Rayonier (NYSE:RYN) is investing several hundred million dollars through 2013 to expand manufacturing capacity in the company's Cellulose Specialties product line. This extra capacity will come at the expense of the Absorbent Materials business, which the company plans to exit.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Performance Fibers
The Performance Fibers business is the company's largest business segment, and generated sales of $255.5 million in the quarter ending September 30. This represented 66% of the company's total sales for the quarter.

Rayonier owns and operates two facilities in the Performance Fibers business. The company's largest mill is in Jesup, Georgia, and has a capacity of 580,000 metric tons. The second mill is in Fernandina Beach, Florida, and has capacity of 160,000 metric tons.

The Performance Fibers segment comprises two product lines. In the Cellulose Specialties business, Rayonier produces higher end fibers that are used as raw materials in many different products, including cigarette filters, pharmaceuticals, cosmetics, tires, packaging and plastics.

The Absorbent Materials business makes fluff fibers used as absorbent materials in diapers, feminine hygiene products, industrial towels and other products. This product line is considered a lower end type of business. (For related reading on manufacturing, see Vital Link: Manufacturing And Economic Recovery.)

Rayonier is planning to invest $300 million from 2011 to 2013 to convert the company's existing Absorbent Materials capacity to produce Cellulose Specialties. This expansion will add an extra 190,000 metric tons of annual capacity in this product line, and eliminate all of Rayonier's Absorbent Materials capacity.

Rayonier prefers the market dynamics in the Cellulose Specialties business, and expects steady growth here over the next five years. The company estimates that worldwide demand will increase from the 2010 level of 1.4 million metric tons to 1.73 million tons by 2016.

Rayonier has good pricing power in this product line and has seen five straight years of increased pricing. The company is currently negotiating contracts with customers for 2012 and expects to release more details during the fourth quarter earnings conference call.

One company that competes with Rayonier in the Cellulose Specialties market is Buckeye Technologies (NYSE:BKI). The company is the second largest producer with volume of 180,000 tons in 2010.

Customer Concentration
One risk for Rayonier in the Performance Fibers business is the company's dependence on several large customers for a significant portion of revenue. In 2010, Eastman Chemical Company (NYSE:EMN) and Celanese (NYSE:CE) generated 20 and 15% of the Rayonier's sales in this business segment, respectively.

The Bottom Line
Rayonier is adding capacity to manufacture products that generate a higher return than other product lines, a logical strategy that makes sense. One can only hope that the market for these types of fibers is still favorable in 2013, when the extra capacity comes on line. (For related reading, see Cyclical Versus Non-Cyclical Stocks.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  2. Markets

    Why Gluten Free Is Now Big Business

    Is it essential to preserving your health, or just another diet fad? Either way, gluten-free foods have become big business.
  3. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  4. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  5. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  6. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  7. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI USA Minimum Volatility

    Learn about the iShares MSCI USA Minimum Volatility exchange-traded fund, which invests in low-volatility equities traded on the U.S. stock market.
  9. Stock Analysis

    Should You Follow Millionaires into This Sector?

    Millionaire investors—and those who follow them—should take another look at the current economic situation before making any more investment decisions.
  10. Professionals

    What to do During a Market Correction

    The market has corrected...now what? Here's what you should consider rather than panicking.
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. Benchmark Crude Oil

    Benchmark crude oil is crude oil that serves as a pricing reference, ...
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  4. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  5. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
  6. What happens to the shares of stock purchased in a tender offer?

    The shares of stock purchased in a tender offer become the property of the purchaser. From that point forward, the purchaser, ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!