Sylvamo Corp (SLVM) Q3 2026 Earnings Call

Executive Officer, and Don Devlin, Senior Vice President and 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.

Before I turn the call over to John, an important note on how we are presenting our results on slide four.

Following the announcement we made earlier this morning, our Europe business is now reported as discontinued operations.

Unless otherwise noted, all figures in this presentation for current and prior periods are for continuing operations and exclude Europe.

Prior period results for our Latin America and North America segments have been recast to include certain corporate costs previously allocated to Europe. Approximately 6.5 million per quarter, split roughly 60% North America and 40% Latin America. Recast historical information is also available in the appendix. With that, I'd like to turn the call over to John.

Thank you, Hansen. Good morning, everyone. I'm glad that you are joining our call. I'm on slide five.

This morning, we announced that we entered into a put option agreement with Midas Atlantic Partners in partnership with the Najafi Companies for a binding offer to acquire our European business.

We believe this potential transaction represents an important strategic step for our Europe business and Savamo. In Europe, it would create the opportunity to move forward with an owner experience in corporate carve-outs and positioning businesses for long-term success.

After the proposed transaction, Savama will be a more focused company with greater ability

to invest in our business, strengthen our performance, and pursue world-class excellence.

We believe that focus will make us a stronger company and better position us to create sustainable

value for our employees, customers, and investors.

Our long-term strategy investment thesis is unchanged. We are focusing on uncoated free sheet in a

attractive market, which we believe North America and Brazil both represent. We are investing in low-risk,

high-return projects that strengthen our competitive advantage, which is what we're doing at our Eastern Room Mill, and we are leveraging our strengths to generate high returns on invested capital. Slide six is a summary of the proposed transactions. We need to complete the required consultation processes with the Works Council and employee representatives in accordance with local laws before signing a share purchase agreement.

We expect the consultation period to be completed and a transaction to close by the end of the first quarter of 2027, subject to closing conditions, including regulatory approval.

At closing, we'll transfer our Europe business, which includes our mills in Sajot, France, and New Malone, Sweden, along with supporting forestry and business operations.

With working capital of approximately 50 million euros, and net cash of approximately 35 million euros, in exchange for the Europe business, Savama will receive a right to 20% of any future distributions.

Throughout this process, we will remain focused on operating safely and reliably serving our European customers.

Let's move to slide 7 and discuss our third quarter results. Our third quarter reflects solid execution on what we said we would do. First, we continued to implement the uncoded free sheet price increases we had previously communicated to our customers across our region. Second, operational performance improved across all our mills. Sound execution of our planned maintenance outreach work and our lean transformation helped drive the operational improvement in the quarter.

Third, like much of the economy, we face higher input and transportation costs. Don's going to go into more detail on this later on the call. Let's move to the next slide. So this shows our third quarter key financial metrics.

Adjusted EBITDA nearly doubled from the second quarter to $128 million, a 20% margin. Adjusted operating earnings were $1.33 per share. Free cash flow was $16 million, a $32 million improvement from the second quarter. So with that, I'll turn it over to you, Don.

Thank you, John, and good morning, everyone. Slide nine contains our third quarter earnings bridge versus the second quarter. In the third quarter, we earned $128 million of adjusted EBITDA compared to $66 million in the prior quarter. Price and mix were favorable by $25 million, reflecting the implementation of paper price increases and better mix in both regions.

Volume was roughly flat and reasonably stronger demand in Latin America was offset by lower volume in North America due to loss of supply from International Papers, Riverdale Mill.

Operations and other costs were favorable by $6 million, driven by improved operational performance.

Plan maintenance outage costs were favorable by $38 million as we had no scheduled outages in the quarter.

Input and transportation costs were unfavorable by $6 million as transportation costs were higher in both regions.

Let's move to slide 10 to walk through the industry conditions. In Latin America, demand is seasonally stronger in the second half, which supports our volume and geographic mix.

