Rayonier Inc. (NYSE:RYN) Q2 2019 Earnings Conference Call Transcript

Aug 08, 2019 • 10:00 am ET

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Rayonier Inc. (NYSE:RYN) Q2 2019 Earnings Conference Call Transcript

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Q & A
Operator
Operator

Thank you.

[Operator instructions]

Our first question comes from Collin Mings of Raymond James. Your line is open.

Analyst
Collin Mings

Thanks. Good morning.

To start, Dave, can you maybe just expand on the decision to ratchet down harvest activity in the Pacific Northwest, but not New Zealand, although you're seeing weakness in both markets?

Executive
David L. Nunes

Yes. I think it's really a relative statement, and I think before sort of jumping specifically into the question, recognize that we have flexibility to change harvest by roughly 10% to 15%, due to labor availability. And I think it's important to note that both regions are short of labor. So, if you put on the brake too heavily, you certainly run the risk of losing experienced contractors. So, we're always mindful of that.

The other thing I would note, getting more specifically to your question is that the Pacific Northwest has experienced a much greater decline in pricing, relative to New Zealand. Order of magnitude, year-over-year, we saw a 7% drop in New Zealand and a 24% drop in the Pacific Northwest, while New Zealand had a more recent 15% drop. We think that Northwest has more headwinds associated with US-China trade dispute. And as it relates to New Zealand, we've seen some recovery already since the correction that we experienced roughly a month ago.

And then the last thing I would say is just in a historical context, New Zealand is generating very strong cash flows relative to the historical performance of that business. And so kind of keep that in mind, we need to be mindful that we're comparing New Zealand against some very strong record cash flows from last year.

Analyst
Collin Mings

That's helpful, Dave.

And just maybe continuing along with the New Zealand and some of the volatility there you've seen, maybe just expand a little bit more on, again, you just reiterated the fact that you've seen maybe some stabilization or some improvement there over the last few weeks in New Zealand. Just talk a little bit more about that volatility and has it been -- some of these competing sources that you referenced in the prepared remarks, have they started to back away from the market? Has there been more takedown of the port inventories? Maybe just give us a little bit more kind of real-time update what you're seeing in New Zealand just given that sharp correction towards the end of 2Q?

Executive
David L. Nunes

Sure. And there's a lot of moving parts to this, but if you start -- let's start and talk a little bit about inventory in China, that's something that we watch very carefully. If you go back, we ended 2018 with about 2.4 million cubic meters of inventory at China ports. We consider that to be a very favorable condition. As we went into the Chinese New Year, that grew to 4.4 million cubic meters. Recently, the inventory has been at 4 million, which is roughly 1 million cubic meters higher than it was last year.

The way we think about