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Article Excerpt
PARTICIPANTS
. Hans Vanden Noort, Rayonier, Inc., CFO . Lee Thomas, Rayonier Inc., Chairman, President & CEO . Tim Brannon, Rayonier Inc., SVP Land & Forest Resources . Charlie Margiotta, Rayonier Inc., SVP Real Estate . Paul Boynton, Rayonier Inc., SVP Performance Fibers and Wood Products . Claudia Hueston, JPMorgan, Analyst . Hamzah Mazari, Credit Suisse, Analyst . Ross Gilardi, Merrill Lynch, Analyst . Chip Dillon, Dillon Investment Research, Analyst . Christopher Chun, Deutsche Bank, Analyst . Peter Ruschmeier, Barclays Capital, Analyst . Mark Weintraub, Buckingham Research, Analyst . Steve Chercover, DA Davidson, Analyst
OVERVIEW
RYN reported 4Q08 sales totaled $354m and net income from continuing operations of $42m or $0.53 per share. Expects 2009 GAAP EPS to be well below 2008.
FINANCIAL DATA
A. Key Data From Call 1. 4Q08 sales = $354m. 2. 4Q08 net income from continuing operations = $42m. 3. 4Q08 EPS from continuing operations = $0.53. 4. 2008-end cash = approx. $62m. 5. Net debt at 2008-end = $709m. 6. Expects 2009 GAAP EPS to be well below 2008.
PRESENTATION SUMMARY
S1. Opening Comments (L.T.) 1. 2008 Highlights: 1. Despite the challenging economic conditions, Co.'s results were good. 2. In Timber Business, limited sawtimber harvest, took advantage of strong demand in the pulpwood market. 3. Successfully executed strategy to upgrade portfolio by acquiring 110,000 acres of high-value timberlands while Real Estate Group was selling 50,000 acres of non-strategic properties. 4. Performance Fibers business with strong cellulose specialty segment generated solid earnings in 2008 despite unprecedented cost increases. 5. 2008 results leaves Co. well positioned with ample liquidity, conservative debt levels and a solid balance sheet. 6. This gives Co. the ability to: 1. Manage through current recession and turmoil in credit markets. 2. Continue $2 per share dividend. 3. Continue to execute strategy.
S2. 4Q08 Financial Review (H.N.) 1. 4Q08 Highlights: 1. 4Q08 was largely in line with expectations. 2. Sales totaled $354m. 1. Resulting in an operating income of $61m. 3. Net income from continuing operations of $42m or EPS of $0.53, which was above prior year and 3Q08. 4. Cash Resources and Liquidity: 1. 2008 cash flow was strong with adjusted EBITDA of $406m and cash available for distribution (CAD) of $210m. 2. Debt and debt-to-capital ratio increased slightly from 2007-end reflecting additional debt proceeds to fund a portion of Co.'s $213m Western timberland acquisition that closed in 2Q08. 5. Ended the year with approx. $62m in cash. 1. On net debt basis, closed at $709m. 2. Sequential Quarterly Variance Analysis: 1. Timber: 1. Benefited from increased volume in Eastern region, driven by favorable pulp market demand. 2. Other income, which is primarily recreational licenses, is largely recognized in 4Q08, but also reflected improved pricing. 2. Real Estate: 1. Improvement was driven by increase in non-strategic timberland acres sold. 3. Performance Fibers: 1. Price improvement due to cost-based surcharge that was implemented. 2. Benefit was more than offset by increased input and transportation costs, and $4m loss on fuel oil hedges. 4. Taxes are unfavorable, as last qtr., Co. recorded two discrete benefits, which totaled about $7m. 3. YoverY Variance Analysis: 1. Timber results in general evidenced: 1. Lower volumes and price in Western region. 2. A mix change to lower margin pulpwood in the East. 3. Higher depletion expense from timberland acquisitions. 4. These items were partially mitigated by improved realizations on hunting license and other recreational income. 2. Real Estate results reflect strong demand for non-strategic timberlands, offset somewhat by lower rural HBU price per acre. 3. Performance Fibers: 1. Increased prices and cost-based surcharge were essentially offset by significantly higher input, transportation, and maintenance costs. 4. CAD: 1. Cash flow remains strong with CAD totaling $210m or about $2.67 a share. 1. Although below last year's CAD, it is well above dividends of $157m, or $2 per share. 5. Debt Maturity Schedule: 1. Has no near-term refinancing needs. 1. Next major maturity is $122m of installment notes, not due until 12/31/09. 2. Co. has a $250m revolving credit facility with $144m of remaining capacity, which is available at an interest rate of [LIBOR plus 40 BP]. 1. This facility does not expire until Aug. 2011. 3. Believes strong balance sheet, conservative credit profile, and strong and consistent cash generation provide liquidity, which will position Co. well to manage through the continuing turmoil in credit markets.
