Sylvamo Corp (SLVM) Q2 2026 Earnings Call Transcript

Good morning. Thank you for standing by. Welcome to Silvamo's second quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, you will have an opportunity to ask questions. If you would like to ask question, press star one to raise your hand. To withdraw a question, press star one again. As a reminder, your conference is being recorded. I'd now like to turn the call over to Hans Bjorkman, Vice President of Investor Relations. Sir, the floor is yours.

Thank you, Lucas. Good morning, and thank you for joining our call. Our speakers this morning are John Sims, Chief Executive Officer, and Don Devlin, Senior Vice President, Chief Financial Officer. Slides two and three 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-US GAAP financial information. Reconciliations of those figures to US 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 John.

Thank you Hans and good morning everyone. I'm glad that you're on the call and so you know I'm on slide four that's where I'm starting. Our second quarter highlights include continuing to implement the previously communicated uncoded free sheet price increases to our customers across all our regions. We also advance our lean transformation journey to embed continuous improvement and to how we run the business so performance improvement becomes employee-driven, systematic, and self-sustaining. We kicked off our lean efforts in our Latin America business and have value stream mapping underway at our Moji Guasu and Trace Lagos mills to identify waste and unlock cost savings across end-to-end processes. At North America, we introduced lean at our Ticonderoga, New York mill and our cut-sized sheep plant in Sumter, South Carolina, and across corporate functions. Lastly, we continue to make very good progress on our strategic investments that are east over mill, which we will discuss in more detail later on this call. Let's move to the next slide. Slide five shows our second quarter key financial metrics. 2026 is a transition year who worked through the termination of Riverdale Supply Agreement and the extended outage at Easter. Adjusted EBITDA more than doubled sequentially to $60 million with a margin of 7%. Adjusted operating earnings were $0.03 per share. Free cash flow was negative $23 million, a $36 million improvement sequentially. And as in prior years, the majority of our free cash flow will be generated in the second half of this year. Now I'll turn it over to Don to review our performance in more detail, Don.

Thank you, John, and good morning everyone. Slide six contains our second quarter earnings bridge versus the first quarter. In the second quarter we earned $60 million of adjusted EBITDA compared to $29 million in the prior quarter. Price and mix were favorable by 32 million, reflecting the implementation of paper price increases in all regions, better mix in the Americas, as well as the implementation of price increases in Europe, whole price increases in Europe. Volume increased by 3 million, driven by seasonally stronger demand in Latin America. Operations and costs were favorable by 22 million, largely driven by green energy credits in Europe and lower overhead. Planned maintenance outage costs were unfavorable by $24 million due to scheduled outages in all regions. Input and transportation costs were unfavorable by $2 million as energy costs were stable while purchased wood in Latin America and transportation costs in North America were higher. These were partially offset by the non-repeat of a one-time charge of $10 million from International Paper's Riverdale Mill due to high natural gas costs in the first quarter. Let's move to slide seven to walk through the industry conditions. European industry supply and demand remains challenging. Polk prices improved throughout the first half and now seem stable. We continue realizing paper price increases and we communicated another paper price increase effective mid-June as costs continue to increase and margins are at unacceptable levels. We expect the realization to occur through the third quarter. In Latin America, we expect seasonally higher demand through the second half. This should positively impact our volume and geographic mix. We continue realizing paper price increases to our export customers across other Latin American countries as well as the Middle East and Africa region and should continue to see additional realization through the third quarter. In North America, industry supply and demand dynamics have improved as 7% of the annual uncoded free sheet industry supply was removed with International Papers Riverdale Mill paper machine conversion. In the second quarter, we saw imports into North America increasing compared to the previous quarter, a reaction to the 10% global tariff window. We also continue realizing paper price increases and expect to see additional realization through the third quarter. We expect the Middle East conflict to continue pressuring energy, chemicals, and transportation costs across our regions as we go through the year. Let's move to slide eight. As we move through the second half of the year, we expect better earnings across most of our key drivers this slide provides some perspective to how we see the second half of the year as compared to the first half price and mix should have a significant improvement with the price realization we've seen across all our regions and will continue into the third and fourth quarters in addition our mix in both latin america and north america should be significantly better in the second half. Overall, we expect to have $75 million to $85 million benefit from better price and mix compared to the first half. Volume should have positive momentum given stronger seasonality in Latin America, which will be partially offset by less volume in North America due to the loss of the Riverdale volume and the extended outage at Eastover in the fourth quarter. operations and other costs are also expected to be much better in the second half operational issues we had in the first half are now behind us with the exception of the debarking drum at numela planned maintenance outages will be unfavorable by approximately five million as we execute our heaviest planned outage quarter and take the extended downtime at our east over mill to complete the paper machine investments input and transportation costs are expected to be favorable with lower fiber costs in Latin America and Europe, more than offsetting unfavorable energy, chemicals, and transportation due to the Middle East conflict across all regions. In total, we expect a much better earnings performance for the last six months of the year. I'll now turn it over back to John to talk about our strategic investments at Eastover and our long-term focus. John?

