Financial Reports & Markets
Rayonier Advanced Materials reports Q2 2019 net loss of $15M
By Rayonier Advanced Materials
By Rayonier Advanced Materials
August 8, 2019 – Rayonier Advanced Materials Inc. has filed a second-quarter 2019 net loss of $15 million, or $(0.37) per diluted common share, compared to net income of $54 million, or $0.83 per diluted common share for the year-ago period in 2018.
The decrease in net income is due primarily to lower commodity sales prices, higher wood costs and the residual impact of first quarter operational issues in high-purity cellulose.
Year-to-date net loss was $37 million or $(0.89) per diluted common share compared to net income of $78 million or $1.22 per diluted common share for the first half of 2018. The prior year-to-date net income included a $15 million, or $0.23 per diluted common share, gain on bargain purchase associated with the acquisition of Tembec Inc.
“Though the second quarter was an improvement in the sequential operating results of the company, we continue to be impacted by collapsing commodity demand and prices. Year-to-date these lower prices have resulted in an $85 million decline in operating income over the prior year,” says Paul Boynton, chairman, president and chief executive officer. “As a result, we are implementing more significant measures to lower costs, reduce capital expenditures, generate cash and improve our balance sheet position to navigate these challenging markets.”
Operating income for the three and six months ended June 29, 2019 decreased $21 million and $45 million, respectively, when compared to the same prior year periods. The decreases were driven by a one per cent and four per cent decline in cellulose specialties sales prices in the three and six month periods, respectively, as a result of duties on products sold into China and the timing of 2017 priced sales, as previously reported, in the six-month period. Both periods benefited from higher commodity sales volumes due to improved production. Costs for both periods were higher as wood and maintenance costs were only partially offset by lower chemical prices, primarily caustic, and reduced labour costs.
The three-month and six-month periods ended June 29, 2019 were also negatively impacted by a $1 million and $3 million loss, respectively, associated with the company’s LignoTech Florida joint venture that began operations in the second half of 2018. Additionally, the 2018 three- and six-month periods includes operating income of $2 million and $3 million from the resins business, which was sold in September of 2018.
Compared to the first quarter of 2019, operating income increased $10 million. The increase was driven by higher cellulose specialties sales prices, lower wood costs and improved operations, offset by lower commodity sales prices and volumes and lower cellulose specialties sale volumes.
Operating income decreased $33 million and $49 million for the three and six months ended June 29, 2019, respectively, when compared to the same prior year periods. The decreases were driven by lower lumber sales prices and higher costs primarily driven by the write-down of inventories to net realizable value.
Compared to the first quarter of 2019, the operating loss increased $11 million to $16 million. The increased loss was driven by lower lumber sales prices and higher costs primarily driven by the write-down of inventories to net realizable value.
Operating income decreased $16 million and $28 million during the three and six months ended June 29, 2019, respectively, when compared to the same prior year periods. The decreases were driven by lower high-yield pulp sales prices due to weaker export markets and higher transportation costs. The six-month period was impacted by lower production volumes due to market-related downtime and reliability issues at the Temiscaming plant in the first quarter, as previously reported.
Compared to the first quarter of 2019, operating income was flat as lower high-yield pulp prices were offset by higher sales volumes.
Operating income decreased $4 million and $9 million during the three and six months ended June 29, 2019, respectively, when compared to the same prior year periods. The decreases were primarily driven by lower paperboard sales prices as a result of increased competition in paperboard and lower newsprint sales prices. Additionally, newsprint sales volumes were impacted as a result of production reliability issues and downtime due to provincial energy curtailments. The higher costs associated with the production issues was offset by the receipt of an electrical credit associated with provincial energy curtailment.
Compared to the first quarter of 2019, operating income increased $4 million to $3 million. The increase was driven by higher newsprint sales volumes and lower costs as a result of the electrical credit received offset by the lower newsprint sales prices and higher costs as a result of lower production.
For full year 2019, Rayonier Advanced Materials continues to expect stable cellulose specialties prices to be lower by approximately one to two per cent, as previously guided, excluding the impact of any Chinese duties on sales price that the company continues to incur. Cellulose specialties volumes are expected to be down four to five per cent due to weakness in the acetate and automotive markets.
Commodity product sales prices are expected to be significantly lower in the second half of the year due to continued weakness in the broad paper pulp markets which is impacting both fluff and viscose prices. Wood costs declined in the second quarter from their first quarter peaks and are expected to further decline through the remainder of the year. For the full year, the company anticipates high-purity cellulose EBITDA of $150 to $160 million.
High-yield pulp prices continued to weaken in the second quarter primarily due to lower demand for paper pulp products as a result of the weakening Chinese economy, due to the extended trade issues between China and the US. This weak demand and high inventories have pressured global pulp prices. However, they are expected to bottom in the third quarter as sales prices approach the cash costs of the highest cost producers, resulting in market downtime or closures. In addition, the timing of the closing of the sale of the Matane plant could materially impact the segments operating results.
North American paperboard prices will remain under pressure primarily due to US capacity expansion and increased market supply from European and Asian imports as these producers redirect sales from their usual markets, due to weak demand and poor economic conditions. In newsprint, demand continues to decline as industry production capacity remains stable, resulting in continued pricing pressure.