RAYONIER ADVANCED MATERIALS INC. Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Performance Review: Q1 2025 performance fell short of expectations, with 8% revenue decline and 67% adjusted EBITDA reduction. Challenges included customer inventory acceleration, operational setbacks, higher energy prices, environmental reserves, foreign exchange, and market challenges in paperboard and high yield pulp.
• Tariff Mitigation: Actively addressing tariffs via customer advocacy, market diversification, and operational adjustments to mitigate the $85 million annual revenue impact from China tariffs.
• Financial Position: Liquidity was $272 million, net secured debt reduced to $624 million, with a net secured leverage ratio of 2.9 times covenant EBITDA.
• Strategic Initiatives: Pausing some debt reduction, adjusting production in Cellulose Commodities, continuing biomaterials strategy, and addressing paperboard tariff exposure through market diversification and cost mitigation.

Segment Performance

• Cellulose Specialty: Q1 2025 net sales were $201 million, a $5 million decrease. A 2% sales price increase was offset by a 2% volume decline and unfavorable sales mix. Operating income was $31 million, down $7 million. EBITDA margin was 23% (vs. 27% in Q1 2024).
• Cellulose Commodities: Net sales dropped to $75 million, a $19 million decrease. Operating loss was $13 million, improved from prior year due to reduced commodity losses but offset by higher input costs.
• Biomaterials: Net sales remained steady at $7 million. Operating income was flat at $2 million. EBITDA margin held steady at 29%.
• Paperboard: Net sales were $49 million, a $4 million decrease. The segment recorded an operating loss of $2 million, declining $10 million due to volume, pricing, and cost impacts.
• High Yield Pulp: Net sales were $31 million, a $3 million decrease. Operating loss increased to $7 million driven by lower market pricing, reduced volumes, and custodial site costs.

Guidance

• Adjusted EBITDA guidance revised to $175 million to $185 million, a significant reduction from prior. Key drivers include $20 million tariff impact, $15 million Q1 production issues, $12 million non-cash environmental charge, $5 million foreign exchange impact, and order cancellations/delays.
• Adjusted free cash flow guidance is $5 million to $15 million.
• Segment outlooks: Cellulose Specialty EBITDA expected $237 million to $245 million, Cellulose Commodities EBITDA approximately -$5 million, Biomaterials $8 million to $10 million, Paperboard $25 million, High Yield Pulp approximately -$20 million.

Risks

• Tariffs affecting $85 million annual revenue, operational setbacks from equipment failures and weather, higher energy and input costs, environmental reserve changes, foreign exchange impacts, and market oversupply in paperboard and high yield pulp.

Question and Answer

• Q: Matthew McKellar on Soft pulp market dynamics, CS volumes post-Liberation Day, and paperboard guidance. A: De Lyle Bloomquist discussed fluff market shifts, CS order resumption, and paperboard pricing/mitigation efforts.
• Q: Daniel Harriman on CS sales to China and liquidity. A: De Lyle on CS China order status, Marcus Moeltner on liquidity position with $272 million liquidity and $624 million net secured debt.
• Q: Dmitry Silversteyn on energy costs, Tartas plant feedstock, and Fernandina expansion permits. A: De Lyle and Marcus Moeltner on energy price drivers, Tartas feedstock improvements, and Fernandina expansion progress and regulatory challenges.