Thank you, Don. I'll pick back up on slide nine. Our East River strategic investments, including our wood yard modernization and paper machine optimization and new sheet are continuing to make good progress.

Starting with the wood yard, the hardwood line has been performing extremely well since May and we're seeing improved reliability and chip quality.

The wood yard softwood line startup remains on schedule for the first quarter next year. The paper machine speedup project remains on schedule, on budget, and will be completed during our fourth quarter maintenance outage. This will result in 60,000 additional tons of uncoded free sheet capacity annually, which will start to ramp up early next year. The benefits including reducing costs, improving our mix and efficiency while enhancing service for our customers. Let's go to slide 10. Also, within our e-service strategic investments, the new sheeter project continues to make good progress. The sheeter passed equipment acceptance testing in June, arrived in the U.S. a few weeks ago, and the teams are preparing for the installation. We expect $50 million of annual benefits from the paper machine speed-up and the new sheeter. We estimate roughly $30 to $40 million of that in 2027. Lastly, we completed a sale leaseback transaction with a third party for existing sheet plant to expand the attached warehouse by 300,000 square feet. The third party is investing the capital to expand the facility and will lease it back to us. The project will reduce supply chain costs, improve service to our customers while providing additional flexibility. We expect this expansion to be completed in the first quarter of 2027 and contribute upwards of $5 million in savings per year. These four projects will generate $55 million of benefits per year. These strategic investments are high-return projects which will generate incremental earnings and cash flow for the long run. Let's move to slide 11. In my letter to shareholders in January, I described the areas that define our success. safety and well-being, employee engagement, customer centricity, operational excellence, cost leadership, and sustainability. Let's go to slide 12 to discuss these in more detail. As we aim to achieve world-class performance in the areas that matter to SAVAMO, we have set clear goals for each one. Today, I want to share with you what we are working toward and how we will measure our progress to achieve these by 2030. Safety and well-being is our most important responsibility. Our goal is to have a resilient safety culture in which serious injuries are eliminated. If we eliminate serious injuries, it will be because our employees truly care and are aligned on relentlessly pursuing excellence. On employee engagement, we have nearly achieved world-class engagement with an employee net promoter score of 46. Our focus is to be greater than 50, while we strengthen the capability and readiness of our teams and tap into their talents to help us achieve world-class performance. Our customer centricity, on customer centricity, we are setting a new standard for customer experience and loyalty. We will measure it through our customer net promoter score and through our perfect order of performance, delivering complete, on time, and without the defects. We are targeting a 20-point improvement in net promoter score and higher than 90% on the perfect order. On operational excellence, we are targeting improving overall machine efficiency by 400 basis points. This is a measure of how well our assets run. On cost leadership, we challenge ourselves to set an aggressive goal in order to drive margin improvement despite the significant inflationary cost pressures our goal is to achieve three to five times our 2022 through 2025 average annual cash cost improvement rate this will enable this will be enabled enabled by our lean and digital transformation efforts lastly on sustainability we'll continue to operate responsibility to present for our uplift communities and improve the planet every year. Underpinning all six are our talented team, lean management and digital transformation. I'll include my remarks on slide 13. As you are aware, it has been a very dynamic year where we've been adopting and executing the initiatives that are under our control. We are focused on generating strong, sustainable results and long-term value by making disciplined, data-driven decisions that strengthen Savamo for decades to come. We will do this by diligently executing our flagship growth strategy, adhering to our disciplined capital allocation, institutionalizing lean continuous improvement. As industry conditions turn our capital spending normalizes and the benefits for our investments begin to materialize we have the potential to generate annually over 300 million of free cash flow and greater than 15 percent return on invested capital so with that i'll turn the call back to you on thanks john and thank you don okay lucas we're ready to take the questions we will now begin the question and answer session please limit yourself to one question and one follow-up If you would like to ask a question, please press star 1 to raise your hand.

