Greetings, and welcome to the Weyerhaeuser First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce 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 first quarter 2024 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 first quarter GAAP earnings of $114 million or $0.16 per diluted share on net sales of $1.8 billion. Adjusted EBITDA was $352 million, a 10% increase over the fourth quarter of 2023. These are solid results, and I'm pleased with the operational and financial performance delivered by our teams. Turning now to our first quarter business results. I'll begin with Timberlands on Pages 6 through 9 of our earnings slides. Timberlands contributed $80 million to first quarter earnings. Adjusted EBITDA was $144 million, which was comparable to the fourth quarter. In the West, adjusted EBITDA increased by $3 million compared to the prior quarter. Starting with the Western domestic market. Adverse weather conditions in January temporarily impacted log supply and demand across the region. As the quarter progressed, log supply in the system increased as weather conditions improved. Several recent mill curtailments, primarily in Oregon, also added to log availability in the region. Despite this dynamic, the market remained fairly balanced due to healthy log demand and improvements in lumber pricing. As a result, pricing for our logs was comparable to the fourth quarter. That said, our average domestic sales realizations decreased slightly, largely driven by a lower percentage of grade logs in our mix. For the quarter, our domestic sales volumes were significantly higher as we strategically shifted logs to domestic customers. Fee harvest volumes were moderately higher, and per unit log and haul costs were significantly lower as we made the seasonal transition to lower elevation and lower-cost harvest operations. Forestry and road costs were seasonally lower. Moving to our Western export business. Log markets in Japan were stable in the first quarter. Despite ongoing consumption headwinds, demand for our logs remained steady as our customers benefited from lower volumes of competing European lumber imports. As a result, our average sales realizations for export volumes to Japan were comparable to the fourth quarter. Our sales volumes were moderately lower due to the timing of vessels. In China, log inventories at the ports grew in the first quarter as a result of reduced consumption during the Lunar New Year holiday and increased log imports from New Zealand. However, log takeaway improved as the quarter progressed. Despite steady demand for our logs, our sales volumes into China were significantly lower in the first quarter as we intentionally flexed log sales to the domestic market. Our average sales realizations were slightly higher compared to the fourth quarter. Turning to the South, adjusted EBITDA for Southern Timberlands decreased by $4 million compared to the fourth quarter. Southern sawlog markets moderated somewhat in the first quarter, largely in response to elevated mill inventories and ample log supply. In contrast, Southern fiber markets were stable in the first quarter as supply and demand trended to a more balanced state. Given these dynamics, our average sales realizations were comparable to the fourth quarter. Per unit log and haul costs were also comparable, and forestry and road costs were seasonally lower. Our fee harvest volumes decreased slightly in the first quarter. In the North, adjusted EBITDA increased by $1 million compared to the fourth quarter as sales realizations increased moderately. Fee harvest volumes were moderately lower in the first quarter, largely driven by the early onset of spring breakup conditions. Turning to our Real Estate, Energy and Natural Resources on Pages 10 and 11. Real estate and ENR contributed $60 million to first quarter earnings and $94 million to adjusted EBITDA. First quarter EBITDA was $27 million higher than the fourth quarter, primarily attributable to an increase in real estate acres sold. Average price per acre decreased compared to the fourth quarter due to the mix of properties sold but remained elevated compared to historical levels. We continue to benefit from solid demand for HBU properties, resulting in high-value transactions with significant premiums to timber value. Now for some comments on our Natural Climate Solutions business. In February, we announced an exploratory agreement with Lapis Energy to pursue carbon capture and sequestration projects across five potential sites in the U.S. South. The agreement represents a unique opportunity to scale our CCS offerings. To date, we've entered into three CCS agreements covering up to seven sites across our Southern timber holdings. And we remain focused on developing new projects and intend to enter into additional agreements over the next few