Not a good day for Weyerhaeuser (NYSE:WY)
Today's Financial News - Posted December 19, 2008
Detroit got its bailout, but now everybody wants one. No industry could use help more than timber industry players like Weyerhaeuser (NYSE:WY) and Domtar (NYSE:USF).
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The auto industry got its bailout, or at last some convoluted version of one. So now that just leaves the housing, energy, travel and retail industries waiting for checks from Uncle Sam. If it begs hard enough, I am positive any industry can get at least a few billion bucks thrown its way.
One sector that is surely contemplating its bailout potential is North America’s timber industry. Not only is the housing industry demanding far less lumber, but paper consumers are scaling back operations. Take a look at the publishing industry and you will see exactly what I mean… cutbacks, cutbacks, cutbacks.
Tiiimmmber…
The incredible downturn is hurting the prospects of a wide range of companies like International Paper (NYSE:IP), Weyerhaeuser (NYSE:WY) and Domtar Corp. (NYSE:UFS). In fact, earlier today, Domtar announced it is permanently closing one of its sawmills. The company had said the shutdown was temporary, but now the doors are welded shut and 140 employees are permanently off the payroll.
The company’s shareholders have had little to celebrate since the current version of the company’s stock began trading in 2007. Share price has steadily dropped from nearly $11 to a recent 52-week low of $1.01. Right now, investors are able to get just $1.75 for their shares.
The next few quarters are going to be downright miserable for the industry. It it is a race to reduce capacity fast enough to keep up with plummeting demand.
Weyerhaeuser gave us a glimpse of what is to come when it slashed its dividend this morning and announced its expectations of an increasingly “challenging” market condition throughout the next year.
With revenues expected to be significantly lower in the near future, the company is doing all it can to keep margins intact. Executives implemented a white-collar wage freeze, cut capital spending by as much as $200 million and cut its dividend from $0.60 per share to just $0.25.
Will they keep their word?
Interestingly, Weyerhaeuser also said its board approved a measure that allows the company to repurchase as much as $250 million worth of its shares. This is a bold move when cash flow is tight and is worth keeping an eye on.
My guess the repurchase announcement is only a “symbolic” move designed to show the board has at least a bit of optimism going forward. Shares of the company are cheap, but Weyerhaeuser has more important things it could be spending its money on, like paying the electric bill.
This will be an interesting industry to watch during the first six months of 2009. We will see consolidation, plant closings and all sorts of other gyrations as demand for wood-based products slumps.
But this industry is also considered a strong leading economic indicator. As it begins to rise from the grave, it is a good sign the entire economy is on the rebound.
Unfortunately, today’s news proves we are still a long way from that point.
Next Article: Interest rates entice real estate investors
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