Rayonier Advanced Materials (NYSE:RYAM) Q3 2025 Earnings Call November 05, 2025 09:00 AM ET Speaker0Good morning and welcome to the Rayon Third Quarter 2025 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open to questions with instructions to follow at that time. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. Mickey Walsh, Treasurer and Vice Presid ...

Core Insights - Rayonier Advanced Materials reported a revenue of $353 million for the quarter ended September 2025, reflecting a 12% decrease compared to the same period last year [1] - The company's EPS was -$0.07, an improvement from -$0.12 in the year-ago quarter, but did not meet the Zacks Consensus Estimate of -$0.07 [1][3] - The revenue fell short of the Zacks Consensus Estimate of $376.4 million by 6.22% [1] Revenue Performance - High-Yield Pulp revenue was $24 million, exceeding the average estimate of $21.15 million from two analysts [4] - Eliminations revenue was reported at -$7 million, slightly better than the estimated -$8 million [4] - Paperboard revenue was $39 million, below the average estimate of $48.45 million [4] EBITDA Analysis - EBITDA from operations for Paperboard was $1 million, significantly lower than the estimated $7.25 million [4] - Corporate EBITDA from operations was -$14 million, matching the average estimate [4] - High-Yield Pulp EBITDA from operations was -$9 million, worse than the estimated -$3.3 million [4] Stock Performance - Rayonier Advanced Materials shares have returned -13.1% over the past month, contrasting with the Zacks S&P 500 composite's +2.1% change [3] - The stock currently holds a Zacks Rank 5 (Strong Sell), indicating potential underperformance against the broader market in the near term [3]

Financial Performance & Outlook - Clearwater reported Net Sales from continuing operations of $399 million in Q3 2025, a 3% increase compared to Q3 2024 and a 6% increase compared to Q2 2025[10] - The company experienced a Net Loss from continuing operations of $54 million in Q3 2025, which includes a non-cash goodwill impairment of $45 million[10, 11] - Adjusted EBITDA from continuing operations was $178 million with a margin of 4%, towards the higher end of the guidance range[10, 11] - Q4 2025 Adjusted EBITDA is projected to be between $13 million and $23 million, influenced by seasonality and a major maintenance outage at the Augusta, GA mill costing approximately $16 million[15] - For FY 2026, revenue is projected to be $145 billion to $155 billion, with a capacity utilization rate in the mid-80% range[15] Strategic Initiatives & Industry Trends - The company is targeting Adjusted EBITDA margins of 13% to 14% across the paperboard industry cycle, aiming for a 40-50% Adjusted EBITDA to free cash flow conversion rate, or over $100 million per year[5] - Clearwater is focused on reducing its fixed cost structure by $30 million to $40 million in 2025, with current tracking suggesting savings of approximately $50 million[5] - The company is exploring options to expand its product offering, including post-consumer recycled content, compostable plates, lightweight folding carton, poly-free coatings/barriers, unbleached paperboard grade (CUK), and recycled paperboard grade (CRB)[7] - Industry trends indicate a modest shipment growth expected in 2025 and a demand growth of approximately 3% projected for 2026[8] - Bleached paperboard net exports are expected to improve in 2025, with imports forecasted to decrease by approximately 4% and exports forecasted to decrease by approximately 2% compared to 2024[8]

