Sylvamo Corp (SLVM) Q3 2025 Earnings Call Transcript

Good morning. Thank you for standing by. Welcome to Sylvamo's third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. To ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1 again. As a reminder, your conference is being recorded. I'd now like to turn the call over to Hans Bjorkman, Vice President, Investor Relations. Sir, the floor is yours.

Thanks, Tina. Good morning and thank you for joining our third quarter 2025 earnings call. Our speakers this morning are Jean-Michel Ribieres, Chairman and Chief Executive Officer, John Sims, Senior Vice President and Chief Operating Officer, and Don Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-U.S. GAAP financial information. Reconciliations of those figures to U.S. GAAP financial measures are available in the appendix. Our website also contains copies of the earnings release, as well as today's presentation. With that, I'd like to turn the call over to Jean-Michel.

Thanks, Hans. Good morning and thank you for joining our call. I'll start on slide four with our third quarter highlight. Our uncoated free ship sales volume increased quarter over quarter by 7%. Our teams also executed well, resulting in improved operational performance. We returned $60 million in cash to share owners by distributing $18 million via the third quarter dividend and repurchasing 42 million in shares our board also approved a new 150 million share repurchase authorization in the quarter let's move to the next slide slide five shows a third quality financial metrics we earn adjusted a bidda of 151 million with a margin of 18 percent free cash flow was 33 million and we generated adjusted operating earnings of one dollar and 44 cents per

share now i will turn it over to dom to review our performance in more detail thank you john michelle and good morning everyone slide six contains our third quarter earnings bridge versus the second quarter the 151 million of adjusted evita was in line with our outlook of 145 to 165 million price and mix was unfavorable by 14 million primarily driven by paper and pulp prices in europe volume increased by 14 million mainly driven by stronger seasonality in latin america and north america operations and other costs were favorable by 5 million driven by improved operational performance plan maintenance outage costs improved by 66 million as we had no planned outages at our mills input and transportation costs were unfavorable by 2 million let's move to slide 7. north america and brazil industry conditions are solid while europe and other latin america are challenged in europe market conditions continue to be very challenging Pulp and uncoated free sheet prices remained under pressure. However, some pulp grades started to show signs of recovery at the end of the third quarter. Uncoated free sheet demand is down 5% year-over-year through September, while supply is down 7%. Wood costs in southern Sweden are starting to ease, recently decreasing by a reported 8%. In Latin America, demand remains mixed. Brazil is up 3% year-over-year through September, and prices are stable. However, demand in other Latin American countries are down 5%. Pricing is under pressure in some countries. Even though the majority of this demand decline is due to Argentina and Mexico, some countries across other Latin America are having economic challenges as well. This demand decline, in addition to shifts in global trade flows, is resulting in continued pricing pressure across other Latin America. In North America, demand is stable year-over-year through September. Imports were up 46 percent year-over-year through August in anticipation of the tariffs, but are expected to moderate. In fact, customer feedback indicates inventories from increased imports are being consumed and returning to normal levels. Industry supplies was reduced by 6% in the third quarter after Pixel closed their Chillicothe Ohio mill in August. There's still uncertainty caused by the U.S. tariffs, which may take a while to settle out. Let's go to slide eight. Looking ahead, we expect to deliver fourth quarter adjusted EBITDA of $115 to $130 million. We project price and mix to be unfavorable by 20 to 25 million primarily due to paper prices in europe and mix across the regions we expect volume to be favorable by 15 to 20 million largely due to latin america and north america other operations and other costs are projected to be unfavorable by 5 to 10 million primarily due to seasonally higher costs and we expect input and transportation costs to be stable Plan maintenance outages will be unfavorable by 18 million as we have one outage in North America planned in the quarter. Let's move to slide nine. In August, International Paper announced plans to convert their uncoated free sheet paper machine at its Riverdale mill to produce container board by the third quarter of 2026. Last week, we announced we would continue to receive uncoated free sheet from Riverdale mill until May 2026. Riverdale should supply us with approximately 260,000 tons in 2025, and we expect to receive around 100,000 tons in 2026. As a result of the supply agreement ending, we will optimize our product, segment, and customer mix and leverage our European mills to supply the U.S. and Mexico. We will be building inventory over time to help bridge the gap until our east over investments are complete and we have the additional 60 000 tons of incremental capacity which is expected to ramp up in the fourth quarter of 2026. let's close to slide 10. the riverdale amendments we recently executed had a few components one component was the ip agreeing to a 15 million dollar reduction to the 100 million dollar payment we would owe to ip in the event we sell the Brazil forestlands. We have no intention of selling forestlands as we believe we are unlocking value every day by producing uncoated free sheets. Owning forestlands in Brazil is a unique strength that differentiates Silvamo. These assets provide a competitive advantage and goes beyond operational benefits. Direct control over wood fiber ensures security of supply, reduces exposure to market volatility, and supports long-term cost management. Our forest lands represent a significant part of our intrinsic value that we feel is not reflected in our current market valuation. We recently had an appraisal completed on our forest lands, which are now valued at almost 5 billion Brazilian haies. Forest lands are tangible and appreciating resources that are the cornerstone of our strategy, delivering cost advantages and a source of intrinsic value for our shareholders. I'll turn the call over to John.

