Rayonier Fourth Quarter Income Dips
Jan. 24, 2008 - Rayonier today reported full year 2007 income from continuing operations of $174.3 million, or $2.21 per share, compared to $171.2 million, or $2.19 per share, in 2006. Excluding special items 1, earnings were $2.35 per share, or 18 percent, above 2006 earnings of $1.99 per share. In 2007, cash provided by operating activities of $324 million was $17 million above 2006. Cash available for distribution 2 of $241 million was $63 million, or 35 percent, above 2006.
“Each of our three core businesses contributed to strong 2007 performance, despite a challenging environment in timber and real estate markets,” said Lee M. Thomas, chairman, president and CEO. “In Timber, we lessened the effect of a weak housing market by rebalancing our sales mix to meet heavy demand in the pulpwood market. Continued interest in our rural properties and the entitlements we received on 3,300 acres along the I-95 corridor near Savannah, Georgia contributed to a successful year in Real Estate. Our Performance Fibers business capitalized on strong global markets to achieve record results. The resulting cash flow enabled us to increase our dividend to an annualized $2.00 per share, the fourth increase since our conversion to a REIT in 2004."
Fourth quarter income from continuing operations was $34.4 million, or 44 cents per share, compared to $50 million, or 64 cents per share, in 2006. Fourth quarter 2007 included a special item expense of $0.8 million, or 1 cent per share, for the final assessment of losses sustained from the second quarter wildfires in Florida and Georgia. Fourth quarter 2006 included a special item gain of $3.7 million, or 5 cents per share, for a deferred tax adjustment. Excluding special items, fourth quarter income from continuing operations was 45 cents per share compared to 59 cents per share in 2006.
Full year 2007 net income was $174.3 million, or $2.21 per share, compared to $176.5 million, or $2.26 per share, in 2006. Net income in the fourth quarter was $34.4 million, or 44 cents per share, compared to $55.3 million, or 71 cents per share, in fourth quarter 2006. Fourth quarter 2006 included income from discontinued operations of $5.3 million, or 7 cents per share, reflecting a reduction in environmental reserves.
For the fourth quarter and full year, sales increased $2 million and $14 million from the prior year periods, while operating income declined by $7 million and $19 million, respectively, due to increased sales of lower margin pulpwood and reduced demand for sawlogs in a weak housing market. Full year operating income also was negatively impacted by approximately $10 million from lower prices realized on the sale of fire damaged timber.
Compared to fourth quarter 2006, sales and operating income decreased $25 million and $24 million, respectively, due to the timing of transactions which occurred earlier in 2007 than 2006. For the full year, sales and operating income each improved $4 million primarily due to increased rural land prices, driven by a third quarter sale of 3,100 acres in west central Florida.
For the fourth quarter, sales and operating income improved $3 million and $7 million, respectively, from the prior year period as increased prices more than offset lower volume primarily resulting from unplanned downtime. Sales and operating income for the year increased $51 million and $61 million, respectively, largely due to higher prices driven by favorable market dynamics and improved mix.
Effective Tax Rate
The full year effective tax rate before discrete items was 13.5 percent compared to 16.3 percent in 2006. The comparable fourth quarter effective tax rate was 8.0 percent compared to 20.7 percent in 2006.4 The lower rates were due to higher REIT income. Including discrete items of $4 million, the fourth quarter effective tax rate was a benefit of 4.0 percent.
“Even with the soft housing market negatively affecting timber prices and volumes, we expect full year 2008 earnings to be only slightly below 2007, and first quarter earnings to be comparable to first quarter of 2007, due to the diversity and balance of our three core businesses,” said Thomas. “We are well positioned to generate favorable results despite a challenging economic environment. Cash available for distribution is expected to remain strong, although somewhat below 2007.”
Thomas continued, “In Timber, as part of our strategy to upgrade our portfolio, we will initiate sales of non-strategic timberlands while pursuing acquisitions that meet our investment criteria. We have the flexibility to adjust our sales mix in difficult sawlog markets, preserving our higher-value timber assets until markets improve. In Real Estate, we will continue to pursue entitlements on development lands that drive long-term shareholder value. We anticipate that interest in our rural properties will continue to be high among buyers with industrial, conservation or recreational land uses. We expect even better results from our Performance Fibers business in 2008, and we will increase capital investment to improve reliability and operational excellence."
1 Earnings excluding special items is a non-GAAP measure detailed and reconciled to GAAP in the attached exhibits. The 2007 special item of $10.9 million is a charge to write down fire damaged timber. In 2006, special item gains totaled $15.5 million.
2 Cash available for distribution (CAD) is a non-GAAP measure defined and reconciled to GAAP in the attached exhibits.