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RA

RAYONIER ADVANCED MATERIALS INC. (RYAM)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was a trough quarter: net sales $340M, GAAP diluted EPS $(5.44) driven by a $337M non-cash Canadian deferred tax asset write-off, and Adjusted EBITDA $28M; 2025 Adjusted EBITDA guidance cut to $150–$160M and Adjusted FCF to $(25)M–$(10)M .
  • Revenue and EBITDA missed consensus; EPS was a major miss due to the non-cash tax charge. Management emphasized headwinds peaked in Q2 and order trends have normalized since May .
  • Segment mix: Cellulose Specialties resilient on price (+3% YoY) but volumes down (-15% YoY); Commodities improved loss on lower non-fluff exposure; Paperboard and High‑Yield Pulp pressured by tariffs, competitive capacity, and China oversupply .
  • Strategic narrative: Long-term plan intact with targeted over $300M run-rate EBITDA by end of 2027; biomaterials pipeline advancing (France bioethanol operational, lignosulfonate restarted; MoUs with Verso Energy and GranBio for e‑SAF/CO₂ utilization) .
  • Potential stock reaction catalysts: guidance reset, visibility on tariff resolution and mix shift, biomaterials FIDs, and Temiscaming turnaround/divestiture path by 2026 .

What Went Well and What Went Wrong

What Went Well

  • Pricing power and resilience: Cellulose Specialties prices +3% YoY; management reiterated “value over volume” strategy with mid single-digit price increases expected for 2025 . Quote: “We will continue to look for inflation plus pricing on our CS business” .
  • Operational and mix improvements: Cellulose Commodities operating loss improved $12M YoY; price +7% with lower non-fluff losses and input costs .
  • Liquidity and balance sheet discipline: Global liquidity $202M at quarter-end (cash $71M; ABL $116M; France factoring $15M); net secured leverage ratio 3.8x covenant EBITDA despite headwinds . Quote: “We maintain strong liquidity totaling approximately $202M… enabling internal funding without shareholder dilution” .

What Went Wrong

  • Tariff/macro shocks and non-cash tax charge: $337M non-cash valuation allowance on Canadian DTA led to GAAP EPS collapse; tariffs and FX weakened results; corporate FX impact ~$2M unfavorable in Q2 .
  • Volume softness and strikes: CS volumes -15% YoY (Tartas labor strike, tariff-related order pauses); Commodities volumes -33% YoY; Paperboard volumes -23% YoY; HYP prices -11% YoY with China oversupply .
  • Guidance cut: 2025 Adjusted EBITDA lowered to $150–$160M (from $175–$185M in Q1), and Adjusted FCF lowered to $(25)M–$(10)M (from $5M–$15M), reflecting extraordinary challenges in H1 .

Financial Results

Consolidated Results vs Prior Periods

MetricQ2 2024Q1 2025Q2 2025
Net Sales ($USD Millions)$419 $356 $340
GAAP Diluted EPS ($)$0.17 $(0.49) $(5.44)
Adjusted EBITDA ($USD Millions)$68 $17 $28

Actual vs Wall Street Consensus (Q2 2025)

MetricConsensusActualSurprise
Revenue ($USD Millions)$385.5M*$340.0MMiss: $45.5M
Primary EPS ($)$(0.233)*$(5.47) (Adjusted EPS proxy)Miss: $(5.24)
EBITDA ($USD Millions)$37.2M*$34.463M (EBITDA) / $28.0M (Adj. EBITDA)Miss: ~$2.7M vs EBITDA

Values retrieved from S&P Global.*

Margins

MetricQ2 2024Q1 2025Q2 2025
Gross Profit Margin %11.5%*6.7%*7.0%*
EBIT Margin %6.7%*(4.2%)*1.0%*
EBITDA Margin %16.2%*4.8%*10.1%*
Net Income Margin %2.6%*(9.0%)*(106.8%)*

Values retrieved from S&P Global.*
Note: Q2 2025 gross margin was $24M on $340M net sales (≈7.0%) .

Segment Breakdown

SegmentNet Sales Q2 2024 ($M)Net Sales Q1 2025 ($M)Net Sales Q2 2025 ($M)Operating Income Q2 2024 ($M)Operating Income Q1 2025 ($M)Operating Income Q2 2025 ($M)
Cellulose Specialties$241 $201 $208 $50 $31 $29
Biomaterials$8 $7 $6 $1 $2 $1
Cellulose Commodities$85 $75 $59 $(21) $(13) $(9)
Paperboard$60 $49 $47 $12 $(2) $0
High‑Yield Pulp$33 $31 $29 $1 $(7) $(7)
Corporate———$(15) $(26) $(15)
Total$419 $356 $340 $28 $(15) $(1)

KPIs (Prices and Volumes)

KPIQ2 2024Q1 2025Q2 2025
CS Avg Price ($/MT)$1,750 $1,750 $1,807
CS Volumes (000 MT)130 111 111
Commodities Avg Price ($/MT)$849 $863 $911
Commodities Volumes (000 MT)96 84 64
Paperboard Avg Price ($/MT)$1,384 $1,321 $1,346
Paperboard Volumes (000 MT)44 37 34
HYP Avg Price ($/MT)$574 $518 $509
HYP Volumes (000 MT)45 48 42

Additional balance sheet and liquidity:

  • Total Debt $746M; Net Secured Debt $688M; consolidated covenant net secured leverage ratio 3.8x .
  • Liquidity $202M (Cash $71M; ABL $116M; France factoring $15M) .

