Rayonier Earnings: Near-Term Headwinds Persist Amid Moderating Lumber Demand and Low Prices

Rayonier RYN reported underwhelming first-quarter results as it faced numerous end-market challenges. Compared with the year-ago period, revenue declined 19% and adjusted EBITDA dropped 44%, as weaker end-market demand and macroeconomic headwinds negatively affected the business. While most of these challenges were expected, the severity of the sawtimber and pulpwood price declines was somewhat surprising. As a result, management said it now anticipates results will be toward the lower end of guidance, but it expects some relief in the second half of the year. We’ve decreased our fair value estimate to $34 per share from $38 due to our expectation of lower lumber prices through 2023 than we had previously anticipated.

In the company’s southern timber segment, harvest volume was flat year over year, but a double-digit decline in sawtimber and pulpwood stumpage prices led to a 6% decrease in revenue. Moderating demand for new residential housing and repair and remodel projects continues to weigh on the segment, and these headwinds are likely to persist through the remainder of the year. Rayonier’s Pacific Northwest timber business reported a 26% decrease in revenue year over year, with harvest volume falling roughly 24% amid softer domestic and export demand. During the quarter, worsening market conditions forced Rayonier to defer some planned harvests, which weighed on volume. While delivered pulpwood prices saw double-digit growth, this gain was more than offset by lower domestic sawtimber prices.

Lower prices for lumber weighed on Rayonier’s financial results and have shown no signs of improvement in April. Demand remains constrained as high mortgage rates have decreased housing affordability while inflationary pressures have led to moderating repair and remodel markets. Barring significant curtailments and additional harvest deferments, we expect lumber and timber prices to remain at lower levels through the end of the year.