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Basch Report
Jax Daily Record Thursday, Aug. 15, 201905:20 AM EST

Loss sends Rayonier AM stock to new low

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The company blames “severe price declines for commodity products” for the loss.
by: Mark Basch Contributing Writer

Rayonier Advanced Materials Inc’s stock fell to a new low last week after the company reported its second straight quarterly loss and said it needs to renegotiate its loan terms.

The Jacksonville-based producer of cellulose specialties and other forest products had a net loss of $15 million, or 37 cents a share, for the third quarter.

“The benefits of improved operations and costs are being offset by severe price declines for commodity products, negatively impacting pricing for our high purity cellulose viscose and fluff products as well as for our lumber high-yield pulp and paper products,” CEO Paul Boynton said in Rayonier AM’s quarterly conference call.

Boynton said the losses may impact two covenants in its loan agreements.

“With no near-term recovery in sight, we expect we will be in breach of our covenants when we file our third-quarter results,” he said.

“Therefore, we have engaged in discussions with our lenders to negotiate an amendment to our loan agreement to allow us to navigate the weaker commodity markets.”

Rayonier AM’s stock fell by $2.03 to $2.97 last Thursday after the quarterly report, its lowest level since it split with timber and real estate company Rayonier Inc. into separate public companies in 2014.

Sidoti & Co. analyst Daniel Jacome lowered his rating on Rayonier AM from “buy” to “neutral” after the report.

“There were pricing pressures even in the categories where we thought some revenue growth was likely, such as paperboard,” Jacome said in his research note.

“We think the extended U.S.-China trade dispute accelerated pricing pressure across the pulp markets, while Rayonier AM’s folding carton, paperboard, and lumber product lines experienced more pricing pressure than we estimated, mostly stemming from overcapacity in North America,” he said.

Jacome lowered his price target on Rayonier AM’s stock from $12 to $4, but D.A. Davidson analyst Steven Chercover maintained his “buy” rating and $12 target.

“We recognize that putting new money into Rayonier AM is now a leap of faith, but we are confident that the company will obtain the covenant relief it requires,” Chercover said in his note.

He said Rayonier AM’s assets are worth “substantially more” than the stock’s market price.

“That said, our current target already represents an astronomical rate of return, and requires not just better execution than we have seen of late, but also goodwill from creditors,” he said.

“Anything beyond that will require the gods of international trade and commodity prices to smile benevolently on the company and the industry.”

China issues hit Rayonier Inc.

The U.S.-China trade dispute continues to impact Rayonier Inc., which has timber operations in the Northwest U.S. and New Zealand, in addition to the Southeastern U.S.

The company reported lower second-quarter earnings and also reduced its forecast for the full year, in part because of the impact of the trade dispute on timber markets in China.

Second-quarter earnings dropped in half to 14 cents a share, with revenue falling 25 percent to $184.8 million.

Rayonier also lowered its earnings forecast for the full year from its previous range of 46 cents to 53 cents a share, to a range of 42 cents to 49 cents.

“Overall, I’m pleased with how our team navigated these various market challenges to deliver strong operational results during the quarter,” CEO David Nunes said in the company’s conference call last Thursday.

“Nevertheless, the pricing dynamics in the Pacific Northwest and New Zealand continue to be unfavorable relative to our expectations going into the year. Thus, we have revised our full-year guidance to reflect this,” he said.

FIS sees Worldpay raising earnings

Fidelity National Information Services Inc., or FIS, last week reported higher second-quarter earnings before completing its acquisition of Worldpay Inc. last month.

The Jacksonville-based financial technology company said adjusted earnings rose by 15 cents a share in the quarter to $1.78.

If the merger had been completed, the addition of Worldpay would have given FIS $3.18 billion in adjusted revenue in the quarter.

FIS projects third-quarter adjusted earnings of $1.33 to $1.37 a share and fourth-quarter earnings of $1.47 to $1.53, below its second-quarter results.

However, the company expects the merger to pay off next year as it realizes cost cuts and other benefits from the deal.

“We expect our organic revenue growth rate to accelerate from 6% towards 7% in 2020,” Chief Financial Officer Woody Woodall said in FIS’ conference call.

“Given our success to date with this integration, we now expect the Worldpay acquisition to be accretive (to earnings) in 2020.”

Black Knight market share rises

Jacksonville-based mortgage technology company Black Knight Inc., the dominant company in its industry, slightly increased its market share in the second quarter.

The company provided processing services for 63% of all first mortgage loans in the U.S. as of June 30, up from 62% a year earlier.

Its share of processing for all first and second mortgage loans rose from 52% to 54%.

Black Knight reported second-quarter adjusted earnings of 49 cents a share, 3 cents higher than last year and a penny higher than the consensus forecast of analysts, according to Zacks Investment Research.

However, the company said earnings for the full year are now expected at the low end of its forecast range of $1.90 to $2 a share.

CEO Anthony Jabbour said in a news release the new forecast reflects “an earlier than planned client deconversion that was the result of a decision we made to no longer support a non-core, single-client platform.”

FRP Holdings sells two more properties

After selling a portfolio of 41 industrial buildings in the second quarter of 2018, Jacksonville-based FRP Holdings Inc. sold two more properties in this year’s second quarter.

That nearly completes the liquidation of its heritage properties, the company said in a news release.

All that remain are an office building in Sparks, Maryland, and a vacant lot in Jacksonville under lease to Vulcan Materials Co. that was formerly the headquarters site of Florida Rock Industries Inc.

Florida Rock, which spun off FRP as a separate company, was sold to Vulcan in 2007.

“Suffice to say, our primary task is to redeploy the proceeds of the warehouse sale into higher-performing projects that will conservatively and substantially grow our net asset value over time,” CEO John Baker said in a conference call, according to a transcript of the call posted by FRP.

FRP reported earnings from continuing operations of $2.95 million, or 30 cents a share, for the second quarter.

Kraft Heinz not commenting on possible brand sales

After not issuing a first-quarter report, the Kraft Heinz Co. last week issued midyear results and held its first conference call of the year. 

However, new CEO Miguel Patricio said he was not ready to comment on the possible sale of some businesses, including Maxwell House coffee.

The company’s Downtown Jacksonville plant, which employs about 200, is the last remaining U.S. Maxwell House plant. News reports for several months, most notably from cable business news network CNBC, have said Kraft Heinz has been looking to sell Maxwell House.

Kraft Heinz did say in its midyear report is writing down the value of six brands, including Maxwell House. 

The reduction in Maxwell House’s value is in part “driven by lower expectations of near and long-term net sales growth that were adjusted in the second quarter of 2019 due to anticipated trends in consumer preferences,” the company said in a Securities and Exchange Commission filing.

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