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Financial Results

To measure the financial success of each of our businesses and our company as a whole, we set financial targets and monitor our progress monthly, quarterly and annually. These targets are wide-ranging and include measures such as cash flow, net earnings, and selling and administrative costs.

For our sustainability report, we’ve chosen to discuss five target areas that together indicate our ability to sustain long-term financial success.

TOTAL SHAREHOLDER RETURN

Our goal is to achieve top-quartile performance in total shareholder return against a target set of competitors over a multi-year period. TSR is calculated based on the value of our stock over time plus the value of dividends we pay to shareholders. In 2012, we delivered a total shareholder return of 52.7 percent. For the year, we rated ourselves “high achieves” in this category.

COMPANY EBIT RONA

Another of our goals is to achieve a companywide return on net assets that is top quartile in our industry over the business cycle. We determine RONA by dividing our earnings (before interest and taxes) by our average net assets. Put simply, EBIT RONA measures the amount of money we earn compared with the book value of the assets used to produce our earnings.

In 2012, our companywide RONA was 7.4 percent. As the graph shows, we’ve made significant progress in the last several years to improve our absolute RONA performance, even as the housing market continued to falter in a depressed economy. However, there is still much work to be done. We fell just short of our relative target in 2012 and therefore rated ourselves “below” for this category.

TOP-QUARTILE BUSINESS PERFORMANCE

For our company to achieve top-quartile results as a whole, each of our businesses must also be working to achieve and retain top-quartile performance. Our Timberlands, Wood Products, Cellulose Fibers and Real Estate businesses each benchmark their financial results against a target set of competitors in their industry, and then take action as needed to improve or maintain their relative position. In 2012, all of our businesses made progress against competitors. We do not disclose our benchmarking data. We rated ourselves an overall “low achieves” in this category.

EARNING THE COST OF CAPITAL

We expect each of our businesses, and Weyerhaeuser as a whole, to earn cost-of-capital returns over a business cycle. That means we need to earn enough, after all costs of doing business, to pay our debt and equity holders the returns they expect. In 2012, we improved our financial performance and return compared with our performance in 2011. This was due in part to a recovering U.S. housing market, but it was also a results of the improvements we made in our operations across the company. For that reason, we rated ourselves an ‘achieves’ on this measure.

BUSINESS VALUE DELIVERY

If our customers are not satisfied with the products and services we offer, we will not be able to sustain the profitability of our company. Each year, all our businesses identify strategic initiatives that will improve their performance. They set distinct value delivery goals that will maintain the strong relationships we have with existing customers and attract new customers to our company. We do not disclose our value delivery targets. We rated ourselves an “achieves” in this category for 2012.

ECONOMIC VALUE: DISTRIBUTION VERSUS RETENTION

Direct Economic Value Generated 2012 (in millions)
Net sales and revenue - cash basis $7,026
Interest income and other $52
Net proceeds of investments held by special purpose entities $13
Proceeds from the sale of assets and operations $80
Economic value distributed $7,171
Costs and expenses - cash basis $(6,159)
Payments to providers of funds $(904)
Cash paid for taxes $(13)
Community investments $(4)
Economic Value Retained $91

Story Image
MOE value
Modulus of elasticity stretches Weyerhaeuser's resources
3/26/2012

He didn't order it from the back of an old comic book, but Stan Floyd has developed what amounts to X-ray specs for trees. Floyd, a wood quality researcher at the Weyerhaeuser Technology Center, has developed a way to look at a tree and know, while it's still wearing its bark, whether or not its wood is ideal for the veneers used in Weyerhaeuser's Microllam® laminated veneer lumber product.

The trait Floyd can "see" is called modulus of elasticity. It's a fancy term for stiffness, and his secret already has helped Weyerhaeuser save more than $4 million dollars.

Floyd's discovery evolved over twenty years of observations, including his involvement in the recent development of Framer Series® Lumber. He was able to make a correlation between the desired characteristics of finished lumber and the trees the wood came from. The details are proprietary, but instead of testing wood in a lab, the secret now can be applied using a low cost process that involves analyzing forest inventory records and cruising the stand. That's helping the company accomplish not one but three goals: make better harvest and purchase decisions, reduce raw material costs for multiple production facilities, and help its veneer plants turn out more top-quality veneer.

Teamwork required
In recent years, poor market conditions have prompted the Timberlands business to delay harvests. At the same time, Weyerhaeuser's Zwolle, La., and Emerson, Ark., veneer facilities have typically purchased 80 percent of their logs on the open market.

"We were paying a premium for purchased logs and deferring harvest of our own timber," Floyd explains. "Timberlands needed to move trees and the veneer mills needed to reduce costs."

In addition, not all those purchased logs produced great veneer. While the best sheets are sent to Weyerhaeuser's Microllam facility in Natchitoches, La., lower-quality veneer is made into plywood or sometimes chipped for fuel, neither providing ideal returns.

Meanwhile, at Natchitoches, "We pay a significant premium for the veneer we buy outside the company," says Jeremy Dummer, technology advisor for Engineered Wood Products.

So another goal was to reduce that percentage, and thus Natchitoches' purchase costs, by supplying it with more top quality veneer from Weyerhaeuser facilities.