years. Turning to forest carbon. On the heels of our first approved project in Maine, we're advancing two projects in the U.S. South that are expected to be completed later this year. Combined, these three projects are expected to generate over 100,000 credits in 2024, and we intend to sell these credits into the voluntary market. Looking forward, we have several additional projects in the development pipeline and continue to see strong demand for high-quality credits. Lastly, I'll make a few comments on the progress we're making on our renewable energy business with a specific focus on solar. Given our unmatched portfolio in the U.S. South, we are uniquely positioned to drive meaningful value across our land base as demand for large-scale solar development increases. In total, we've signed over 60 agreements for potential solar projects covering more than 100,000 acres across 11 states. Notably, we recently signed sizable agreements in Georgia and Mississippi and currently have several projects in late stages of development with one expected to be operational later this year. We've been very selective in choosing the counterparties to these agreements and have built an outstanding portfolio of projects with experienced and successful developers and utilities. Looking forward, we continue to see strong demand as this market continues to develop, and we expect to sign additional agreements over the next several years. Moving to Wood Products on Pages 12 through 14. Wood Products contributed $128 million to first quarter earnings. Adjusted EBITDA was $184 million, a 16% increase from the fourth quarter. Starting with lumber. First quarter adjusted EBITDA was a $5 million loss but improved by $29 million compared to the fourth quarter, largely driven by a slight increase in sales realizations. Adverse weather conditions in January and cautious buyer sentiment weighed on the lumber market at the outset of the first quarter. As the quarter progressed, demand signals improved slightly, particularly for Western SPF and Douglas fir species. This drove modest pricing improvements through mid-March. In contrast, Southern lumber markets faced persistent headwinds during the quarter, given weather-related challenges, a moderation in demand, and ample supply of finished products. For the quarter, our average sales realizations increased by 4% compared to the fourth quarter, largely in line with the framing lumber composite. Our sales volumes decreased slightly, partially driven by winter weather disruptions early in the quarter. Unit manufacturing costs increased slightly, and log costs were slightly lower. OSB adjusted EBITDA increased by $14 million compared to the fourth quarter, primarily due to an increase in product pricing. Benchmark pricing for OSB was relatively stable through February but increased significantly in March. This improvement was largely driven by lean inventories, supply limitations, and resilient demand from new home construction activity. As a result, our average sales realizations increased by 4% compared to the fourth quarter, while the average OSB composite pricing increased by 13%. This relative difference was largely due to our extended order files, which result in a lag effect for OSB realizations. Our production and sales volumes were slightly higher in the first quarter, and unit manufacturing costs improved. Fiber costs were slightly higher. Adjusted EBITDA for engineered wood products decreased by $18 million compared to the fourth quarter, primarily due to a decrease in average sales realizations as previously determined price adjustments took effect in certain markets. Our sales volumes for solid section products were comparable to the fourth quarter, while I-joist volumes were lower. Both unit manufacturing and raw material costs increased for most products in the first quarter. A couple of things worth noting for context regarding our engineered wood products in Q1. First, we did ship somewhat higher EWP volumes to customers in the fourth quarter of last year after having been on allocation for most of 2023, and consequently, customer inventories were slightly elevated entering the new year. Also, while single-family construction activity remained resilient, we experienced the typical seasonal pattern in EWP demand in the first quarter. That all being said, we expect healthy demand from the single-family segment as we get further into the spring building season. As a result, we anticipate higher sales volumes and stable sales realizations from our EWP business in the second quarter. In distribution, adjusted EBITDA increased by $4 million compared to the fourth quarter, largely driven by an improvement in commodity realizations and margins. With that, I'll turn the call over to Davie to discuss some financial items and our second quarter outlook.

