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Rayonier Advanced Materials reports net loss of $14M in Q3 2019

Rayonier Advanced Materials has reported a net loss from continuing operations for Q3 2019 of $14 million, or $0.29 per diluted common share, compared to income from continuing operations of $30 million, or $0.47 per diluted common share, for Q3 2018.

Adjusted net loss from continuing operations for the 2019 third quarter was $15 million, or $0.29 per diluted common share, compared to adjusted net income from continuing operations of $27 million, or $0.41 per diluted common share, for the prior year quarter.

The net loss from continuing operations for the third quarter 2019 improved $5 million compared to the second quarter 2019. Adjusted net loss from continuing operations improved $3 million for the same periods.

The net loss from continuing operations for the nine months ended September 28, 2019 was $62 million, or $1.36 per diluted common share, compared to income from continuing operations of $93 million, or $1.45 per diluted common share, for the prior year period.

The adjusted net loss from continuing operations for the nine months ended September 28, 2019 was $61 million, or $1.36 per diluted common share, compared to adjusted net income of $75 million, or $1.17 per diluted common share, for the prior year period.

“The increased EBITDA over prior quarters demonstrates the progress we are making on our initiatives to overcome these difficult market conditions. Price declines in commodity segments alone accounted for a $97 million decline in operating income,” says Paul Boynton, chairman, president and chief executive officer, in a release. “With our immediate covenant issue resolved as a result of our loan amendment, we are focused on lowering costs, managing working capital and reducing capital expenditures to generate cash and improve our balance sheet.”

As a result of the sale of the Matane facility on November 3, 2019, its operating results have been classified as discontinued operations. Prior period amounts related to the Matane operations have been reclassified to conform to the presentation of discontinued operations.

High-purity cellulose

Operating income for the three and nine months ended September 28, 2019 decreased $27 million and $72 million, respectively, when compared to the same prior year periods. The decreases were driven by a one per cent and three per cent decline in cellulose specialties sales prices in the three- and nine-month periods, respectively, primarily as a result of duties on products sold into China.

Cellulose specialties volumes declined by 16 per cent and seven per cent in the three and nine month periods, respectively, due to demand weakness in acetate, automotive and construction markets driven primarily by a slowdown in global economies and customers aggressively manage inventory. Additionally, approximately half of the three month comparison period decline was due to strong sales volumes in the third quarter of 2018.

Both periods benefited from higher commodity sales volumes due to lower cellulose specialties demand and improved production. Costs for both periods were higher as wood and maintenance costs were partially offset by lower chemical prices, primarily caustic, and reduced labour costs.

The 2018 three and nine month periods include operating income of $2 million and $5 million, respectively, from the resins business, which was sold in September of 2018.

Compared to the second quarter of 2019, operating income was flat as higher commodity product sales volumes due to higher production, higher cellulose specialties sales prices due to mix, and lower wood and maintenance costs were offset by lower commodity sales prices and lower cellulose specialties sales volumes, both due to weaker markets.

Forest products

Operating income decreased $13 million and $62 million for the three and nine months ended September 28, 2019, respectively, when compared to the same prior year periods. The decreases were primarily driven by 25 per cent and 26 per cent lower lumber sales prices, in the three and nine month periods, respectively. For the three-month period, costs were lower driven by a $5 million reversal of the net realizable inventory reserve as a result of price increases in the period.

Compared to the second quarter of 2019, the operating loss improved by $11 million. The improvement was driven by three per cent higher lumber sales prices and lower costs primarily driven by a $5 million reversal of the net realizable inventory reserve as a result of price increases in the period.

Pulp

Operating income decreased $15 million and $34 million during the three and nine months ended September 28, 2019, respectively, when compared to the same prior-year periods. The decreases were primarily driven by 32 per cent and 22 per cent lower high-yield pulp sales prices in the three- and nine-month periods, respectively, due to weaker markets. For the nine-month period, both pulp sales volumes and costs were impacted by lower production due to market-related downtime and reliability issues at the Temiscaming plant in the first quarter, as previously reported.

Compared to the second quarter of 2019, operating income decreased $5 million. This decrease was primarily driven by 16 per cent lower pulp sales prices and 30 per cent lower volumes due to weaker markets partially offset by reduced costs primarily due to lower transportation expenses.

Paper

Operating income decreased $13 million and $23 million during the three and nine months ended September 28, 2019, respectively, when compared to the same prior year periods. Results were negatively impacted by two per cent and three per cent lower paperboard sales prices in the three and nine month periods, respectively, as a result of increased competition and lower newsprint sales prices.

Additionally, newsprint sales volumes for both periods decreased as a result of lower production. For the three-month period, costs increased due to lower newsprint production levels, partially offset by lower market pulp prices for the production of paperboard. In addition, the 2018 three-month period was favourably impacted by the reversal of $5 million of duties on newsprint exported to the U.S. For the nine-month period, costs increased due to lower newsprint production levels, higher maintenance and transportation costs, partially offset by lower market pulp costs for the production of paperboard and lower energy costs.

Compared to the second quarter of 2019, operating income decreased $3 million. The decrease was driven by higher energy costs and partially offset by lower transportation, maintenance and raw material pulp costs for the production of paperboard.

Outlook

Pulp

High-yield pulp prices continued to weaken in the third quarter due to lower demand for paper pulp products. However, the company believes Chinese high-yield pulp markets have stabilized resulting in modest increases in regional pricing from September levels. European market prices continue to decline as they come into closer alignment with the Chinese pricing. The weaker demand has held inventory levels relatively high and continue to pressure global pulp prices.

Paper

North American paperboard prices will remain under pressure primarily due to increased competition. In newsprint, demand continues to decline as industry production capacity remains stable, resulting in continued pricing pressure.

Read the full outlook and the rest of the Q3 2019 financial report from Rayonier Advanced Materials.