May 07, 2018 5:06 PM
“Our first full quarter of operations following the acquisition of
First Quarter Operating Results
In the following tables, the Company’s 2018 first quarter net sales and
operating results are compared against the prior year comparable period
results which preceded the acquisition of
Net sales and operating income were comprised of the following for the three months ended:
Net sales (in millions) |
|
|
Combined1
|
|||||||||||
High Purity Cellulose | $ | 282 | $ | 201 | $ | 301 | ||||||||
Forest Products | 99 | — | 83 | |||||||||||
Pulp | 85 | — | 64 | |||||||||||
Paper | 76 | — | 72 | |||||||||||
Eliminations | (20 | ) | — | (18 | ) | |||||||||
Total net sales | $ | 522 | $ | 201 | $ | 502 | ||||||||
Operating income (loss) (in millions) |
|
|
Combined1
|
|||||||||
High Purity Cellulose | $ | 21 | $ | 34 | $ | 50 | ||||||
Forest Products | 10 | — | 6 | |||||||||
Pulp | 23 | — | 5 | |||||||||
Paper | 3 | — | 11 | |||||||||
Corporate | (11 | ) | (7 | ) | (14 | ) | ||||||
Total operating income | $ | 46 | $ | 27 | $ | 58 | ||||||
1 |
Combined net sales and operating income (loss) represents the
combination of Tembec’s net sales and operating earnings as of |
High Purity Cellulose
First quarter 2018 sales were
On a combined basis, sales declined
Forest Products
First quarter 2018 net sales and operating income were
On a combined basis, first quarter 2018 net sales increased
Pulp
First quarter 2018 net sales and operating income were
On a combined basis, first quarter 2018 net sales increased
Paper
First quarter 2018 net sales and operating income were
On a combined basis, first quarter 2018 net sales increased
Transformation and Synergy Savings
During the first quarter of 2018 the Company achieved approximately
Non-Operating Expenses
Interest expense was
Income Tax Expense
The Company’s effective tax rate was 28.7 percent for the first quarter
of 2018, which compares to 45.3 percent during the prior year period.
The decrease is primarily due to lower tax rates in
Cash Flows and Liquidity
During the first quarter of 2018, the Company generated operating cash
flows of
Outlook
High Purity Cellulose
Cellulose specialties prices are anticipated to decline 4 to 5 percent in 2018 with flat to slightly lower sales volumes. However, with the significant production issues resolved and energy prices returning to normal levels along with typical seasonality in the business, the Company expects improved profitability for the segment through the remainder of the year.
Forest Products
Lumber prices are expected to remain consistent with first quarter
levels in the second quarter as seasonal demand and duties, imposed on
Canadian lumber imports to the
Pulp
High-yield pulp prices are currently at historically high levels due to increased Chinese demand driven primarily by the reduction of imports of recycled fiber. Demand and prices are expected to remain strong in the second quarter before moderating in the back-half of the year.
Paper
In paperboard, markets are expected to remain stable to slightly improved though peak pulp prices, which benefit our high-yield pulp, will negatively impact the cost of raw materials. In newsprint, reduced industry production capacity and duties have led to higher prices. However, profitability is expected to remain flat due to the impact of duties.
Capital Allocation and Investment
The Company anticipates that it will spend approximately
“With strong pricing in high-yield pulp and lumber, the resolution of our production issues and energy prices reverting to normal levels, we expect results to improve significantly in the second quarter. As we continue through the year, financial results will be augmented by our integration efforts as transformation and synergy savings will provide additional benefits.” Boynton continued, “Lastly, we remain committed to our disciplined capital allocation strategy focused on reducing debt, investing in our business and returning capital to shareholders.”
