Rayonier Advanced Materials Inc. (NYSE: RYAM), a global leader in specialty cellulose materials, has faced a mix of headwinds and opportunities in recent years. With a diverse portfolio spanning high purity cellulose, paperboard, and high-yield pulp, the company has demonstrated resilience, but also grappled with volatility in certain business segments.

In the fiscal year 2023, RYAM reported annual net income of -$102,147,000 on revenue of $1,643,330,000. The company's annual operating cash flow stood at $136,274,000, while its annual free cash flow reached $8,604,000. These figures reflect the challenges the company has navigated, as well as its efforts to optimize its operations and position itself for long-term success.

The first quarter of 2024 saw RYAM's performance exceed expectations, with an adjusted EBITDA of $52 million, a $1 million increase from the same period last year. The high purity cellulose segment was a standout, with EBIT rising by $6 million, driven by higher prices for cellulose specialties and decreased costs for key inputs and logistics, as well as improved productivity. However, the paperboard and high-yield pulp segments experienced declines, with EBITDA decreasing by $1 million and $8 million, respectively, due to lower sales prices and volumes.

Strategic Moves

One of the company's key strategic moves in 2024 was the indefinite suspension of operations at its Temiscaming High Purity Cellulose (HPC) plant. This decision was driven by ongoing market weakness in the non-fluff commodity markets, uncertain availability of affordable wood fiber, and high capital and fixed costs, which collectively resulted in significant operating losses. The suspension is expected to provide marginal positive EBITDA benefits and enhance RYAM's consolidated free cash flow in 2024, with an anticipated improvement of $15 million to $20 million.

In addition to the Temiscaming HPC plant suspension, RYAM announced the sale of its refund rights, including interest, related to softwood lumber duties paid from 2017 through 2021 for $39 million. This transaction not only bolsters the company's financial flexibility but also aligns with its strategic goal to reduce debt by $70 million in 2024.

Business Overview

RYAM's business overview highlights its three key segments:

High Purity Cellulose:

This segment is a global leader in specialty cellulose materials, offering a broad range of high purity cellulose specialties used in the production of a variety of specialty chemical products, including liquid crystal displays, filters, textiles, and performance additives for pharmaceutical, food, and other industrial applications.

Paperboard:

RYAM produces a unique, lightweight multi-ply paperboard product, which is used for production in the commercial printing, lottery ticket, and high-end packaging sectors.

High-Yield Pulp:

The company also produces a bulky, high-yield pulp product that is used by paperboard producers, as well as in traditional printing, writing, and specialty paper manufacturing.

Outlook

In the high purity cellulose segment, RYAM expects cellulose specialties prices to increase by a low single-digit percentage in 2024 compared to 2023, as the company continues to prioritize value over volume. Sales volumes for cellulose specialties are expected to be comparable to 2023, with increases in market share gains resulting from a competitor's plant closure and a modest rise in ethers sales, partially offset by lower acetate volumes due to customer destocking and a one-time favorable impact from a change in customer contract terms in the prior year.

The paperboard segment is expected to achieve EBITDA in the range of $50 million to $60 million in 2024, with prices projected to remain consistent with the first quarter and sales volumes expected to increase due to rising customer demand. However, raw material prices are anticipated to increase due to higher purchased pulp prices.

In the high-yield pulp segment, RYAM expects EBITDA in the range of $5 million to $10 million in 2024. The company anticipates a slight increase in high-yield pulp prices in the second quarter, with further rises expected in the second half of the year, along with increased sales volumes.

Liquidity

RYAM's liquidity position remains strong, with $199 million in liquidity at the end of the first quarter of 2024, including $55 million in cash, $131 million available under its ABL facility, and $13 million from its French factoring facility. The company's total debt stood at $798 million, with net secured debt of $721 million and a net secured leverage ratio of 4.4x, well within its original covenant test.

Recent Developments

Looking ahead, RYAM is focused on refinancing its 2026 senior notes, with a particular emphasis on reducing debt. The company is also progressing with the sales process of its paperboard and high-yield pulp assets, with interest remaining high among prospective buyers following the announcement of the Temiscaming HPC plant suspension.

Additionally, RYAM is investing in its biomaterials strategy, with the successful launch of its Tartas Bioethanol plant in France, which is expected to contribute $3 million to $4 million in EBITDA in 2024, with projections of $8 million to $10 million annually from 2025 as the company achieves targeted production levels. The company also has a pipeline of other biomaterials projects, including a proposed bioethanol plant in Fernandina Beach and a new prebiotics additives plant at its Jesup facility, all of which are expected to be financed with green capital.

Conclusion

Despite the challenges faced, RYAM remains committed to optimizing its asset portfolio, reducing debt, and capitalizing on the growing demand for sustainable products through its biomaterials initiatives. The company's guidance for 2024 reflects its efforts to navigate the current market environment, with an expected EBITDA range of $180 million to $200 million and adjusted free cash flow guidance of $80 million to $100 million.

As RYAM continues to execute its strategic plan, investors will be closely watching the company's progress in unlocking the full potential of its diverse business segments and positioning itself for long-term success in the specialty cellulose materials market.