Weyerhaeuser Company (NYSE:WY) Q4 2022 Earnings Call Transcript

Weyerhaeuser Company (NYSE:WY) Q4 2022 Earnings Call Transcript January 27, 2023

Operator: Greetings, and welcome to the Weyerhaeuser Fourth Quarter 2022 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 Andy Taylor, Vice President of Investor Relations. Thank you. Mr. Taylor, you may begin.

Andy Taylor: Thank you, Melissa. Good morning, everyone. Thank you for joining us today to discuss Weyerhaeuser’s fourth quarter 2022 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.

Devin Stockfish: Thanks, Andy. Good morning, everyone, and thank you for joining us. Yesterday, Weyerhaeuser reported full year GAAP earnings of $1.9 billion or $2.53 per diluted share on net sales of $10.2 billion. Excluding special items, our full-year 2022 earnings totaled $2.2 billion or $3.02 per diluted share. Adjusted EBITDA totaled $3.7 billion for the year. For the fourth quarter, we reported GAAP earnings of $11 million or $0.02 per diluted share on net sales of $1.8 billion. Excluding an after-tax charge of $160 million for the special items, we earned $171 million or $0.24 per diluted share for the quarter. Adjusted EBITDA was $369 million. This is a 37% decrease from the third quarter and was largely driven by further softening in Wood Products markets as cautious sentiment continued to weigh on the near-term housing and macroeconomic outlook.

I’ll begin this morning by expressing my appreciation to our employees for their strong execution and performance in 2022. Notwithstanding a number of supply chain disruptions and dynamic market conditions over the course of the year, our teams operated safely, continued to serve our customers and drove meaningful improvements across our businesses. Through their efforts, we delivered our second highest annual adjusted EBITDA on record and are well positioned to navigate a more challenged market environment entering 2023. Additionally, as highlighted on page 20 of our earning slides, we generated more than $2.3 billion of adjusted funds available for distribution in 2022, again demonstrating the strong cash generation capability in combining our unmatched portfolio of assets with industry-leading operating performance.

We announced yesterday that our Board of Directors declared a supplemental cash dividend of $0.90 per share, payable on February 27th to holders of record on February 15th. When combined with our quarterly base dividends of $0.72 per share, we’re returning total dividends to shareholders of $1.62 per share. Including $550 million of shares repurchase during the year, Weyerhaeuser is returning $1.75 billion of total cash to shareholders based on 2022 results, or 75% of 2022 adjusted FAD, which is in line with our annual targeted payout range of 75% to 80%. As summarized on page 21, we’ve now completed the second full year of our new cash return framework. Upon payment of the supplemental dividend, we will have returned more than $3.8 billion in total cash to shareholders based on 2021 and 2022 results, through a combination of cash dividends and share repurchase.

We continue to believe this framework will enhance our ability to drive long-term shareholder value by returning meaningful and appropriate amounts of cash back to shareholders across a range of market conditions and deliver an attractive total dividend yield to our shareholders. Moving forward into 2023, our cash return commitment will continue to be supported by our sustainable quarterly base dividend, which we intend to grow by 5% annually through 2025. As outlined in our cash return framework on page 19, we plan to supplement our base dividend with an additional return of cash, as appropriate, to achieve our targeted annual payout of 75% to 80% of adjusted FAD. And as demonstrated in 2021 and 2022, we have the flexibility in our framework to return this additional cash in the form of a supplemental cash dividend, or opportunistic share repurchase.

With that, I’ll now turn to our fourth quarter business results. I’ll begin with Timberlands on pages 7 through 10 of our earnings slides. Timberlands contributed $86 million to fourth quarter earnings. Adjusted EBITDA was $150 million, an $18 million decrease compared to the third quarter. This was largely driven by lower sales realizations in the West. For the full year, Timberlands adjusted EBITDA increased by 13% compared to 2021. These were strong results, and I am extremely proud of the focus and resiliency demonstrated by our teams in 2022. Turning to our western Timberlands operations. Domestic log market softened at the outset of the fourth quarter, driven primarily by lower lumber pricing and ample log supply in the system. This drove domestic log pricing to lower levels early in the quarter.