Guidance Changes

MetricPeriodPrevious Guidance (Q1)Current Guidance (Q2)Change
Adjusted EBITDA (Company)FY 2025$175M–$185M $150M–$160M Lowered
Adjusted Free Cash FlowFY 2025$5M–$15M $(25)M–$(10)M Lowered
CS EBITDAFY 2025$237M–$245M $232M–$235M Lowered
Biomaterials EBITDAFY 2025$8M–$10M $8M–$10M Maintained
Commodities EBITDAFY 2025~$(5)M ~$(15)M Lowered
Paperboard EBITDAFY 2025~$25M ~$20M Lowered
High‑Yield Pulp EBITDAFY 2025~$(20)M ~$(20)M–$(25)M Lowered
Corporate CostsFY 2025~$70M ~$70M Maintained
CommentaryFY 2025—“Adjusted for non-cash and isolated issues, guidance would have approximated $200M” Informational

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024 and Q1 2025)Current Period (Q2 2025)Trend
Tariffs/MacroIdentified risk to Paperboard U.S. tariffs; later retaliatory tariffs impacted fluff and CS orders; ~$20–$21M EBITDA impact assumed; order pauses in April “Uncertainty peaked in Q2; CS exports to China now tariff-free; fluff 10% tariff; potential tailwinds from US tariffs on EU/Brazil” Improving outlook
Supply Chain/OperationsJesup fire impact in 2024; extended maintenance cycles; Q1 weather-driven energy costs and equipment issues Tartas strike resolved; facilities running at expected rates; operational challenges largely behind Stabilizing
Cost Reduction$10M corporate and ~$20M operational savings targeted; $24M capex to deliver $30M run-rate in 2026 Most capex spent in 2025; run-rate savings by 2026 entry Executing
Product/Segment StrategyValue-over-volume CS; reduce non-fluff commodities; explore viscose and paper pulp mix Continue price-led CS strategy; trial DWP fluff for China; mix shifting to non-fluff until qualification Consistent
BiomaterialsFrance bioethanol live; lignosulfonate restarted; BioNova JV financing; AGE project development MoUs with Verso Energy (e‑SAF/CO₂) and GranBio (cellulosic SAF); prebiotics GRAS status; FIDs in 2025 Advancing
Regulatory/LegalFernandina bioethanol site plan denied; pursuing remedies Continue legal remedies; confidence in eventual approval Ongoing
Temiscaming PlanIndefinite suspension of HPC; custodial site costs shift to PB/HYP $35M opportunity to restore profitability; product launches (freezer board, oil/grease board, softwood HYP rolls); positioning for 2026 divestiture Active turnaround

Management Commentary

  • CEO framing: “These factors, while meaningful in the short term, are now largely behind us… headwinds peaked in the second quarter and we’re already seeing tangible signs of stabilization and recovery” .
  • Strategic confidence: “Long-term plan remains on track to nearly double our EBITDA over the next two years relative to our revised 2025 outlook… targets over $300 million in run-rate EBITDA by the end of 2027” .
  • Tariffs evolving to tailwinds: “CS and DWP exports to China are tariff free… U.S. tariffs on EU CS (15%) and Brazilian CS (10%) and Brazilian ethanol (50%) enhance positioning” .
  • Capital allocation: “Fund initiatives internally without shareholder dilution; callable debt in 2026 could reduce interest by >$40M/year” .

Q&A Highlights

  • DWP fluff product qualification in China: customer trials underway; potential commercialization as we approach 2026; costs higher due to purity but expected to recapture share lost to tariffs .
  • Cost savings cadence: ~$24M capex mostly in 2025; $30M annual savings targeted as 2026 run-rate .
  • Temiscaming initiatives timing: freezer board certified and in customer trials; oil & grease board through production trials; softwood HYP roll product trials with customers in Sep/Oct; lion’s share of ~$35M benefit expected in 2026 .
  • Capital deployment in 2027: priority to high-return projects; ongoing target of ~5% annual debt principal paydown; shareholder returns considered later if project returns normalize .

Estimates Context

  • Q2 2025 consensus vs actual: revenue $385.5M* vs $340.0M (miss), Primary EPS $(0.233)* vs $(5.47) (major miss on non-cash tax), EBITDA $37.2M* vs $34.5M (miss) [Estimates table above]. Values retrieved from S&P Global.*
  • Near-term models likely adjust for: guidance cut to $150–$160M (implies H2 Adjusted EBITDA $105–$115M), segment EBITDA rebalancing (Commodities and PB/HYP lower), and FX/tariff assumptions; management flagged normalization in CS orders since May and H2 positivity in free cash flow ($30–$35M) .

Key Takeaways for Investors

  • The EPS collapse was non-cash and tax-related; operating trough metrics show stabilization signs with CS pricing resilience and improving order trends; risk skew improving into H2 .
  • Guidance reset lowers the bar; watch execution on $30M cost savings run-rate by 2026 and CS price/mix gains to drive margin expansion .
  • Tariff regime now potentially favorable: CS/DWP tariff-free to China and U.S. tariffs on EU/Brazil could support share and pricing; fluff remains at 10% tariff until DWP fluff qualified .
  • Biomaterials optionality is material: France bioethanol ($8–$10M EBITDA) plus Verso/GranBio MoUs and GRAS prebiotics create diversified, contracted cash flows and high ROI pipeline .
  • Temiscaming turnaround is a 2026 catalyst: product innovation and cost actions aim to restore ~$30M historical EBITDA and support planned divestiture with 5–7x mid-cycle multiples .
  • Liquidity and leverage manageable: $202M liquidity and 3.8x covenant secured leverage ratio; callable debt in 2026 presents interest expense reduction upside .
  • Trading implications: short-term sentiment hinges on tariff clarity, H2 delivery on EBITDA/FCF, and any incremental guidance updates; medium-term thesis focuses on CS structural pricing power, biomaterials monetization, and asset portfolio optimization .