Rayonier Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Merger with PotlatchDeltic: The proposed merger is expected to deliver strategic and financial benefits, including ~$40 million in run rate synergies. Set to close in late Q1 or early Q2 2026, subject to regulatory approvals and shareholder votes. Integration planning is progressing well.
• Third Quarter Financial Results: Adjusted EBITDA was $114 million, pro forma net income was $50 million or $0.32 per share. Cash available for distribution (CAD) for the first 9 months was $154 million, a significant increase from prior year. Repurchased 1.2 million shares in Q3.
• Timber Segments: Southern Timber saw higher harvest volumes offsetting modest net stumpage declines. Pacific Northwest Timber had lower harvest volumes but higher log prices due to species mix.
• Real Estate: Strong results with a large conservation sale in Florida and favorable performance in development projects like Wildlight and Heartwood.

Segment Performance

• Southern Timber segment: Third quarter adjusted EBITDA was $43 million, up 13% from the prior year quarter. Harvest volumes increased 24% due to drier weather and normalization of green log demand, though net stumpage realizations modestly declined.
• Pacific Northwest Timber segment: Third quarter adjusted EBITDA was $6 million, $2 million below the prior year quarter. Harvest volumes dropped 34% due to Washington dispositions, but log prices were higher.
• Real Estate segment: Third quarter adjusted EBITDA was $74 million, up $54 million from the prior year period. Driven by a large conservation sale in Florida and strong results in the real estate development business. Sales totaled $91 million on ~23,300 acres at an average price of $3,500 per acre, with Wildlight and Heartwood projects contributing significantly.

Guidance

• Full year 2025 adjusted EBITDA is expected at or above the higher end of prior guidance range, driven by the real estate business.
• Southern Timber is expected to be modestly below prior guidance due to end market softness.
• Pacific Northwest Timber is expected toward the lower end of prior guidance as lumber market improvement has been slower than expected.
• Fourth quarter expected net income attributable to Rayonier: $13 million to $17 million, EPS: $0.08 to $0.11, adjusted EBITDA: $50 million to $60 million.

Risks

• Market Volatility: Timber markets face challenges such as mill closures and soft demand impacting pulpwood pricing.
• Regulatory Hurdles: The pending merger with PotlatchDeltic requires regulatory approvals, which may limit share repurchases prior to closing.
• Lumber Market Dynamics: Delayed improvement in lumber markets in the Pacific Northwest due to inventory levels and muted demand.

Question and Answer

Q: Update on sustainability of real estate activity and pulpwood demand alternatives A: Real estate sales are lumpy; a large conservation sale took a year to materialize. Pulpwood demand alternatives include biofuels, carbon capture, and voluntary carbon markets, but progress is behind the scenes.

Q: Percentage impact of Georgia hurricanes on timber supply A: Qualitatively significant, but no quantitative percentage; Georgia is a large timber production state with a substantial reduction in potential supply.

Q: Southern Timber non-timber sales drivers A: Driven by pipeline easements, which are episodic and tied to industries like oil/gas and carbon capture.

Q: Timing of pulpwood revenue streams materializing A: Traditional manufacturing adjustments are short term; biofuels biorefineries are ~5 years out; smaller biomass uses are shorter term.

Q: Capital allocation post-merger A: Similar capital allocation philosophy post-merger, including investment-grade balance sheet, growing dividend, and share buybacks; post-merger will have flexibility but will navigate regulatory hurdles first.