As the quarter progressed, log supply into the market became more constrained, resulting from a seasonal reduction in log availability. This dynamic resulted in a temporary period of log price stability into December. For the quarter, our average domestic realizations were moderately lower than the third quarter. Our fee harvest and domestic sales volumes were higher, as the business quickly returned to full run rate operations following the resolution of our work stoppage. We plan to capture the majority of the deferred harvest volume from the work stoppage in 2023. Forestry and road costs were seasonally lower compared to the third quarter and per unit log and haul costs were comparable. Turning to our export markets. In Japan, demand for our logs was strong in the fourth quarter as our key customers sought to replenish lean inventories resulting from our work stoppage.

That said, our export sales volumes to Japan were slightly lower as work stoppage related impacts to our export program were disproportionately higher in the fourth quarter, compared to the third quarter. Our average sales realizations were significantly lower as broader log market softened in Japan, due primarily to an oversupply of European lumber imports, as well as lower consumption driven by reduced housing activity. Log demand from our China customers was solid in the fourth quarter, and our export sales volumes increased significantly compared to the lower levels in the third quarter, when we intentionally kept more volume in the domestic market to capture higher margin opportunities. Our average sales realizations were significantly lower in the fourth quarter, as broader Chinese log markets softened due to lower consumption resulting from COVID disruptions and challenges in the Chinese real estate market.

Moving to the south. Southern Timberlands adjusted EBITDA increased slightly compared to the third quarter. Similar to the last several quarters, notwithstanding adequate log supply and softening finished product pricing, southern sawlog and fiber markets remained fairly stable during the fourth quarter. Log demand was steady as mills continued to carry higher inventory levels to mitigate potential risks from supply chain and weather challenges. As a result, our sales realizations were comparable to the third quarter. Fee harvest volumes were slightly higher as weather conditions remained generally favorable for most of the quarter. Forestry and road costs decreased slightly, and per unit log and haul costs were comparable to the third quarter.

On the export side, our southern program to China remains paused due to ongoing phytosanitary rules imposed by Chinese regulators. While it’s unclear when this issue will be resolved, we continue to have a positive longer term outlook for our southern export business to China. And in the interim, we will continue to grow our export business into India and other Asian markets. In the north, adjusted EBITDA increased slightly compared to the third quarter, due to significantly higher sales volumes as weather conditions were favorable. Our sales realizations decreased moderately. Turning to Real Estate, Energy and Natural Resources on pages 11 and 12. For the full year, Real Estate and ENR generated $329 million of adjusted EBITDA, slightly higher than our revised full year guidance, and 11% higher than 2021.

This was driven primarily by exceptionally strong demand for HBU properties in 2022 as well as robust energy and natural resources activity for much of the year. In the fourth quarter, the segment contributed $24 million to earnings. Excluding a $10 million noncash impairment charge, resulting from the planned divestiture of legacy coal assets, the segment earned $34 million in the quarter. Adjusted EBITDA was $46 million, a decrease of $14 million from the prior quarter, primarily due to a reduction in real estate acres sold. Although HBU demand has moderated somewhat in response to broader macroeconomic concerns, we continue to see steady interest from buyers seeking the safety of hard assets in an inflationary environment. Notably, we delivered our highest average price per acre for all of 2022 on our land sales in the fourth quarter.

These are high value transactions with significant premiums to timber value. I’ll now make a few comments on our Natural Climate Solutions business. As shown on page 13, full year adjusted EBITDA from this business was $43 million, a 13% increase compared to 2021. Growth during the year was primarily driven by conservation activity, with ongoing contributions from our mitigation banking and renewable energy businesses. In addition, we achieved notable milestones in our emerging carbon businesses in 2022, including the announcement of our first two carbon capture and storage agreements, one of which was announced in the fourth quarter in partnership with Denbury. Similar to our agreement with Oxy Low Carbon Ventures announced earlier in 2022, the Denbury project will take several years to begin production, and we expect both projects will come on line in 2025 or 2026.

Moving forward, we continue to advance discussions with high-quality developers of carbon capture and storage on portions of our Southern U.S. acreage and expect to announce additional agreements in the future. Turning briefly to forest carbon offsets, we’re nearing completion of our pilot project in Maine and expect third-party approval soon. This project serves as a proof of concept for Weyerhaeuser and positions us well to advance additional forest carbon projects in 2023. With these exciting developments, we continue to see multiyear growth potential from our Natural Climate Solutions business and maintain our target of reaching $100 million per year of EBITDA by the end of 2025. Moving to Wood Products on pages 14 through 16. Wood Products contributed $147 million to fourth quarter earnings and $197 million to adjusted EBITDA.