Thanks, Devin, and good morning, everyone. I'll be covering key financial items and first quarter financial performance before moving into our second quarter outlook. I'll begin with key financial items, which are summarized on Page 16. Our balance sheet remains exceptionally strong, with approximately $900 million in cash and total debt of just under $5.1 billion at the end of the quarter. In the first quarter, we generated $124 million of cash from operations. It's worth noting that the first quarter is usually our lowest operating cash flow quarter due to seasonal inventory and other working capital build. Capital expenditures for the quarter were $79 million, which is a typical level for the first quarter. We returned $146 million to shareholders through the payment of our quarterly base dividend, which we increased by 5.3% to $0.20 per share during the quarter. This is in line with our commitment to grow our sustainable base dividend by 5% annually through 2025. During the quarter, we also returned $102 million to shareholders through the payment of our supplemental dividend, which was associated with our 2023 financial results. First quarter share repurchase activity totaled approximately $50 million. And as of quarter end, we have completed nearly $800 million of repurchase under our $1 billion authorization. Looking forward, we will continue to leverage our flexible cash return framework and repurchase shares opportunistically when we believe it will create shareholder value. First quarter results for our unallocated items are summarized on Page 15. Adjusted EBITDA for this segment decreased by $22 million compared to the fourth quarter, partially attributable to changes in intersegment profit elimination and LIFO. Looking forward, key outlook items for the second quarter are presented on Page 18. In our Timberlands business, we expect second quarter earnings and adjusted EBITDA will be slightly higher than the first quarter of 2024. Turning to our Western Timberlands operations, we expect steady to increasing log demand in the domestic market in the second quarter as mills respond to improving lumber takeaway as we get deeper into the spring building season. That said, log supply is expected to increase as weather conditions improve seasonally. On balance, this should translate to a fairly stable domestic log market. As a result, we expect our domestic sales realizations to be comparable to the first quarter. We anticipate our fee harvest volumes will be moderately higher given seasonally favorable operating conditions in the second quarter. Forestry and road costs are expected to be higher as we enter the spring and summer months, and per unit log and haul costs are also expected to be higher. Moving to the export markets. In Japan, we anticipate stable log markets and steady demand from our customers in the second quarter. As a result, we expect our average sales realizations for export volumes to Japan to be comparable to the first quarter. Our sales volumes are expected to increase, largely due to the timing of vessels. In China, we expect a modest increase in construction activity and log consumption following the Lunar New Year holiday. And given steady log demand from our strategic customers, we expect to significantly increase our sales volumes into China in the second quarter. Our average sales realizations are expected to be comparable to the first quarter. Moving to the South, log inventories were elevated at the outset of the second quarter, and log supply is expected to increase seasonally. As the quarter progresses, we expect sawlog demand to remain relatively stable and fiber demand to soften in response to increased annual maintenance outages. On balance, takeaway for our logs is expected to remain steady given our delivered programs across the region. As a result, we expect our sales realizations to be comparable to the first quarter. Our fee harvest volumes and forestry and road costs are expected to be higher due to drier weather conditions that are typical in the second quarter, and we anticipate comparable per unit log and haul costs. In the North, our sales realizations are expected to be moderately higher than the first quarter, and fee harvest volumes are expected to be significantly lower given spring breakup conditions. Turning to our Real Estate, Energy and Natural Resources segment. As Devin mentioned, we are still seeing solid demand for our real estate properties, and we continue to expect a consistent flow of HBU transactions with significant premiums to timber value. For the second quarter, we expect adjusted EBITDA will be comparable to and earnings will be approximately $10 million lower than the first quarter of 2024, due to the timing and mix of real estate sales. For the full year, we maintain our adjusted EBITDA guidance of approximately $320 million for the segment, which includes a year-over-year increase in contributions from Natural Climate Solutions as we continue to advance toward our 2025 target for that business. For our Wood Products segment, we expect second quarter earnings and adjusted EBITDA will be slightly higher than the first quarter of 2024, excluding the effect of changes in average sales realizations for lumber and OSB. This is largely driven by improved sales volumes across our Wood Products businesses and favorable cost for lumber. I will note that we do expect demand for wood products to remain healthy, supported by improving housing and repair and remodel activity as we move further into the spring. As shown on Page 19, our current and quarter-to-date average sales realizations for lumber are slightly higher than the first quarter average. That said, the framing lumber composite has trended lower over the last several weeks. For OSB, our current and quarter-to-date average sales realizations are significantly higher than the first quarter average. As Devin mentioned, our extended order files result in a lag effect for OSB realizations. As a result, most of the OSB price improvement that we saw in March will be captured in our second quarter realizations. For our lumber business, we expect higher production and sales volumes in the second quarter and moderately lower unit manufacturing costs. Log costs are expected to be slightly lower. For our OSB business, we anticipate sales volumes to be moderately higher than the first quarter with comparable unit manufacturing costs. Fiber costs are expected to be slightly higher in the second quarter. In our Engineered Wood Products business, we anticipate higher sales volumes across all products. Our average sales realizations are expected to be comparable to the first quarter. Raw material costs are expected to be higher primarily for OSB web stock. For our distribution business, we expect adjusted EBITDA to be higher compared to the first quarter due to increased sales volumes and stronger commodity realizations. 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, starting with housing. On balance, our macro view on the housing market is largely unchanged. Despite elevated mortgage interest rates, the single-family segment remains solid and continues to be supported by strong overall demand for housing, a limited inventory of existing homes on the market, and actions taken by the large homebuilders to offset affordability challenges. In contrast, activity in the multifamily segment has moderated given the elevated interest rate environment and the recent and upcoming influx of multifamily units entering the market. As a reminder, single-family construction is a much more important demand driver for our business than multifamily. For the first quarter, housing starts averaged 1.4 million units on a seasonally adjusted basis, with single-family starts holding up well. However, we do think homebuilding activity in the first quarter was impacted to some degree by various weather events across the U.S. So the spring building season has been a little slower to kick into high gear. As we move deeper into 2024, we're still expecting healthy demand for housing, particularly in the single-family segment. That's consistent with what we are hearing from our homebuilding customers. On the longer term, our view on the housing fundamentals continues to be very favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to repair and remodel. Activity has been a little softer to start off the year, particularly in the do-it-yourself segment. Moving forward, we expect R&R activity to pick up somewhat as weather conditions improve and continue to believe that demand will ultimately be supported by prospective homebuyers that elect to remodel in lieu of purchasing a new home in the current rate environment. And beyond 2024, most of the key drivers supporting solid repair and remodel demand remain intact, including favorable home equity levels and an aging housing stock. So in closing, we delivered solid results across our businesses in the first quarter. We also continue to make progress toward our multi-year targets by increasing our quarterly base dividend and signing our third CCS agreement. Looking forward, we're encouraged by the strong underlying fundamentals that will drive long-term growth for housing and repair and remodel demand and natural climate solutions. And given our unmatched portfolio of assets, we're uniquely positioned to capitalize on these opportunities well into the future. Our balance sheet is exceptionally strong, and we remain focused on driving peer-leading performance across our businesses, serving our customers, and delivering superior long-term value and returns for our shareholders. With that, I think we can open it up for questions.

