Rayonier Posts Strong Third Quarter Earnings

Oct. 26, 2010 - Rayonier today reported third quarter net income of $63 million, or 77 cents per share, compared to $81 million, or $1.01 per share, in the prior year period. Third quarter 2009 results included a $49 million, or 61 cents per share, benefit from the alternative fuel mixture credit (AFMC). Excluding this 2009 special item, year-over-year net income increased $31 million, or 37 cents per share, over the prior year period.

Year-to-date 2010 net income totaled $158 million, or $1.95 per share, compared to $215 million, or $2.69 per share, in 2009. Excluding special items,1, 2 year-to-date net income rose to $147 million, or $1.81 per share, from $86 million, or $1.08 per share, in 2009.

Cash provided by operating activities of $473 million for the first nine months of 2010 was $259 million above the prior year period, while cash available for distribution3 of $400 million was $235 million above year-to-date 2009. In April, the company received a cash refund from the Internal Revenue Service of $189 million for the AFMC.

“We are pleased to report strong third quarter results today, following our announcement last week of an eight percent dividend increase,” said Lee M. Thomas, chairman and CEO.

“These results reflect increased contributions from each of our core businesses. In timber, we continued to benefit from our action to lock-in higher stumpage prices early in the year. In real estate, we had higher year-over-year rural and non-strategic timberland sales, including a significant conservation sale. And in performance fibers, we capitalized on continued strong demand for both cellulose specialties and absorbent materials products.”

Timber

Sales of $47 million were $1 million above the 2009 third quarter, while operating income of $9 million increased $8 million. Year-to-date sales of $143 million increased $18 million from prior year, while operating income of $26 million was $27 million above 2009 results for the same period.

In the Eastern region, third quarter and year-to-date operating income improved from the 2009 periods as higher sales prices more than offset lower volumes as we returned to more normal thinning levels. Operating income also benefited from lower costs due to geographic sales mix and reduced production and transportation costs.

In the Western region, sales and operating income improved from prior year periods primarily due to higher prices driven largely by stronger export demand.

Real Estate

Sales of $45 million were $23 million higher than last year’s third quarter and operating income of $31 million was $18 million above 2009 primarily due to higher sales volumes. Rural and non-strategic timberland sales increased by 2,000 acres and 10,000 acres from the prior year period, respectively. Prices for our non-strategic timberland properties declined in third quarter 2010 from the prior year mainly due to the mix of properties sold, although the impact was partially offset by the lower basis of the properties.

Year-to-date, sales and operating income of $91 million and $52 million were each $1 million above the prior year period. While rural acres sold increased from the 2009 third quarter, rural prices decreased primarily due to a change in geographic mix. Non-strategic timberland acres sold declined from the prior year while prices increased reflecting location and site characteristics.

Performance Fibers

Sales of $246 million were $29 million above the prior year period, while operating income of $62 million increased $13 million. Year-to-date sales of $648 million were $50 million above 2009, while operating income of $152 million increased $27 million. Cellulose specialties sales improved in both 2010 periods primarily due to increased volume. Prices were slightly higher for the quarter, but continued to be down for the year compared to the prior year period, which benefited from a cost-based surcharge. Absorbent materials sales also improved in both 2010 periods as increased prices more than offset lower volumes.

Operating income improved in both 2010 periods reflecting increased cellulose specialties sales volumes and higher absorbent materials prices. The quarter was negatively impacted by increased wood, chemical and transportation costs, while year-to-date costs were slightly favorable primarily due to a decline in chemical costs.

Other Items

Excluding special items,1, 2 corporate and other expenses were $8 million for the quarter and $21 million for the nine months ended September 30, 2010, compared to $5 million and $18 million for the prior year periods. The three months ended September 30, 2009 benefited from a $3 million favorable insurance settlement, while the nine months ended September 30, 2010 primarily reflects higher incentive compensation accruals. Interest and other expenses were comparable to both prior year periods.

Third quarter effective tax rates before discrete items were 19.2 percent in 2010 and 25.2 percent in 2009. For the nine months, the effective tax rate was 18.3 percent, down from 22.1 percent in 2009. The decreased rates in 2010 were due to proportionately higher earnings from the REIT.

Including discrete items, the effective tax rates for the quarter and year-to-date were 20.9 percent and 16.0 percent compared to 17.8 percent and 14.6 percent in 2009, respectively. Two recent tax developments, the cellulosic biofuel producer credit (CBPC) and the Small Business Jobs Act, are expected to benefit the Company in future periods.

In October 2010 the Internal Revenue Service (IRS) released clarification that both the alternative fuel mixture credit and the cellulosic biofuel producer credit can be claimed in the same year for different volumes of black liquor. The Company has applied for the cellulosic biofuel producer registration. If IRS approval is received, the CBPC would increase fourth quarter 2010 net income by approximately $23 million, or $0.28 per share.

In September 2010 the Small Business Jobs Act was enacted, which has a provision that eliminates the built-in gains tax for Rayonier in 2011. The built-in gains tax was approximately $9 million in 2009 and is expected to be approximately $6 million in 2010.

Outlook

“Our actions to create value are driving strong cash flows and operating results in 2010,” said Thomas. “We expect to be at the upper end of our guidance for earnings of $2.05 to $2.20 per share for 2010, excluding special items, and CAD of $360 million to $380 million.” 4

“Our decision to increase our dividend to $0.54 per share, effective for the fourth quarter distribution, reflects the priority we place on dividends as a key driver of shareholder return. We believe our commitment to providing an attractive dividend yield and investing strategic capital to grow our business will continue to create superior value over time for our shareholders.”

1 Net income for the three and nine months ended September 30, 2009 included $49 million, or 61 cents per share, and $128 million, or $1.61 per share, respectively, relating to the AFMC.

2 Net income for the nine months ended September 30, 2010 included a first quarter gain of $12 million, or 14 cents per share, from the sale of a portion of the Company’s interest in its New Zealand joint venture.

3 Cash available for distribution (CAD) is a non-GAAP measure defined and reconciled to GAAP in the attached exhibits.

4 Projected full year CAD reflects AFMC proceeds as well as an increase in capital expenditures and pension contributions from 2009.

Rayonier is a leading international forest products company with three core businesses: Timber, Real Estate and Performance Fibers. The company owns, leases or manages 2.4 million acres of timber and land in the United States and New Zealand. The company’s holdings include approximately 200,000 acres with residential and commercial development potential along the Interstate 95 corridor between Savannah, Ga., and Daytona Beach, Fla. Its Performance Fibers business is one of the world’s leading producers of high-value specialty cellulose fibers. Approximately 45 percent of the company’s sales are outside the U.S. to customers in approximately 40 countries. Rayonier is structured as a real estate investment trust.

SOURCE: Rayonier