Rayonier Inc. 2026 Q2 Earnings Call

Welcome to Rayonier's Investor Teleconference, covering second quarter earnings. Our earning statements and financial supplement were released yesterday afternoon and are available on our website at rayonier.com. I would like to remind you that in these presentations, we include forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. Our earnings release in Forms 10-K and 10-Q filed with the SEC list some of the factors that may cause actual results to differ materially from the forward-looking statements we may make. They're also referenced on page two of our financial supplement. Throughout these presentations, we will also discuss non-GAAP financial measures, which are defined and reconciled to the nearest GAAP measures in our earnings release and supplemental materials. With that, let's start our teleconference with opening comments from Mark McHugh, our President and CEO.

Mark? Thanks, Collin. Good morning, everyone.

Before turning to our second quarter results, I'd like to provide a brief update on our merger of equals with PotlatchDeltic, as well as the two timberland transactions we announced yesterday, which further advance our portfolio optimization strategy. Since closing the merger in late January, our team has moved quickly to optimize our organizational structure, capture operational efficiencies, and integrate the two companies' cultures into a shared foundation. We also signed a lease on our new corporate headquarters in Atlanta, which we expect to open in early 2027. I'm proud of our team's execution over the past six months. We've made significant progress on integration initiatives, and we remain on track to achieve our run rate synergies targets. Moving to the transactions we announced yesterday. Last week, we closed two timberland transactions with Resource Management Service or RMS.

The transactions comprise the sale of approximately 36,000 acres in southwest Washington for $145 million and the concurrent acquisition of approximately 57,000 acres in Texas and Alabama for $146 million, subject to customary closing adjustments. The transactions were structured as a tax-efficient like-kind exchange and are expected to be accretive to cash flow on a timber-only basis with further upside potential from HBU Real Estate sales and land-based solutions opportunities. These transactions reflect our continued focus on portfolio optimization as we look to concentrate our capital in markets with the strongest cash flow attributes and the most favorable long-term growth prospects. Notably, we're able to advance these objectives through a land exchange transaction rather than an outright acquisition, thereby preserving our future capital allocation flexibility. Now let's move on to our second quarter results.

I'll start with a review of our overall financial results, as well as our segment level performance, after which Wayne will review key liquidity and balance sheet metrics, as well as our outlook for the balance of the year. For the second quarter, Rayonier reported GAAP earnings of $19 million, or $0.06 per share. Adjusting for pro forma items, the majority of which were related to the merger, net income was $32 million, or $0.10 per share. Adjusted EBITDA in the second quarter was $124 million, which was well above the prior year period, primarily due to the contributions from the PotlatchDeltic operations, along with solid operational performance across our segments. Moving on to our segment results, let's start on page nine with our Southern Timber segment.

Adjusted EBITDA in the second quarter of $53 million was 85% above the prior year quarter as increased harvest volumes more than offset lower pricing. Total harvest volumes more than doubled versus the prior year quarter, primarily due to the addition of roughly 1.5 million tons of volume from the PotlatchDeltic timberland. Turning to pricing in the Southern Timber segment, recall the beginning last quarter, our reported pricing reflects delivered log prices rather than net stumpage realizations consistent with the prevalent mode of sale across the combined portfolio. In sawlog markets, demand was steady as lumber prices climbed throughout the second quarter. Looking ahead, we expect that sawmills in the U.S. South will continue to gain market share from Canada and gradually increase production in response to a more favorable lumber pricing environment, which should support stronger sawlog demand within our southern footprint.

In pulpwood markets, challenging conditions persisted during the quarter. Demand remained subdued while historically dry weather across the U.S. South, coupled with salvage harvesting associated with the fires in Florida and Georgia, further added to supply. That said, we believe that pulpwood pricing has generally stabilized in our primary market areas, and we're encouraged by recent gains in container board pricing, as well as improved mill operating rates for our customers. As it relates to the fires in the U.S. South, approximately 9,300 acres of our timberlands in Georgia were affected. Following our assessment of the damage, we recorded a casualty loss of approximately $2 million in the second quarter, which was reflected as a pro forma item. Our team moved quickly to initiate salvage operations on the affected tracks, harvesting approximately 50,000 tons during the quarter.

