2024 Looks Like a Recovery Year with Potential Asset Sale Kicker
4Q23 disappoints but headwinds subsiding. RYAM reported 4Q23, which included solid revenue of $422 million, ahead of our estimate of $373 million. However, adjusted EBITDA of $37 million fell well short of Street expectations and our $48 million forecast on weaker-than-expected paperboard demand and lower-than-anticipated pulp prices. Right-sized inventory suggests modest growth. With customer channel destocking largely completed in 4Q23, RYAM’s businesses should see a more stable demand environment throughout 2024 and, combined with modest share-driven volume growth and lower input costs, improved gross and EBITDA margins. Debt covenant adjustment provides flexibility. During the quarter, RYAM amended its covenants on the $250 million secured term loan, raising its debt coverage limit to 5.25x trailing EBITDA. Management continues to look for opportunities to refinance the debt due in 2026 before the end of 2024. The potential sale of non-core assets in the interim may facilitate that effort. Biomaterials is a strong driver of mid-term outlook. With its core markets stabilizing at secular growth levels and pricing volatility subsiding following the 2022-23 period of supply chain dislocations, RYAM continues to make progress on its biomaterials transformation strategy. The bio-ethanol plant in France is expected to begin production in March and the Florida plant is on track to begin construction in approximately 12 months. Furthermore, RYAM announced the signing of an MoU with Verso Energy to explore the feasibility of RYAM entering the sustainable aviation fuel (e-SAF) market, further expanding its presence in the biofuel supply chain and growing its bioproducts portfolio. 2024 guidance suggests 2H24 acceleration. With 1Q24 expected to see a modest inventory correction-driven decline in acetate demand and tough Y/Y comps versus non-recurring revenue recognition in 1Q23, 2024 performance should accelerate as the year progresses and the impact of G-P exit-related share gains, higher prices, and improving market conditions in PB and HYP are more fully reflected in quarterly results. We are adjusting our 1Q24 and 2024 estimates to reflect that outlook as well as management’s guidance. Our 1Q24 EBITDA estimate is being reduced to $39 million (down from $47 million) and our 2024 EBITDA estimate is being trimmed from $197 million to $181 million (30% increase from 2023 levels), which is at the low end of management’s $180-200 million guidance range. We will be hosting fireside chat with President and CEO De Lyle Bloomquist on March 7 at 11:00 am ET. Register for the event via the link in our full report.Rayonier Advanced Materials is a manufacturer of cellulose products, lumber, and pulp & paper products. The company's operating segments are: High Purity Cellulose, which manufactures and markets cellulose, which is sold as either cellulose specialties or commodity products that is primarily used in dissolving chemical applications; Forest Products, which the lumber, primarily spruce, pine, or fir, is used in the construction of residential and multi-family homes, light industrial and commercial facilities, and the home repair and remodel markets; Pulp, which manufactures and markets pulp products; and Paper, which manufactures and markets paper products consisting of paperboard and newsprint.
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