Rayonier Advanced Materials Reports Third Quarter Results
Oct. 31, 2016 (Press Release) - Rayonier Advanced Materials Inc. (the “Company”) (RYAM) today reported third quarter 2016 net income of $22 million, or $0.44 diluted earnings per common share compared to net income for the third quarter 2015 of $32 million, or $0.76 per diluted common share. Pro forma third quarter 2015 net income, which excludes one time separation and legal costs, was $33 million or $0.78 per diluted common share.
Year-to-date 2016 net income was $62 million, or $1.38 per diluted common share compared to $42 million, or $1.00 per diluted common share for the 2015 comparable period. Year-to-date 2016 pro forma net income was $56 million or $1.24 per diluted common share, compared to $60 million, or $1.42 per diluted common share in the prior year period. Pro forma results for 2016 and 2015, are adjusted primarily for the gain on debt extinguishment and the Jesup asset realignment impairment charges, respectively.
“We delivered another strong quarter through great execution of our Transformation Initiative,” said Paul Boynton, Chairman, President and Chief Executive Officer. “This performance is a testament to our dedication to continuous improvement over the last two years, and it gives us confidence we will exceed our 2016 guidance.”
Third Quarter and Year-to-Date Operating Results
Third quarter 2016 net sales were $207 million, a decrease of $50 million, or 19 percent, from $257 million in the prior year comparable quarter. The decrease in sales was primarily driven by 8 percent lower cellulose specialties prices and 13 percent lower cellulose specialties volumes, as well as, lower commodity volumes. The decrease in cellulose specialties sales prices and volumes reflect anticipated declines from the prior year, which were more concentrated in the third quarter. Commodity volumes were impacted by a change in mix from absorbent materials to commodity viscose and lower production volumes due to an unplanned outage.
Year-to-date 2016 sales were $638 million compared to $700 million in the prior year, a decrease of $62 million or 9 percent. The decrease in net sales was driven by a 7 percent decline in cellulose specialties sales prices and a 5 percent decline in sales volumes, as a result of the factors previously discussed and in-line with guidance.
For the third quarter of 2016, operating income was $41 million, $17 million less than operating income for the third quarter 2015 and $19 million less than third quarter 2015 pro forma operating income. Year-to-date 2016 operating income was $112 million, $22 million more than 2015 year-to-date operating income and $6 million less than year-to-date 2015 pro forma operating income. Prior year pro forma adjustments primarily relate to one-time separation and legal costs and the Jesup asset realignment impairment charge of approximately $28 million for the 2015 quarter and year-to-date periods. The quarter-to-date and year-to-date results reflect lower cellulose specialties prices and volumes, partially offset by lower costs driven primarily by the Transformation Initiative.
The Company realized all of the originally targeted $40 million in 2016 cost improvement initiatives in the first three quarters of the year. As a result, total 2016 cost improvement estimates are expected to approach $50 million, including Transformation Initiatives and carry-over savings from 2015 of $15 million.
Interest and Other Expense, Net
Interest expense, net of interest income and other expense, was $26 million for year-to-date 2016, $1 million less than the prior year as a result of lower outstanding debt, including the benefit of the repurchase of our Senior Notes in the first quarter, partially offset by higher LIBOR interest rates impacting our floating rate debt.
Income Tax Expense
The year-to-date effective tax rate was 35.2 percent, compared to 32.6 percent during the prior year period. The prior year period reflects the increased impact of the benefit of domestic manufacturing tax deduction and state tax credits as a result of lower pre-tax income.
Cash Flows and Liquidity
Since December 31, 2015, the Company generated operating cash flows of $181 million and adjusted free cash flows of $123 million. During this period, the Company reduced debt by $75 million to $783 million. The Company also issued $173 million of mandatory convertible preferred stock (“Preferred Stock”) for a net proceeds of approximately $167 million. As a result of strong adjusted free cash flows and the Preferred Stock issuance, the Company ended the quarter with $320 million of cash and $556 million of total liquidity, including $236 million available under the revolving credit facility after taking into account outstanding letters of credit.
For 2016, we continue to expect cellulose specialties prices to decline 6 to 7 percent and cellulose specialties sales volumes to decline 4 to 5 percent compared to 2015. Based on contractual commitments for the majority of our acetate volume, 2017 acetate pricing is expected to be approximately 2 percent below 2016. Negotiations for all cellulose specialties grades for other 2017 volumes will conclude over the next few months, consistent with past practices, and may impact 2017 prices and/or volumes. As previously disclosed, our markets remain challenging as a result of suppressed demand, excess production capacity, and the improved cost position of foreign competitors as a result of weak global currencies relative to the U. S. dollar.
We intend to use the funds generated from our Preferred Stock equity issuance to grow and diversify our business. We will look to invest in our Innovation Initiative through which we are seeking to enhance the value of our current products and engineer new products to extend our market reach, diversify through investments in adjacent businesses and fund potential capital requirements of our Transformation Initiative.
Due to the 2016 results of our Transformation Initiative, as well as beneficial raw material prices, we are raising our 2016 guidance. We expect 2016 net income of $66 to $72 million and are raising pro forma EBITDA guidance to $215 to $225 million from $195 to $205 million. We expect 2016 operating cash flows of $210 to $215 million and are raising adjusted free cash flows guidance to $125 to $130 million from $100 to $105 million. Capital expenditures are expected to be approximately $85 million, including a portion of capital for our previously announced lignin joint venture.
Boynton concluded, “We are at an exciting stage in our Company's history. We are rapidly strengthening our culture of continuous improvement allowing us to systematically lower our cost position. Our success allows us to focus on growing our business through market optimization, innovation and the pursuit of external growth opportunities.”
Rayonier Advanced Materials is the leading global supplier of high-purity, cellulose specialties natural polymers for the chemical industry. To learn more, please visit: www.rayonieram.com.
SOURCE: Rayonier Advanced Materials