S3. 4Q08 Forest Resources (T.B.) 1. Highlights: 1. Timber markets remain very challenging. 1. Housing starts are depressed. 2. Began to see a slowdown in commodity pulp and paper industry, resulting in lower demand for pulpwood. 2. West: 1. Continued to restrain sales of high value sawtimber. 2. Acquired an additional 56,000 acres of high value timberland in Washington State in early 2008, but Co. has intentionally withheld harvest to volumes comparable to 3Q08 and 4Q07. 3. Lingering impact from Dec. 2007 storm event is still adversely impacting Pacific Northwest sawlog market, which was already under pressure from the housing market crisis. 4. Northwest commodity pulp and paper markets softened, which reduced demand for pulpwood. 5. Prices in 4Q08 remain depressed, comparable to 3Q08. 3. East: 1. Pine volume was robust and up substantially over 3Q08 and 4Q07, as Co. continued to successfully sell more pulpwood thinning volume. 2. Pulpwood demand was strong for much of 4Q08, as availability of residual sawmill chips diminished and the threat of winter weather and poor logging conditions approached. 3. By late in 4Q08, pulpwood inventories were replenished at area mills and the slowdown in commodity pulp sector became evident. 4. Prices in 4Q08 remained relatively flat sequentially. 2. 2009 Outlook: 1. 2009 outlook remains challenging. 1. Demand from sawmills is depressed, so in all regions, Co. will continue to hold off the market. 1. Many of those timber stands, which have a high component of sawlogs. 2. Although demand for commodity pulp is slowing throughout Eastern market areas, Co. will continue with sales program of thinnings, which meets pulpwood market demand today and will improve the value of its timber stands tomorrow by growing more sawtimber in the years ahead. 2. As Co. enters 2009; stumpage prices in the West are down by about 20% from 4Q08. 3. Volume for the year is expected to be down about 20% from 2008 harvest levels. 1. As the year progresses, Co. will determine whether or not to hold even more saw timber off the market if demand softens further. 4. In the East, pine stumpage prices are currently about flat to 3Q08 and 4Q08. 1. Pine volume for total year 2009 is expected to be down 6-8% from 2008. 2. Will monitor commodity pulp industry closely this year, and may adjust Co.'s harvest volume, depending upon pulpwood demand. 5. Sale of JV estate in New Zealand: 1. Has received indicative offers. 2. Now moved into Phase II due diligence with several interested parties.
S4. 4Q08 Real Estate (C.M.) 1. Highlights: 1. Real estate market remains challenging with little change expected in near-term. 2. Demand for development properties today is primarily for specialized end uses. 1. Often commercial or industrial. 3. Rural property sales interest is steady, particularly in: 1. Alabama. 2. Texas. 3. Georgia. 4. Continues to be encouraged by competitive response and interest in non-strategic timberland sales offerings. 5. Entitlements: 1. Received approval for industrial use of 1,100 acres adjacent to Interstate 95 outside of Savannah. 2. Now has approx. 8,000 entitled acres in...
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