Floyd's innovation enables Weyerhaeuser to gain value throughout that supply chain. The improved ability to identify trees that are ideal for veneer production has allowed the company to harvest and market more stands internally. That includes some younger stands with high-MOE logs, which conventional wisdom might have said was impossible. So between 2010 and 2011, the percentage of Weyerhaeuser timber going to Zwolle and Emerson increased to 30 percent and is already on its way toward a 2012 target of 40 percent. That saves money in sourcing.

"We've been able to increase our fee log percentage into those facilities — and take them the right 30 to 40 percent," notes Rhonda Hunter, vice president of Southern Timberlands. "It gives us another tool to use in allocating wood to the best market — beyond just logistics — and reduces the need for outside log purchases for the veneer facilities."

In addition, the veneer plants' sourcing teams have new insight they can use to successfully bid for less expensive purchased logs that still have the qualities needed. And finally, improvements at the veneer plants are optimizing their yields.

"Since we had a premium log," says Dummer, "it wasn't acceptable to get the same recovery from it."

Initially, about 40 percent of the finished veneer was suitable for Microllam laminated veneer lumber.

"We needed to use the maximum percentage for Microllam veneer, and to do that, we had to understand why we were losing 60 percent of the tree."

He led a cross-functional team that worked to understand the issues and increase the percentage of Microllam quality veneer the two plants turned out. Their improvements ranged from recalibrating equipment to refining sorting techniques. As a result, they've increased the number of weekly truckloads of veneer destined for Microllam by about 50 percent.

"The Zwolle and Emerson people have put in a lot of work to ensure that we recognize every good sheet and get it to the LVL facility," Floyd explains. "And Timberlands did a great job of implementing what we learned in the research. Gary Hill, forest planning manager, took the leap of faith and quickly commercialized the model.

"It's a very good example of how Wood Products and Timberlands have worked hand-in-hand to make things happen."

Story Image
Spencer Bennett operates the new steel shear line at the Tacoma, Wash., distribution center.
Man of steel
Matt Cross' shear genius earns him a President's Award
6/15/2012

Imagine you had a good idea — even a great idea — on how to help your business grow and be more profitable. And no one stopped you. In fact, you were given the go-ahead. So you did your work and the idea you believed in proved a winner. Your boss even got choked up when he presented you with a President's Award for your effort. Well…

Last year, the Distribution Business was launched as a stand-alone organization in Wood Products. Its leaders, focusing on growth, encouraged employees to bring their entrepreneurial ideas forward. Matt Cross, the business development manager for steel products, was ready.

"Our distribution centers sell rebar and other steel products to customers," says Cross. "But selling certain lengths of rebar involved a secondary supplier, which added to the cost. I had a plan to eliminate that step and get us more directly involved."

Historically, rebar — which makes up about 75 percent of steel sales — would arrive from the manufacturer in 20-foot lengths. For customers who needed shorter lengths, the centers had to send it off-site for custom cutting and then have it shipped back for sale.

"I believed it would be more profitable and cost-effective if we installed shearing equipment on site and cut it ourselves," Cross says. "With the business challenging us to think of ways to increase our margins, I pitched my idea."

Running with the plan
"Matt took leaders at their word and presented a detailed business case, and they followed through on their promise to invest in growth," says David Helmers, director of business development for the Distribution Business and nominating manager for the President's Award. "With their buy-in, he went to work."

Cross built new partnerships with steel manufacturers and researched rebar shearing equipment. To address safety risks, he invited industry experts to tour the sites and offer recommendations on equipment set-up and operations. When it came to installation, he was on site to help set up the new machines.

The payoff
Helmers has plenty of positive data on the project, which was piloted in late 2011 at distribution centers in Tacoma, Wash.; Salt Lake City, Utah; and Stockton, Calif.

The results include:
☐ Improved use of inventory (rebar can be cut on demand to meet customer needs).
☐ Reduced finished-product cost (immediate margin improvement from 20 percent to 35 percent for cut product using staff to run the shear line vs. outsourcing and transport costs).
☐ Improved customer service (broader range of products immediately available).
☐ Improved perception of Weyerhaeuser Distribution Business by customers (investing in growing business and capabilities, and finding ways to keep product costs down).

Accounting for sequencing time, the project will break even in approximately nine months with a 120-percent internal rate of return. Since installation, sales of 10-foot rebar have grown at twice the pace of the overall Steel category.

Steel more to come
Helmers says the next site will be in the West or Central markets, where steel can make up 30 percent of category sales. The business is looking for further expansion at its 22 distribution centers.

"The financials are very sound," says Helmers. "But my recommendation for this President's Award was to acknowledge Matt's leadership in helping us explore new ways to service customers, his care for the safety of our teams at the sites, and his keen awareness of market opportunity. It was such a good feeling to give him this award to recognize his passion, energy and commitment in making this new business model successful."

Cross says he has more improvement ideas, and is excited that leaders support employee creativity and taking a different perspective.

"For me it was great to be a part of the adventure," he says. "I hope this success breeds more ideas from everyone. Taking a chance — we need more of that."

Last updated July 3, 2013