Thank you, Don. And good morning, everyone. I'll pick up on slide 11. As we navigate through cyclical industry conditions and headwinds, we are focused on the things we can control. We are continuously working to improve our business. We are driving operational excellence and strategic initiatives across all our regions. These efforts should improve margins, reduce costs, and strengthen our competitive position. In Europe, we're improving our product mix, winning new customers at our soy yacht mill. We're actively working to reduce wood costs at Noumela and a key level of cost efficiency. Additionally, we're focused on reducing fixed costs and improving operational efficiency and reliability across the European region. In Latin America, we've secured new strategic Brazilian customers and further develop key partnerships in other Latin American countries expanding our market presence. We're investing to improve wood self-sufficiency to reduce costs by decreasing the need for higher costs of third-party wood. Our team is also executing a pipeline of more than 100 initiatives across the entire business designed to strengthen EBITDA and cash flow. In North America, we're focused on strategic commercial initiatives to improve volume and margin, but reducing supply chain costs and optimizing inventory. Finally, we're investing in our flagship mill in Eastover, South Carolina, to improve our competitive advantages by lowering costs, enhancing efficiency, and increasing capacity by 60,000 tons. funds. Across all regions, these initiatives reflect our commitment to customers, operational efficiency, and strategic investments to deliver sustainable value. So let's move to slide 12. Our long-term capital allocation strategy drives shareowner value. We are focused on maintaining a strong financial position, reinvesting in our business, and returning cash to share owners. Our healthy financial position allows us to stay focused on our customers with a long-term perspective in mind, especially during times of challenging industry conditions like we're currently experiencing in some of our markets. It enables reinvesting in our business, enhancing our reliability, productivity, and improving our service through operational excellence initiatives and it preserves the flexibility to return cash to share owners. Dividends are an important part of our cash returns to share owners and after paying 45 cents per share at all four quarters, we have returned approximately 73 million through dividends this year. Another strategic pillar of cash returns to share owners are share repurchases. We will continue to evaluate opportunities to repurchase shares at attractive prices especially when we feel our valuation is well below our intrinsic value this is why in the third quarter we repurchased 42 million dollars worth of shares at average price of 44.74 exhausting the remaining amount of our share repurchase authorization this brings our year-to-date share repurchases to 82 million in september the board also approved a new $150 million share repurchase authorization. Closed slide 13. Our strategy is to be singly focused on Uncoded Free Sheet paper, which remains the largest and most resilient segment in the graphic paper space. We view the Uncoded Free Sheet industry landscape as an opportunity. We are investing to strengthen our competitive advantages to drive earnings and cash flows. We view these investments as high return and low risk as we are staying in our core product line and reinforcing our position as a supplier of choice for customers. We will leverage our strengths to generate high returns on invested capital. I'll now wrap up my comments on the next slide, slide 14. You likely saw some public filings yesterday related to Atlas Holdings and a couple of our directors resigning. I want to spend a minute discussing this topic. At the direction of Atlas Holdings, Carl Myers and Mark Wildey resigned from the board effective November 5th. I would like to thank both of them for their contribution to SAVAMA. As a reminder, they both joined our board in 2023 as part of a cooperation agreement with Atlas. SAVAMA board also thanks them for their service. With these resolutions, the restrictions on ATLAS and the cooperation agreement will terminate. When we move to the Q&A portion on this call, I hope you can appreciate that we will not be taking questions or commenting further on this matter. We appreciate your cooperation on that. Lastly, as we prepare for our leadership transition on January 1st, and I am honored to lead Zimbabwe as its next CEO. As Jean-Michel is retiring at the end of the year on behalf of our senior lead team and all the employees of Savama, I would like to take this opportunity to thank him for his four-plus years of dedication to Savama as its CEO. He led Savama through the spinoff and other challenges in our first few years and has been instrumental to Savama's success, positioning it for further long-term value creation. We wish him all the best.

