(WY) Weyerhaeuser to Sell Hardwood Unit

Weyerhaeuser Company (WY) recently entered into an agreement to sell its hardwood and industrial products division to American Industrial Partners. Financial terms of the transaction were not disclosed.

The transaction is expected to be complete by the month of August this year. Upon completion, the division will operate under the name of Northwest Hardwoods Inc. and will have its headquarters in Tacoma.

The division is primarily engaged in manufacturing and selling 15 species of hardwood lumber, including alder, oak, maple, cherry, walnut, ash and hickory. It also operates seven sawmills, two yards, four remanufacturing plants and one log yard in the U.S, and employs about 1, 000 people.

Weyerhaeuser is one of the leading US forest product companies with approximately 6.6 million acres of timberland in North America. We believe the company stands well positioned to manage its timber portfolios with its conversion into a REIT structure. In addition, its other attributes like effective cost control initiatives, solid balance sheet, and robust guidance bode well for the company’s future growth prospects.

The company’s recently declared financial results show a perceptible improvement in earnings from a net loss reported in the year-ago quarter to a break-even level in the first quarter of 2011. The top line registered a year-over-year growth of 11.2% based on stronger revenue from all segments.

However, these positives are offset by concerns over the industry’s sensitiveness to macroeconomic conditions and its cyclical nature.  Three of the company’s five business segments are highly dependent on the US housing market, which is still at the early stages of recovery after plunging badly following the recent economic crisis.  Weyerhaeuser also faces stiff competition from privately-held Canfor Corporation, International Paper Co. (IP), and Louisiana-Pacific Corp. (LPX).

We currently expect the company’s performances to be in line with the market, and thus maintain a Neutral recommendation on the stock.

INTL PAPER (IP): Free Stock Analysis Report

LOUISIANA PAC (LPX): Free Stock Analysis Report

WEYERHAEUSER CO (WY): Free Stock Analysis Report

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