Fourth quarter adjusted EBITDA was a 50% reduction from the third quarter, largely driven by continued softening in Wood Products markets and lower product pricing. For the full year, our Wood Products business generated over $2.7 billion of adjusted EBITDA, and our engineering Wood Products business established a new annual EBITDA record. Additionally, our distribution business generated the highest annual EBITDA in over 15 years. These are outstanding results, and I’m proud of our team’s ability to deliver this level of performance, notwithstanding numerous challenges in 2022. Turning to some commentary on the Lumber and OSB markets. Benchmark prices for Lumber and OSB entered the fourth quarter showing signs of stabilization after falling for much of the third quarter.

As the quarter progressed, both markets exhibited cautious buyer sentiment, resulting from a softening housing market in addition to broader concerns about the economy and inflation. Buyers maintained lean inventories and limited orders to necessity purchases through year-end. This drove benchmark prices lower for both, Lumber and OSB in the fourth quarter. As a result, the framing lumber composite pricing decreased by 24% compared to the third quarter and the OSB composite pricing decreased by 20%. That said, benchmark pricing for both projects — products stabilized in January as buyers reentered the market to replenish lean inventories. Adjusted EBITDA for our lumber business decreased by $80 million compared to the third quarter. Our average sales realizations decreased by 11% in the fourth quarter with relative outperformance compared to the benchmark, resulting primarily from our regional and product mix.

Our sales and production volumes decreased significantly compared to the third quarter. These decreases resulted from a combination of the work stoppage-related impacts in the Northwest, adverse weather conditions in December and challenged reliability at several mills during the quarter. As a result, unit manufacturing costs increased significantly during the quarter. Log costs were modestly lower, primarily for western logs. Specific to our Northwest mills, which resumed operations in November following the work stoppage, much of the lumber we sold in the fourth quarter was manufactured using logs purchased in the third quarter when log prices were higher. As a result, margins compressed and are expected to remain lower until we work through the higher-cost log inventories and log prices in the Northwest adjust to reflect current lumber pricing levels.

Adjusted EBITDA for our OSB business decreased by $47 million compared to the third quarter, primarily due to the decrease in commodity pricing. Our average sales realizations decreased by 16% in the fourth quarter. Production volumes were comparable. However, sales volumes decreased slightly, resulting from weather-related disruption challenge — weather-related transportation challenges in Canada late in the quarter. Unit manufacturing costs decreased moderately and fiber costs were slightly lower in the quarter. Engineered Wood Products adjusted EBITDA decreased by $56 million compared to the third quarter. This result is directly tied to recent softening in demand for EWP products which are primarily used in single-family home building applications.

Although we often see demand for Engineered Wood Products slow somewhat during the winter months, the broader slowdown in the housing market in Q4 caused more of a pullback than ordinarily would be the case. As a result of this dynamic, our sales volumes decreased for all products compared to the third quarter. Production volumes were also lower as we elected to take temporary holiday downtime at several EWP facilities during the quarter. Our sales realizations decreased for all products, except for I-joist, which were comparable to the third quarter. Unit manufacturing costs were comparable in the fourth quarter, and raw material costs were moderately lower, primarily for OSB web stock. In Distribution, adjusted EBITDA decreased by $18 million compared to the third quarter, largely driven by lower sales volumes, primarily for EWP products.

Photo by Simon Kadula on Unsplash

With that, I’ll turn the call over to Davie to discuss some financial items and our first quarter and 2023 outlook.

Davie Wold: Thank you, Devin, and good morning, everyone. I will be covering key financial items and fourth quarter financial performance before moving into our first quarter and full year 2023 outlook. I’ll begin with key financial items, which are summarized on page 18. We generated $167 million of cash from operations in the fourth quarter, bringing our total for the year to more than $2.8 billion, our second highest full year operating cash flow on record. As Devin mentioned, we are returning $1.75 billion to shareholders based on 2022 results, which includes $550 million of share repurchases. Fourth quarter share repurchase activity totaled $146 million and we have approximately $375 million of remaining capacity under the $1 billion share repurchase program we announced in the third quarter of 2021.

