Timber company Weyerhaeuser Co. (WY) Friday said second-quarter earnings more than doubled on gains from timberland sales but presented a mixed picture for this quarter, sending shares down as much as 2.6 percent.

For the third quarter, it said it expects better results in its wood products and real estate units, but lower earnings in its pulp and paper, timberlands, and packaging segments.

"Late in the second quarter we saw some promising signs in the prices for wood products, a trend that should continue into the third quarter," Chairman Steven Rogel said in a statement. "Unfortunately, the markets for pulp, uncoated free sheet and containerboard are expected to remain challenging."

The forest products industry has been in a downturn for more than three years as the sluggish global economy contributed to falling prices and lagging demand for paper, packaging and building materials.

"They had good results considering how bad the markets were," said BMO Nesbitt Burns analyst Stephen Atkinson, who has an underweight rating on Weyerhaeuser and does not own any shares of the company.

"But as they indicated, going forward demand is weak, whether it be in packaging, uncoated free-sheet or pulp, and pricing will be down. So the odds are that earnings will be down unless they can offset it with increased profits out of real estate and timberland sales," said Atkinson.

Weyerhauser, which announced earlier this month that it was closing a sawmill and cutting jobs at a pulp and paper mill in Ontario, also said it was taking a close look at its operations and could cut production further in order to "adapt to the challenging market conditions of our business."

Cost Savings Ahead of Schedule

The Federal Way, Washington-based company reported earnings of $157 million, or 71 cents per share, compared with earnings of $72.0 million, or 32 cents per share, a year before. Sales were virtually flat at $4.93 billion.

Weyerhaeuser also said it achieved its annualized cost reduction target of $300 million from its acquisition of Willamette Industries, which was completed last year. It had originally expected to reach the target in 2005.

"They're doing a good job of blocking and tackling, squeezing out the cost reductions and synergies they had targeted from Willamette," said CIBC World Markets analyst Don Roberts, who has a "sector underperform" rating on stock and owns none of it.

Second-quarter results include gains of 46 cents per share for the sale of timberlands in western Washington and a litigation settlement. The earnings also include charges of 16 cents per share from restructuring and other factors.

Excluding these items, Weyerhaeuser's earnings were about 41 cents per share for the quarter, and improved slightly from the year-earlier period. On that basis, the average analyst estimate was about 26 cents per share, according to Reuters research, a unit of Reuters Group Plc.

On Thursday, International Paper Co. (IP), the world's largest forest products maker, said its second-quarter earnings fell 59 percent due to higher energy costs and weakening paper and box prices.

Shares of Weyerhaeuser were down 53 cents, or about 1 percent, at $55.62 in early afternoon trading on the New York Stock Exchange, after hitting a low of $54.69 earlier in the session.