To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Daniel Harriman with Citodi. Daniel, please go ahead.

Thank you so much for taking my questions. I'll start with two. In North America, margin was up at 15% versus 10% in the first quarter. And I'm curious if you could add more color on what drove this improvement and how much was price and mix versus maybe lower sourcing costs from bringing product in from Brazil rather than Europe. and then leverage finished the quarter at 2.2 times with most of the free cash flow for the year expected in the back half. Can you give us a better idea of how much of the first half working capital build reverses and where you expect to end the year on leverage? Thanks.

Yeah, Daniel, I'll take your second question first. This is Don and good morning. So the the working capital build will unwind by the end of the year, mostly. And as we talked about in an earlier call, that's due to the Eastover machine speed up project building inventory through what was first quarter, second quarter, and we'll start to draw down. Fourth quarter, it should be pulled out. And your first question, back to North America, the margin improvement from first to second quarter. It was largely price and mix and yeah, price and mix and lower operations costs and a bit of lower input costs. But the key driver is price and mix for North America going into Q2 from one.

Just give a little bit more color, Daniel, down the working capital of North America is where we built the biggest inventory. It's about 50,000 tons that we expect to draw down in the second half. We will draw down.

Your next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew, please go ahead.

Hi, good morning. Thanks for taking my questions. It sounds like you're expecting lower North American volumes in the second half of the year, if I've understood your comments on slide eight correctly. Is that sales volumes or production? And can I ask what the bogey might be for North American volumes at this point. Thanks.

Yeah, Matthew, thanks for the question. So on North American's volume, so it will be both because both production, lower production and lower sales. And, you know, we have Riverdale's gone. That's not our production, but the supply from Riverdale is gone, but that'll impact sales in the second half. And of course, we've got the Eastover outage, which is now, it's longer than we thought. We originally planned for 45 days. It'll be a bit longer than that. So, that'll reduce production as well for North America, and a bit of that flows through sales and volumes will be lower for those two main reasons.

And one other point would be, Don, is that, you know, during this the tariff situation, you know, it's gone—with AIPA going away, we were able to take advantage of that and remove some volume from our Brazilian operations. But now, with the new tariffs that are in fact, we said it's not economical, so we're actually bringing in less volume from Europe and Brazil than we expected, and so there'll be a little bit less than that.

And I think your second question, relative to North American volume as well, if you think about the impact of Riverdale going away, so that supply is gone, and I think we go from what was about a little less than 100,000 tons this year, so that goes away. It was 90, I think, through April, and we won't have that in 27, but yet we'll have the speed up from East over in the plan from the speed up was a total of 60. We won't get all of that next year as we'll be ramping up once we come out of the project in the quarter. But eventually those two things will be a net 40.

Okay. So if I think about the Q425 presentation where you talked about 1.17 million tons in North American sales, I think it was. The variance is primarily a longer outage at Eastover, and then less volumes coming in from Latin America and Europe than you had anticipated?

That's right.

Okay.

We also got slightly less tons from Riverdale, which we already experienced. But Riverdale, I think in that slide, we were assuming 100,000 tons before they converted and they delivered about 90,000. But that impact's already been felt.

Okay. Got it. Thank you. Next, it sounds like you have pricing as a tailwind across each segment into Q3. Could you maybe spend a minute just running through what price is currently announced depending on the market? Maybe talk about how price should trend sequentially by the region, either on average or as you exit Q3 in comparison to where you were in Q2? Thank you.

