Rayonier, Inc. (

RYN

)

Q2 2011 Earnings Call

July 28, 2011 2:00 pm ET

Executives

Hans E. vanden Noort – Senior Vice President and Chief Financial Officer

Lee M. Thomas – Chairman and Chief Executive Officer

Paul G. Boynton – President and Chief Operating Officer

Analysts

Chip Dillon – Vertical Research Partners

Joshua Barber – Stifel Nicolaus

Steve Chercover – D. A. Davidson

Mark Wilde – Deutsche Bank

Mark Weintraub – Buckingham Research

Dan Cooney – KBW

Daniel Rohr – Morningstar

Peter Ruschmeier – Barclays Capital

Michael Roxland – Merrill Lynch

Mark Wilde – Deutsche Bank

Presentation

Operator

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Welcome and thank you for joining Rayonier’s second quarter 2011 teleconference call. At this time, all participants are in a listen-only mode. (Operator Instructions) Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Mr. Hans vanden Noort, CFO. Sir, you may begin.

Hans E. vanden Noort

Thank you and good afternoon. Welcome to Rayonier’s investor teleconference covering the second quarter earnings. Our earnings statements and presentation materials were released this morning and are available on our website at rayonier.com.

I’d 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 as well as our Form 10-K filed with the SEC lists some of the factors, which may cause actual results to differ materially from the forward-looking statements we may make. They’re also referenced on page two of our presentation material.

With that, let’s start our teleconference with opening comments from Lee Thomas, Chairman and CEO. Lee?

Lee M. Thomas

Thanks, Hans. I’ll make a few overall comments before turning it back over to Hans to review our financial results. Then I’ll ask Paul Boynton, our President and Chief Operating Officer to review the results of each of our businesses. When we finish our prepared remarks, we’ll invite Lynn Wilson, our Vice President of U.S. Forest Resources, Charlie Margiotta, Senior Vice President of Real Estate and Jack Kriesel, our Senior Vice President of Performance Fibers to join us in responding to your questions.

We’ve taken significant steps since our last call to execute our strategy of creating attractive returns for shareholders through the generation of strong cash flows, growing our dividend and investing to increase the value of our businesses.

We continue to execute well this quarter, reporting earnings per share of $0.67, a 40% increase over the prior year period with strong cash flow from operations. These results reflect actions we’ve taken in each of our businesses. We capitalized on strong export pricing in our coastal Washington and New Zealand Timberlands, adjusting harvest plans to meet increased Asian log demand. In Performance Fibers, we continue to work closely with our sale of specialty customers to meet their demand for our higher purity products.

Our balanced business mix allows us to manage for the long term. With the slow pace of the housing recovery, we’ve maintained pricing discipline in our land sales program and continue to differ harvest of more valuable saw logs in our Atlantic and Gulf state regions. And the actions our businesses are taking not only drove results this quarter they are also driving performance for the second half of the year, leading us to reaffirm our guidance for the year.

Consistent with our stated capital allocation strategy, we increased our dividend 11%, the second increase in nine months and announced a 3-for-2 stock split at an annualized rate of $2.40 a share on a pre-split basis. Our dividend is now 20% higher than a year ago. Our confidence in our future cash flows, ample liquidity and strong balance sheet will all key considerations in the Board’s recent decision to increase the dividend.

Additionally, in the second quarter, the Board approved the conversion of the Absorbent Materials production line at our Jessop, Georgia mill to sale of specialties. Adding 190,000 tons in mid-2013 to our current sold out capacity of 485,000 tons. This $300 million investment is a critical part of our strategy to remain the global leader in this high-value segment and is expected to create attractive returns and strong cash flow.

And finally as part of our strategy to grow and upgrade our Timberland portfolio, we have acquired – we have contracts pending for nearly 65,000 acres of attractive timberlands including 50,000 acres of timberlands closed in July.

Now with that let me turn it over to Hans for a review of the financials.

Hans E. vanden Noort

Thanks, Lee. Let’s start on page 3 with the overall financial highlights. As Lee noted we had a strong second quarter with sales of $357 million, operating income of $79 million and net income of $56 million or 67% per share on a pre-split basis. We have included a pro forma section here to show our EPS on a post-split basis as well, which is $0.45 per share. We had no special items in the second quarter, on a year to date basis.

However, the first quarter of 2010 included a $12 million gain or $0.14 per share from the sale of a portion of our New Zealand joint venture. This item is excluded to arrive at the year-to-date amounts used for the comparisons throughout this call.

On the bottom of page 3, we provided an outline of cash resources and liquidity. Our year-to-date cash flow is strong with adjusted EBITDA up $232 million and cash available for distribution of $134 million. Note that last year’s cash available for distribution of $303 million included receipt of $189 million from the alternative fuel mixture credit.

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