During the quarter, we implemented most of the price increases we had previously communicated to our export customers in other Latin American countries

and in the Middle East and Africa. In September, Colombia canceled its anti-dumping duties on

uncoated free-sheet imports from Brazil, which restores access to a market we previously served.

In North America, industry supply and demand remain healthy. The Riverdale paper machine

conversion removed about 7% of annual industry supply and our extended Eastover outage of about 50 days is currently underway. We realize most of our price increases previously communicated to our customers during the quarter. Lastly, imports continue to increase year-over-year in both regions. The chart on slide 11 shows the New York Fed's Global Supply Chain Pressure Index. This index measures how far global supply

chain conditions are from normal. It moved from about normal a year ago to well above its long-term

average day. We are seeing this directly in our cost in both regions in three main areas. Ocean freight,

with tighter vessel availability and higher fuel prices, and inland transportation costs,

higher diesel prices, and fewer available truck drivers in the U.S. Inputs, chemicals, energy,

and fiber, all affected by persistently higher oil prices. In the third quarter, our input and

transportation costs were six million unfavorable compared with the second quarter, and we expect a

similar unfavorable amount when comparing the fourth to the third quarter. These pressures are

industry-wide, not specific to Savamo. We're pulling many levers to mitigate these costs, such as our lean program, our supply chain initiatives, and fuel surcharges in North America. Let's move to slide 12.

We're making good progress on our strategic investments at Eastover, our flagship mill in North America.

We are about 60% through the execution of the paper machine optimization, and it remains on schedule and on budget. Once complete, it will add 60,000 tons of uncoated free sheet capacity per year, with the ramp-up starting early next year.

Let's go to slide 13. After a strategic review, we changed the investment plans for our converting facility in Sumter, South Carolina, which serves our Eastover mill.

We decided to expand our converting capacity, enabling us to internalize most of the currently outsourced converting and replaced cut-size imports from our Brazil operations, which are no longer economically viable due to tariff changes.

Our Sumter converting plant currently has three sheeters. The previous plan included replacing one existing sheeter with a new state-of-the-art sheeter.

We now plan to keep three existing sheeters operational and add the new sheeter to the facility.

When completed, Sumter will have four sheeters with a total of 500,000 tons of annual cut-size converting capacity, which is an increase of 200,000 tons from its current capacity.

This capability will lower our converting and transportation costs and enhance our mix while improving service to customers. The new sheeter is planned to start up early in the third quarter next year.

This change will require us to invest about $25 million more to upgrade the infrastructure of the facility in 2027. However, it will also result in a higher projected annual earnings benefit.

The overall investments for the paper machine optimization and new sheeter are still expected

to generate higher than 30% IRR. I will now turn it back over to John to conclude repair remarks.

Thank you, Don. In my letter to shareholders in January, I committed that we would allocate capital wisely, focus on long-term value creation, and communicate transparently.

We evaluate our position in Europe and have decided to focus our resources and capital in Latin America and North America, where we believe we have the best opportunity to earn returns above cost of capital and generate strong cash flow.

We'll be focusing on setting a new standard for customer experience and loyalty, executing

our strategic investments at Eastover, embedding lean continuous improvement across our operations

and business, achieving best-in-class levels of efficiency, reliability, and performance in our mills and supply chains, adhering to our disciplined capital allocation principles, improving our social and environmental impacts every year.

Our flagship growth strategy has not changed. We will continue to invest in low-risk, high-return projects that strengthen our uncoded free-sheet capabilities and grow earnings and cash flow over time.

I would like to close by recognizing that today we announced a big change for Savamo, and I want to thank all our employees for their hard work and commitment, especially our teams in Europe.

With that, I'm going to turn it over back to Hans.

Thanks, John, and thank you, John, as well. Okay, Rebecca, we're ready to take questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. Should you have further questions, you are welcome to re-enter the queue. 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 Mike Roxland with Truist Securities.

