Rayonier Inc. (NYSE:RYN) Q1 2024 Earnings Call Transcript

Rayonier Inc. (NYSE:RYN) Q1 2024 Earnings Call Transcript May 2, 2024

Rayonier Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome, and thank you for joining Rayonier’s First Quarter 2024 Conference Call. [Operator Instructions] Today’s conference is being recorded. Now I will turn the meeting over to Mr. Collin Mings, Vice President, Capital Markets and Strategic Planning.

Collin Mings: Thank you, and good morning. Welcome to Rayonier’s investor teleconference covering first quarter earnings. Our earnings statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release and Forms 10-K and 10-Q filed with the SEC list some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They are also referenced on Page 2 of our financial supplement. Throughout these presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials. With that, let’s start our teleconference with opening comments from Mark McHugh, our President and CEO. Mark?

Mark McHugh: Thanks, Collin. Good morning, everyone. First, I’ll make some high-level comments before turning it over to April Tice, Senior Vice President and Chief Financial Officer, to review our consolidated financial results. Then ask Doug Long, Executive Vice President and Chief Resource Officer, to comment on our U.S. and New Zealand Timber results. And following the review of our timber segments, April will discuss our real estate results and our outlook for the balance of the year. As this is my first earnings call since officially stepping into the CEO role, I want to reiterate how honored I feel that our Board has entrusted me to lead Rayonier at this exciting time for our company. I’m fortunate to be partnering with an experienced and dedicated team of senior leaders, all of whom are incredibly energized by the refreshed vision that we’ve laid out for Rayonier and eager to execute on our future growth opportunities.

On that note, I’d like to also formally welcome April to our earnings call this quarter in her new role as CFO. April has held multiple positions of increasing responsibility within the finance and accounting department since she joined Rayonier in 2010, most recently serving as our Chief Accounting Officer for the last three years before she assumed the CFO role last month. April has been instrumental in building out our finance and accounting department as well as implementing a transparent financial reporting framework for the company. I’m confident that her transition into the CFO role will continue to be seamless. Now I’ll switch gears and discuss our first quarter results, which were modestly improved relative to the prior year quarter and in line with our expectations at the start of the year.

Specifically, we generated adjusted EBITDA of $56 million and pro forma net income of $7 million or $0.05 per share. The 3% increase in adjusted EBITDA versus the prior year period was driven by stronger results from our Southern Timber and New Zealand Timber segments, partially offset by lower results in our Pacific Northwest Timber and Real Estate segments. Drilling down further on our operating segment results. Our Southern Timber segment generated first quarter adjusted EBITDA of $45 million, up $2 million from the prior year period, as a 6% increase in harvest volumes more than offset a 4% decline in net stumpage realizations. In our Pacific Northwest Timber segment, first quarter adjusted EBITDA of $5 million was down $2 million from the prior year quarter, driven by a 17% reduction in harvest volumes due to the Oregon sale completed late last year, as well as an 11% decline in weighted average log prices.

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Q&A Session

Turning to our New Zealand Timber segment. First quarter adjusted EBITDA of $11 million increased $5 million versus the prior year quarter. The increase in adjusted EBITDA was driven by higher carbon credit sales and favorable foreign exchange impacts, partially offset by a 4% decrease in export sawtimber prices. In our Real Estate segment, we generated first quarter adjusted EBITDA of $5 million, down $2 million from the prior year period. Consistent with our prior guidance, real estate closings were relatively light to start the year. However, our full year real estate pipeline remains strong, and we expect a significant increase in closing activity during the second quarter. As April will discuss in greater detail later in the call, we are on track to deliver on our full year 2024 adjusted EBITDA guidance of $290 million to $325 million.

As we indicated at the beginning of the year, our full year 2024 financial guidance excludes the potential impact of any additional asset sales as part of our $1 billion disposition target that we announced in November. As it relates to the disposition target, we are continuing to make progress and are actively evaluating several large-scale transactions. Specifically, we are currently marketing approximately 115,000 acres in Washington State and we have further identified approximately 100,000 acres in the U.S. South that may be suitable for disposition. In addition to these opportunities in the U.S., we are evaluating strategic alternatives for our New Zealand joint venture interest and have engaged a financial adviser to assist us with this process.

We look forward to sharing additional progress on our disposition program in the coming quarters as we continue to advance our efforts to reduce leverage in a higher interest rate environment and capitalize on the continued disconnect between public and private values for timberland asset. With that, let me turn it over to April for more details on our first quarter financial results.

