RAYONIER ADVANCED MATERIALS INC. (RYAM)·Q3 2025 Earnings Summary

Executive Summary

• Q3 2025 delivered net sales of $353M, adjusted EBITDA of $42M, and diluted EPS of $(0.07); revenue declined year over year and vs consensus, while EPS matched Street; management tightened full‑year adjusted EBITDA guidance to $135–$140M, citing weaker non‑core segments and proactive downtime .
• Cellulose Specialties (CS) remained the anchor: operating income rose to $49M on price/mix and a $7M energy credit, despite acetate destocking and tariff effects; adjusted CS EBITDA was $66M with margin uplift vs Q2 .
• Non‑core Paperboard and High‑Yield Pulp materially pressured results (Paperboard adj. EBITDA $1M; HYP adj. EBITDA $(9)M) amid EU imports, new U.S. capacity, and Chinese oversupply; management is idling lines in Q4 to align inventory/cash flow .
• Balance sheet/liquidity stable at $140M (cash $77M) and net secured leverage of 4.1x covenant EBITDA; Q4 adjusted FCF of $25–$30M is expected from working capital release and stronger orders .
• Strategy catalysts: 2026 CS pricing “significant reset,” cost reductions ($30M in 2026; pursuing ~$20M more in 2027), biomaterials portfolio (AGE, bioethanol, CTO, prebiotics) progressing toward 2027+ EBITDA targets; trade petitions received an affirmative USITC injury determination, potentially supporting pricing/competition in 2026 .

What Went Well and What Went Wrong

What Went Well

• CS pricing and mix offset volume declines; operating income rose to $49M and included a $7M energy allowance benefit, driving sequential margin expansion vs Q2 .
• Liquidity preserved with $140M total and $77M cash; management guides to Q4 adjusted FCF of $25–$30M on working capital normalization and order recovery .
• Strategic execution momentum: biomaterials (AGE EPC signed, air permits secured; bioethanol and CTO projects advancing) and 2026 CS pricing reset targeted to recapture inflation‑lost value .

What Went Wrong

• Revenue underperformed year over year and vs consensus; adjusted EBITDA declined vs prior year, driven by pronounced weakness in Paperboard and High‑Yield Pulp (EU import competition, new U.S. capacity, Chinese oversupply) .
• Cellulose Commodities remained loss‑making; Q3 operating loss widened sequentially on weaker pricing and negative‑margin volume to manage inventories amid China fluff tariffs .
• Tariffs/destocking and French labor strikes constrained CS volumes and biomaterials feedstock; Tartas operational challenges and strikes curtailed bioethanol and CS output .

Financial Results

Consolidated P&L and Key Metrics

Segment Net Sales

Segment Operating Income (Loss)

KPIs: Average Price and Volumes

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “The core Cellulose Specialties business performed as expected, approaching normalized levels… stabilization across demand, operational performance and costs” — De Lyle Bloomquist .
• “We are targeting a significant reset beyond prior year increases [for 2026 CS pricing]… recapturing value lost in prior years’ inflation” — De Lyle Bloomquist .
• “Full‑year adjusted EBITDA guidance is now $135–$140 million… driven by proactive downtime… and increased headwinds to our fluff business due to China tariffs” — De Lyle Bloomquist .
• “We now believe trade conditions are generally trending in our favor… USITC’s affirmative injury determination” — De Lyle Bloomquist .
• “We have a clear line of sight to achieving our 2027 run rate target… pricing actions, efficiency gains, structural cost reductions, and biomaterials projects” — De Lyle Bloomquist .

Q&A Highlights

• Témiscaming sale milestones: need USMCA renewal (July 2026) and return to positive EBITDA/cash flow; cost/OEE improvements largely locked; product commercialization in early/mid‑2026 critical .
• Refinancing: term debt callable in 2026; target LTM EBITDA >$200M to improve leverage and reprice, reduce interest expense materially .
• CS pricing economics: 1% price ≈ $8–$9M EBITDA; inflation outpaced CS pricing by ~35% since 2014; management aiming above 5–10% increases to restore reinvestment economics .
• Working capital/cash: ~$30M release expected in Q4; ~$14M benefit tied to strategic downtime across the year; near‑term cash prioritization .
• Fluff tariff mitigation: developing dissolving wood pulp‑qualified fluff for China; currently cost per ton higher than paying the 10% tariff, pursuing cost reduction; diversifying away from China .

Estimates Context

Values retrieved from S&P Global.*

Where estimates may adjust:

• Lower non‑core segment profitability and tariff‑related mix suggest near‑term Street reductions to Paperboard/HYP and Commodities, partially offset by CS pricing/mix and Q4 working capital/FCF tailwinds .

Key Takeaways for Investors

• Core CS resilience continues; price/mix and efficiency are offsetting acetate destocking and tariff second‑order effects, supporting margin normalization into 2026 pricing reset .
• Non‑core segments remain a drag; proactive Q4 idling and potential 2026 divestiture after USMCA renewal are key to unlocking deleveraging and multiple re‑rating .
• Q4 cash generation is the near‑term catalyst (adjusted FCF $25–$30M) via working capital release and order normalization; monitor execution and inventory actions .
• Trade case progress (USITC affirmative) and tariff dynamics favor CS pricing stability; watch USDOC prelim determinations in 1H26 for potential upside .
• Biomaterials optionality (AGE, bioethanol, CTO, prebiotics) with high‑ROIs provides medium‑term EBITDA growth and contracted cash‑flow mix; funding equity for AGE ($46M) is the gating factor .
• Refinancing path hinges on restored EBITDA cadence (~$200M+ LTM) and potential asset sale proceeds to reduce interest burden; management views measurable interest savings achievable .
• Tactical: stock narrative likely driven by CS pricing negotiations, Q4 FCF delivery, and visibility on trade/biomaterials FIDs; weakness in Paperboard/HYP remains a headline risk until sale/turnaround milestones are met .