Rayonier (RYN) Misses Q1 EPS by 5c; Offers FY20 EPS Guidance Below Consensus

Rayonier (NYSE: RYN) reported Q1 EPS of $0.00, $0.05 worse than the analyst estimate of $0.05. Revenue for the quarter came in at $143.1 million versus the consensus estimate of $163.49 million.

“The differential magnitude and timing of COVID-19 related headwinds across our segments translated into a choppy start to the year,” said David Nunes, President and CEO. “In the U.S., the forest products industry has been designated by the federal government as an essential critical infrastructure industry, and we have therefore continued to operate, although end markets have been affected. In New Zealand, the pandemic began disrupting export markets in January, and in late March, the N.Z. government instituted lockdown measures on all non-essential businesses, including forestry. On April 28th, New Zealand ended these lockdown measures, and our operations are currently in the process of being reopened on a phased basis.”

“Overall, I’m pleased with how our team navigated the various challenges associated with the COVID-19 pandemic to deliver strong operational results in our timber segments during the first quarter,” continued Nunes. “Southern Timber segment Adjusted EBITDA declined 19% relative to an extraordinarily strong first quarter 2019 but was generally in-line with our expectations and well above the prior three quarters, driven by continued strong pulpwood demand. In Pacific Northwest Timber, Adjusted EBITDA improved significantly versus the prior year quarter as results were bolstered by targeted lump-sum sales and increased delivered log volume to meet improved domestic demand. New Zealand Timber Adjusted EBITDA declined 54% versus the prior year quarter amid deteriorating market conditions caused by COVID-19, which resulted in a 20% reduction in harvest volumes and declines in export and domestic sawtimber prices of 18% and 16%, respectively, versus the prior year period. As anticipated, Real Estate sales activity in the first quarter was very limited, although average price realizations remained strong.”

“We also recently completed several portfolio management and financing initiatives in anticipation of closing the Pope Resources transaction. On March 30th, our Real Estate segment closed a Large Disposition consisting of approximately 67,000 acres in Mississippi for $116.0 million. Following quarter-end, we closed a series of debt financing transactions, which extended certain maturities, increased the size of our revolving credit facility, and raised $250 million of additional funded term debt. These actions further bolstered our liquidity position and completed the financing required for the Pope transaction, which we expect to close on May 8th.”

COVID-19 Response & Revised 2020 Outlook

“At Rayonier, our first priority is the health and safety of our employees and contractors,” stated Nunes. “We are currently working hard to balance this priority with the designation of the U.S. forest products industry as an essential critical infrastructure industry in order to keep our business running while observing the necessary social distancing and safety protocols to mitigate the further spread of COVID-19. To this end, we have implemented a work-from-home model for office employees and instituted enhanced safety guidelines for field employees. Overall, we believe that these arrangements are working well and are allowing our company and industry to continue to supply essential forest products in the U.S. while optimizing workplace safety. In New Zealand, we are currently in the process of restarting operations following the government-mandated lockdown, while employing similar safety procedures.”

“Nevertheless, we expect that market conditions over the next several quarters will continue to be very challenging and volatile as governments and industries seek to cope with the far-reaching impacts of the COVID-19 pandemic, including the significant slowdown of construction and overall economic activity. Due to the continuously evolving conditions created by COVID-19, we are updating our prior 2020 financial guidance based on our current outlook for the balance of the year. We now anticipate full-year net income attributable to Rayonier of $33 to $46 million, pro forma net income of $7 to $20 million, EPS of $0.26 to $0.36, pro forma EPS of $0.05 to $0.15 and Adjusted EBITDA of $200 to $230 million, excluding the impact of the Pope Resources merger.”

“In our Southern Timber segment, we expect lower full-year harvest volumes of 5.7 to 6.0 million tons due to the disposition of 67,000 acres in Mississippi as well as the reduction of harvest volumes in certain markets impacted by weaker demand. We further expect that Southern Timber pricing will be relatively flat versus 2019 average pricing as continued strong pulpwood demand, favorable geographic mix and increased export demand generally offset weaker domestic sawtimber demand. In our Pacific Northwest Timber segment, we expect full-year harvest volumes of 1.3 to 1.4 million tons based on our strong start to the year coupled with improved export demand, which has partially offset declines in domestic sawtimber demand due to mill curtailments. We further expect that Pacific Northwest pricing will be somewhat volatile and dependent on the duration of domestic mill curtailments as well as potential changes in China export demand and the availability of competitive supply as different regions cope with the impacts of COVID-19. In our New Zealand Timber segment, full-year harvest volumes are expected to decrease to between 2.1 and 2.3 million tons, primarily as a result of the shutdown of all non-essential activity in New Zealand during parts of March and April. We expect some near-term upside in New Zealand pricing resulting from pent-up demand following the shutdown, while longer-term pricing will be driven by the timing of resumed economic activity and the resultant level of domestic and export demand. In our Real Estate segment, we anticipate a significant slowdown in Improved and Unimproved Development sales for the balance of the year, although we continue to expect reasonably strong Rural sales activity based on our current pipeline of transactions.”

“Despite the significant challenges being experienced by global economies as a result of the COVID-19 pandemic, I believe that Rayonier is well-positioned to weather this storm,” continued Nunes. “The forest products industry has been designated as a critical infrastructure industry by the U.S. Department of Homeland Security, and we have therefore been able to maintain our U.S. forestry operations in order to continue to supply fiber for the manufacturing of essential products, including tissue paper, cardboard boxes and structural lumber. I’m proud of the dedication and resiliency that our employees have demonstrated during this crisis, and I’m confident in the strength of our balance sheet and liquidity position. As a pure-play timberland REIT, we enjoy strong margins and substantially less volatility than downstream manufacturing businesses, and we have a geographically diverse portfolio that further mitigates our exposure to any single region or product category. We expect that the diversity and optionality of our portfolio will be further enhanced when we close the Pope Resources merger transaction in the second quarter, pending the successful vote of Pope’s unitholders.”

GUIDANCE:

Rayonier sees FY2020 EPS of $0.05-$0.15, versus the consensus of $0.21.

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