So, Matthew, I'll start with how we see the price in the second half. So, we said $75 to $85 million incremental, which is both mix and price. I'd say 70% of that is price, and the majority of that is North America. and then Europe as well, which we'll see some flow through. And your second question, repeat your second question.

Yeah, it was kind of tied together. I mean, what is announced depending on the market and then how pricing trends sequentially by region from Q2 into Q3, however you'd like to express that.

Yeah, so I think – well, we have a third price increase that's going through in Europe. So that's being implemented right now. We're actually seeing that in the month of July. So we'll see that through. And LATAM, we're seeing in the OLA markets in NIA. And that's NIA realized in the third quarter. We're seeing that now. the same thing with the second price increase that we had in north america that's being mostly implemented in the third quarter so most most of these prices you know the 85 75 to 85 that that don talked about a lot of that pricing is we're seeing that flow through in the third quarter and that'll care that you know would be relatively flat and carry into the fourth okay perfect uh Thanks for that.

At last, for me, on slide eight again here, under input and transportation costs, it sounds like lower fiber costs will only partially be offset by higher energy, chemicals, and transportation costs. It sounds like that benefit is specific to Europe and Latin America. Could you help us understand what's happening with fiber costs and how they're favorable in the back half?

Yeah, Matthew. And I'll start with Europe. So, you know, we've had a deliberate effort, especially at our new millimil to reduce fiber costs there. And I think a lot of what we're seeing in the second half and into the fourth quarter is the benefits of that, both market decreases and actions we've taken. So we'll see that benefit second half in Europe. And in Latin America, we had some higher costs in Q2 related to some of our outside wood purchases uh they were i would say unusual and we don't expect those to occur again in the second half and so we'll we'll be normalized in latin america as you know most of our our uh latin american fiber is uh his own own make own produce let's be uh maybe a little bit we've seen a decrease of about 20 percent since its peak let's say uh in the fourth quarter last year but it takes six months or so for it to start to impact our operations and that's why we're

we're seeing it in the third okay thanks for the color i'll turn it back your next question comes from the line of mark mike ruxland with truest securities mike please go ahead yeah thanks uh john done and hunts for taking my questions and congrats on all the progress I think, you know, about 18 months ago, I guess you hired a new head of EU, and then you also – that was subsequently followed by a mention of a decision on the EU strategic review. So that really implies then a timeline that you'll have a decision made regarding the EU and what's happening with your European operations around end of year. So just – can you give us an update as to where that process ends, what the different options are in terms of, do you think you're going to continue to put money into those two assets or are you continuing shutting them or selling them? Because from our understanding, the cash cost of actually closing the assets seems to be manageable and would roughly imply a two-year payback and probably would be the most accretive option for shareholders. So, any call you have on your European operations and your plans there.

Yeah, Mike, I think you characterized it correct in that we said that we were not happy with the performance with our European operations, but this time last year, we made a significant management change because we wanted to see accelerated performance. And I have to say that, you know, we made a great change. We're seeing accelerated performance. We're focusing on our strategy there, which is mixed improvements when enabled by the investments we made at our SIAD mill. We're actually the head of plan there. We're also looking at implementing significant cost reductions that we're seeing both at SIAD and NUMLA, increased productivity and also efficiency, and then we just talked about at the wood cost. I want to say online that with our strategy, it's being executed and being executed much better and well, you know. But, you know, as we said, the conditions are difficult in Europe, and we're looking at the long term, are we satisfied with where we think we can get? And we probably would be looking at somewhere in 2027, if we're not satisfied with the outlook that we've got, that we may pursue other options. And those other options are just about essentially everything that you named. there. It's not like we're starting. I mean, we've been looking at that, but it's probably in 2027 we'll make the call.

Got it. Okay. So, a little bit longer than the 18 months you initially outlined. Do you think it's going to be early 2027 in terms of making a determination? And then just one quick thing, Johnny, in terms of the cost redux that you've achieved there, what are you ultimately targeting? Like, so you've achieved a certain amount already. What are your your targets in terms of improving the overall cost structure of Europe?