Conference Call Information
About
Forward-Looking Statements
Certain statements in this document regarding anticipated financial, business, legal or other outcomes including business and market conditions, outlook and other similar statements relating to Rayonier Advanced Materials’ future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “forecast,” “anticipate,” “guidance,” and other similar language. However, the absence of these or similar words or expressions does not mean a statement is not forward-looking. While we believe these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance these expectations will be attained and it is possible actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Our operations are subject to a number of risks and uncertainties
including, but not limited to, those listed below. When considering an
investment in our securities, you should carefully read and consider
these risks, together with all other information in our Annual Report on
Form 10-K and our other filings and submissions to the
Other important factors that could cause actual results or events to
differ materially from those expressed in forward-looking statements
that may have been made in this document are described or will be
described in our filings with the
Non-GAAP Financial Measures
This earnings release and the accompanying schedules contain certain non-GAAP financial measures, including EBITDA, adjusted free cash flows, adjusted operating income, adjusted net income and adjusted net debt. These non-GAAP measures are reconciled to each of their respective most directly comparable GAAP financial measures on Schedules D - E of this earnings release. We believe these non-GAAP measures provide useful information to our board of directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes.
We do not consider these non-GAAP measures an alternative to financial measures determined in accordance with GAAP. The principal limitations of these non-GAAP financial measures are that they may exclude significant expenses and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expenses and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, management provides reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures. Non-GAAP financial measures should not be relied upon, in whole or part, in evaluating the financial condition, results of operations or future prospects of the Company.
Condensed Consolidated Statements of Income
(millions of dollars, except per share information) |
||||||||||||
Three Months Ended | ||||||||||||
|
|
|
||||||||||
|
$ | 522 | $ | 349 | $ | 201 | ||||||
Cost of Sales | (442 | ) | (310 | ) | (164 | ) | ||||||
Gross Margin | 80 | 39 | 37 | |||||||||
Selling, general & administrative expenses | (23 | ) | (39 | ) | (9 | ) | ||||||
Duties | (8 | ) | (1 | ) | — | |||||||
Other operating income (expense), net | (3 | ) | 2 | (1 | ) | |||||||
Operating Income | 46 | 1 | 27 | |||||||||
Interest expense | (15 | ) | (13 | ) | (9 | ) | ||||||
Interest income and other expenses, net | 3 | — | — | |||||||||
Gain on bargain purchase | — | 317 | — | |||||||||
Gain (loss) on derivative instrument | — | (8 | ) | — | ||||||||
Income Before Income Taxes | 34 | 297 | 18 | |||||||||
Income tax expense | (10 | ) | (2 | ) | (8 | ) | ||||||
Net Income Attributable to |
$ | 24 | $ | 295 | $ | 10 | ||||||
Mandatory convertible stock dividends | (3 | ) | (4 | ) | (3 | ) | ||||||
Net Income Available to |
$ | 21 | $ | 291 | $ | 7 | ||||||
Earnings Per Share of Common Stock | ||||||||||||
Basic earnings per share | $ | 0.41 | $ | 6.31 | $ | 0.15 | ||||||
Diluted earnings per share | $ | 0.38 | $ | 5.01 | $ | 0.15 | ||||||