Core Insights - Metsä Board reported a comparable operating loss of €45.6 million in Q3 2025, a significant decline from a profit of €41.9 million in Q3 2024 [1] - Sales decreased to €441.2 million in Q3 2025, down from €499 million in the same quarter of the previous year [1] - The company achieved a net cash flow from operations of €122 million in Q3 2025, a substantial increase from €4.6 million in Q3 2024 [1] Financial Performance - Working capital releases in Q3 2025 totaled approximately €120 million, with a target of an additional €150 million release by the end of 2025 [2] - Paperboard deliveries fell to 332,000 tonnes in Q3 2025, down from 388,000 tonnes in Q3 2024 [2] - Average paperboard prices remained stable compared to the previous quarter [2] Market Conditions - The paperboard market is described as challenging due to weak consumer demand, US tariffs, and overcapacity [3] - Production of paperboard, BCTMP, and pulp has been curtailed to manage market conditions and free up working capital [3] - The annual maintenance shutdown at the Husum integrated mill and an investment shutdown at the Simpele paperboard machine significantly impacted production volumes and profitability [3] Pulp Market Dynamics - Demand for market pulp has been weak in Europe and China, leading to a decline in pulp prices [4] - Pulp production at Metsä Fibre's Joutseno mill has been paused for four months since June [4] - The overall impact of pulp on Metsä Board's performance in Q3 2025 was "clearly negative" [5] Strategic Initiatives - The company has initiated a cost savings and profitability improvement program aimed at increasing its EBITDA run-rate by €200 million by the end of 2027 [5] - The program is progressing as planned in Q3 2025 [5] Future Outlook - No specific operating result guidance was provided for upcoming quarters, but the company expects positive cash flow from operations [6] - A slight seasonal decrease in paperboard delivery volumes is anticipated from the previous quarter [6] - Results for Q4 2025 may include insurance claims related to past incidents at Metsä Fibre's bioproduct mill [6] External Factors - Falling pulpwood prices in Finland and Sweden are expected to support profitability from 2026 [7] - Exchange rate movements, including hedge effects, are projected to negatively impact Q4 2025 and Q1 2026 [7] - The CEO highlighted that high pulpwood prices and a weak dollar are affecting the competitiveness of European paperboard and pulp producers [8]

Financial Data and Key Metrics Changes - In Q2 2025, revenue was $340 million, down $79 million year-over-year. Operating loss was $1 million, a decline of $29 million compared to the prior year. Adjusted EBITDA was $28 million, a decrease of $40 million year-over-year [35][36][37] - Full year 2025 adjusted EBITDA guidance was revised to a range of $150 million to $160 million, implying second half EBITDA of approximately $105 million to $115 million [37] Business Line Data and Key Metrics Changes - In the cellulose specialties segment, net sales decreased by $33 million to $208 million, with a 3% increase in sales prices offset by a 15% decline in sales volumes. Operating income declined by $21 million year-over-year to $29 million [38] - The biomaterials segment saw net sales decline by $2 million year-over-year to $6 million, with adjusted EBITDA margin dropping to 17% from 25% in the prior year [39] - The paperboard segment's net sales decreased by $13 million year-over-year to $47 million, reflecting a 23% decline in sales volumes and a 3% decrease in prices [40] - The high yield pulp segment experienced a net sales decrease of $4 million year-over-year to $29 million, driven by an 11% decline in sales prices [41] Market Data and Key Metrics Changes - The company faced approximately $59 million in EBITDA headwinds in 2025, primarily from tariff-related uncertainty, foreign exchange losses, operational disruptions, and noncash environmental charges [6][7][8] - The cellulose specialty market is expected to grow, with industry analysts forecasting sustained annual price increases of approximately 4% to 6% [19] Company Strategy and Development Direction - The company plans to nearly double its EBITDA over the next two years, focusing on accelerating revenue growth, expanding margins, and achieving exceptional returns on strategic growth investments [5][6] - A divestiture of non-core paperboard and high yield pulp businesses is anticipated, transforming the company into a more focused entity on core businesses [17][18] - The company aims to capture market share growth opportunities in the cellulose specialties market, leveraging its excess capacity [18][19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence that the extraordinary challenges faced in 2025 are largely behind them, with expectations for accelerating growth and profitability in subsequent quarters [6][8] - The company highlighted a strong liquidity position of approximately $202 million, including $71 million in cash, which supports its strategic initiatives without shareholder dilution [31] Other Important Information - The company is targeting around $10 million in corporate expense reductions and anticipates $20 million in operational savings from various initiatives [21] - The biomaterials initiative is expected to generate significant cash flows from high-value products, with a projected annual EBITDA contribution of $8 million to $10 million from the Tardis bioethanol project [25][26] Q&A Session Summary Question: Timeline for dissolving wood pulp fluff product approval for sale in China - Management indicated that trials are ongoing, and if successful, commercialization is expected as they approach 2026 [43][44] Question: Structural cost reduction initiatives and timing of execution at Temiscaming - Most of the $24 million capital for cost savings will be spent in 2025, with expected realization of $30 million in savings in 2026 [47][49] Question: Incremental EBITDA within cellulose specialties and capital deployment in 2027 - The $30 million growth is tied to the substitution of cellulose specialties for commodities, with a focus on high-return projects for capital deployment [56][64] Question: Confidence in ramping up biomaterials business and market share - Management expressed high confidence in ramping up construction and commercialization of biomaterials projects, with commercial agreements in place to support market entry [83][84]

