Rayonier Advanced Materials (NYSE: RYAM) reported Q2 EPS of $0.46, $0.21 better than the analyst estimate of $0.25. Revenue for the quarter came in at $214 million versus the consensus estimate of $212.32 million.

Outlook

For 2016, we expect cellulose specialties prices to decline 6 to 7 percent and cellulose specialties sales volumes to decline 4 to 5 percent compared to 2015. Based on contractual commitments for the majority of our acetate volume, 2017 acetate pricing is expected to be approximately 2 percent below 2016. Negotiations for all cellulose specialties grades for 2017 currently uncommitted volumes will continue during the second half of 2016, consistent with past practices, which may impact 2017 prices and/or volumes.

Our cellulose specialties business faced market pressure over the past few years due to suppressed demand, excess capacity and the improved cost position of foreign competitors as a result of weak global currencies relative to the U.S. dollar. Going forward, we expect acetate demand to remain relatively flat and destocking of Chinese tow inventories to continue to impact the market through 2016. In certain other cellulose specialties markets including ethers, tire cord and engine filtration, we have seen signs of improving demand. In our commodity markets for the back half of 2016, we expect the viscose markets to strengthen moderately while the absorbent material markets are expected to start feeling some pressure from incremental capacity.

In response to these market pressures, we began a three-year Transformation Initiative to significantly improve our cost structure and enhance cash flows. The Transformation Initiative is targeting cost savings of $75 to $90 million over the three-year period from 2016 through 2018. As a result of solid traction on our 2016 Transformation Initiative, as well as beneficial raw material prices, we are raising our 2016 guidance. We expect 2016 net income of $51 to $57 million and are raising pro forma EBITDA guidance to $195 to $205 million from $185 to $200 million. We expect 2016 operating cash flows of $190 to $195 million and are raising adjusted free cash flows guidance to $100 to $105 million from $85 to $95 million. Capital expenditures are expected to be $90 million, including a portion of capital for the lignin joint venture.

We remain dedicated to improving cash flows, reducing debt and investing in our business. We generated significant cash flows during the first half of the year. Cash flows in the second half of the year are expected to be materially lower as a result of our forecasted lower annual cellulose specialties volumes which are expected to impact second half results; the execution of our Fernandina plant’s planned extended maintenance outage beginning in September; a $10 million voluntary contribution to our pension plan; and the timing of certain cash flows related to working capital, including the collection of receivables due to timing of year-end shipments.

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