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

I want to take a closer look at the timber realizations in the West for the quarter and how that impacts the second quarter. You mentioned that you redirected volume from exports to domestic markets, despite flat realizations in export markets, yet Western realizations decreased slightly. Given this price realization, I'm curious as to why you directed so much timber demand domestically when export markets seemed to hold steady. That's my first question. Secondly, I understand there were timing factors regarding EWP, but there has been a consistent decline in both solid section and I-joist. What are your thoughts on the implications of this trend moving forward? Finally, with all the project activity in climate solutions, are you considering updating your $100 million target for 2025? Might that figure need to be revised upwards at some point?

So I answer the third one first, with respect to the $100 million. We're still working towards that run rate, $100 million by the end of 2025. As we get closer to that end date, we'll obviously work with you on updating what that longer-term number is, but we're not prepared to do that today. With respect to the first question on the timber markets in the Northwest, the lower realizations were really more a reflection just on mix and not so much on #2, Doug fir log prices; those were just fine. So we moved some, as we always do, looking for the best margin opportunity in Q1 to meet some customer demands. As we roll into Q2, as we noted, we're seeing pretty strong demand from our customers in China, notwithstanding all of the market dynamics there. So we have an opportunity to flex a little bit more volume to China in Q2, and that's what we're going to do. And that's typical; we'll move back and forth depending on what the best margin opportunity is. With respect to EWP, we have seen some downward price pressure here coming out of the peak of the pandemic, but I think it's important to put that in historical context. We still have very strong EWP pricing relative to pre-pandemic. We still see strong demand. I think on the I-joist side, in particular, one of the dynamics at play during the real peak of the pandemic, where we saw product shortages, we did see some conversion to open web during that period. And so we're working on regaining that market share. Obviously, with lumber prices being relatively lower right now, from a cost standpoint, it may take a little bit longer to pull some of that market share back to I-Joist. But we're working on that. The team is doing a nice job of picking up customers and making that conversion. As we think about Q2, as Davie mentioned, we're expecting comparable realizations, and we'll see the volume pick up in Q2 and Q3. So still a good market. I still think there's a lot of opportunity in EWP notwithstanding pricing coming down a little bit from those pandemic peak levels.

Our next question is from Susan Maklari with Goldman Sachs.

My first question is on the solar projects that you mentioned, Devin, you gave some interesting commentary on those. Can you talk a bit about how that could potentially contribute to results in the more near to medium term perhaps? And then anything on the unit economics of those projects and how they compare to some of the others that are falling within the NCS area?

