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Rayonier reports its results for the third quarter of 2023

Rayonier Advanced Materials (RYAM) reported a net loss of $25 million, or $0.39 per diluted share, for the quarter ended September 30, 2023, compared to net income of $30 million, or $0.45 per diluted share, for the prior-year quarter. Loss from continuing operations for the quarter ended September 30, 2023 was $27 million, or $0.41 per diluted share, compared to income from continuing operations of $18 million, or $0.28 per diluted share, for the prior year quarter.

“Results for the third quarter reflected continued weak demand across many of our product categories. We are responding by reducing costs and taking opportunistic downtime across all segments. As previously announced, we have taken downtime at our High-Yield Pulp facility in the third and fourth quarters and expect to take downtime in Paperboard and at the High Purity Cellulose plant in Tartas in the fourth quarter,” said De Lyle W. Bloomquist, RYAM’s president and CEO. “Consequently, we are revising down our 2023 Adjusted EBITDA guidance to approximately $150 million while raising our free cash flow guidance to $65 to $75 million. The decline in year-to-date free cash flow in the quarter was primarily driven by planned increases in working capital. As we finish the year, we expect working capital to benefit free cash flow. Additionally, we are reviewing options to monetize passive assets to drive further net debt reduction.”

“Beyond the short-term challenges, we are optimistic about the future of RYAM. Our non-viscose and paper pulp businesses are expected to generate over $250 million in EBITDA before corporate charges this year. The recent closure of a competitor’s plant is expected to yield a favourable mix shift for RYAM, thus adding to these strong results in the relatively near term. Additionally, we are in the process of consolidating the vast majority of our commodity viscose production into the Temiscaming High Purity Cellulose plant, which is home to our lowest variable cost line. We have also begun the process of a potential sale of the Paperboard and High-Yield Pulp assets. If successful, proceeds will be used to accelerate debt repayment and reduce fixed charges ahead of our 2026 debt maturities. Lastly, we are continuing with our investments to grow our Biomaterials businesses, which will provide faster growth with greater customer and end-market diversification. Overall, these actions are expected to provide more stable and consistent earnings for the company,” concluded Bloomquist.

Highlights from the Q3 results include:

• Loss from continuing operations for the third quarter of $27 million, down $45 million from prior year quarter
• Adjusted EBITDA from continuing operations for the third quarter of $24 million
• Year-to-date cash provided by operating activities of $82 million; total debt of $749 million
• Adjusted Free Cash Flow year-to-date generation of $27 million; Net Debt of $743 million
• Updates 2023 Adjusted EBITDA guidance to approximately $150 million
• Raises 2023 Adjusted Free Cash Flow guidance to $65 million to $75 million with additional deleveraging from potential sale of passive assets

High purity cellulose

Net sales for the third quarter decreased $77 million, or 21 percent, to $292 million compared to the same prior year quarter. Included in the current and prior year quarters were $28 million and $33 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Sales prices decreased 13 percent during the current quarter, driven by a 22 percent decrease in commodity products prices, partially offset by a 6 percent increase in cellulose specialties prices. Total sales volumes decreased 10 percent during the current quarter, driven by a 36 percent decrease in cellulose specialties volumes, partially offset by a 37 percent increase in commodity products volumes. Sales volumes for cellulose specialties were negatively impacted by significant customer destocking and market-driven demand declines, particularly in construction markets.

Net sales for the nine months ended September 30, 2023 increased $14 million, or 1 percent, to $966 million compared to the same prior year period. Included in the current and prior year nine-month periods were $73 million and $84 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Sales prices decreased 4 percent during the current period, driven by an 8 percent decrease in commodity products prices, partially offset by a 12 percent increase in cellulose specialties prices. Total sales volumes increased 7 percent during the current period, driven by a 57 percent increase in commodity products volumes, partially offset by a 21 percent decrease in cellulose specialties volumes. Sales volumes for cellulose specialties were negatively impacted by significant customer destocking and market-driven demand declines, particularly in construction markets.

Operating income for the quarter and nine months ended September 30, 2023 decreased $28 million and $14 million, respectively, compared to the same prior year periods. The current quarter decrease was driven by the lower cellulose specialties sales volumes and commodity products sales prices, partially offset by the higher cellulose specialties sales prices and commodity products sales volumes and decreased input, logistics and maintenance costs. The year-to-date decrease was driven by the lower cellulose specialties sales volumes and commodity products sales prices, higher labor costs due to inflation and the impact of the extended maintenance outage in the prior year, partially offset by the higher cellulose specialties sales prices and commodity products sales volumes and decreased input and logistics costs.