We will continue to leverage our flexible cash return framework and look to repurchase shares opportunistically when we believe it will create shareholder value. Turning to the balance sheet. We ended the year with approximately $1.6 billion of cash and cash equivalents, of which $662 million is earmarked for the supplemental dividend we announced yesterday that will be paid in February. Our balance sheet remains strong with ample liquidity, and we ended the year with approximately $5 billion of gross debt. Fourth quarter results for our unallocated items are summarized on page 17. Unallocated adjusted EBITDA increased by $16 million compared to the third quarter. This increase was primarily attributable to changes in intersegment profit elimination and LIFO as well as benefits resulting from lower-than-expected health care expenses and increased discount rates on workers’ compensation obligations.

In the fourth quarter, we completed the purchase of a group annuity contract, which was approximately $420 million of our Canadian pension liabilities to an insurance carrier. The contract purchase was funded from our Canadian pension plan assets with no company cash contribution required. As a result of the transaction, fourth quarter special items included a $205 million noncash pretax settlement charge. This transaction is the latest in the series we have executed to reduce our pension plan obligations. Since we began these efforts in 2018, our pension obligations have decreased from $6.8 billion to $2.3 billion as of year-end 2022. Key outlook items for the first quarter and full year 2023 are presented on pages 23 and 24. In our Timberlands business, we expect first quarter earnings and adjusted EBITDA will be slightly higher than the fourth quarter.

Beginning with our Western Timberland operations, domestic log markets entered the first quarter showing continued signs of softening as a result of lower pricing and takeaway of finished products, along with elevated log inventories at mills. Regional log supply has improved compared to the fourth quarter and is expected to remain ample for the majority of the first quarter, notwithstanding winter weather disruptions. As a result, we expect our domestic log sales realizations to be significantly lower compared to the fourth quarter. Our fee harvest and domestic sales volumes are expected to be significantly higher in the first quarter as we have returned to full run rate operations following the work stoppage, which affected one month of operations in the fourth quarter.

Per unit log and haul costs are expected to be moderately lower as we make the seasonal transition to lower elevation and lower-cost harvest operations. Forestry and road costs are expected to be significantly lower due to the seasonal nature of these activities. Moving to the export markets. Demand for our logs remained steady as customers in Japan and China work to build finished product inventories in preparation for seasonally stronger construction activity in the second quarter. We expect to significantly increase our export sales volumes to both markets compared to the fourth quarter, which was affected by one month of reduced export activity resulting from our work stoppage, but we also expect to shift additional volume to China to take advantage of higher-margin opportunities.

That said, our export sales realizations are expected to be slightly lower in the first quarter as broader log markets continue to soften, resulting from the headwinds Devin previously mentioned. In the South, we expect log demand to remain fairly steady in the first quarter, although grade and fiber markets are showing signs of slight softening as we enter 2023, particularly fiber markets in the East. As a result, we expect our sales realizations to be slightly lower compared to the fourth quarter. Fee harvest volumes are expected to be slightly lower due to seasonally wet weather in the first quarter. Per unit log and haul costs and forestry and road costs are expected to be comparable to the fourth quarter. In the North, fee harvest volumes and sales realizations are expected to be slightly lower in the first quarter.

Turning to our full year harvest plan. For 2023, we expect total company fee harvest volumes to increase to approximately 35 million tons. In the West, we anticipate our harvest volumes will be moderately higher than 2022 as we plan to capture the majority of the deferred harvest volumes resulting from our work stoppage. We expect our Southern harvest volumes to increase moderately compared to 2022 as we resume a more normalized level of activity following reduced harvest levels resulting from adverse weather conditions, primarily in the third quarter of 2022. We expect our Northern harvest volumes will be slightly higher year-over-year. Turning to our Real Estate, Energy and Natural Resources segment. As Devin mentioned, HBU demand has moderated somewhat in response to broader macroeconomic concerns.

That said, we are still seeing steady demand for our real estate properties, and we continue to expect a consistent flow of transactions with significant premiums to timber value. We expect full year 2023 adjusted EBITDA of approximately $300 million for this segment. Consistent with previous years, we anticipate our real estate activity will be heavily weighted towards the first half of the year. Basis as a percentage of real estate sales is expected to be approximately 35% to 45% for the year. First quarter earnings before special items are expected to be approximately $10 million higher than the fourth quarter, while adjusted EBITDA is expected to be approximately $35 million higher, primarily due to the timing and mix of real estate sales.

