Earnings Call: RYAM Reports Strong Q3 Performance with 113% Increase in EBITDA

image

Earnings Call: RYAM Reports Strong Q3 Performance with 113% Increase in EBITDA

Rayonier Advanced Materials Inc. (NYSE: RYAM) reported a significant year-over-year increase in earnings for the third quarter of 2024. Adjusted EBITDA rose to $51 million, reflecting a 113% improvement. Despite an isolated fire incident at its facility in Jesup, Georgia, the company maintained its EBITDA guidance for the year while raising its free cash flow forecasts.

Key Points:

  • Adjusted EBITDA increased by 113% to $51 million in the quarter, with margins nearly doubling to 12.7%.
  • Year-to-date adjusted free cash flow reached $99 million.
  • The High Purity Cellulose segment saw a 119% increase in EBITDA due to higher prices and lower costs.
  • The fire at the Jesup facility is expected to impact 2024 EBITDA by $10 million, but operations have quickly returned to normal.
  • RYAM successfully refinanced $700 million in debt to enhance financial flexibility.
  • The company aims to optimize its balance sheet, reduce commodity risk, and advance bioproduct initiatives, including a bioethanol facility expected to commence operations by the end of 2026.

Company Outlook: RYAM reported a robust liquidity position with an adjusted EBITDA of $208 million over the last twelve months. The company seeks to optimize its balance sheet while highlighting the earnings potential of its core specialty cellulose businesses. In September, a price increase of up to 10% for specialty cellulose products was announced. The adjusted EBITDA range for 2024 is expected to be between $205 million and $215 million, with free cash flow guidance raised to $115 million to $125 million.

Downside Highlights:

  • The fire at the Jesup facility will impact 2024 EBITDA by $10 million.
  • The indefinite suspension of operations at the Temiscaming HPC facility reduced the revenue share from non-fluff commodities.
  • Revenues, affected by market conditions in China and Europe for High-Performance Paper Pulp pricing, decreased to low single digits.

Upside Highlights:

  • Strong performance of the High Purity Cellulose segment and strategic price increases.
  • Successful debt refinancing that provides improved financial flexibility.
  • The company's focus on bioproducts aligns with increasing market demand for sustainable products.

Shortcomings:

  • The Paperboard segment's EBITDA decreased by $6 million.
  • Revenue share from non-fluff commodities declined due to the suspension of the Temiscaming facility.
  • Some softening was observed in the company's chemical segments despite a competitor's capacity closure potentially benefiting RYAM.

Q&A Highlights:

  • Market sensitivities were discussed, including exposure to China and demand trends in Europe.
  • Management addressed differentiation strategies for the Maple 80 product.
  • Modest demand growth for ethers and a positive outlook for 2025 were noted.
  • The company plans to evaluate price increases for its Chemical Solutions portfolio during London Pulp Week.

Rayonier Advanced Materials Inc. (NYSE: RYAM) continues to navigate market challenges while strategically positioning itself for long-term growth with a focus on bioproducts and sustainability. The company's strong performance in the High Purity Cellulose segment and proactive financial management underscore its resilience despite recent challenges like the fire incident. RYAM is poised to advance its key initiatives while maintaining transparent communication with stakeholders to enhance profitability and reduce debt.

InvestingPro Insights: Rayonier Advanced Materials Inc. (NYSE: RYAM) has demonstrated attractive resilience and growth potential with its recent financial performance and strategic initiatives. This positive trend is supported by real-time data and forecasts from InvestingPro.

According to InvestingPro data, RYAM has shown strong performance with a total price return of 173.74% over the past year. This impressive performance aligns with the company's reported 113% increase in adjusted EBITDA for the third quarter of 2024. The stock is currently trading at 98.08% of its 52-week high, reflecting investor confidence in the company's recovery efforts.

Despite challenges, including the incident at the Jesup facility, RYAM's market capitalization stands at $657.61 million. The company's price-to-book value ratio of 0.73 suggests it may be undervalued relative to its assets. This scenario could present an attractive opportunity for value investors, considering the company’s improving financial condition and strategic focus on high-margin products.

InvestingPro Insights emphasize that the valuation of RYAM implies strong free cash flow returns. This is consistent with the company's raised free cash flow guidance for 2024 and supports management's emphasis on optimizing the balance sheet and enhancing financial flexibility.

It is important to note that InvestingPro has provided 11 additional insights on RYAM. These insights offer a comprehensive analysis for investors seeking deeper information regarding the company's financial health and market position.

While the company faces challenges, issues such as weak gross profit margins highlighted by InvestingPro Insights could potentially be addressed in the long term through RYAM's strategic initiatives in bioproducts and high-value specialty cellulose products.

Investors should assess these forecasts in conjunction with the company’s reported results and outlook to form a comprehensive view of RYAM's investment potential.