Rayonier's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Rayonier, Inc. (RYN)

Q2 2012 Earnings Call

July 26, 2012 2:00 PM ET

Executives

Hans Vanden Noort – CFO

Paul Boynton – Chairman, President, CEO

Lynn Wilson – SVP, US Forest Resources

Charlie Margiotta – SVP, Real Esate

Jack Kriesel – SVP, Performance Fibers

Analysts

Chip Dillon – Vertical Research Partners

Joshua Barber – Stifel Nicolaus

Steve Chercover – D.A. Davidson

Mark Wilde – Deutsche Bank North America

Michael Roxland – Bank of America Merrill Lynch

Paul Quinn – RBC Capital Market

Presentation

Operator

Welcome and thank you for joining Rayonier second quarter 2012 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. I would now like to turn the meeting over to Mr. Hans Vanden Noort, CFO. Sir, you may begin.

Hans Vanden 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 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-10Qs and 10K filed with the SEC list 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 2 of our presentation materials.

With that, let’s start our teleconference with opening comments from Paul Boynton, Chairman, President, and CEO. Paul?

Paul Boynton

Okay, thanks, Hans. Good afternoon, everyone. I’d like to make a few overall comments before turning it back over to Hans to review our financial results. Then I’ll ask Lynn Wilson, Senior Vice President, US Forest Resources, to comment on our timber results. Following our view of Forest Resources, Charlie Margiotta, Senior Vice President of Real Estate will discuss our land sales, then Jack Kriesel, Senior Vice President Performance Fibers will take us through our Cellulose Fibers business.

We had another great quarter and I’m pleased to report earnings per share of $0.54, a 20% increase over the prior-year period, together with solid growth in our year-to-date cash flows. On Monday, we announced a 10% increase in our quarterly dividend from $0.40 to $0.44 effective for the third quarter distribution. This action reflects our strong financial position and continued confidence in our ability to generate increasing cash flows through execution of our strategy.

With that, let me turn it over Hans for a review of the detailed financials.

Hans Vanden Noort

Thanks, Paul. Let’s start on page 3 with the overall financial highlights. As Paul noted, the second quarter was very solid, with sales of $372 million, operating income of $99 million, and net income of $69 million or $0.54 per share. On the bottom of page 3, we provided an outline of capital resources and liquidity.

Our year-to-date cash flow was strong with EBITDA of $249 million, cash available for distribution of $141 million. We ended the quarter with approximately $1 billion of debt and $189 million in cash. So on a net debt basis, we finished at $829 million. Overall, we feel very comfortable with our current balance sheet and liquidity.

Let’s now run through variance analyses. On page 4, we prepared our typical sequential quarterly variance analysis. In Forest Resources, second quarter operating income was comparable to the first quarter, as improved pricing in the Gulf States and Northern regions offset higher logging and transportation cost in Washington. In Real Estate, our operating income was comparable.

Moving to Performance Fibers, you can see significant price improvement in cellulose specialties, reflecting the full realization of a 2012 price increases and improved product mix. However, our cost increased, led by higher depreciation and maintenance. Our Wood Products business improved by $3 million, which was all price-driven. Our other operations, which is log trading, also improved primarily due to foreign exchange gains.

Corporate and other expenses were $7 million below last quarter when results were negatively impacted by the timing of stock-based incentive compensation expenses associated with the prior CEO’s retirement. We also benefitted from a $2 million insurance recovery this quarter.

Let’s move now to page 5, in the year-over-year variances. The second quarter and the year-to-date variances compared to last year basically have similar drivers. Our Forest Resources results reflect lower prices in volumes in the Northwest, driven by weaker export demand partially offset by improved prices and volumes in the Atlantic and Gulf State regions in the absence of a fire loss accrual recorded in the second quarter of 2011. Also, logging cost were higher in the Northwest this year.

Real estate results were comparable for both periods. In Performance Fibers, cellulose specialty prices strengthened, offsetting lower absorbent material prices; however, input and labor costs were above last year. Finally, wood products results improved reflecting higher lumber prices.

Turning now to page 6 where we reconciled from cash provided by operating activities, which is a GAAP measure, to our non-GAAP metric of cash available for distribution or CAD. Our year-to-date cash flow was strong with CAD of a $141 million, above last year and well above our dividend payout of $98 million to date.

With that, let me turn the conference over to Lynn Wilson.

Lynn Wilson

Thank you, Hans. Good afternoon. Let’s start with page 8, in the Northern region, which is primarily our Washington State operation. Both price and volume declined in the second quarter compared to the prior-year period, due primarily to softness in Asian export demand. However, prices improved in the second quarter compared to the first quarter and export volume increased from 16% to 27% of our Washington sales.

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