Rayonier Inc. (RYN)

Q2 2010 Earnings Call Transcript

July 29, 2010 2:00 pm ET


Hans Vanden Noort – SVP and CFO

Lee Thomas – Chairman, President and CEO

Paul Boynton – EVP, Forest Resources and Real Estate

Charlie Margiotta – SVP, Real Estate; President, TerraPointe Services Inc.


Chip Dillon – Credit Suisse

Christopher Chun – Deutsche Bank

Mike Roxland – Bank of America-Merrill Lynch

Claudia Hueston – JPMC

Steve Chercover – D.A. Davidson

Peter Ruschmeier – Barclays

Anna Torma – Soleil Securities



Welcome and thank you for joining Rayonier's second quarter 2010 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 Vander Noort

Thank you and good afternoon. Welcome to Rayonier's investor teleconference covering second quarter earnings. Our earnings statements and presentation materials were released this morning and are available on our website at www.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 comments from Lee Thomas, Chairman, President and CEO. Lee?

Lee Thomas

Thanks, Hans. Well, I feel like we really had a good solid quarter. Good performance from each one our businesses. I had an eye procedure last night and as a result I am not able to read for the next couple of days or at least the doctor asked me not to. But I did have a statement and I am going to ask Hans to read that and when Hans finishes that, we’re going to turn it over to Paul and Charlie and Jack to talk about their businesses and then I’ll come back to participate in the Q&A session. Go ahead, Hans.

Hans Vander Noort

Alright, thanks, Lee. We are pleased to report earnings per share of $0.48 in the second quarter and continued strong cash flow, which not only reflected our operating results, but also included receipt of the $180 million tax refund for the alternative fuel mixture credit. Markets remain dynamic throughout the quarter as customers restocked inventory and the housing industry cycled through the impacts of the homebuyers tax credit program. While we have seen sustained improvement in many of our markets, we are particularly proud of the actions we took to capture the value of these opportunities in this quarter and for the rest of the year.

In Timber, we pulled forward a number of (inaudible) sales to lock in higher pricing created by supply-demand imbalances. We’ll see the benefits in future months when these tracks are harvested. We also took advantage of strong export markets in the west and steady pulpwood markets in the east by adjusting our harvest plans to meet demand.

In Performance Fibers, we continue to focus on operational excellence to increase reliability and improve our competitive cost position. As a result, we came out of our scheduled shutdowns faster than expected, positioning us to meet growing demand for our sales of specialties products. The actions our businesses are taking not only drove strong results in the second quarter, they also create the basis for the increased guidance that we’ll describe in more detail during the call.

Let’s turn now to page three with the overall financial highlights. We had a very strong second quarter with sales totaling $312 million while operating income totaled $56 million and net income of $39 million or $0.48 a share. We had no special items in the second quarter. However, Last year’s second quarter included a benefit of the alternative fuel mixture credit, which increased second quarter operating income by $86 million and net income by $79 million, or $0.99 a share.

Also, 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. Both of these items are excluded to arrive at the pro forma amounts, which will be used for the comparisons throughout this call.

On the bottom of page three, we provide an outline of cash resources and liquidity. Our year-to-date cash flow was strong with adjusted EBITDA of $201 million and cash available for distribution of $303 million, which includes the receipt of the $189 million of alternative fuel credit.

Our debt and debt to cap ratios were above year-end levels, reflecting a $75 million five-year term note from a group of banks. We ended the quarter with approximately $344 million in cash, so on a net debt basis we finished at a very manageable $420 million.

Let’s now run through the variance analysis. On page four, we’ve prepared a sequential quarterly variance analysis. In Timber, operating income was comparable as stronger pricing was offset by lower volumes in the western region and slightly higher cost in the east. Real estate income decreased $13 million due primarily to selling fewer non-strategic acres this quarter.

Moving to Performance Fibers, operating income was comparable to last quarter. Stronger fluff pricing was offset by higher wood, chemical and transportation cost. Finally, we have a $4 million improvement in our Wood Products results driven by higher lumber pricing.

Read the rest of this transcript for free on seekingalpha.com

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