Financial Performance & Targets - Clearwater reported Net Sales from continuing operations of $391.8 million in Q2 2025[10, 21] - Net income from continuing operations was $4 million[10] - Adjusted EBITDA from continuing operations reached $40 million with a 10% margin[10] - The company is targeting Adjusted EBITDA margins of 13% to 14% across the cycle, with a 40-50% Adjusted EBITDA to free cash flow conversion rate, or $100M+ per year[5] - Q3 2025 Adjusted EBITDA is projected to be $10 to $20 million[14] Market Trends & Outlook - Industry SBS shipments decreased by 3% in Q2 2025 compared to Q1 2025, while unmade SBS orders increased by 14%[8] - Demand growth of approximately 3% is projected for 2026[8] - Imports are forecasted to decrease by approximately 4% in 2025 compared to 2024, and exports are forecasted to decrease by approximately 2%[8] - Industry operating rates were at 83% in Q2 2025, down from 84% in Q2 2024[9] - The company assumes capacity utilization at approximately 85% for FY 2025, with revenue between $1.5 to $1.6 billion[14] Strategic Initiatives & Capital Allocation - Clearwater is focused on reducing its fixed cost structure by $30-40 million in 2025, with 10% reductions in positions[5] - The company repurchased $4 million of shares in Q2 2025, and $18 million since the new $100 million authorization in November 2024[11] - Capital expenditures are expected to be $80-90 million, including large project carryover spend[14] - The target leverage ratio is 1-2x[16]

Financial Performance - In Q1 2025, the company reported an 8% decline in revenue and a 67% reduction in adjusted EBITDA compared to Q1 2024, which was below expectations [6][10] - The financial foundation remains solid with liquidity of $272 million and a net secured debt reduction to $624 million, resulting in a net secured leverage ratio of 2.9 times covenant EBITDA [10][16] Business Segment Performance - In the Cellular Specialty segment, quarterly net sales decreased by $5 million to $201 million, with operating income down $7 million to $31 million due to higher input costs and operational challenges [11][12] - The cellulose commodities segment saw net sales decline by $19 million to $75 million, with operating results improving by $6 million year-over-year to a loss of $13 million [12][13] - The new biomaterials segment maintained steady net sales at $7 million, with operating income flat at $2 million [13] - Paperboard segment net sales decreased by $4 million to $49 million, resulting in an operating loss of $2 million, down $10 million [14] - High yield pulp segment net sales declined by $3 million to $31 million, with operating losses increasing to $7 million due to lower market pricing and reduced volumes [15][29] Market Dynamics - The company faces significant challenges from tariffs, particularly a 25% tariff imposed by China on US-sourced cellulose commodities, affecting approximately $85 million of annual revenue [9][10] - The company is actively mitigating tariff risks through customer advocacy, market diversification, and operational adjustments [18][21] Strategic Direction - The company plans to focus on tariff mitigation actions, increase production of non-fluff commodities, and pursue high-return, low-risk strategic investments [19][30] - The biomaterials growth strategy remains intact, with key projects expected to advance and final investment decisions anticipated in the second half of the year [20][30] Management Commentary - Management acknowledged the challenging start to the year and ongoing uncertainties in the global market but expressed confidence in the resilience of the core business [81][82] - The company has lowered its full-year guidance for adjusted EBITDA to a range of $175 million to $185 million, reflecting the impact of tariffs and production issues [10][22] Other Important Information - The company expects unfavorable foreign exchange adjustments of $5 million due to a weakened US dollar against the Canadian dollar and euro [23] - Maintenance capital expenditure remains at $85 million, primarily driven by extended planned maintenance outages [24] Q&A Session Question: Conditions in the fluff pulp market with China's retaliatory tariffs - Management indicated that some Chinese customers continue to place orders but do not expect this to last long due to tariff costs, leading to a pivot towards non-tariff markets like India and Africa [35][36] Question: Evolution of volumes following Liberation Day - Management noted that volumes were lower than expected due to pre-orders and concerns about tariffs, with a significant drop in orders during April, but a resumption of orders was expected in May [40][44] Question: Evolution of paperboard guidance for 2025 - Management confirmed that the risk of tariffs on paperboard did not materialize, and pricing is expected to decrease by approximately 5% due to increased supply from new capacity [47][50]