Please go ahead. Thank you, John, Don, and Hans for taking my questions, and congrats on the announcement.

John, just wanted to follow up with you. You mentioned the letter and your closing remarks here as they put earlier this year.

I mentioned $300 million of free cash flow on a normalized basis, or at least, excuse me, at least $300 million.

Once the sale of Europe is done, how do you think about that target? And I realize the target is a floor. You didn't provide a range, so obviously there's upside for starters, but could free cash flow be at least $400 million, $450 million, particularly once you get rid of Europe? That's the first part.

And the second piece is, now that you're approaching your target of $300 million plus, what do you intend to do with your free cash flow? Is it all going to head towards repurchasing stock?

Thanks, Mike. The proposed sale of our European business was going to make Savamo a much more focused company, concentrated in the attractive North America and Latin America regions.

But we see the greatest opportunities to grow earnings and cash flow. Our East River investments are progressing. Our lean transformations are improving performance across our mills. You know, and our flagship growth strategy and discipline capital allocations are unchanged. So we're confident that we can continue to develop strong cash flow and grow that as we complete the transaction of our footprint range.

But I'm going to tell you that we're going to share more about the long-term potential

of our stronger Savamo at the appropriate time once we complete the proposed sale of the European

business. To your second question, our focus on our capital allocation strategy is unchanged. First

and foremost, we're going to maintain a strong balance sheet so that we can invest and continue

to invest through the cycle. We will invest and continue to operate or invest where we think there's opportunities to generate well above cost of capital returns and grow our cash flow. And then we're going to return it, the rest and the balance to shareholders. And we'll do that. You know, we do believe that the dividend is important to have that as a foundation. But we also believe that where there's opportunities, we'll be buying back our shares. And we'll prioritize that.

Got you. And just one quick follow-up. When you think about – can you help us frame, actually, an early bridge to maybe 2027 EBITDA, some of the larger bookends, and given some of the moving pieces this year?

You know, the way I think about it, you know, it looks like you'd be at around $340 million of EBITDA roughly, give or take, for 2026. You have – once Europe is out, you know, it's an add-back of roughly $75 to $90 million, used to over $35 million benefit. You have fewer imports from Europe and Brazil, $65 million benefit. And then you have some of these one-offs that you incurred this year from weather debarking at NMOLA and reliability.

So when you think about the progression from EBITDA this year to 2017, are you looking at a starting point of around $525,000, $550 million or so?

Well, you know, to answer your question, we don't want to project out. Of course, there's a lot of unknowns between now and the beginning of 2028 in terms of the global economy's costs and inputs and things like that. I mean, I would think directionally, the way you've outlined it, those all make sense. What's unknown is what's going to be, what's going to occur,

in 2027, even from a geopolitical perspective. Thank you. One thing I'll add, Mike, is relative to Eastover, as you were going through those numbers, the 75, 35, and 65, I think you referenced, I think, the 65, which we've talked about in the past as a non-repeat.

And the way we're thinking about that, you know, we had a couple of components of that. We originally said 85 was a non-repeat, if you remember, back in one of our previous earnings calls.

That had several components. Europe was a component, for example. The volume was a component. The Eastover outage, shutdown itself, extended outage was a component.

And then we had another component for purchasing, you know, outside converting services.

And so the way we think about next year, given what we're doing with the fourth cheater, volume, first of all, will be relatively flat for North America next year. So we don't see that 20 million component not repeating.

And then we had our east over outage, extended outage was 25 million of that. That would be something that we would expect as a one time that won't repeat next year.

But we think our converting costs as we work to the third quarter to start up this fourth cheater will still incur some higher than normal converting costs well into 2027.

So in a summary, I'd say we expect about 25 million of that, originally 85, I think you're about 65, so 25 of the 65 to come, not repeat next year.

Very clear, Don. Thank you.

Your next question comes from George Staffos with Bank of America. Please go ahead.