Compared to the second quarter of 2023, operating loss increased $6 million. Total sales prices decreased 7 percent, driven by a 3 percent decrease in cellulose specialties prices, due to sales mix, and a 7 percent decrease in commodity products prices. Total sales volumes increased 1 percent, driven by an 8 percent increase in commodity products volumes, partially offset by a 6 percent decrease in cellulose specialties volumes that was due to market-driven demand declines. Higher costs related to the impact of second quarter maintenance outages were partially offset by lower input costs. The second quarter also included $5 million of sales of excess emission allowances related to the company’s operations in Tartas, France.

Paperboard

Net sales for the third quarter decreased $9 million, or 14 percent, to $57 million compared to the same prior year quarter, driven by 8 percent and 5 percent decreases in sales prices, due to product mix, and sales volumes, due to market-driven demand declines, respectively. Net sales for the nine months ended September 30, 2023 decreased $19 million, or 10 percent, to $164 million compared to the same prior year period, driven by a 13 percent decrease in sales volumes due to customer destocking in the first half of 2023, partially offset by a 4 percent increase in sales prices, driven by continued demand for sustainable packaging.

Operating income for both the quarter and nine months ended September 30, 2023 increased $1 million compared to the same prior year periods. The current quarter increase was driven by lower purchased pulp costs that were largely offset by the lower sales prices and sales volumes. In the year-to-date period, the higher sales prices and lower purchased pulp and maintenance costs were largely offset by the lower sales volumes.

Compared to the second quarter of 2023, operating income increased $7 million, driven by a 22 percent increase in sales volumes and lower purchased pulp costs, partially offset by a 3 percent decrease in sales prices.

High-yield pulp

Net sales for the third quarter decreased $15 million, or 38 percent, to $25 million compared to the same prior-year quarter, driven by 31 percent and 13 percent decreases in sales prices and sales volumes, respectively, due to lower demand and opportunistic downtime taken in response to market conditions. Net sales for the nine months ended September 30, 2023 increased $9 million, or 9 percent, to $111 million compared to the same prior year period, driven by 1 percent and 9 percent increases in sales prices and sales volumes, respectively, due to stronger demand and easing logistics constraints.

Operating results for the quarter and nine months ended September 30, 2023 declined $12 million and $2 million, respectively, compared to the same prior year periods. The current quarter decline was driven by the lower sales prices and sales volumes. In the year-to-date period, the higher sales prices and sales volumes were more than offset by increased wood costs and higher labor costs due to inflation.

Compared to the second quarter of 2023, operating results declined $7 million, driven by 23 percent and 35 percent decreases in sales prices and sales volumes, respectively, due to lower demand and opportunistic downtime taken in response to market conditions, partially offset by lower logistics, maintenance and input costs.

Market assessment

In October 2023, RYAM announced that it engaged a financial advisor to explore the potential sale of its paperboard and high-yield pulp assets located at its Temiscaming site. This strategic move is aligned with its commitment to enhancing its operational and financial performance, optimizing its portfolio to align with its long-term growth strategy and providing flexibility to pay down debt and reduce leverage.

The following market assessment represents the RYAM’s best current estimate of its business segments’ future performance.

High purity cellulose

Average sales prices for cellulose specialties in 2023 are expected to be in the high single-digit percent higher than average 2022 sales prices, while sales volumes are expected to decrease from prior year due to softness in sales orders driven principally by significant customer destocking and market-driven demand declines. Market demand for commodity products remains resilient with fluff and viscose prices bottoming in the third quarter and a slight uptick expected in the fourth quarter. Commodity sales volumes are expected to continue to increase through the end of 2023. The prices for certain inputs have come off the 2022 highs but are expected to remain significantly elevated versus pre-COVID pandemic levels. The company expects to take downtime at its Tartas facility at the end of 2023 due to market conditions and to improve working capital.

The company recently began plans towards a realignment of its High Purity Cellulose assets to optimize production mix, including a consolidation of its commodity products production into the Temiscaming plant. It is currently evaluating the potential impact of this realignment on its consolidated financial statements and disclosures.

Paperboard

Paperboard prices are expected to rebound slightly in the fourth quarter, remaining elevated from 2022 levels, while sales volumes are expected to improve in the second half of the year as customer inventories return to more normal levels. Raw material prices are expected to increase slightly as purchased pulp prices are forecast to increase in the fourth quarter. The company expects to take downtime in the coming quarter due to market conditions and to improve working capital.

High-yield pulp

High-yield pulp prices have declined due to soft demand and new paper pulp capacity ramping up. Prices are expected to decline overall in 2023 despite an expected uptick in the fourth quarter, in line with industry forecasts for the global paper pulp market. The company expects to take downtime in the coming quarter due to market conditions and to improve working capital.