Well, I mean, when we look at what we're targeting, we probably need, you know, somewhere between $50 million or so, so we can be where we are. And it's not just the cost reduction, it's mixed improvement, it's other things that go into that to get us at significantly above cash positive on a mid-cycle basis and greater and cost of capital returns you know and um yeah i don't want to i don't want to um lock myself down you know into us but because we're making uh and looking at uh our just you know where our focus is is on europe uh we understand that the issue and so i don't want to lock down a timeline um things could be sooner things could be later you know it depends on

um how things play out but that's that's uh i don't really want to commit to a certain date you know mod totally understand uh two quick questions then i'll just turn it over you know you guys mentioned 75 to 85 million from a better price mix in second half over the first half any way to help quantify the the benefit from you know better volumes better opt-in costs better input costs. Anyway, just quantify that in the second half versus the first half. And then the second question, the poison pill ends in November. What's your plan regarding the poison pill? I mean, and if you have a good relationship with your larger shareholder and they're interested in purchasing more shares, why stop them? Thank you.

So, Mike, relative to the second half quantifying going. So we wanted to give analysts and investors a sense of the 75 to 85 on price and mix, because one, it's big. Two, we're confident prices are in place, and we'll see that carry through. We're confident on the plan maintenance outages. That's something that we typically execute well um on the volume and ops and other class inputs uh there's there's more uncertainty we we are leaning in we're confident in our forecast but we chose not to provide specific guidance there and do you have another question about yeah yeah the um shielded rights plan um you know we the plan remains in place the board hasn't made it yet a decisional um what we're going to do in terms of when it does expire at the end of november um that'll be something

we'll address uh with the board when we meet in september thank you your next question comes from the line of george l stavos with bank of america securities incorporated george please go ahead Hey, guys, how are you?

Thanks for the details. I'll ask two questions, and then I'll come back in queue. First of all, we appreciate you actually providing the pricing guidance that is helpful. John, Don, if I heard you correctly, most of that hits in 3Q, it incorporates what you have in the market, and there's not so much of a tail into fourth quarter. Did I correctly summarize that, or what would you do to modify, add, correct to what I just relayed? And, again, thanks for the pricing guide on that. We asked for that last question.

So, George, thanks for the question. So it'll flow a little more evenly. The way John described those price increases is right, depending on how it flows through the quarter for each of the regions. But we will, in 3Q versus 4Q relative to price and mix, it's probably slightly more in Q4 than Q3.

Would you be at a full run rate, recognizing it's not the full year, but would you be at a full run rate on what you have in the market as you're exiting fourth quarter? Would that be roughly what you'd be contemplating there?

Yes. Yes. Yeah, we would. So North America, definitely be at the run rate by fourth quarter, end of fourth quarter, LATAM as well, and Europe, that would be the expectation.

Okay. Okay. My second question, we noticed the tax rate moved up a little bit in terms of your guide. You know, that can be a lot of different things. It's probably mixed, but could you help us understand why the effective rate moved up a couple points? I'll come back. Thanks.

Yeah, George, that is mainly due to Brazil valuation allowance that we took on a deferred tax asset in a Brazil export entity. And the reason we did that, it was related to the VAT rules are changing in the future. And we merged two entities to really take advantage of $30 million of VAT tax credits we have in that entity. And it came at the expense of this uh valuation allowance for deferred tax assets so 30 uh in vat credits and and it was approximately 9 million for this expense but so we would have strained possibly we would have stranded this go ahead i would say we could have yeah we would have stranded that 30 million dollars of tax credit that we not made that move this year yeah with the law change okay but it implies no change in terms of mix or, for that matter, your ongoing profitability based on what you were at last quarter? That's correct, George. Yeah.

Okay. Thank you. Be right back.

A reminder that if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew, please go ahead.

Hi, thanks. Just one more for me. I thought slide 12 was pretty interesting. As I think about the more kind of operational focus items there, operational excellence, cost leadership, and maybe some degree customer centricity, how much of that, I guess, do you need to get right to get to your $300 million free cash flow? Thanks.