Yes, sure. With respect to the specific economics at this point, we're not prepared to release that; we're really working on signing up new contracts. And I think just from a competitive positioning standpoint for not to do that at this point, we will obviously at some later date. It's going to be a growing component of NCS. The NPV uplift on doing a solar project is always going to be the right answer relative to timber multiple uplift on NPV. So you're going to sign those up as often as you can. The challenges with many of the NCS businesses is just the timeline to get these things hooked into the grid. We're signing up a pretty healthy number of agreements. We're building up a really nice pipeline. As I mentioned, we've been really thoughtful about the counterparties that we're engaging with, really trying to get the high-end developers to improve the conversion rate. It's important to remember, not every solar agreement you sign is necessarily going to convert into a project that comes to fruition, but I think we'll have a pretty good success rate just given the partners that we're engaging with. So as I said, that will be a growing component of our NCS and even in the $100 million, that will be a decent component of that. But obviously, it will grow over time as more of these projects come online.

Okay. That's helpful color. And then turning to Wood Products, lumber prices have been sort of softer lately despite the activity that we're seeing on the single-family side, like you mentioned. I guess what do you think that we need to see in order to get some more strength there, understanding you don't forecast lumber prices, but just generally, how important do you think an improvement in R&R is? And I guess, how do you think about that relative to the supply dynamics in that area?

Yes, Sue, I think you hit the nail on the head there. The big issue, I think, right now, given that single-family construction has been relatively strong. Although I would note even though we've seen strong housing numbers of late on a seasonally adjusted basis, you do see more actual building activity as you get into spring and summer. So there is just that natural increase in the demand for lumber and wood products as the number of actual building activity picks up. But I think the real issue, and this is particularly true for Southern Yellow Pine, is R&R has been okay. It hasn't been terrible, but we just haven't seen as much of that spring R&R activity as we typically would have seen. I think in the South, in particular, some of the treated market, we haven't necessarily seen as much buying activity there, which obviously Southern Yellow Pine lumber is big in that treated market. So I do think as we get deeper into the spring beyond some of these weather events, I expect that to pick up somewhat. And so we'll see some of that tensioning up as we get a little bit deeper into the year. But I think with lumber, obviously, about 40% of the ultimate demand is repair and remodel. So if that's a little bit softer, that does have a bit of an impact on pricing. For the SPF and Doug fir markets, I think maybe the outdoor market isn't quite as important, but particularly for Doug fir, the California market is very important. And it was a pretty rainy Q1. It's drying out, you're starting to see a pickup in activity, and I think that will put some upward pressure on Doug fir prices as we move deeper into the spring and summer.

Our next question is from Hamir Patel with CIBC Capital Markets.

Devin, just given how weak the lumber prices have been of late, particularly for Southern Pine, are you surprised we haven't seen more curtailments across the industry?

Yes. I mean, on some level, yes, because I suspect there's a good chunk of the industry that's been operating below cash breakeven. So historically, that would have caused people to make certain operating decisions. I do think, to some extent, there's still this residual concern coming out of the pandemic around labor and just to the extent people think that prices are going to turn around, kind of trying to hold out a little bit longer, so you don't jeopardize the available labor force in your mills. So perhaps that's some of it. But ultimately, you wouldn't expect people to operate indefinitely if they're below cash breakeven, which I think where our Southern Yellow Pine prices are, for some of the industry, I think that's certainly the case right now.

Great, that's helpful. And are you able to comment on where inventories look to you in the channel today for lumber, OSB and EWP?

I think for lumber, I would say inventory levels are adequate. We've had a few years where they were more or less operating on a pretty lean basis. I think, to a large extent, buyers have built up some inventory. I mean, I wouldn't say it's excessive by any means, but at least it's enough for people to not have to be aggressive in terms of their lumber buying, which has been a headwind on price. OSB has been a little bit leaner. I'd say on balance, the channel is still pretty lean on the OSB side. And I'd say EWP is pretty typical for this time of year, not terribly low or high, just generally in normal range for this time of year.

Our next question is from Mark Weintraub with Seaport Research Partners.

Maybe first, just following up on the NCS recognizing competitive reasons, you don't like to give too much in the way of details, but are you primarily looking at leasing on the solar side? Or would there be sales arrangements? Is there a strong bias?

Yes. We're focused on leasing activity. We think that provides the best long-term value.

Okay. And obviously, we've seen some other directional estimates on the types of uplift. Is there any reason to believe that your situation would be meaningfully different from what we hear from others?

Yes. I mean, we may have minor disagreements in terms of the specific numbers, but directionally, I think what others are talking about aligns with how we're thinking about it, at least for quality projects. I think the differentiator for us, Mark, is really a couple of things. One, particularly on the forest carbon development, we are doing more of that work internally, so we get to keep more of the economics. And then just from a scale standpoint, we have the opportunity to participate maybe at a larger level. But directionally, in terms of NPV uplift, I think those are generally in the ballpark, at least in our view.

