Solid Start to the Year and Progress on Asset Transformation
1Q24 performance ahead of expectations. RYAM reported 1Q24 results that included EPS of ($0.02) versus consensus of ($0.10) and our estimate of ($0.19). While sales of $388 million fell short of our estimate of $402 million and consensus of $430 million, tight cost controls, lower raw material and transportation costs, and improved operating efficiencies drove EBITDA of $52 million versus our estimate of $39 million and consensus of $49 million. EBITDA guidance maintained, FCF guidance increased. With market fundamentals stabilizing and most of customer inventory work-downs winding down, management reiterated its EBITDA guidance of $180-200 million and raised its FCF guidance for the year from $20-40 million to $80-100 million on a higher working capital benefit and $39 million in cash to be realized from the sale of softwood duty refund rights to OCP Lumber LLC. Addition by subtraction. With intense Chinese competition in viscose and other commodity high purity cellulose (HPC) markets resulting in negative profitability of these products’ sales for RYAM and expectations of these dynamics to continue in the mid-term, management has decided to suspend operations of its Temiscaming, Canada’s HPC plant (while continuing to operate the Paperboard and High Yield Pulp [HYP] portions of the plant) indefinitely, beginning on July 2, 2024. The elimination of sales of negative EBITDA product categories is expected to more than offset the cost of closing and mothballing the facility, resulting in a modestly positive EBITDA impact of the decision on its HPC division’s results in 2024. Biodiesel shipment demonstrates solid pivot execution. Last month, RYAM announced it successfully shipped the first batch of second-generation (2G) biodiesel manufacturing at its Tartas, France plant, following two years of rigorous development, planning, and construction, marking a successful start to the company’s biomaterials-driven business transformation journey. The new plant is expected to deliver $2-4 million in incremental EBITDA in 2024 as it ramps up capacity on the way to $8-10 million in EBITDA in 2025, once at the full run rate of production. Raising estimates on increased confidence in execution. Given RYAM’s outperformance of our expectations as well as consensus in 1Q24 and improving end market fundamentals, with most inventory corrections winding down, we are raising our EBITDA estimates for 2Q24 and 2024 from $46 million and $181 million to $49 million and $189 million, respectively.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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