Hi, everyone. Good morning. Thanks for the details.

Question, and congratulations on the news. Good luck with the process. So the Sheeter expansion in Sumter, can you talk to what the incremental cost will be? I think you just mentioned directly it's going to be an incremental negative. Can you talk about what that cost will be in 27? And as I understood it correctly, this is all part of question one.

You at one point in time thought you'd be bringing in tons from Brazil. You can't do that now because of policy. What are you going to be doing with those Brazilian tons that have been displaced by the incremental converting that you'll be able to do at Sumter? And I had a follow-on.

Yeah. So, George, just to be clear, the 25 million is additional CapEx. Because we're not going to – originally, we had planned to shut down and replace the sheeter. Now, we're adding a four-sheeter to just Sumter facility. So, we've got to add infrastructure. You're thinking about in terms of fire protection, dust systems, air, electrical. That's what the 25 million is.

And we expect that then to delay the startup of that new state-of-the-art sheeter until mid-year next year.

And what we refer to is that we'll have to continue to outsource converting. We have

those customers now. We're providing those customers today, but we're providing a cut size using outsource converting, which is expensive. And that's where the additional benefit comes from. Once that sheeter is up and running, we'll avoid those outside converting costs. We'll be much more efficient internally to do that.

For the Brazilian question you asked is, we're doing that today. So we've stopped, you know, we were just able to briefly bring in cut size from Brazil to support this transition with Riverdale going down. But then when the additional tariffs were applied, that shut that off. And so that volume that we were importing in from Brazil is now going into other markets, other

Latam market, and, you know, we're exporting that, and we're seeing that today in our Brazilian business.

Did that answer the question, George? It did. I guess, just a point of clarification before I get to the other question. So, I understand that $25 million is capital. Would it be fair to say, initially, as you're, you know, building out what you need for the new sheeter and the capacity there and the incremental cost you're going to have there, that's initially a negative? And at some point, obviously, you're doing this because you're going to become more efficient on converting. Is there a way to size what the negative is initially

from a P&L standpoint and what the positive is on the flip side once it's up and running? And then my second question is, aside from the ongoing, you know, 20% that will go to you on any cash outflows from the European operations, is there anything else in terms of economic interest you gain or any other things we need to be mindful of that could be a negative for you?

in terms of the the deal on Europe. So aside from the 20%, what else do we need to be mindful of on the economics there? Thank you.

Yeah, George, it's Don. Good morning. So to your first question around, yeah, so your first question around the additional cost, I'll go back to what I was describing to Mike earlier. So in 2026, we estimated our incremental converting costs, outsourced converting costs due to the easter over change to be about 20 million.

That's about the same that'll occur in 27. So that's why that what we originally thought was a one-time would not go away. So incremental converting in 27, approximately 20 million dollars to continue. And then the rest is capital that John described.

But to be clear with that, George, it will go away when the new sheeter is up and running. That's the size of the price for installing the new sheeter, exiting.

Yeah, and we see that this project collectively, everything we'll spend on it, even including the incremental 25, will have above a 30 percent return.

And then to your second question, around the 20 percent economic interest. So just to be clear, we have no equity ownership. We have no, you know, voting position. So the equity, the 20 percent interest on any cash distributions, but it also would be, you know, if the company does any type of joint venture or something,

And then we'll get appropriate position, you know, economic interest in the joint venture.

Also, any future sales, we would get 20% of the proceeds from that. So that's what the 20% means. It is also indefinite. So it's part of the deal.

But you don't have a cash call as well. So if they need capital for whatever reason, they don't come knocking on Sylvama's door and say, hey, we need 20% of it or something like that. Would that be fair?

That's correct.

Okay. Thank you. It can't be, and also it can't be diluted as well, the 20 percent of this.

Thank you, John. Your next question comes from Matthew McKellar with RBC Capital Markets. Please go ahead.