Okay, that's very helpful. Lastly, regarding the CCS, could you remind us about the process involved? You need to obtain the necessary permits, and then after that, is there equipment that needs to be installed? What are the realistic timelines for the CCS projects?

Yes. I mean it is a multiyear process. So you have to go through the process of, first, we provide certain geologic information, but the counterparty is going to do their work and their analysis on that. There's a permitting process as we all know. In the U.S., permitting is very challenging. And so that's a process that has to be worked through either at the EPA level as the one in Mississippi or at the state level now that Louisiana has gotten primacy from EPA. That's a lengthy process that has to be undertaken. Then there's the process of actually building the injection facility on-site and the pipeline development. So all of that work does take a bit of time and frankly, probably has taken a little bit more time than we had anticipated when we rolled out these targets initially back in 2021. But again, ultimately, we think this is going to be a healthy business for us. We think the demand is definitely there, but you just have to work through the process. But the beauty is once it's up and running, it's a recurring revenue stream for decades.

Right? So is it fair to say that that's probably not a big part of the 2025 but that there's hopefully significant upside beyond that from these projects?

Yes, that's accurate.

Okay. And then just lastly, I promise last one, on it. So I believe at one point, you talked about 500,000 acres being potentially suitable or identified for CCS. With the Lapis project, do you have an update on that number?

Yes, it's probably another 100,000 to 75,000 acres over and above that just because three of the five sites that are part of that Lapis agreement were not part of our initial estimate, and so I think that has expanded the potential opportunity zone. I will say just a cautionary note with respect to the acreage references, since we will continue to manage the above-ground land base on those projects outside of a very small sliver for the pipeline and the injection site. It's not necessarily the greatest proxy for how much underground space. We use that just to kind of help dimension. Ultimately, each of these sites will have their own poor space availability. But we do think that the opportunity with Lapis is a nice way to continue to expand our potential opportunities within the CCS space.

Our next question is from Ketan Mamtora with BMO Capital Markets.

Perhaps the first one on OSB, I was a little bit surprised that your current realizations are up sort of $95 versus Q1 average versus kind of random length, which is up almost $200. I understand the lag impact. But beyond that, what are the other nuances that we may be missing?

Yes. I mean, it's really just the lag effect because you're talking about a three- to five-week lag trailing behind random lengths. And so what you typically see when you have the tighter markets for us with OSB is we lag on the upside, but then we hold it longer on the downside. That's really it.

So Devin, in that case if we assume that prices stay near these levels for the rest of the quarter, just hypothetically, then is it fair to say that your realizations should move higher if they were to just stay here at this level for the quarter?

Yes.

Understood. Okay. And then just one quick one as a follow-up. What were your operating rates in lumber, OSB and engineered wood in Q1?

Yes. So lumber kind of in the high 70% operating rate; in OSB, it was the low 90s; EWP was the high 70s. And so again, I think we saw on the lumber side, that operating rate was a little lower probably than we would have anticipated, but that should move back up in Q2. Really, operating rates for all three businesses should move up in Q2.

Our next question is from Kurt Yinger with D.A. Davidson.

I just wanted to circle back on EWP. You talked about the extended lead times late last year. What have you done from either a labor or operating posture or capacity perspective to kind of ensure that if the single-family strength continues, you don't run into those same issues again in '24?

Sure. Well, a couple of things going on last year in '23. First of all, I think we are still struggling to get fully staffed up across our mill set. I think we are in a much better place today than we were a year ago. So that's number one. Number two, if you remember back at the beginning of 2023 with where mortgage rates were going, I think our view was that it was going to be a much more challenging housing environment. And so we made a decision to pull back a little bit on production to align with what we thought was going to happen in the housing market. Now obviously, that's not how things turned out. And the challenge with EWP is once you get behind the eight ball, it's hard to get back to even. And so it took us a good chunk of the year to really get our volumes to customers back where they needed to be. We are in allocation for most of the year. So I think heading into this year, just a different view. I think we've seen that the market can operate well even in a higher mortgage rate environment. And so we were running in Q1 at normal operating levels, and we'll continue to do that. So I don't expect us to have the same challenge this year.