These efforts are now largely complete, and we do not expect any material impacts to our business moving forward. Moving on to our Northwest Timber segment on page 10, second quarter Adjusted EBITDA of $26 million was significantly above the $7 million reported in the prior year quarter. Harvest volumes more than doubled in the second quarter as compared to the prior year period, primarily due to the contribution of 360,000 tons of incremental harvest volume from PotlatchDeltic's Idaho Timberlands. Notably, harvest activity in Idaho was strong during the second quarter due to drier than normal weather conditions. Improving lumber prices also helped propel sawlog prices higher in Idaho in the quarter, as a significant portion of our sawlog sales in the state are indexed to lumber prices. Turning to Wood Products on page 11.

This segment generated $25 million of adjusted EBITDA in the second quarter, which was above our expectations entering the quarter. Notably, this was the strongest quarterly adjusted EBITDA result that this segment has registered since PotlatchDeltic's third quarter of 2022. Our average lumber price realization was $505 per MBF, and shipments totaled 314 million board feet, in line with our prior guidance. Our average lumber price realization increased by roughly 18%, from $427 per MBF in the first quarter, including the pre-merger period. The improvement in lumber markets during the second quarter was driven primarily by supply side factors, as mill curtailments coupled with higher tariffs on Canadian imports have limited supply. In addition, industry-wide transportation challenges, especially the limited availability of flatbed trucking, have constrained the flow of lumber into certain markets. Our team has been very proactive in navigating these transportation challenges.

Further leveraging rail transportation alongside our established trucking network, we maintained a reliable product flow to customers throughout the quarter. In addition, the increased transportation costs that we've incurred have largely been passed through to customers. Against this backdrop, overall demand was relatively stable, and the seasonal price weakness following the spring building season that we saw in each of the past two years did not materialize this year. In fact, buyers generally encountered less available supply than anticipated during the quarter, which supported pricing. Our home center business also remained healthy through the quarter, which was encouraging as demand from this channel typically tapers off heading into the summer months. Channel inventories remain at normal levels, and pricing has remained fairly stable into the early part of the third quarter, with supply and demand generally in balance. Moving to our Real Estate segment on page 12.

In the second quarter, Real Estate revenue totaled $54 million on approximately 7,500 acres sold at an average price of $6,300 per acre. Sales increased significantly from the prior year quarter due to a higher number of acres sold, partially offset by a slightly lower average price per acre due to the sales mix. Real Estate segment adjusted EBITDA in the second quarter was $38 million, up $20 million from the prior year period. Within Improved Development, sales totaled $6 million. We continue to see broad-based demand at our Wildlight and Heartwood development projects, and activity remains on a favorable trajectory, reflecting the benefit of the investments we've made over the past several years in entitlements, infrastructure, and market development. Meanwhile, the Chenal Valley project in Little Rock, which is relatively more mature, remains well-positioned to provide a steady stream of cash flow moving forward.

Moving to the Rural category, second quarter sales totaled $41 million, consisting of nearly 7,500 acres sold at an average price of roughly $5,400 per acre. The most notable transaction was a 460-acre bolt-on sale to a solar developer for $4.6 million, or roughly $10,000 per acre. This sale underscores the continued interest we are seeing from solar developers across our southern land portfolio. At the end of the second quarter, our pipeline of land under option for lease or sale to solar developers stood at approximately 77,000 acres. More broadly, overall sentiment in the rural land market remains positive, and we continue to achieve strong premiums above timberland value in our rural HBU business. I'll now turn the call over to Wayne to cover key liquidity and balance sheet metrics, as well as our outlook for the balance of the year.

Thanks, Mark. Moving to our capital resources and liquidity. Our cash available for distribution, or CAD, was $177 million through the first six months of 2026, versus $47 million in the prior year period. The significant increase in CAD was primarily driven by the contribution from the PotlatchDeltic businesses, coupled with significantly improved Real Estate results. A reconciliation of CAD to cash provided by operating activities and other GAAP measures is provided on page eight of the supplement. During the second quarter, we repurchased approximately 3.5 million shares at an average price of $20.95 per share, or $72 million in total. We have been very active on this front during the first half of the year, as we have repurchased 4.9 million shares for a total of $103 million. As of the end of the second quarter, we had $126 million remaining on our current share repurchase authorization.