Adjusted net income per share (a) | $ | 0.38 | $ | 0.50 | $ | 0.15 | ||||||
Shares Used for Determining | ||||||||||||
Basic EPS | 51,127,726 | 46,179,253 | 42,348,148 | |||||||||
Diluted EPS | 63,977,952 | 58,937,310 | 43,096,360 | |||||||||
(a) | Adjusted net income per share is a non-GAAP measure. See Schedule D for a reconciliation to the nearest GAAP measure. | |
A |
Condensed Consolidated Balance Sheets
(millions of dollars) |
||||||
2018 |
|
|||||
Assets | ||||||
Cash and cash equivalents | $ | 89 | $ | 96 | ||
Other current assets | 616 | 550 | ||||
Property, plant and equipment, net | 1,409 | 1,408 | ||||
Other assets | 580 | 589 | ||||
$ | 2,694 | $ | 2,643 | |||
Liabilities and Stockholders’ Equity | ||||||
Current maturities of long-term debt | $ | 11 | $ | 9 | ||
Other current liabilities | 331 | 298 | ||||
Long-term debt and capital lease obligations | 1,226 | 1,232 | ||||
Non-current liabilities for disposed operations | 149 | 151 | ||||
Other non-current liabilities | 255 | 259 | ||||
Total stockholders’ equity | 722 | 694 | ||||
$ | 2,694 | $ | 2,643 | |||
Condensed Consolidated Statements of Cash Flows
(millions of dollars) |
||||||||
Three Months Ended | ||||||||
2018 |
2017 |
|||||||
Cash Provided by Operating Activities: | ||||||||
Net income | $ | 24 | $ | 10 | ||||
Depreciation and amortization | 37 | 22 | ||||||
Other items to reconcile net income to cash provided by operating activities |
11 |
11 |
||||||
Changes in working capital and other assets and liabilities |
(39 |
) | (5 | ) | ||||
33 | 38 | |||||||
Cash Used for Investing Activities: | ||||||||
Capital expenditures | (29 | ) | (14 | ) | ||||
(29 | ) | (14 | ) | |||||
Cash Used for Financing Activities: | ||||||||
Changes in debt | (2 | ) | (2 | ) | ||||
Dividends paid | (7 | ) | (3 | ) | ||||
Common stock repurchased | (3 | ) | — | |||||
(12 | ) | (5 | ) | |||||
Cash and Cash Equivalents: | ||||||||
Change in cash and cash equivalents | (8 | ) | 19 | |||||
Net effect of foreign exchange on cash and cash equivalents | 1 | — | ||||||
Balance, beginning of year | 96 | 326 | ||||||
Balance, end of period | $ | 89 | $ | 345 | ||||
B |
Sales Volumes and Average Prices
|
|||||||||
Three Months Ended | |||||||||
|
|
Combined
|
|||||||
Average Sales Prices: | |||||||||
High Purity Cellulose ($ per metric ton): | |||||||||
Cellulose Specialties | $ | 1,375 | $ | 1,473 | $ | 1,372 | |||
Commodity Products | 803 | 718 | 779 | ||||||
Forest Products ($ per thousand board feet): | |||||||||
Lumber | 480 | — | 368 | ||||||
Pulp ($ per metric ton): | |||||||||
High-Yield pulp | 654 | — | 482 | ||||||
Paper ($ per metric ton): | |||||||||
Paperboard | 1,154 | — | 1,096 | ||||||
Newsprint | 530 | — | 456 | ||||||
Sales Volumes: | |||||||||
High Purity Cellulose (thousands of metric tons): | |||||||||
Cellulose Specialties | 152 | 107 | 158 | ||||||
Commodity Products | 53 | 59 | 75 | ||||||
Forest Products (millions of board feet): | |||||||||
Lumber | 163 | — | 163 | ||||||
Pulp (thousands of metric tons): | |||||||||
High-Yield pulp | 120 | — | 121 | ||||||
Paper (thousands of metric tons): | |||||||||
Paperboard | 41 | — | 48 | ||||||
Newsprint | 52 | — | 43 | ||||||
C |
Reconciliation of Non-GAAP Measures
(millions of dollars) |
|||||||||||||||||||
EBITDA by Segment (a): | |||||||||||||||||||
Three Months Ended: |
Forest |
Pulp | Paper |
High Purity |
Corporate |
Total | |||||||||||||
|
|||||||||||||||||||
Net Income | $ | 10 | $ | 23 | $ | 5 | $ | 25 | $ | (39 | ) | $ | 24 | ||||||
Depreciation and amortization | 2 | 1 | 5 | 29 | — | 37 | |||||||||||||
Interest expense, net | — | — | — | — | 15 | 15 | |||||||||||||