Hi, good morning. Thanks for taking my questions. Just wanted to follow up on that last one, and I guess confirm my understanding as well around what I heard. Are there any meaningful constraints placed on the buyer and how they run the assets as part of the transaction? Maybe specifically, do they have the option to close those notes? Thank you.

Yes, there's no restrictions from our perspective. No, they will be fully in control of the operations

as a business once it does get approved and we do close on it. And I guess the short answer

is no restrictions. Okay. And then as a follow-up, are you reasonably confident that the buyer

and his partner are well positioned to fund any mill site liabilities that may have to

be resolved in the future, and that your liabilities around those mills would be completely severed by the transaction. Yes, we are really confident the well we ran a competitive process was actually a lot of interest.

You know, these assets that we have, the teams that are there, the brands that we have are very good, and, you know, I think that this, we made a selection with Midas because of their track record, because of their financial backing, but we also had other also very attractive potential buyers as well to make a choice with.

That was a difficult choice because they all had their strengths, and we believe that Midas does have the financial backing and also the know-how and the wherewithal to be able to be very successful long-term with our European business.

Okay, thank you. If I could just sneak one more in regarding Section 338 tariffs, the recent scope revisions, could you maybe just confirm the approximature of volumes you'd expect to be affected by tariffs at this point as it relates to the industry in North America?

Can you speak to any opportunities for Savamo that you might be seeing following that announcement? Thank you.

Yeah, so the U.S. did impose another HES code on 338, which impacted about 82,000 tons of cut size that was being – that was imported in 2025 from Canada.

So we're thinking that's about the same volume.

If you look at that volume, it is somewhat immaterial to the overall volume. So we don't see a lot of impact, and it's also not clear as to what options the supplier of those tons may have in terms of converting those into roles or to offset business and supplying that cut size domestically.

So we don't see much of impact from the recent addition of this HTS code to the 338 Tera method.

Thanks very much. I'll turn it back.

Please limit yourself to one question and one follow-up. Should you have further questions, you are welcome to re-enter the queue. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. Your next question comes from Daniel Harriman with Sidoti & Co. Please go ahead.

Hey, guys. Good morning. Thanks so much for taking my questions. Just two quick ones for me today. The first is on working capital. Our expectation from August was that the bill would mostly unwind by year-end 26, with the 50,000 tons in North America coming down in the second half. It looks like in the third quarter, it consumed about $42 million in working capital. So I'm curious how much now comes out in the fourth quarter versus next year.

And then it's regarding the $6 to $7 million a quarter in costs that were previously allocated to Europe. Do you think any of that is addressable once the transaction closes? And if so, over what timeframe? Thanks a lot.

Good morning, Daniel. It's Don. So on your first question on working capital, we will, I expect it will be close to our plan in the fourth quarter. Most of that working capital was inventory billed in North America, which was related to getting us through the easter over outage. And with the sales plan we have, we'll be close to that target by the end of December.

And then for the 6 to 7 million quarterly, you know, cost that was previously allocated to the Europe business. You know, and I, if you step back when we, you know, over time, we've gone through changes with Sobamo. We've looked at what our appropriate cost structure is from an overhead standpoint. We'll do the same thing here. We'll look at what's the right blend of resources that we need to execute our strategy.

And so I think you can expect cost will come down over time as we allocate, we've got the right resources aligned with our, you know, New America's business, if you call it that.

That's helpful. Thank you.

And, Daniel, from the timing expectation, I mean, that will start, you know, probably as soon as we are able to complete the deal once we get through that process.

Your next question comes from George Staffos with Bank of America. Please go ahead.

Hi, everyone. Two questions. First, can you talk to what you think shipments and consumption might look like in North America in 2027 based on your views, what your customers are seeing, market forecasts, whatever you want to throw into the pot?

And then secondly, on the, I think you said $6 million of unfavorable costs with inputs and transportation, if you can affirm or correct that, how do you ultimately, whatever the number is, expect to offset that over time? Is that going to be purely on surcharges and the like, or do you have other mechanisms? Thank you.

