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Rayonier AM CEO Paul Boynton
Jax Daily Record Tuesday, Aug. 25, 201512:00 PM EST

Contract dispute hits Rayonier AM

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by: Mark Basch Contributing Writer

Rayonier Advanced Materials Inc.’s already beleaguered stock took another major hit last week when the company revealed a contract dispute with its largest customer.

Jacksonville-based Rayonier AM and the customer, Eastman Chemical Co., filed competing lawsuits in separate courts asking for an interpretation of certain language in their contract that covers sales of cellulose specialties products to Eastman.

Eastman accounted for 31 percent of Rayonier AM’s sales in 2014, so any disruption in that agreement would have a major impact on Rayonier AM.

Disappointing earnings results have already sent Rayonier AM’s stock down since it was spun off from Rayonier Inc. 14 months ago, and the company’s disclosure about the lawsuits produced another drastic selloff.

Rayonier AM fell as much as $7.47 to $6 Wednesday before closing the day at $7.62. The stock had traded in the $40s in July 2014, shortly after the spinoff.

The dispute involves “meet or release” clauses in the supply agreement between the companies. Basically, if Eastman can get a better price from a different supplier, Rayonier AM is obligated to meet that price or else allow Eastman to buy products from the other supplier.

Rayonier AM contends the contract limits the amount that Eastman can buy from other suppliers, but Eastman says the meet or release clause applies to all of the products it buys from Rayonier AM, according to a Securities and Exchange Commission filing by Rayonier AM.

Eastman filed its lawsuit in its home state of Tennessee on Aug. 4 and Rayonier AM countered with its lawsuit Aug. 13 in Gwinnett County, Ga. Rayonier AM, which has its largest plant in Jesup, Ga., said the contract provides that it is covered under Georgia law.

Eastman is a publicly traded company, but it did not file any disclosure about the legal dispute.

Rayonier AM filed its SEC disclosure Tuesday, after the market closed, but when the stock dropped so sharply Wednesday, it issued a news release to try and clarify the situation.

“Pricing negotiations are always spirited debates around a number of factors and threatened or actual litigation is one tool that parties can employ. Although Rayonier Advanced Materials would have preferred to address any concerns or negotiations around pricing privately, Eastman’s Aug. 4 action required us to take the necessary steps to protect our contractual arrangement,” CEO Paul Boynton said in the release.

D.A. Davidson analyst Steven Chercover said in a research note that Wednesday’s stock selloff seemed to be overdone, but he did cut his price target on Rayonier AM’s stock from $23.50 to $12.50.

“We have been one of Rayonier AM’s biggest supporters on the notion that the specialty cellulose market was somehow more genteel than commodity pulp. Evidently it’s just as mercenary as every other commodity,” Chercover said.

Web.com hit by hackers

Rayonier AM wasn’t the only Jacksonville-based company to take a hit in the market Wednesday.

Web.com Group Inc.’s stock fell $2.25 to $21.52 after the company announced an “unauthorized breach” of its computer systems that may have compromised the credit-card information of about 93,000 of its 3.3 million customers.

Web.com, which provides website development services for business, said it has contacted the affected customers and is taking steps to protect them, including providing a year of credit monitoring protection.

“The security of our customer information is a high priority for Web.com. Our goals are simple — to protect our clients from Internet attacks and, in the event that an attack succeeds, to fix the problem immediately,” CEO David Brown said in a news release.

Latitude 360 to restate results

Latitude 360 Inc. reported a second-quarter loss last week, while also saying it will have to restate its previously reported losses for the first quarter and for 2014.

The company said a number of items were valued incorrectly, which will result in a change in the previously reported results for those periods.

In its regular quarterly report filed with the SEC, Latitude 360 reported a net loss of $4.3 million for the second quarter. Sales did rise by 7 percent to $4.27 million.

In a separate SEC filing, the company said it would be restating those previous results. Latitude 360 had reported a net loss of $50.1 million for 2014 and a loss of $9.1 million in the first quarter this year.

Jacksonville-based Latitude 360 operates restaurant and entertainment venues in Jacksonville, Pittsburgh and Indianapolis, and has announced plans to open venues in several more cities.

