Rayonier Earnings: Shareholder Value Initiative Sparks Excitement in an Otherwise Lackluster Market

No-moat-rated Rayonier RYN reported third-quarter results that featured multiple strategic announcements. Aside from disclosing third-quarter operating results, Rayonier announced its intention to sell $1 billion in assets over the next 18 months in an effort to enhance shareholder value. Additionally, the company announced that CFO Mark McHugh will be assuming the role of CEO effective April 1 as current CEO David Nunes is retiring after nine years in the role. While we like Rayonier’s new initiative, lumber markets remain constrained, and we expect that will last through much of next year. As such, we have maintained our $35 fair value estimate.

Rayonier reported solid operating results during the third quarter, as net sales rose roughly 3% year over year and consolidated adjusted EBITDA margins increased 600 basis points. Sales growth for the company was largely attributable to real estate dispositions during the quarter. Nevertheless, we would characterize the quarter’s results as resilient as the company’s two largest segments, southern timber and New Zealand timber, only experienced sales declines of 1% and 3%, respectively. While many of Rayonier’s end markets remained constrained, we are encouraged by developments in the quarter, including a double-digit increase in harvest volumes for the southern timber business. Nevertheless, given current macroeconomic conditions and interest rate levels, we expect demand constraint to persist through much of next year.

The biggest news of the quarter was Rayonier’s announcement of its intention to sell $1 billion in assets over the next 18 months because the company believes there’s a historically wide disconnect between public and private timberland values. Concurrent with this announcement, the company disclosed they have agreed to sell 55,000 acres of timberland in Oregon for $242 million. Given the company’s share price performance this year, we think this is a prudent move by management to improve shareholder value.