Got it. And then since Mark had asked about CCS, I wanted to ask a similar question around the solar opportunities. Could you just maybe help us understand some of the differences between signing the agreements and the go-live or when you might expect kind of any substantive contributions from that? And is there a typical or general rule of thumb in terms of the timeline between when you would think of signing an agreement and not ultimately materializing?

Yes. Historically, this is a process that takes several years. Typically, you sign an agreement for a specific number of acres, and that initial acreage is generally larger. The counterparty will conduct their assessment regarding the economics and scale of the project, which is usually straightforward. Recently, the timeline has been extended due to the high level of solar activity currently taking place. The permitting process has become quite challenging because, at all government levels, there are not enough resources to manage the volume of permitting requests. Additionally, even once the permitting is secured, connecting to the grid is complicated by aging infrastructure. Integrating new renewable projects takes longer than necessary because utilities are overloaded, and there aren’t enough energy engineers to conduct the necessary balance assessments for grid connection. Therefore, while there is a substantial pipeline, there are significant bottlenecks. Now, from the time you sign an agreement to when a solar project is operational, it can take three to four years if everything goes smoothly. However, once these projects are operational, they provide a 30-year revenue stream that grows annually and includes inflation adjustments, making them a valuable long-term revenue source.

Our next question comes from Anthony Pettinari with Citibank.

In Wood Products, you've been EBITDA negative in lumber for a couple of quarters, and Random Lengths seems like it's taken another step down over the last couple of weeks. I'm just wondering, are there steps that you're taking in terms of OpEx or projects or staffing or shifts to improve profitability and kind of your own controllables within the lumber business to the extent you're able to discuss?

Sure. The good news is we've been focusing on operational expenses and costs for a decade, so we are relatively well positioned in terms of costs. The last two quarters have presented a challenging pricing environment, particularly in the Pacific Northwest and British Columbia. The main issue is that when prices decline faster than log prices, it creates a difficult situation. However, even in the Pacific Northwest, where lumber profitability has faced challenges, our Timberlands and Wood Products business remains profitable overall. When considering our entire system, especially in the Pacific Northwest and British Columbia, Weyerhaeuser has one of the lowest unit costs for lumber manufacturing. As prices are expected to rise, especially for SPF and Green Doug fir, we believe we'll be well positioned in those markets. In the South, most of our mills have a top quartile cost structure. Therefore, even at current prices, while many in the industry may struggle with profitability, we should still maintain positive cash flow in the U.S. South as long as we operate reasonably well. While the last couple of quarters have been more challenging, we are well positioned moving forward. Our competitive position in the industry remains strong, and we anticipate this will become evident in the upcoming quarters. We also believe lumber prices will increase significantly at some point, whether that's next week, next month, or later, and we will be well prepared when that occurs.

Okay. That's very helpful. And then if you look across your portfolio in Wood Products and maybe Timberlands and Real Estate as well, are there end markets or exposures or customer sets that you would view as maybe more sensitive to kind of short-term changes in interest rates, and with mortgage rates above 7% now. I'm just wondering, with those exposures or customers, are you seeing any impact in terms of customer discussions or tone? Or just any color you can give there?

Sure. Maybe I'll break it down by some of the key components. From a single-family residential construction, that's particularly true for the bigger builders. I mean, I think they've been remarkably nimble and resilient in managing through this environment. They're still going to build. I think they've figured out how to build through this higher-rate environment. So I think they're doing just fine. I do think on the multifamily segment, you have seen more interest rate sensitivity. I think that's the one I would highlight really more so than others that has been impacted by the higher interest rate environment and the inflationary dynamic at play right now. I would just point out, as you think about multifamily, one, obviously, single-family is a more important market for us than multifamily. But even within multifamily, if you look at the spike of volume that's hit the market last year and this year, I think you'd see it's primarily that increases in those higher-rise multifamily projects, and those don't typically use all that much wood. The lower-rise, the mid-rise, those kind of one to three, four to six kind of type multifamily, you haven't seen that same spike of volume coming to the market in that space. And so consequently, we don't necessarily think that's going to come down as much. And those units do typically use more wood. So I'm not sure that falloff in multifamily is going to impact us as much as you might think. And then on the repair and remodel, the Pro segment seems to be doing fine even in these higher interest rate environments. I think do-it-yourself has been impacted somewhat, whether that's inflation, whether that's interest rates. As I said earlier, I think that's probably a little bit softer this year. We'll see how that progresses as the year continues.

