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Why Is Rayonier (RYN) Up 3.9% Since Last Earnings Report?

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A month has gone by since the last earnings report for Rayonier (RYN - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Rayonier due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Rayonier Surpasses Q2 Earnings & Revenue Estimates

Rayonier recorded second-quarter 2020 pro forma net income per share of 11 cents, which surpassed the Zacks Consensus Estimate of a cent. The company’s better-than-expected performance reflects increase in operating income in the real estate and trading segments. However, the figure is down from the 14 cents per share reported in the year-ago period.

Revenues were up 5.8% year over year to $195.6 million. Moreover, the revenue figure outpaced the Zacks Consensus Estimate of $147.9 million.

During the second quarter, the company closed the acquisition of Pope Resources, which has expanded the scale of its Pacific Northwest timberland portfolio. Moreover, management remains encouraged by the resiliency of the company’s business and commented that “Housing construction and repair and remodeling activity have rebounded sharply, driving record highs for wood products prices throughout the U.S.”

Segmental Performance

The company has revised its reportable business segments, adding one additional segment, referred as the "Timber Funds” segment. This is because of the Pope Resources acquisition. This new segment represents the operations of the three private equity timber funds included in the transaction – Fund II, Fund III and Fund IV. Rayonier owns 20% of Fund II, 5% of Fund III and 15% of Fund IV, and is also the managing member of the Funds.

During the second quarter, operating income at the company’s Southern Timber segment came in at $11.2 million, down from the prior-year quarter’s $14.7 million. This downside resulted from lower non-timber income, net-stumpage prices, and higher indirect and overhead expenses. However, these downtrends were partially offset by higher volumes and lower depletion rates.

The Pacific Northwest Timber segment reported an operating loss of $6.7 million, much wider than the operating loss of $3.8 million posted in second-quarter 2019. This was mainly due to lower net stumpage prices, non-timber income and higher depletion rates, overhead costs and other variable costs.

The New Zealand Timber segment recorded operating income of $5 million, down from the year-earlier number of $12.8 million. Results indicate lower net stumpage prices, volumes and unfavorable foreign-exchange impact partly negated by lower depletion rates, roading costs, overhead costs and higher non-timber income.

The Timber Funds segment generated second quarter harvest volumes of 90,000 tons, sales of $7.5 million and operating loss of $1.9 million. Pro forma sales and pro forma operating income were $1.7 million and $0.1 million, respectively.

Real Estate’s operating income of $24.8 million was significantly up from the year-ago figure of $15.5 million. This chiefly resulted from a higher number of acres sold, partially muted by a decrease in weighted-average prices.

The Trading segment recorded an operating income of $0.1 million in the quarter, against an operating loss of $0.2 million reported in the year-ago quarter.

Liquidity

Rayonier ended the second quarter with $94.8 million in cash and cash equivalents, up from $68.7 million recorded as of Dec 31, 2019. However, total long-term debt was $1.35 billion, up 38.3% from $973.1 million as on Dec 31, 2019.

Outlook

The company projects current-year net income attributable to Rayonier of $38-$43 million, earnings per share of 27-31 cents, pro forma earnings per share of 17-21 cents and adjusted EBITDA of $240-$260 million. The revised full-year Adjusted EBITDA outlook reflects anticipated partial-year contribution of $17-$20 million from the acquired Pope Resources assets.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month. The consensus estimate has shifted 60% due to these changes.

VGM Scores

Currently, Rayonier has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Rayonier has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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