of products that go in there. So you've got solid section, Trust Choice. We've got plywood and MDF all flow through EWP. So when we talk about solid, what we are primarily talking about is Trust Choice and Solid Selection, which were the majority products. We are going to see a little bit of the last couple of quarters, we've had to make some targeted price adjustments. Those usually have a little bit of a time lag, which are kind of flowing into Q4. So that's really what drives that slight down quarter-over-quarter. But on balance, we are seeing pretty stable demand and pricing across our Engineered Wood Products business.

Thank you for your question. I apologize for any confusion. Regarding the targeted price adjustments, I believe you mentioned last quarter that we were making some price concessions on certain products to stay competitive. As you consider our operations in the third quarter, did we perhaps lower prices more aggressively during that period to catch up and better compete with our peers, given that we were slow to adjust our operating strategy?

Yes. Actually, I think it probably had the opposite effect with very extended order files that probably took a little pressure off. But frankly, the way we've been approaching pricing is just very targeted and it's been market by market, and every market has its own supply demand dynamic. And just like we do with all products, we adjust prices either down or up, depending on what that dynamic looks like in a particular region. So I wouldn't say it was any kind of material moves in Q3. It was all very targeted and adjusted to the local supply-demand dynamic.

Could you please provide an update on the operating rate for EWP in the third quarter? In the previous call, you mentioned that the operating rate was in the low to mid-70s for the second quarter and 50% for the first quarter. What was the rate in the third quarter, and what are your expectations for the fourth quarter?

Yes. So in Q3, it was kind of in the high 70s range for an operating rate across EWP, and we are thinking that to be more or less comparable for Q4. There are some puts and takes. We are adding presses to keep up with the demand. But on the same token, we have a number of scheduled annual maintenance downtimes. So net-net, it will be more or less comparable from an operating rate standpoint.

Got it. Thank you very much.

Our next question comes from Paul Quinn with RBC Capital Markets. Please proceed with your question.

Yes. Thanks very much. Good morning, guys. Just a question of was pretty strong in the quarter, but we've got some additional volume coming on at the end of the year. Just wondering why you took maintenance in Q3 as opposed to typically Q4 and why the shipment volumes were lower?

Yes. So a couple of things. From a maintenance schedule standpoint, we try to schedule them out over the year. To some extent, we may make minor adjustments depending on what's going on in end markets. But as a general matter, it's very hard to predict what's going to happen with OSB prices quarter-to-quarter. And so largely, you kind of have to schedule them to get them done each year, and you sequence the mills out across the year. So the maintenance schedule, more or less we set in advance and absent some material change, we try to stick to that. In terms of the sales volumes, the big driver there, the production was pretty comparable quarter-over-quarter. The sales volume was down a little bit, and that's really just a reflection of one of our mills where we had the annual maintenance downtime. We have contracted volume really at most of our facilities. And so we had to build up a little bit of extra inventory in Q3 to sell-through during that maintenance downtime in October. And so that was really the difference between production and sales volumes. We've already moved most of that volume now through the system as we've come out of the downtime.

Okay. And then just over on the carbon credit side, congratulations on the project. Just wondering how we should think about that in terms of modeling that $475 million over the 20 years, obviously, comes out to lower than the 32,000 initials. So is that a straight line decline? And then when do you think about monetizing those credits?

Yes. In terms of monetizing, we are out in the market right now, marketing that. We are having, I think, some very productive discussions. I would expect us to be selling through those initial credits in relatively short order. And as we said, I think during the last call, we are anticipating that's going to be priced somewhere in the mid- to high 20s range on a pricing standpoint. The annual carbon credits is really just tied to the growth trajectory and the carbon sequestration trajectory over that 20 years. So it can be a little lumpy. It's not necessarily a straight line in either direction. It will just depend on the growth profile across that particular forest.

Great. That's all I have. Best of luck.

All right. Thank you.

Our next question comes from Mark Weintraub with Seaport Research Partners. Please proceed with your question.