Stein Mart increases earnings

Stein Mart Inc. last week reported adjusted earnings of 10 cents a share for the second quarter ended Aug. 1, up from 6 cents the previous year.

“Our second quarter was the best we’ve had in many years,” CEO Jay Stein said in a conference call with analysts.

The Jacksonville-based fashion retailer increased sales at existing stores and also continues to expand its store base, Stein said.

“The result, as promised, is higher earnings as we leveraged our well controlled expenses against those higher sales,” he said.

Stein Mart had 269 stores in operation at the end of the second quarter, up from 265 a year earlier, and it plans to open nine more stores in the fall. The company also expects to open at least 12 more stores in 2016, Stein said.

Analyst upgrades FIS

Fidelity National Information Services Inc., or FIS, reached new highs after announcing its $9.1 billion deal to buy SunGard. At least one analyst sees the stock going even higher.

Avondale Partners analyst Peter Heckmann raised his rating on Jacksonville-based FIS from “market perform” to “outperform” last week in the wake of the merger announcement. He set a price target at $80 for the stock, which was trading at $70.27 at the time.

“We thought management did an effective job explaining the strategic value of the deal,” Heckmann said in his research note. “Management expects the acquisition to be immediately accretive to earnings and approximately 20 percent accretive to EPS once cost synergies are achieved by the end of 2017.”

Heckmann also likes the strategic fit.

“The combination of FIS and SunGard will create a company that is uniquely positioned to provide transformational consulting services and market software, data processing, and business process outsourcing to large global financial institutions,” he said.

Duos Technologies grows revenue

Duos Technologies Group Inc. last week reported an adjusted operating loss of $298,393 for the second quarter, but revenue rose 40 percent to $1.6 million.

Jacksonville-based Duos provides intelligent security analytical technology solutions. This was the company’s first quarter since it became public through a merger.

In a news release, CEO Gianni Arcaini said the company expects to grow revenue by 25 percent to 35 percent this year. He also said to “stay tuned for some major announcements later this year.”

Scribe lifts General Employment earnings

General Employment Enterprises Inc. last week reported a profit of $118,000 for the third quarter ended June 30, reversing a loss of $634,000 in the year-earlier period.

This was the Illinois-based staffing company’s first quarter of results since it acquired Jacksonville-based Scribe Solutions Inc.

Scribe produced almost $1 million in revenue in the quarter, helping General Employment increase total revenue by $1.53 million to $11.5 million.

Interline boosts Home Depot outlook

The Home Depot Inc. last week raised its earnings forecast for the current year, in part due to its pending acquisition of Jacksonville-based Interline Brands Inc.

Home Depot announced its agreement with Interline last month and expects to complete the deal during its fiscal third quarter, which ends on Nov. 1.

The company had been projecting earnings to rise by 11 percent to 12 percent in fiscal 2014 to $5.24 to $5.27 a share, but it now expects earnings to grow by 13 percent to 14 percent to $5.31 to $5.36.

Home Depot last week reported earnings for the six months ended Aug. 2 rose 17 percent to $2.94 a share.

Drone Aviation reports loss

Drone Aviation Holding Corp. reported a net loss of $2.9 million, or 6 cents a share, for the second quarter, with revenue dropping 46 percent to $67,602, according to an SEC filing.

Jacksonville-based Drone Aviation develops specialized lighter-than-air aerostats and tethered drones. Just as it said in its first quarter report, the company said its second-quarter revenue came mainly from small aerostat products and accessories while it focused on development of a new product line.

American Enterprise records profit

American Enterprise Bankshares Inc. last week reported net income of $434,000, or 14 cents a share, for the first six months of this year, reversing a loss in the first half of 2014.

The Jacksonville-based parent company of American Enterprise Bank of Florida said the bank has posted four consecutive quarters of positive results.

NAC Global reports loss

NAC Global Technologies Inc. recorded a net loss of $175,821 for the second quarter, while revenue rose 73 percent to $196,885, according to its quarterly SEC filing.

NAC makes harmonic gearing technology, which is used in the automation, robotics and defense industries. Its corporate office is in Jacksonville, but most of its activities take place in Port Jervis, N.Y.

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