Financial Performance and Key Metrics - In Q1 2025, the company reported an 8% decline in revenue and a 67% reduction in adjusted EBITDA compared to Q1 2024, which was described as disappointing [5][9] - The company ended the quarter with liquidity of $272 million and a net secured debt reduction of $624 million, resulting in a net secured leverage ratio of 2.9 times covenant EBITDA [8][14] Business Segment Performance - In the Cellular Specialty segment, quarterly net sales decreased by $5 million to $201 million, with a 2% sales price increase offset by a 2% decline in sales volume [9][10] - The cellulose commodities segment saw net sales decline by $19 million to $75 million, with operating results improving by $6 million year over year to a loss of $13 million [10][11] - The new biomaterials segment maintained steady net sales at $7 million, with operating income flat at $2 million [11] - Paperboard segment net sales decreased by $4 million to $49 million, reflecting a 4% decrease in sales prices and a 3% decline in sales volumes [12] - High yield pulp segment net sales declined by $3 million to $31 million, with operating losses increasing to $7 million [12][13] Market Dynamics - The company faces significant challenges from tariffs, particularly a 25% tariff imposed by China on US-sourced cellulose commodities, affecting approximately $85 million of annual revenue [7][9] - The company is actively mitigating tariff risks through customer advocacy, market diversification, and operational adjustments [17][20] Strategic Direction and Industry Competition - The company plans to focus on tariff mitigation actions and will likely pause some strategic initiatives, including debt reduction, due to cash flow uncertainties [18][29] - The biomaterials growth strategy remains intact, with expectations for continued investment in US-centric projects [18][29] Management Commentary on Operating Environment and Future Outlook - Management acknowledged the challenging start to 2025 and ongoing uncertainties in the global market but expressed confidence in the resilience of the core business [74][75] - Adjusted EBITDA guidance for 2025 has been lowered to a range of $175 million to $185 million, reflecting various challenges including tariff impacts and production issues [21][22] Other Important Information - The company expects to see a modest improvement in paperboard volumes due to better market access within North America, although prices remain under pressure [27][50] - Corporate costs are projected to increase year over year, primarily due to a non-cash environmental reserve charge and foreign exchange headwinds [28] Q&A Session Summary Question: Conditions in the fluff pulp market with China's retaliatory tariffs - Management indicated that some Chinese customers continue to place orders but do not expect to absorb tariffs long-term, leading to a pivot towards non-tariff markets like India and Africa [31][34] Question: Evolution of volumes following Liberation Day - Management noted that volumes were lower than expected due to pre-orders and that orders resumed in May after a pause in April, with expectations for normalization by Q3 [39][43] Question: Evolution of paperboard guidance for 2025 - Management confirmed that the risk of tariffs on paperboard has reversed, and pricing is expected to decrease by approximately 5% due to increased supply [45][50]

Financial Performance - Revenue for Q1 2025 was $356 million, a decrease of $32 million compared to Q1 2024 [15] - Adjusted EBITDA for Q1 2025 was $17 million, a decrease of $35 million compared to Q1 2024 [15] - Adjusted Free Cash Flow generation was $10 million, an increase of $26 million from Q1 2024 [15] - The company is providing Adjusted EBITDA guidance of $175-$185 million and Adjusted Free Cash Flow guidance of $5-$15 million for 2025 [15] Segment Performance - Cellulose Specialties net sales were $201 million in Q1 2025 [16] - Cellulose Commodities net sales were $75 million in Q1 2025 [22] - Biomaterials net sales were $7 million in Q1 2025 [28] - Paperboard net sales decreased by $4 million, driven by a 4% decline in sales prices and a 3% decline in sales volumes [38] - High-Yield Pulp net sales decreased by $3 million, driven by a 7% decrease in sales prices and a 4% decrease in sales volumes [43] Capital Structure and Liquidity - Adjusted Net Debt was $653 million, a $90 million reduction from Q1 2024 [50] - Net Secured Debt was $624 million, a $97 million reduction from Q1 2024 [50] - Total liquidity was $272 million, including $130 million of cash [48, 50] Tariff Impact and Mitigation - The company faces tariff exposure on Cellulose Specialties (~$160 million revenue), Cellulose Commodities (~$85 million revenue), and Paperboard (~$175 million revenue) [57] - Mitigation strategies include customer advocacy, market diversification, and operational adjustments [52, 56]