Okay. That's very helpful. And maybe just one follow-up for me on Wood Products. As a reminder, cash flow positive at trough level prices.

Yes. It's cash flow positive at trough level prices.

Our next question comes from Matthew McKellar with RBC Capital Markets.

I'd like to start by circling back on maybe George's earlier question around Engineered Wood Products and some of the timing issues there. And please correct me if I'm wrong, but I think you've previously talked about there being a bit of a lag in pricing actually for some components of the business. I think you've guided to comparable realizations quarter-over-quarter with higher raw material costs and how much OSB prices have increased, which I think maybe is mostly specific to Trus Joist. I was wondering if you could talk about the impact to margins there and then your ability to maybe push pricing higher to reflect the higher cost of inputs and just how to think about that sort of timing dynamic?

Sure. The timing lag is correct. Typically, price changes can take effect anywhere from 30 to 90 days, depending on the specific circumstances with each customer. In Q1, you saw the impact of some of those previous actions fully materializing. Regarding fiber costs or input costs, that is mostly related to OSB web stock connected with I-joist. As prices increase, it may attract some lower-cost competitors looking to gain market share, which could create additional pressure for them. It's important to note that our OSB web stock is sourced from our own mills. Therefore, when you see higher web stock prices for engineered wood products, it also reflects on the OSB side.

Our next question is from Mike Roxland with Truist Securities.

Devin, I just wanted to follow up with you on the EWP operating rate. You mentioned it was in the high 70s in 1Q. That's down from the low 80s in 4Q. So just wondering, did you take increased downtime in EWP? I'm just trying to reconcile the operating rate comment or the rate itself with your earlier comment that you shipped greater EWP volumes in 4Q after being on allocation for most of the year. So help me just try to reconcile what happened in the operating rate and why do you bring it down in 1Q relative to 4Q.

Yes. The difference is only a percentage or two. It wasn't intentional. We experienced some weather events in January that led to a slight production loss. Additionally, one mill faced reliability challenges for a short period. There was nothing deliberate about it; it was primarily due to operational issues. As I mentioned, we plan to improve this as we progress into Q2.

Got you. And where do you think it will be in 2Q? Are you looking at bringing it back to low 80s or even accelerating that beyond the low 80s given what you pointed out as better single-family demand?

Yes, it should be in the mid- to low 80s, is kind of where we're targeting.

Our next question is from Buck Horne with Raymond James.

I appreciate the comments on the Timberland M&A markets. Could you provide some additional insight on valuations across the regions you're currently observing? I'm also curious if you believe carbon optionality is becoming a more significant factor in influencing valuations, or if that trend has moderated in recent months.

Yes. I mean, for quality packages, you're seeing very strong pricing. Anything in that Washington, Oregon area, at least kind of in the key manufacturing regions within those two states, very, very strong pricing. I think in the South, we're continuing to see good strong pricing again in markets where you have the decent supply/demand dynamic with mill availability. I do think you're still seeing people try to get their arms around how to underwrite carbon, but there's no question that, that is playing a part in how people value Timberlands really in most key regions. And I think that will continue to be the case. I think it's important to note, as you think about underwriting that carbon optionality, we're still kind of in the early stages of pinpointing what those numbers are going to look like. If you think about the carbon sale that we did just here back in Q4 of last year at $29 a ton, I think that strong pricing. Our view is we're going to see pricing improve in the years to come. But you almost need more data points for people to really bake that hard into their underwriting process. So I think we'll continue to see that be a part of how people underwrite deals today, but probably more so into the future when you have more data points on how to price those carbon offsets.

I understand. Thank you for that. Yes, this leads nicely into my next question. I wanted to ask about the forest carbon credits and the 100,000 credits you are anticipating this year. Do you believe the pricing will be similar to the $29 per ton you achieved previously? Is it expected to improve, or what is the current trend in the voluntary market?

Yes, trends in the voluntary market are a little challenging because there's such a differential in terms of the quality of those projects that are coming to market, and it's still, to a large extent based off of individual transactions. So insight into pricing can be a bit challenging. That all being said, we continue to believe that we're going to get good solid premiums for the product that we're bringing to market. And we do think that as the demand continues to grow for these high-quality projects, pricing will go up over time. Each individual project, there are going to be puts and takes depending on what's going on in the market. But directionally, we feel good about the trajectory of carbon prices over the course of this year and over the next several years.

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

Okay. Well, thank you, 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.