Rayonier Advanced Materials Inc. Announces First Quarter 2023 Results
Rayonier Advanced Materials Inc. (NYSE:RYAM) (the “Company”) reported net income of $2 million, or $0.02 per diluted share, for the quarter ended April 1, 2023, compared to a net loss of $25 million, or $(0.39) per diluted share, for the prior year quarter. Income from continuing operations for the quarter ended April 1, 2023 was $2 million, or $0.02 per diluted share, compared to a loss from continuing operations of $24 million, or $(0.38) per diluted share, for the prior year quarter.
“First quarter results were in line with expectations and keep us on track to deliver upon our full year guidance of $200 to $215 million of Adjusted EBITDA, and we now expect that our Adjusted Free Cash Flow will be $40 to $65 million due to increased scrutiny on maintenance capital expenditures as operational efficiency has improved. While we are experiencing pockets of softness in some parts of our business, we are able to offset through more efficient operations and reduced costs,” said De Lyle W. Bloomquist, President and Chief Executive Officer. “With another quarter of solid financial results, including the good progress on our working capital initiatives, we reduced net debt leverage to 3.3 times. Our top near-term priority remains the refinancing of our debt maturing in June 2024. With improved credit metrics, we expect to execute on this goal at acceptable terms in the coming quarter. As we look into the second quarter, we expect net leverage to continue to improve despite the annual maintenance outages at our two largest facilities.”
First Quarter 2023 Operating Results from Continuing Operations
The Company operates in the following business segments: High Purity Cellulose, Paperboard and High-Yield Pulp.
Net sales was comprised of the following for the periods presented:
|Three Months Ended|
|(in millions)||April 1, 2023||December 31, 2022||March 26, 2022|
|High Purity Cellulose||$374||$384||$281|
Operating results were comprised of the following for the periods presented:
|Three Months Ended|
|(in millions)||April 1, 2023||December 31, 2022||March 26, 2022|
|High Purity Cellulose||$13||$10||$(8)|
|Operating income (loss)||$17||$16||$(16)|
High Purity Cellulose
Net sales for the quarter increased $93 million, or 33 percent, to $374 million compared to the prior year quarter. Included in the current and prior year quarters were $23 million and $27 million, respectively, of other sales primarily from bio-based energy and lignosulfonates. Sales prices increased 8 percent during the current quarter compared to the prior year quarter, driven by increases in cellulose specialties and commodity products prices of 18 percent and 6 percent, respectively. Total sales volumes increased 27 percent during the current quarter compared to the prior year quarter, including 65 percent and 5 percent increases in commodity products and cellulose specialties, respectively. These increases were primarily driven by strong demand, increased productivity and improved logistics and cellulose specialties customer contract terms.
Operating income for the quarter increased $21 million compared to the prior year, driven by the higher sales prices and sales volumes, partially offset by higher chemicals and logistics costs and the impact of the extended maintenance outage in the prior year.
Compared to the fourth quarter of 2022, operating income increased $3 million, driven by higher cellulose specialties sales prices and commodity products volumes, partially offset by lower commodity products sales prices and cellulose specialties volumes. Total sales prices decreased 1 percent, driven by a 10 percent decrease in commodity products sales prices that was partially offset by 7 percent higher cellulose specialties sales prices. Total sales volumes for the quarter were flat to the fourth quarter of 2022.
Net sales for the quarter increased $5 million, or 9 percent, to $59 million compared to the prior year quarter. Sales prices increased 18 percent during the quarter compared to the prior year quarter, driven primarily by demand for packaging. Sales volumes decreased 7 percent during the quarter compared to the prior year quarter, driven by the timing of sales.
Operating income for the quarter increased $4 million compared to the prior year quarter, driven by the higher sales prices, partially offset by the lower sales volumes and higher chemicals and purchased pulp costs.
Compared to the fourth quarter of 2022, operating income increased $1 million, driven by a 1 percent increase in sales prices, partially offset by a 12 percent decrease in sales volumes driven by the timing of sales.
Net sales for the quarter increased $20 million, or 91 percent, to $42 million compared to the prior year quarter, driven by 39 percent and 43 percent increases in sales prices and sales volumes, respectively, driven by stronger demand, increased productivity and easing logistics constraints.
Operating income for the quarter increased $7 million compared to the prior year quarter, driven by the higher sales prices and sales volumes, partially offset by higher chemicals and logistics costs.
Operating income decreased $5 million compared to the fourth quarter of 2022, driven primarily by 4 percent lower sales prices and lower sales volumes due to a decrease in global demand.
Compared to the first quarter of 2022, the operating loss decreased $1 million, driven primarily by lower variable stock-based compensation costs. Compared to the fourth quarter of 2022, the operating loss decreased $2 million, driven primarily by lower variable stock-based compensation costs and environmental expenses.
Included in non-operating expenses in the first quarter of 2023 was a $2 million pension settlement loss.
Included in non-operating expenses in the first quarter of 2022 was a $9 million unrealized gain on GreenFirst Forest Products, Inc. common shares received in connection with the sale of the Company’s lumber and newsprint assets.
The effective tax rate for the first quarter of 2023 is not meaningful due to near break-even pretax income for the period, which results in any discrete tax adjustments significantly impacting the rate. The largest adjustments creating a difference between the effective tax rate and the statutory rate of 21 percent were an excess tax benefit on vested stock compensation and return-to-accrual adjustments related to previously filed tax returns.