So, Marcel, would you like to say a few words? Thanks, John. I appreciate your kind words and well wishes. Leading Sylvamo has been an absolute honor these past four years, and I'm pleased with everything we have accomplished. I would like to thank our employees, customers, suppliers, and investors for their support and partnership. I live knowing that the company is in very good hands and its brightest days ahead of As I've said many times before, I'm confident in the future for CILMARMU and motivated by the opportunities that lie ahead. Thank you. I will turn it over to Hans.

Thanks, John, Michelle, John and Don. Okay, Tina, we're ready to take questions.

If you would like to ask a question, please press star 1 on your telephone keypad to withdraw your question, press star one again. We do ask that you limit yourself to one question and one follow-up. Thank you. Our first question comes from Daniel Harmon with CIDOT.

Hey, guys. Good morning. Thank you so much for taking my questions. And Jean-Michel, congratulations on the retirement. And we certainly appreciate all your help since we've had you under coverage. I'll start off with one today, and then I'll get back in the queue. But regarding North America, you highlighted stable demand, even with imports running higher earlier than the year. And as those inventories continue to be worked down, I'm wondering if you think we can expect that normalization to translate into potentially a more stable or improved pricing environment as we move into 2026.

Hey, Daniel, this is John Sims. Thanks for your question. Yeah, we're expecting and we are already seeing and we're hearing from our customers that the inventory is being worked down from the import surge that occurred earlier in the year as a result of the threat of tariffs, if you will. And that has worked out, working through the system and also the fact that imports have actually started to decrease coming in as a result of the tariffs. And then also you the closure of the silicate mill that we talked about so that the operating rate should improve and strengthen going into next year.

Great. Thanks, John.

Our next question comes from the line of Matthew McKiller with RBC Capital Markets. Please go ahead.

Hi. Thanks for taking my questions. Just to follow up on the last one there, how far along are we in that process of inventories being consumed? Are they approaching normal levels today? Is that something you'd expect by your end, or will that process continue into 26? Thank you.

So, I would say that we're approaching normal levels right now. That's how we're seeing it currently.

Great. Very helpful. And then a couple quick ones on Riverdale and how you're preparing for the end of that supply agreement. Can you give us a sense of how much inventory you're intending to build to bridge you to that incremental capacity at Eastover and maybe what kind of working capital investment you'd expect? And then at the time that the cancellation of that supply agreement was announced, I think you said the impact of 2026 EBITDA would be about 30 million at current margins. Is that still a good estimate of what you expect the impact to be based on how margins may have resolved and any changes to your plans since that time?

Thanks very much. Hey, Matthew. This is Don. Thanks for the question. So, for the first part of your question, we plan to build about 60,000 tons of inventory through the year. Most of it will happen in the first half leading up to the Eastover outage for the conversion speedup of Eastover. And then we plan to consume that inventory in the balance of the year. So, from beginning to end, it would even out. And relative to the $30 million, I think in the previous call, we estimated the impact of Riverdale to be about $30 million. And that's the same. That hasn't changed for 2026.

Thanks very much. I'll turn it back.

Again, to ask a question, simply press star 1 on your telephone keypad. And we'll pause for just a moment. With no further questions in queue, I will now hand the call back to Hans Bjorkman for closing remarks.

Thanks, Tina. We appreciate it. And thank you all for joining our call today. We appreciate your interest in Silvamo, and we look forward to our continued conversations over the coming weeks. Thank you.

Once again, we would like to thank you for participating in Silvamo's third quarter 2025 earnings call. You may disconnect.