April Tice: Thanks, Mark. Before covering the financial highlights from the quarter, I would first like to express that I’m very honored to be leading such a talented accounting and finance organization and look forward to building an already strong foundation. I’m intently focused on maintaining Rayonier’s position as an industry leader in transparency as well as further enhancing our finance platforms to support data-driven decisions across our organization. Our balance sheet and liquidity position is strong. And as Mark highlighted earlier, we are actively taking steps to achieve the new leverage targets we communicated in November. Moving on to the financial highlights on Page 5 of the supplement. Sales for the first quarter totaled $168 million, while operating income was $16 million and net income attributable to Rayonier was $1 million or $0.01 per share.

On a pro forma basis, net income was $7 million or $0.05 per share. Pro forma items in the first quarter included a $4.5 million pension settlement charge and $1.3 million of net costs associated with a legal settlement. Adjusted EBITDA was $56 million in the first quarter, up slightly from $55 million in the prior year period. On the bottom of Page 5, we provide an overview of our capital resources and liquidity. Our cash available for distribution or CAD, for the first quarter was $37 million, versus $30 million in the prior year period. The increase was driven primarily by higher adjusted EBITDA and cash interest received during the quarter. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on Page 7 of the financial supplement.

We closed the first quarter with $160 million of cash and roughly $1.4 billion of debt, implying net debt to trailing 12-month adjusted EBITDA of approximately 4.1x. At quarter end, our weighted average cost of debt was approximately 2.8% and the weighted average maturity on our debt portfolio was approximately five years with no significant debt maturities until 2026. We expect to use our cash on hand to pay $150 million of debt that becomes unhedged in August, which will keep our debt 100% fixed rate. Our net debt to enterprise value based on our closing stock price at the end of the quarter was 19%. I’ll turn the call over to Doug to provide a more detailed review of our timber results.

Douglas Long: Thanks, April. Let’s start on Page 8 with our Southern Timber segment. Adjusted EBITDA in the first quarter of $45 million was $2 million or 5% above the prior year quarter, driven by higher volumes and lower costs, partially offset by lower pricing and a decline in nontimber income. Total harvest volumes rose 6% versus the prior year quarter, primarily driven by healthy demand from customers due to wet weather related constraints on competing log supply. Our continued investment in road infrastructure and drive ground optionality proved to once again be competitive advantages amid wet weather conditions that limited the ability of other timberland owners to bring volume to the market. Meanwhile, non-timber income declined 3% from the prior year period as continued growth in our land-based solutions revenue was more than offset by lower pipeline easement revenue.

Average sawlog stumpage pricing was $31 per ton, a 3% decrease compared to the prior year period. Meanwhile, pulpwood net stumpage pricing fell 2% versus the prior year quarter to roughly $17 per ton. The moderation in pricing for both sawlogs and pulpwood was largely driven by a shift in geographic mix toward lower-priced operating areas versus the prior year period. Overall, weighted average stumpage prices in the first quarter fell 4% versus the prior year quarter to roughly $23 per ton. Improved end market demand, coupled with wet weather conditions, translated into fairly stable pulpwood pricing to start the year across most of our markets in the U.S. South. Encouragingly, we believe the inventory destocking cycle that weighed on containerboard demand in 2022 and 2023 has largely run its course.

Mill operating rates are generally improving, giving us reason for optimism as we move through the balance of the year. Turning to grade markets. Market additions were generally stable throughout the first quarter despite some softness in Southern Yellow Pine lumber prices as the El Nino climate pattern resulted in wet weather conditions that limited the supply of competing logs. However, sawlog pricing has been under some pressure in recent weeks as demand from lumber mills has softened amid the continued pullback and Southern Yellow Pine lumber prices and drier weather conditions. Looking ahead, we believe the significant discount that Southern Yellow Pine lumber currently trades at compared to other species will likely narrow, which should translate to improved demand and pricing for sawtimber.

Moving to our Pacific Northwest Timber segment on Page 9. Adjusted EBITDA of $5 million was $2 million below the prior year quarter. The year-over-year decrease was driven by lower harvest volumes and lower net stumpage realization. Volumes decreased 17% in the first quarter as compared to the prior year period, reflecting the large disposition, we completed in Oregon during late 2023. At $84 per ton, average delivered domestic sawlog pricing in the first quarter fell 9% from the prior year period, due to a combination of weaker demand from domestic lumber mills, reduced export market tension and an unfavorable species mix as a lower proportion of Douglas-Fir sawtimber was harvested in the current year period. Meanwhile, at $29 per ton, pulpwood pricing appears to have stabilized.