Turning to our Wood Products segment. As Devin mentioned, buyer sentiment remains cautious. That said, benchmark prices for Lumber and OSB have stabilized in January as buyers reentered the market to replenish lean inventories. Excluding the effect of changes in average sales realizations for Lumber and OSB, we expect first quarter earnings and adjusted EBITDA will be moderately higher compared to the fourth quarter. For lumber, we expect higher production and sales volumes in the first quarter and significantly lower unit manufacturing costs as we resumed operations in our Northwest mills following the work stoppage in the fourth quarter. We also anticipate improved reliability across the system. Log costs are expected to be moderately lower, primarily for Western logs.

For OSB, we expect sales and production volumes to be moderately higher in the first quarter due to less planned downtime for annual maintenance and improved transportation networks following extreme winter weather in December. We expect fiber costs and unit manufacturing costs to be lower compared to the fourth quarter. As shown on page 25, our current and quarter-to-date average sales realizations for Lumber and OSB are both moderately lower than the fourth quarter averages. For Engineered Wood Products, we expect significantly lower sales realizations in the first quarter, resulting from softening demand for EWP products. Sales volumes are expected to be slightly lower for solid section products while I-joist sales volumes are expected to be moderately higher.

We anticipate significantly lower raw material costs, primarily for OSB web stock. For our distribution business, we are expecting lower adjusted EBITDA in the first quarter due to lower margins for all products. I’ll wrap up with some additional full year outlook items highlighted on page 24. Our full year 2022 interest expense was $270 million. This represents a $43 million reduction from the prior year, largely due to the strategic refinancing transaction we completed in the first quarter of 2022. For full year 2023, we expect interest expense will be unchanged at approximately $270 million. Turning to taxes. Our full year 2022 effective tax rate was approximately 20%, excluding special items. For first quarter and full year 2023, we expect our effective tax rate will be between 12% and 14% before special items based on the forecasted mix of earnings between our REIT and taxable REIT subsidiary.

For cash taxes, we paid $566 million for full year 2022, which was slightly higher than our tax expense, excluding special items, due to the timing of Canadian tax payments. We expect our 2023 cash taxes will be comparable to our overall tax expense. For pension and post-employment plans, the year-end 2022 funded status improved by approximately $100 million, primarily due to higher discount rates compared to year-end 2021. Excluding our fourth quarter settlement charge, our noncash, non-operating pension and post-employment expense was approximately $50 million in 2022. We expect to record a similar total at approximately $50 million of expense in 2023. Cash paid for pension and post-employment plans in 2022 was $24 million. In 2023, we do not anticipate any cash contributions to our U.S. qualified pension plan, and our required cash payments for all other plans will be approximately $25 million.

Turning now to capital expenditures. Our full year 2022 capital spend totaled $462 million plus $6 million of capitalized interest. We expect total capital spend for 2023 will be approximately $440 million, which includes $110 million for Timberlands, inclusive of reforestation costs, $315 million for Wood Products and $15 million for planned corporate IT system investments. I’ll now turn the call back to Devin and look forward to your questions.

Devin Stockfish: Thanks, Davie. As we begin to wrap up this morning, I’ll make a few brief comments on the housing and repair and remodel markets. Residential construction activity has clearly softened from the peak levels of 2022, particularly in the single-family segment. As we enter 2023, buyer sentiment remains cautious for new and existing homes and is being driven by numerous ongoing headwinds. Most notable is the affordability challenge brought about by increased mortgage rates, combined with significant increases in home prices over the last two years. In addition, we believe buyer psychology is being influenced by uncertainty related to the trajectory of mortgage rates, general concerns about the economy and falling home prices in many markets.

As a result, we anticipate a more challenged housing market compared to the last couple of years, particularly in the first half of 2023. That being said, there are some signs recently that the environment may be improving. Mortgage rates have ticked down from recent highs. Homebuilder sentiment improved in January and mortgage application activity has picked up over the last several weeks. Additionally, the labor market remains fairly strong overall and household balance sheets are generally in good shape. There are still plenty of people who want a home and can still get a mortgage, but many buyers are likely to remain on the sidelines until we see some improvements, but at the very least some stabilization in certain macroeconomic and housing-related trends.