The effective tax rate on the loss from continuing operations for the first quarter of 2022 was an expense of 6 percent. The 2022 effective tax rate differed from the federal statutory rate of 21 percent primarily due to disallowed interest deductions in the U.S. and nondeductible executive compensation, partially offset by U.S. tax credits and tax return-to-accrual adjustments.
Cash Flows & Liquidity
For the three months ended April 1, 2023, the Company generated operating cash flows of $51 million, which were driven by increased cash inflows from working capital, partially offset by payments on deferred energy liabilities associated with Tartas facility operations.
For the three months ended April 1, 2023, the Company used $21 million in its investing activities related to net capital expenditures, which included $6 million of strategic capital spending focused on enhancing reliability and cost efficiency.
For the three months ended April 1, 2023, the Company used $14 million in its financing activities primarily for the repayment of long-term debt and the repurchase of common stock to satisfy tax withholding requirements related to the issuance of stock under Company incentive stock plans.
The Company ended the quarter with $276 million of global liquidity, including $169 million of cash, borrowing capacity under the ABL Credit Facility of $100 million and $7 million of availability under the factoring facility in France. The Company recently purchased credit insurance, which the Company estimates would have resulted in pro forma ABL Credit Facility availability as of quarter end of $136 million. Additionally, the Company repurchased $10 million of Senior Secured Notes in April through open-market transactions and retired the notes for cash of $9 million.
The next significant debt maturity for the Company is in June 2024. The Company is actively monitoring the capital markets and is prepared to refinance its senior unsecured notes due June 2024 at acceptable terms in the coming quarter. The Company has partnered with Goldman Sachs to act as the lead financial advisor to support the refinancing effort. The Company is considering using a portion of its cash balance to repay debt or assist in a holistic refinancing of its capital structure.
This market assessment represents the Company’s best current estimate of its business segments’ future performance.
High Purity Cellulose
Demand for cellulose specialties remains mixed. Strength in acetate and certain other cellulose specialty end markets is offsetting softness in construction and food-related end markets. Average sales prices for cellulose specialties in 2023 are expected to be high single digit percent higher than average 2022 sales prices, while sales volumes are expected to decrease due to the softness in demand. Market demand for commodity products remains resilient but at lower prices than first quarter levels. Fluff sales prices are expected to decline versus 2022 levels, in line with industry forecasts. Viscose pulp sales prices have stabilized and are expected to increase slightly in the second half of the year. Commodity sales volumes are expected to increase as production and logistics constraints improve. Additional benefits from prior strategic capital investments are expected throughout the year. Certain raw material and energy prices have come off the 2022 highs, but are expected to remain significantly elevated versus pre-COVID pandemic levels. The Company experienced a slower than anticipated return to production after the annual maintenance outage of its Tartas facility, which has been completed but is expected to impact the second quarter, but overall production is anticipated to be made up in the balance of the year. Additionally in the second quarter, annual maintenance outages will be executed at the Company’s two largest facilities in Jesup and Temiscaming.
Paperboard prices are expected to moderate slightly over the balance of the year but remain elevated from 2022 levels, while sales volumes are expected to remain steady. Raw material prices are expected to reduce as pulp markets decline.
High-yield pulp markets have declined as global economic demand slows and new capacity ramps up, impacting sales price. Prices are expected to decline in 2023, in line with industry forecasts for the global paper pulp market. Sales volumes are expected to improve slightly in 2023, primarily due to improved logistics and production reliability.
Overall, income (loss) from continuing operations is expected to be between $(8) million and $12 million, with Adjusted EBITDA between $200 million and $215 million for 2023. The Company expects to spend approximately $100 million to $105 million of custodial capital expenditures, including $10 million to $15 million of catch-up maintenance capital, and discretionary strategic capital expenditures of approximately $30 million to $35 million, net of financing. Strategic capital may be modulated as necessary to support Adjusted Free Cash Flow. The Company is targeting $45 million of benefit from working capital to support Adjusted Free Cash Flow for the year. Overall, the Company expects to generate $40 million to $65 million of Adjusted Free Cash Flow in 2023. For the second quarter, Adjusted EBITDA is expected to be in the low $40 million range, which is expected to be the trough quarter due to the timing of customer annual maintenance outages, the slower than anticipated return to production of the Tartas facility, which has now been completed, and the Company’s planned annual maintenance outages at its two largest facilities.
A Sustainable Future
The Company continues to focus on growing its bio-based product offering and expects to grow its sales of bioelectricity and lignosulfonates and increase overall margins over time.
The Company’s bioethanol facility at its Tartas, France facility is under construction and is anticipated to be operational in the first half of 2024. The total estimated cost of the project is approximately $41 million, with $29 million to be spent in 2023. The Company plans to utilize $28 million of low-cost green loans to help fund the project, including $8 million already raised, and $4 million in grants. The project is expected to provide $9 million to $11 million of annual incremental EBITDA beginning in 2024.
“RYAM is well positioned to meet the demands of a more sustainable world. We have the right team and assets in place to develop innovative solutions that meet our customers’ needs while running our operations in a safe and reliable way. Our improved operations and strengthened balance sheet position the Company to make disciplined strategic capital allocation decisions that create value for our shareholders,” concluded Mr. Bloomquist.
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RYAM is a global leader of cellulose-based technologies, including high purity cellulose specialties, a natural polymer commonly found in filters, food, pharmaceuticals and other industrial applications. The Company also manufactures products for paper and packaging markets. With manufacturing operations in the U.S., Canada and France, RYAM employs just over 2,500 people and generated $1.7 billion of revenues in 2022. More information is available at www.RYAM.com.
Ryan Houck – Media Contact – (904) 357-9134
Source: Rayonier Advanced Materials, Inc.