Rayonier Reports 2nd Quarter Earnings
July 22, 2008 - Rayonier today reported second quarter net income of $37.4 million, or 47 cents per share, compared to $33.3 million, or 42 cents per share, in second quarter 2007. Year-to-date net income was $78.0 million, or 98 cents per share, compared to $68.4 million, or 87 cents per share, in the first six months of 2007. Prior year results included a $10 million loss from forest fires. Excluding this item, earnings for the three and six month periods ended June 30, 2007 were $43.4 million, or 55 cents per share, and $78.5 million, or $1.00 per share, respectively.
“Second quarter results were solid despite challenging markets and the overall weakness in the economy,” said Lee M. Thomas, Chairman, President and CEO. “Strong demand in Performance Fibers and continued interest in non-strategic timberlands partially offset softness in sawlog prices and higher costs in Performance Fibers."
Cash provided by operating activities of $155 million for the six months ended June 30 was $23 million above the 2007 comparable period primarily due to lower working capital requirements. Year-to-date, cash available for distribution1 of $97 million was $10 million below 2007. (See Schedule H for more details.)
For second quarter 2008, sales of $55 million were $1 million below second quarter 2007, while operating income of $9 million was $12 million below the prior year excluding the $10 million fire loss. For the six months ended June 30, 2008, sales of $103 million were $19 million below the comparable prior year period, while operating income of $22 million was $26 million lower. The 2008 results reflect lower sawlog pricing due to the weak housing market and oversupply of salvaged timber in the Northwest from a December 2007 storm. The impact of lower prices was partially mitigated by increased volumes as we shifted our focus to meet strong pulpwood demand. Based on current conditions, the Company expects to continue its planned reduction in sawtimber harvest for the balance of the year thereby preserving higher-value timber until markets improve.
For the three months ended June 30, 2008, sales were $23 million, $6 million below the prior year period, and operating income was $15 million, $9 million below second quarter 2007. The decline was primarily due to a shift in sales from development to rural properties and non-strategic timberlands. Also affecting the quarter’s results was a decline in price per acre for rural properties reflecting a change in our geographic sales mix.
Year-to-date 2008 sales and operating income were $53 million and $36 million, respectively. Sales improved $3 million from the prior year period due to a greater number of acres sold but operating income declined $3 million due to the shift in mix toward rural properties and non-strategic timberlands.
Sales for the quarter of $187 million were $19 million above second quarter 2007. For the six months, sales of $362 million were $28 million above the prior year period. Sales increased as higher prices more than offset a decline in absorbent materials volumes. For the quarter, sales also benefited from increased cellulose specialty volumes.
Operating income for second quarter of $37 million was $6 million above the same quarter last year. Year-to-date operating income of $74 million was $16 million above the prior year period. Increased prices and lower depreciation expense more than offset higher chemical, wood, energy and maintenance costs.
For the three and six months ended June 30, 2008, corporate expenses were $8 million and $15 million, down $1 million and $2 million from the prior year periods, respectively.
Interest expense for the quarter of $12 million was $2 million lower than second quarter 2007. Year-to-date interest expense of $23 million was $4 million below the prior year period. Lower interest rates resulting from the fourth quarter 2007 debt refinancing more than offset higher average debt balances due to strategic acquisitions.
The effective tax rate for the three months ended June 30, 2008 was 11.9 percent compared to 23.0 percent for the prior year period. Year-to-date, the effective tax rate was 16.4 percent compared to 20.3 percent for the same period last year. The decreased rates are due to proportionately lower earnings from the Company’s taxable REIT subsidiary. (See Schedule J for further details.)
“Given the continued weak outlook for sawlogs, we expect third quarter and full year 2008 earnings to be below prior year periods as we continue to limit our harvest. In Performance Fibers, results are expected to be above prior year with strong demand for our cellulose specialty products more than offsetting escalating raw material, energy and transportation costs,” said Thomas. “In Real Estate, we anticipate continued interest for rural HBU properties and expect to sell additional non-strategic timberlands to take advantage of favorable demand. Real Estate sales are expected to be more heavily weighted to the fourth quarter. Overall, cash available for distribution is expected to remain strong, although below 2007.”