Rayonier Inc. 2022 Q2 SEC Filing Summary
Business Context and Reporting Period
Rayonier Inc. is a timberland real estate investment trust operating through Rayonier, L.P. in an UPREIT structure. The Company manages approximately 2.7 million acres in the U.S. South, U.S. Pacific Northwest and New Zealand across Southern Timber, Pacific Northwest Timber, New Zealand Timber, Real Estate and Trading segments. This unaudited combined Form 10-Q covers the quarter and six months ended June 30, 2022, with comparisons to the corresponding 2021 periods.
Key Financial Metrics
| Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 |
|---|---|---|---|---|
| Sales | $246.3 million | $291.4 million | $468.4 million | $482.9 million |
| Operating income | $35.5 million | $84.4 million | $80.8 million | $112.9 million |
| Net income | $25.3 million | $63.4 million | $56.3 million | $78.5 million |
| Net income attributable to Rayonier Inc. | $24.1 million | $57.2 million | $53.4 million | $68.1 million |
| Diluted EPS | $0.16 | $0.41 | $0.36 | $0.49 |
| Adjusted EBITDA | $83.0 million | $95.3 million | $181.1 million | $164.7 million |
| Cash provided by operating activities | Not separately provided | Not separately provided | $148.5 million | $164.6 million |
| Cash Available for Distribution | Not separately provided | Not separately provided | $119.5 million | $110.8 million |
Q2 operating margin was approximately 14.4%, compared with 29.0% in the prior-year quarter. Six-month operating margin was approximately 17.2%, compared with 23.4%. Q2 net margin was approximately 10.3%, compared with 21.8%; six-month net margin was approximately 12.0%, compared with 16.3%.
At June 30, 2022, cash and cash equivalents totaled $280.3 million, including $279.3 million excluding Timber Funds. Total principal debt was $1.272 billion, with $1.263 billion of long-term debt reported net of discounts and financing costs. Debt-to-capital was 40%, and net debt to enterprise value was 15%. The Company had $299.1 million of available borrowings under its revolving credit facility, net of outstanding letters of credit. All debt covenants were satisfied.
The quarterly dividend increased 5.6% from $0.27 to $0.285 per common share and Rayonier, L.P. unit. Six-month dividends paid on common shares were $81.8 million.
Material Changes Versus the Prior Comparable Period
- Sales declined 15% in Q2 and 3% year to date, primarily because the prior-year period included Timber Funds activity and a $36.0 million Real Estate large disposition.
- Operating income declined 58% in Q2 and 28% year to date. The comparison was adversely affected by the prior-year $30.3 million gain from the large disposition.
- Southern Timber benefited from higher prices and volumes: Q2 operating income increased to $24.1 million from $17.0 million, and year-to-date operating income rose to $54.4 million from $34.3 million.
- Pacific Northwest Timber improved on higher delivered log prices despite lower volumes; Q2 operating income increased to $2.9 million from $1.9 million.
- New Zealand Timber weakened materially. Q2 operating income fell to $8.0 million from $20.7 million, primarily due to lower export and domestic pricing, higher port and freight costs, China-related demand disruptions and unfavorable foreign exchange translation.
- Real Estate Q2 operating income fell to $11.0 million from $50.5 million because the prior-year quarter included the large disposition. Current-quarter sales were $34.4 million on 4,694 acres sold.
- Trading recorded a Q2 operating loss of $0.4 million versus income of $0.4 million, reflecting lower volumes and weaker export demand.
- Interest expense decreased to $9.1 million in Q2 and $17.4 million year to date, aided by lower average debt and the absence of the prior-year cash flow hedge termination loss.
- Cash from operations decreased $16.1 million year to date, while cash used for financing was $184.9 million, compared with $112.0 million of financing cash provided in the prior-year period, primarily due to debt repayment and lower equity issuance.
Guidance, Outlook, Risks and Unusual Items
Management expects 2022 harvest volumes of 6.4 to 6.6 million tons in Southern Timber, 1.6 to 1.7 million tons in the Pacific Northwest and 2.6 to 2.7 million tons in New Zealand. Southern and Pacific Northwest pricing is expected to remain favorable, but higher diesel-driven cut-and-haul costs and increased thinning volume may reduce second-half net stumpage realizations. New Zealand export pricing is expected to stabilize, although elevated port and freight costs are expected to remain a constraint. Real Estate results are expected to be lower for the balance of the year after strong first-half performance.
Expected 2022 capital expenditures are $80 million to $82 million, and real estate development investments are $23 million to $25 million. Expected common-share dividends are approximately $164 million, with approximately $3.7 million of distributions to Rayonier, L.P. unitholders. Cash tax payments are expected to be approximately $15 million, and no mandatory pension contribution is required.
- Key market risks include timber and lumber price volatility, housing and pulp-and-paper demand, China-related export disruptions, port congestion, fuel and transportation costs, foreign exchange movements and the Russia-Ukraine conflict.
- The New Zealand subsidiary had foreign currency contracts with $160.5 million of notional exposure and options with $32.0 million of notional exposure. Interest rate swaps covered $750 million of U.S. variable-rate debt.
- Port Gamble environmental and natural-resource-damage liabilities totaled $11.3 million at June 30, 2022. Management expects remediation and restoration activity over the next one to two years, with monitoring continuing for an additional 10 to 15 years.
- Non-cancellable commitments totaled $65.5 million, including $11.3 million of environmental remediation, $27.8 million of development projects and $26.5 million of other commitments and derivatives.
- Outstanding guarantees included $0.9 million of standby letters of credit and $23.2 million of surety bonds.
- The New Zealand subsidiary recorded a $27.9 million loan payable associated with a capital distribution and redemption of minority equity interests.
Most Important Facts for Investors to Verify
- Reconcile reported earnings and Adjusted EBITDA for the absence of the 2021 Real Estate large disposition and the liquidation of the Timber Funds segment.
- Monitor New Zealand export demand, China port inventories, freight and demurrage costs, and the NZ dollar exchange rate.
- Assess whether Southern and Pacific Northwest pricing gains offset higher diesel, logging and transportation costs in the second half of 2022.
- Review debt maturities, variable-rate exposure, interest-rate swap coverage and the $299.1 million of remaining revolver capacity.
- Track cash available for distribution against the increased dividend, development spending, capital expenditures and potential timberland acquisitions.
- Evaluate the timing and potential changes in Port Gamble environmental and natural-resource-damage obligations.
- Confirm the Company’s disclosed 2022 harvest, capital expenditure, development investment and dividend expectations in subsequent filings.