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Rayonier (RYN) Hurt by Soft Demand, Low Construction Activity
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Rayonier Inc.’s (RYN - Free Report) performance is likely to be affected due to softer end-market demand for pulp products and subdued residential construction activity amid the high interest rate environment. Moreover, competition from national and local players and substitutes adds to its woes.
Rayonier’s Pacific Northwest segment is witnessing a decline in pricing due to softer end-market demand for pulp products and subdued residential construction activity. This is likely to hurt the company’s profitability in the near term. We project its Pacific Northwest segment’s total revenues to decline 13.1% in 2023 on a year-over-year basis.
Apart from the adverse impact on residential construction activity, the high interest rate environment is making it challenging for any acquisition moves with borrowed funds as the costs are likely to be on the higher side. Rayonier has a substantial debt burden and its total long-term debt as of Jun 30, 2023, was approximately $1.5 billion.
Our estimate indicates a year-over-year increase of 34.4% in the company’s interest expenses this year. Further, high interest rates may make the dividend payout appear less attractive than the yields on fixed-income and money market accounts.
Rayonier’s earnings are subject to fluctuations in foreign exchange rates because a number of its segments export products outside the nation. The New Zealand Timber segment provides timber for mills in New Zealand, as well as exports to other countries. The New Zealand Timber segment has experienced a decrease in export demand as the Chinese market has recovered at a slower rate than anticipated following the end of the COVID-19 pandemic. This has led to a build-up of port inventories. Although port inventories have decreased over time to a normal level, demand remains limited.
RYN faces rivalry from various national and local players, in terms of quality and cost factors. Wood products in general are facing intense competition from a range of substitutes such as non-wood and engineered wood products.
Analysts also seem pessimistic regarding RYN’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings per share has been revised 12.8% and 5.6% downward, respectively, over the past 60 days. Further, RYN currently carries a Zacks Rank #4 (Sell).
Over the past three months, shares of RYN have declined 9.9% compared with the industry's fall of 8.7%.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, Rayonier is well-poised to benefit from its solid timberland portfolio in some of the most productive timber-growing regions of the U.S. South, the Pacific Northwest and New Zealand. RYN focuses on unlocking the long-term value of its higher-and-better-use development and rural property portfolio bodes well for its Real Estate segment’s growth.
Strategic acquisitions and recent developments in biogenetics and cloning support its timberland business growth. It also maintains a healthy balance sheet with an adequate liquidity position.
Image: Shutterstock
Rayonier (RYN) Hurt by Soft Demand, Low Construction Activity
Rayonier Inc.’s (RYN - Free Report) performance is likely to be affected due to softer end-market demand for pulp products and subdued residential construction activity amid the high interest rate environment. Moreover, competition from national and local players and substitutes adds to its woes.
Rayonier’s Pacific Northwest segment is witnessing a decline in pricing due to softer end-market demand for pulp products and subdued residential construction activity. This is likely to hurt the company’s profitability in the near term. We project its Pacific Northwest segment’s total revenues to decline 13.1% in 2023 on a year-over-year basis.
Apart from the adverse impact on residential construction activity, the high interest rate environment is making it challenging for any acquisition moves with borrowed funds as the costs are likely to be on the higher side. Rayonier has a substantial debt burden and its total long-term debt as of Jun 30, 2023, was approximately $1.5 billion.
Our estimate indicates a year-over-year increase of 34.4% in the company’s interest expenses this year. Further, high interest rates may make the dividend payout appear less attractive than the yields on fixed-income and money market accounts.
Rayonier’s earnings are subject to fluctuations in foreign exchange rates because a number of its segments export products outside the nation. The New Zealand Timber segment provides timber for mills in New Zealand, as well as exports to other countries. The New Zealand Timber segment has experienced a decrease in export demand as the Chinese market has recovered at a slower rate than anticipated following the end of the COVID-19 pandemic. This has led to a build-up of port inventories. Although port inventories have decreased over time to a normal level, demand remains limited.
RYN faces rivalry from various national and local players, in terms of quality and cost factors. Wood products in general are facing intense competition from a range of substitutes such as non-wood and engineered wood products.
Analysts also seem pessimistic regarding RYN’s earnings growth prospects. The Zacks Consensus Estimate for 2023 and 2024 earnings per share has been revised 12.8% and 5.6% downward, respectively, over the past 60 days. Further, RYN currently carries a Zacks Rank #4 (Sell).
Over the past three months, shares of RYN have declined 9.9% compared with the industry's fall of 8.7%.
Image Source: Zacks Investment Research
Despite the above-mentioned concerns, Rayonier is well-poised to benefit from its solid timberland portfolio in some of the most productive timber-growing regions of the U.S. South, the Pacific Northwest and New Zealand. RYN focuses on unlocking the long-term value of its higher-and-better-use development and rural property portfolio bodes well for its Real Estate segment’s growth.
Strategic acquisitions and recent developments in biogenetics and cloning support its timberland business growth. It also maintains a healthy balance sheet with an adequate liquidity position.
Stocks to Consider
A couple of better-ranked stocks that investors may consider are Weyerhaeuser Company (WY - Free Report) , Trex (TREX - Free Report) and Boise Cascade (BCC - Free Report) . Each of these companies presently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The consensus estimate for Weyerhaeuser’s current-year EPS has been raised 6.3% over the past month to $1.19.
The Zacks Consensus Estimate for TREX’s 2023 EPS has moved 1.7% northward over the past month to $1.79.
The consensus mark for Boise Cascade’s ongoing year’s EPS has been raised 31.6% over the past two months to $11.75.