UPDATE 3-Weyerhaeuser profit beats; housing worry remains

* Q2 adj EPS 20 cts vs Street view 14 cts

* Revenue up nearly 30 pct; beats Street view

* REIT conversion process continues

* Tepid housing market prompts worry

* Shares down 2.5 pct (Revises first sentence, adds CEO, CFO and analyst comments, updates stock price)

By Ernest Scheyder

NEW YORK, July 30 (Reuters) - Weyerhaeuser Co (WY.N) posted a higher-than-expected quarterly profit on Friday as sales jumped in all units, though the forest products maker expressed concern about weakening housing demand.

The company, whose shares fell as much as 3.2 percent, is closely tied to the housing industry. Three of its four segments sell materials used to build single-family homes.

While the housing industry was somewhat better in the second quarter, Weyerhaeuser said it expects break-even results from its single-family homebuilding operations in the current quarter, with fewer home sale closings and slightly lower margins. Additionally, the company does not expect a boost from land sales this quarter.

"Their results were slightly better than expected in a rough environment, but the environment gets a lot tougher over the next two quarters," said Longbow Research analyst Joshua Zaret. "They're going to be back under pressure with the weakness in housing that's resurfaced."

On a conference call with investors, Chief Financial Officer Patty Bedient said competition for the "shrinking pool of home buyers remains intense," and that the company expects to sell about 100 fewer homes in the third quarter than the second quarter.

Chief Executive Officer Dan Fulton said he was "encouraged" by Weyerhaeuser's ability to manage its operations in an "uncertain climate and with the lack of a sustained housing recovery."

Shares were down 2.5 percent at $16.08 on the New York Stock Exchange near midday, off an earlier low at $15.97.

BY THE NUMBERS

Second-quarter net income was $14 million, or 7 cents per share, compared with a year-earlier loss of $106 million, or 50 cents per share.

Excluding debt repayment charges, a gain from a unit sale and other one-time items, Weyerhaeuser posted a profit of 20 cents per share. By that measure, analysts expected 14 cents, according to Thomson Reuters I/B/E/S.

Revenue increased nearly 30 percent to $1.81 billion. Analysts expected $1.68 billion.

Sales were strongest in its cellulose fibers unit, which makes building blocks for books, bandages, newspapers and other products.

Although sales rose in all four of its units, operating profit fell in two, including cellulose fibers, due in part to costs to temporarily idle and repair mills.

REIT STATUS

The Federal Way, Washington-based company is in the process of converting to a real estate investment trust, a business structure that will substantially cut its tax burden. Earlier this month, Weyerhaeuser announced one of the last steps in that conversion process, a special dividend to stockholders. [ID:nSGE66B0FC]

The dividend payout for the REIT is expected by Sept. 1, and a prospectus for shareholders was mailed on July 29, Weyerhaeuser said. The company's 2010 tax rate will likely drop to 20 percent once the conversion takes place, Bedient, the CFO, said.

Fulton said on Friday he looks "forward to the benefits that the REIT structure will bring to our shareholders." (Reporting by Ernest Scheyder; Editing by Lisa Von Ahn, John Wallace and Matthew Lewis)