I will note, however, that despite what may be a period of choppiness in the near term, our longer-term view on the housing fundamentals continue to be very favorable, supported by strong demographic trends and a vastly underbuilt housing stock. Turning to repair and remodel. Activity in the repair and remodel market remained fairly stable in the fourth quarter and continue to be supported by steady demand from the professional segment. Demand from the do-it-yourself segment continued to soften from the elevated levels of the last couple of years and has returned to a more normalized pre-pandemic level. In the near term, we expect stable demand from the repair and remodel segment, albeit perhaps at a slightly lower level than what we’ve seen over the last couple of years.

Looking out beyond 2023, most of the key drivers supporting healthy repair and remodel demand remain intact and support our more bullish long-term outlook, including favorable home equity levels and an aging housing stock. Now, before we move into questions, I’d like to provide an update on the progress we made in 2022 against the multiyear targets we set out during our Investor Day in September of 2021. As highlighted on slide 22, we’re progressing well on all fronts. Last year, we deployed approximately $300 million on Timberland acquisitions, including our Carolinas transaction. We grew our Natural Climate Solutions EBITDA by 13% compared to 2021 and announced our first two carbon capture and storage deals, and we remain on track to grow this business to $100 million of EBITDA by year-end 2025.

Last year, our teams captured approximately $40 million of margin improvements across our businesses and also made meaningful progress against our other OpEx priorities. I’m extremely pleased with this result, considering the inflationary pressures we experienced in 2022. We made progress against our 2030 greenhouse gas emissions reduction target. And finally, we demonstrated our ongoing commitment to disciplined capital allocation by increasing our quarterly dividend by 5.9% and returning $1.75 billion to shareholders, based on 2022 results. So, in closing, our performance in 2022 reflected solid execution across all of our businesses. Entering 2023, our balance sheet is exceptionally strong, we have a competitive cost structure, and we are well positioned to navigate through a range of market conditions.

We’ll remain focused on servicing our customers and driving long-term value for shareholders through our unrivaled portfolio, industry-leading performance, strong ESG foundation and disciplined capital allocation. So with that, I think we can open it up for questions.

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Q&A Session

Operator: Our first question comes from the line of Susan Maklari with Goldman Sachs.

Susan Maklari: Thank you. Good morning, everyone. My first question is, can you perhaps give us some more details on the Wood Products business based on the comments of a pickup as we came into the first couple of weeks of this year? Can you talk a bit about the supply and demand conditions on the ground as we go into the spring and the builders are obviously ramping up a bit, trying to get things closed and trying to have inventory on the ground for the selling season, and then, the opportunities for Weyerhaeuser within that, given your cost structure relative to some of your peers?

Devin Stockfish: Yes. Good questions, Sue. I mean, look, we have seen a little bit of a pickup here really over the last few weeks on the Wood Products side. I think that’s a reflection of a few things. Number one, going into the end of the year, most buyers really had very low inventories. And I think that was just a reflection of a lot of concern over what was going to be happening in the housing market. So, inventory levels were really low going into the end of the year. We’ve seen a few, I think, green shoots on the housing side, whether it’s the new home sales numbers, albeit down quite a bit from last year, up month-over-month. You’ve seen homebuilder sentiment pick up a little bit. So, I think there’s maybe a little bit more optimism than there was perhaps a month ago.

And so, that’s driving a little bit of sentiment. I think the other piece of it, which is probably even more impactful, is just on the supply side. We’ve seen a fair bit of curtailment activity over the last few months up to another action this week from one of our competitors. And so, I think that’s driving things to be a little bit more in balance. I do think we’re probably still several weeks, if not a month, from really seeing a meaningful pickup from spring building activity. I think we’ll have a better sense as we get deeper into February as how that’s shaping up. But overall, it’s certainly been a tougher period over the last several months. But, as we head into the spring building season, we start to see mortgage rates tick down. I think we’re optimistic that it will be a little bit better than it was expected, even just a few months ago.

In terms of our cost structure, that’s really been, I think, one of the true success stories at this company over the last several years. The work that we’ve done around OpEx just year after year after year driving improvements has put us in, I think, a very good competitive position from a cost standpoint, which is always important, and we’re always focused on it, but particularly when you have these market dips, it becomes very important. So I think we’re really well positioned with the scale, the cost structure that we have in place to navigate through market conditions, regardless of what they end up being for the first half of the year.

Operator: Our next question comes from the line of George Staphos with Bank of America.