Income tax expense | — | — | — | — | 10 | 10 | |||||||||||||
EBITDA | $ | 12 | $ | 24 | $ | 10 | $ | 54 | $ | (14 | ) | $ | 86 | ||||||
|
|||||||||||||||||||
Net Income | $ | — | $ | — | $ | — | $ | 33 | $ | (23 | ) | $ | 10 | ||||||
Depreciation and amortization | — | — | — | 22 | — | 22 | |||||||||||||
Interest expense, net | — | — | — | — | 8 | 8 | |||||||||||||
Income tax expense | — | — | — | — | 8 | 8 | |||||||||||||
EBITDA | $ | — | $ | — | $ | — | $ | 55 | $ | (7 | ) | $ | 48 | ||||||
(a) |
Earnings Before Interest, Taxes, Depreciation and Amortization
(“EBITDA”) is defined by the |
Three Months Ended | ||||||||
Adjusted Free Cash Flows (b): |
2018 |
2017 |
||||||
Cash provided by operating activities | $ | 33 | $ | 38 | ||||
Capital expenditures | (20 | ) | (14 | ) | ||||
Adjusted Free Cash Flows | $ | 13 | $ | 24 | ||||
(b) | We define adjusted free cash flows as cash provided by operating activities adjusted for capital expenditures excluding strategic capital. Adjusted free cash flows is a non-GAAP measure of cash generated during a period which is available for dividend distribution, debt reduction, strategic acquisitions and repurchase of our common stock. Adjusted free cash flows is not necessarily indicative of the adjusted free cash flows that may be generated in future periods. |
Adjusted Net Debt (c): |
2018 |
|
||||||
Current maturities of long-term debt | $ | 11 | $ | 9 | ||||
Long-term debt & capital lease obligation | 1,226 | 1,232 | ||||||
Total debt | 1,237 | 1,241 | ||||||
Original issue discount, premiums and debt issuance costs | 5 | 5 | ||||||
Cash and cash equivalents | (89 | ) | (96 | ) | ||||
Adjusted Net Debt | $ | 1,153 | $ | 1,150 | ||||
(c) | We define adjusted net debt as the amount of debt after the consideration of the original issue discount, premiums, and debt issuance costs, less cash. Adjusted net debt is a non-GAAP measure of debt and is not necessarily indicative of the adjusted net debt that may occur in future periods. | |
D |
Reconciliation of Non-GAAP Measures (Continued)
(millions of dollars, except per share information) |
||||||||||||||||||||
Three Months Ended | ||||||||||||||||||||
2018 |
|
2017 |
||||||||||||||||||
Adjusted Operating Income and Adjusted Net Income (a): | $ |
Per |
$ |
Per |
$ |
Per |
||||||||||||||
Operating Income | $ | 46 | $ | 1 | $ | 27 | ||||||||||||||
Acquisition related costs | — | 21 | — | |||||||||||||||||
Inventory write-up to fair value | — | 23 | — | |||||||||||||||||
Adjusted Operating Income | $ | 46 | $ | 45 | $ | 27 | ||||||||||||||
Net Income | $ | 24 | $ | 0.38 | $ | 295 | $ | 5.01 | $ | 10 | $ | 0.15 | ||||||||
Gain on bargain purchase | — | — | (317 | ) | (5.37 | ) | — | — | ||||||||||||
Acquisition related costs | — | — | 21 | 0.36 | — | — | ||||||||||||||
Inventory write-up to fair value | — | — | 23 | 0.39 | — | — | ||||||||||||||
Loss (Gain) on derivative instrument | — | — | 8 | 0.14 | — | — | ||||||||||||||
|
— | — | 11 | 0.19 | — | — | ||||||||||||||
Tax effects of adjustments | — | — | (12 | ) | (0.22 | ) | — | — | ||||||||||||
Adjusted Net Income | $ | 24 | $ | 0.38 | $ | 29 | $ | 0.50 | $ | 10 | $ | 0.15 | ||||||||
(a) | Adjusted operating income is defined as operating income adjusted for acquisition related costs and fair market valuation of inventory. Adjusted net income is defined as net income adjusted net of tax for gain on bargain purchase, acquisition related costs, fair market valuation of inventory, and loss (gain) on derivative. Adjusted operating income and adjusted net income are not necessarily indicative of results that may be generated in future periods. | |
E |
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