Rayonier Inc. 2024 First-Quarter 10-Q Summary
Business context and reporting period
Rayonier is a timberland real estate investment trust operating through Rayonier, L.P., its 98.6%-owned operating partnership. The company owns or leases approximately 2.7 million timberland acres across the U.S. South, Pacific Northwest and New Zealand. Core segments are Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading. This unaudited combined Form 10-Q covers the three months ended March 31, 2024, with comparisons to March 31, 2023.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Sales | $168.1 million | $179.1 million | Down 6% |
| Operating income | $16.2 million | $10.6 million | Up 53% |
| Operating margin | 9.6% | 5.9% | Up 3.7 points |
| Net income | $2.3 million | $7.4 million | Down 69% |
| Net income attributable to Rayonier Inc. | $1.4 million | $8.3 million | Down 84% |
| Diluted EPS | $0.01 | $0.06 | Down $0.05 |
| Adjusted EBITDA | $56.2 million | $54.7 million | Up 3% |
| Cash provided by operating activities | $52.3 million | $64.0 million | Down $11.7 million |
| Cash Available for Distribution | $36.8 million | $30.4 million | Up 21% |
Cash and cash equivalents were $159.9 million at March 31, 2024, compared with $207.7 million at December 31, 2023. Total principal debt was $1.369 billion, or $1.362 billion net of discounts and financing costs. Debt to capitalization was 42%, and net debt to enterprise value was 19%. The company had $293.0 million available under its U.S. revolving credit facility, net of letters of credit, and NZ$20.0 million available under its New Zealand working capital facility. The company was in compliance with all debt covenants.
Capital expenditures were $18.9 million and real estate development investments were $5.5 million. Cash used for investing activities was $24.0 million, while cash used for financing activities was $75.1 million, primarily reflecting dividends and distributions. The quarterly dividend and operating partnership distribution rate remained $0.285 per share or unit; first-quarter financing cash outflows included an additional $0.20 dividend and distribution paid in January 2024.
Material changes versus the prior comparable period
- Sales declined primarily because of lower Pacific Northwest timber volumes and pricing, lower Southern Timber and New Zealand Timber prices, and lower real estate sales. New Zealand carbon credit sales increased materially.
- Southern Timber operating income increased to $23.0 million from $22.2 million. Harvest volume rose 6%, although weighted-average net stumpage realizations fell 4%.
- Pacific Northwest Timber sales fell 27% to $25.2 million and the operating loss widened to $4.4 million from $3.5 million, reflecting a 17% volume decline and weaker delivered log prices.
- New Zealand Timber operating income improved to $7.4 million from a $0.7 million loss. The improvement reflected favorable foreign exchange, $3.3 million of additional carbon credit income and the absence of a $2.3 million casualty-related timber write-off recorded in Q1 2023.
- Real Estate sales decreased to $15.6 million from $16.3 million and Adjusted EBITDA declined to $4.6 million from $6.6 million, reflecting fewer acres sold and lower total weighted-average pricing.
- Interest expense declined to $9.7 million from $11.7 million due primarily to lower average debt. However, interest and other miscellaneous expense was $5.0 million versus $9.6 million of income in the prior year, largely because Q1 2024 included a $5.7 million pension settlement charge and $1.3 million of net legal settlement costs, while Q1 2023 included $9.1 million of legal settlement recoveries.
- Other comprehensive loss was $4.4 million, driven largely by a $17.0 million foreign currency translation loss, partially offset by cash-flow hedge gains and pension-related gains.
Guidance, outlook, risks and unusual items
Management did not provide a consolidated earnings forecast in the filing. It expects lower Southern Timber harvest volumes and modestly lower pine stumpage realizations for the balance of 2024, but higher non-timber income from land-based solutions. Pacific Northwest harvest volumes are expected to increase in the second half, with modestly improving demand and log prices. New Zealand harvest volumes are expected to rise; prices may decline in the near term before recovering in the second half. Following a pullback in carbon credit prices, management now expects full-year carbon credit contribution to be comparable with 2023. Real Estate transaction volume and operating results are expected to be higher in the second quarter.
Expected 2024 capital expenditures are $83 million to $88 million, excluding strategic timberland acquisitions, and expected real estate development investments are $30 million to $34 million. Management expects approximately $171 million of 2024 common-share dividends and $2 million of operating partnership distributions, excluding the additional January distributions, assuming the quarterly rate remains unchanged.
The company is pursuing a $1 billion disposition target, marketing approximately 115,000 Washington acres, evaluating approximately 100,000 Southern acres for disposition, and considering strategic alternatives for its New Zealand joint venture interest. Key risks include timber pricing and demand, housing and interest-rate sensitivity, Chinese and other export-market conditions, foreign exchange, weather and casualty events, environmental remediation, and refinancing or interest-rate exposure. Port Gamble environmental and natural-resource-damage liabilities totaled $19.1 million at March 31, 2024, with management stating that costs could increase as restoration scope develops.
Other notable items include the March 2024 settlement of the defined benefit pension plan, which generated a $5.7 million pre-tax non-cash settlement charge and required a $2.7 million cash contribution. The company expects approximately $1.2 million of additional cash contributions to settle its excess benefit plan. Outstanding letters of credit and surety bonds totaled $17.0 million. Management stated that pending lawsuits are not expected to have a material adverse effect and that available funding should be sufficient for the next 12 months and longer term.
Important facts investors should verify
- Whether timber prices and volumes recover as projected, particularly in the Pacific Northwest and New Zealand.
- The timing, pricing and debt or capital-allocation impact of planned large-scale dispositions and the potential New Zealand joint venture alternatives.
- Progress and final costs associated with Port Gamble environmental and natural-resource-damage remediation.
- The sustainability of dividends and distributions given operating cash flow of $52.3 million versus first-quarter financing distributions of $75.1 million.
- Future carbon credit pricing and the contribution from land-based solutions and other non-timber revenue.
- Interest-rate, foreign-exchange and refinancing exposure, including the August 2024 maturity of certain interest-rate swaps associated with the 2015 Term Loan.
- The effect of pension-plan settlement costs, legal settlements and other nonrecurring items on comparable earnings and Adjusted EBITDA.