That's a good question because if we think about it in terms of the, to achieve what What we want to do, we want to be there across all these measures. But in terms of the $300 million, probably the most important area for us is two, one is the cost leadership. We need to increase the rate at which we can, and the level that we can reduce costs given these high inflationary environments we've had, and it's across all regions and input cost. And additionally, I think it's important with our customer centricity. I mean, it's very important that given our strategy where the flagship growth strategy is and where we want to run and, you know, to our assets at the, you know, at full capability, we need make sure that our customers we have intense customer low as the market continues to decline and so it's very important that that the customers that we build and serve our customers to a level that's well above their expectations great thanks for the perspective i'll turn it back

your next question comes from the line of george l stavos with bank of america securities Incorporated. George, please go ahead.

Hey, thanks. Two quick ones. Number one, guys, I remember last quarter the update relative to the earnings impact from the footprint alignment related to Eastover. There was effectively a $20 million ad back for the view that you'd be bringing in some tons. I remember mostly from Brazil to help on your volume, and it would be a bit more economical. Obviously, with tariffs changing again, maybe that situation has changed. And I think you implied it or commented to it in one of the earlier questions. Can you update us on where that stands? And then there was a comment in the slide about Eastover and the softwood line. And I was just curious, how are you using softwood in the mix out there, and I'll come back. Thanks.

So, George, I'll take that first question. So, based on the tariff changes, we will not be able to bring in as much product from Brazil as we anticipated last quarter. So, it looks like we'll be back near that $85 million estimate that we provided back in February from our Q4 call. So when we said $20 million, it's essentially gone away from Brazil, rather. So back to the $85 million that we originally estimated.

Yeah, George, and to your question about the softwood, we really have two lines, you know, in terms of our wood fiber that we supply the mill both hardwood and softwood and generally we put about 30 to 40 percent softwood in the products and mostly that's in the converting grades which need strength like envelope grades and stuff yeah I wouldn't I forgot about you have you have some grades used for converting I will turn it over I'll come back thanks Your next question comes from the line of Mike Boxland with Truist Securities.

Mike, please go ahead.

Yeah, thanks again for the additional questions. Just two quick ones. First, can you talk about the impact on the U.S. market from additional Canadian tariffs? I think the U.S. imports around 7 percent of supply from Canada, and so I'm just wondering, you know, what the new tariffs, if and when they're implemented, would mean for additional tightness in the U.S. market. Second question, just wanted to find out from you, your most profitable Brazil mill is not backward integrated. The Moji mill is backward integrated and losing money. So can you remind me why it's important to be backward integrated into pulp in Brazil? And what I would also note is There was an article recently that a domestic U.S. mill has decided to rely on market pulp to produce paper and discontinue the use of internal pulp, and that's actually improved their return profile. So any call you have on why the integration is necessary in Brazil.

When you think about the process to produce paper on an integrated mill, not only are you fully integrated or you're using wood to produce the you know the fiber but you also use that process of reclaiming the chemicals debarking it so you get bark so you end up producing your energy both electricity and steam from the process of um you know cooking the uh the wood and when you add that together collectively it's typically a much lower cost way to produce the products that we make on code if you have a good source of wood um you know given the competitive situation where you actually may have high cost wood and relatively low cost energy potentially uh that may make sense but where you have low cost wood um it's going to make more sense to be fully integrated you know trace of ghost is um a non-integrated mill but it has a unique position of being attached to a pulp mill so unlike buying market pulp um and then having to repulp that and put it back into your processes we get that directly from the pulp mill from the get that in a wet flurry so no transportation costs no re-pulping yet and also we have an agreement with um the salona mill to provide steam and energy um at very attractive rates so yeah that that makes that situation down and trace of those it actually may not be the lowest or the highest margin business we own but it certainly is the highest cash generation business because also you don't have the capital cost on the back end of the mill.

I would add, John, and for Mike, for your benefit. So, Luis Antonio is actually our lowest cost mill, even compared to Trace Lagos. And John's comment around on a cash basis is important because you don't have – you've got a lot less equipment at Trace Lagos. But Luis Antonio fully integrated, you know, using fiber is as low as cost.

And you asked about the impact on the Canadian tariff, and that was the tariff that was applied was on a very narrow product line of uncoated free sheet. And as you mentioned, it's imported or exported or comes into the U.S. at a very small volume. So the impact of that on the North America market is medical from the tariff perspective.

Your next question comes from the line of George L. Staffos, Bank of America Securities Incorporated. George, please go ahead.

