Rayonier 1Q Income Dips on Soft Timber Market

April 30, 2009 - Rayonier today reported first quarter net income of $26 million, or 33 cents per share, compared to $40 million, or 50 cents per share, in first quarter 2008.

Cash provided by operating activities of $65 million was $35 million below the prior year period. Cash available for distribution1 of $54 million was $6 million below first quarter 2008. (See Schedule D for more details.)

Lee M. Thomas, Chairman, president and CEO said, "The benefits of our business mix were clear as we continued to generate good cash flow, despite persistent weakness in the housing market. We experienced solid demand for our Performance Fibers products and non-strategic timberlands, which partially offset the softness in our timber business."

Sales of $33 million declined $12 million from first quarter 2008, while operating income decreased $12 million to an operating loss of $1 million. Despite generating an operating loss, the Timber segment contributed $15 million of Adjusted EBITDA1 for the quarter.

In the Eastern region, sales were comparable to the prior year period reflecting higher volumes offset by overall lower prices and a sales mix shift from sawtimber to pulpwood. In the Western region, sales declined from the prior year period as weak demand due to sawmill curtailments continued to negatively impact prices and volumes.

Based on current conditions, the Company expects to operate at reduced harvest levels, particularly in the Northwest.

Real Estate
Sales and operating income of $27 million and $14 million were $3 million and $7 million below first quarter 2008, respectively. Lower rural property volumes and prices were partially offset by a 15,000 acre increase in non-strategic timberland sales at per acre pricing comparable to the prior year period. Non-strategic timberland sales totaled 19,000 acres and generated $23 million in revenue during the quarter.

Performance Fibers
Sales and operating income were $204 million and $41 million, an increase of $29 million and $4 million from the prior year period, respectively. Increased cellulose specialty prices were largely offset by higher caustic costs.

Other Items
Corporate and other expenses declined $1 million from the prior year period due to general cost reductions.

Interest and other, net increased $1 million from first quarter 2008 due to higher average net debt balances.

The first quarter effective tax rate from continuing operations before discrete items of 19.4 percent was consistent with the prior year period rate of 20.5 percent. Including discrete items, the first quarter 2009 effective tax rate from continuing operations was 16.8 percent compared to 20.0 percent in the prior year period.

“We expect to generate solid cash flows well in excess of our $2.00 per share dividend in 2009, despite the difficult economy. Our conservative debt levels, manageable debt maturities and strong balance sheet provide significant operating flexibility,” said Thomas.

“We expect that the weak housing market will continue to negatively impact our timber businesses, particularly in the Northwest, and anticipate holding even more volume off the market. In Real Estate, we expect steady demand for our rural and non-strategic timberlands. Performance Fibers earnings are expected to remain strong and in line with 2008.”

1 Cash available for distribution (CAD) and Adjusted EBITDA are non-GAAP measures defined and reconciled to GAAP in the attached exhibits.

SOURCE: Rayonier

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