Thank you. Devin, I appreciated your rundown on thoughts for single-family next year. Would you share kind of your view of how you think repair remodel might play out and the key drivers behind that view?

Sure. There are both positive and negative factors to consider. On one hand, many longstanding drivers of repair and remodel continue to exist. We still have an aging housing stock, and homeowners have equity in their properties. The lock-in effect from low refinancing rates is likely to keep more people in their homes who might have otherwise moved, which could increase demand for repair and remodel. On the other hand, fewer people moving can reduce demand, as moving typically stimulates repair and remodel activity. Additionally, higher interest rates could also create challenges. Overall, we expect the market to remain solid. Perspectives vary on whether it will be slightly up or down, but we anticipate it to be flat to slightly up next year, assuming no significant changes. We expect some seasonal slowdown during the winter months, as is typical. Looking ahead to 2024, we do not expect to see growth rates like those during the peak of the pandemic. Instead, we're likely returning to pre-pandemic growth levels, unless there is a major recession or other disruptive event.

Okay. Thank you. And maybe just following up on one of the prior questions that was asking about share repurchase and your stock trading at discount to underlying timberland values. I mean, are there scenarios where if the discount is wide enough, it makes sense to sell timberlands especially given that you're probably going to be in that situation when maybe your wood products businesses aren't doing so well? So you're not generating as much cash. And so are there scenarios where you have plans to sell timberlands and then use those proceeds to buy back your stock at what might be a wide discount?

Sure, Mark. Yes, this is Davie. We are always looking at ways to ensure we are maximizing shareholder value and how we generate cash and allocate that capital and like I said earlier, we are fortunate to have a number of levers there. But really, if I take each of those components separately, we've been very active in the market repurchasing shares, having done $733 million over the last couple of years. So we certainly view that as an attractive opportunity for us to deploy capital. And then on the selling of timberlands, our view is that the value of timberland is only going up over time, and recent transactions certainly demonstrate we are not the only one with that viewpoint. And so that's why we've got that target to acquire $1 billion of timberlands over the next several years and ultimately why we expect to be a net buyer of timberlands over time. But of course, we haven't been afraid to make adjustments to our portfolio in the past. The real estate program is a great example on how we monetize properties with a better use to generate capital that we can deploy for other purposes. So as of now, given our strong balance sheet position and the views that we have about the value of timberlands over time, I'm not sure that we're looking to divest significant amounts of timberland.

Okay. However, in the end, leveraging the spreads is not something that is developed enough to be considered a major part of our strategy. Is that correct?

Yes. I mean, we are always looking at all the levers available to us, but I don't know that I see us divesting a significant amount of timberlands in the near future.

Okay. You mentioned that OSB prices are down compared to the third quarter. However, in EWP, you indicated that costs are rising. Is this just a timing issue, or what accounts for the difference in those two trends?

Yes, Mark. So the way we do those internal transfers is we have a 13-week rolling average on that pricing. And so based on the trajectory of where OSB prices went over the quarter, we do expect that to be up a little bit quarter-over-quarter.

Okay, great. And then lastly, is there much in the way of difference in how we should be thinking about the carbon projects in the South that you are reviewing versus what you did up in Maine? And maybe if you could explain how they might be different? And in particular, any financial ramification differences as we think about them?

Yes. At a high level, not really, Mark. Obviously, the margin threshold that you have to overcome in the North is a little different than the South. But we think where we are getting ready to sell these initial main credits at a mid- to high 20s range. I think that would be sufficient for the projects we are thinking about in the South as well. There are different dynamics in terms of the growth rate of trees, et cetera. And so the biometrician work is a little different. But really from a high level, there's not a material difference in the way we are thinking about those projects versus the ones up in the Northeast.

Great. Appreciate the color.

Right. Thank you.

There are no further questions at this time. I'd like to turn the floor back over to Devin Stockfish for closing comments.

All right. Terrific. Well, thanks everyone for joining us this morning, and thank you for your continued interest in Weyerhaeuser. Have a great day.

This concludes today's teleconference. You may disconnect your lines at this time, and we thank you for your participation.