Last year for me. one on Europe and one on, you know, the bridge into third quarter. So for Europe guys, can you – I think you're answering it to Matt, and I might have missed it, but have you codified what benefit you're getting from improved fiber in Numala or, you know, with a reasonable time period, like in the next quarter or two, annualized what kind of benefit on fiber you expect to get in Numelo. Relatedly, what are you seeing in the pulp markets in Europe right now and what it's doing to the cost curve, especially for the non-integrated guys? So that's question one. Broadly, question two, if we think about what you reported for 2Q, you did $60 million. Again, thank you for the pricing guide. Let's say you get half of that 75 to 85. Let's call it 40 million of the midpoint of 80, right? You have maintenance, which comes down 40, I believe, 2Q to 3Q. Again, correct me if I'm wrong. So that's an 80. Should we assume that the Brazilian tons that are not coming in that negative 20 offsets you know whatever volume and ops benefit you'd get so basically we're looking at an 80 million benefit 3q versus 2q you know what other good guys might help you uh add to that total thank you guys and good luck in the quarter okay uh it's a lot packed in there george we're trying maybe take yeah yeah i appreciate that so on uh on Europe, let's talk about fiber.

So relative to pulp, what we're seeing with pulp are pulp prices coming up, but probably to a stable point. And relative to the non-integrated players, today there are fewer non-integrated players in Europe than there were some years ago. And I think the the what you traditionally saw where when pulp went up it helped to put paper prices up we're not seeing that as much anymore operating rates are still low pulp has come up somewhat um and we've gotten some traction on price but i think there's less relationship there and you You know, pulp is up $112 a ton, euros a ton, sorry, say July year to date, and prices are not up that much.

Relatedly, Numala and then the bridge of three cube.

Yeah, I think, George, and we're not going to—what I said is that wood cost has come down about 20 percent um but we're going to see the impact of that like we're starting to just start to see the impact of that in the third quarter okay and that'll carry through uh through the rest of the year okay and the breeding and the bridge yeah back to your you're you're looking for more specifics on each of these, the buckets, if you will, for a second half?

Yeah. And I gave you some round numbers to work with, Don, you know.

Yeah.

And when I look at numbers at a very quick level, I mean, directionally, you're, I would say you're in the ballpark is where we would think. And of course, there's some uncertainty around the input cost with the war, but generally, that's right. The other thing, too, is maybe we need to talk about this in the volume and stuff. So we shipped the volume. When the IEPA tariffs went away, we made a change and moved from instead of importing in from our European operations, we imported in from Brazil. We've had to stop that due to the recent tariffs implications. But there was volume that was shipped into Brazil and not sold. right, will be sold in the second half. I'm sorry, to the U.S. And roughly that means that, you know, the earnings for Brazil are understated, and we're going to see the impact of that in the second half in the mix. And it's roughly about $9 to $10 million. Okay. But that's not all going to hit the third quarter that I'll, as we sell it, it'll be third and fourth.

Thank you very much.

We have reached the end of the Q&A session. I'll now turn the call back over to John Sims for closing remarks. John, please go ahead.

Again, thank you for being on the call and thank you for the questions. You know, we said, and I said that 25 and 26 would be low points in our free cash flow generation. And I would say that the first and second quarter were probably the nadir of that but this is a transition year 2026 and it is going to be a tale to have which we've talked about during this call this year we're executing our most significant investments that are east over mill and will drive a lot of value in the years to come we've also launched our lean transformation focused on exceeding our customers expectations and driving improvement and accelerating that across all our operations we are focused on the long-term value creation and will generate strong sustainable results by diligently executing our flagship growth strategy adhering to the discipline capital allocation principles becoming more customer-centric and institutionalizing lean management principles so we have a lot of confidence that we believe that as industry concerns particularly europe and on the older markets our capital spending normalizes and the benefits from our investments begin to materialize with potential to generate annually greater than 300 million in cash flow 15 percent greater than 15 percent returns on invested capital so thank you uh for being on the call thanks everybody have a great day and a great weekend bye-bye once again we would like to thank you for participating in silvamo's

second quarter 2026 earnings call. You may now disconnect.