Yeah, George, to your first question on shipments, we expect North America, our North America business, to be relatively flat from volume this year to next year. I think the industry in which, I think the industry this year is closer to minus 2%.

And then on your second question, the input cost, we expect the fourth quarter to see also from the third to the fourth about the same, I think we said $6 million of negative. And a lot of that is fuel related, oil related, diesel related, and it impacts things like chemicals, distribution costs, things I referenced earlier.

So what do we do about it? There's no one answer. And really, the teams are looking at every lever we have. So think about starting from revenue. What are we doing? Surcharges is an element. It's difficult to do. You can't do it in all regions. But that is a lever that we've pulled and we're moving.

Teams also looking at, you know, the mix, geographic mix and customer mix. How do we improve that? And then further price as we can push it later into earlier into next year. And then in the cost side, it's a lot of things as well. There's teams looking at distribution cost and how do we get the best mode and reduce our exposure to the higher freight cost, the spot freight, if you will.

Fiber, energy, chemicals, same thing. How do we reduce those things and reduce consumption or even how we buy?

And then on the productivity side, our lead initiative is gaining momentum.

It's a long, long process to get to build those capabilities. But we're seeing some early, early indications of success. You've identified approximately 15 million of annualized benefit in some specific projects. We've got a lot of people engaged in it. And so I think the answer is it's not one lever. It's many levers.

And it's across the spectrum of revenue, distribution, manufacturing costs, and productivity.

Okay, thanks. I'll turn it over. I'll be back.

Your next question comes from Mike Roxland with Truist Securities. Please go ahead.

Thanks. Just one quick follow-up. I'm just wondering if you guys have any update on the poison pill, which I believe will expire sometime next week.

Yes, we do have an update on that. Right now, as you said, the shareholder rights plan that the board had adopted last November does expire this Monday, November 9th, and our board has decided to let this plan expire, and so it will not be renewed. Thank you.

Your next question comes from George Staffos with Bank of America. Please go ahead.

Thank you. Hey, Don, just following up on the earlier question I had on input costs and the like, so you said $6 million was the increase, and then there was another $6 million fourth quarter versus third quarter.

So is that a consistent year-on-year, $6 million you've got to manage against, or what you're saying is costs have now moved up $12 million because it's six plus six? How would you have us think about that and add a quick follow-on?

Yeah, George, so first, you're right, it is incrementally six more in the fourth quarter, and we are expecting that we carry that cost into, that annualized cost into 2027 at this point in time.

You know, of course, we'll have things that we'll do to mitigate it as much as we can.

Okay. Annually, George, just for perspective on in 2026 versus 27, costs are up approximately $50 million, and that's distribution is most of that, and the other things, chemicals, energy, things like that over 2025.

Okay, thank you for that. Other question, I know you've got a lot going on right now. It's not going to happen next month, but there had been some thought, I think, maybe I was mistaken, that, you know, when you had the right window, you'd have an opportunity to do an investor session, kind of a, you know, capital market, say something like that. Do you have any thought in terms of when that might occur, if that's a correct assessment?

That's right, George. You know, as actually in my letter, I said we would have one. But then, I mean, when we started thinking about Europe and what we're going to do with Europe, and then we got into the process, we pushed that off because, you know, just we didn't want to be going in front of investors saying one thing and actually working on something else. So we have pushed that off and we'll probably be looking at that, probably

now sometime next year. Sure. Like, you think maybe second quarter, would that be fair, or too hard to call at this juncture? Too hard to call at this juncture. It certainly won't be in the first quarter, but yeah, it could be sometime second, third quarter, yeah. We understand. All right. Thank you very much. Good luck in the quarter. Thank you.

We have reached the end of the Q&A session. I will now turn the call back to Hans Bjorkman for closing remarks.

Thanks, Rebecca. I'm just going to let John give a couple closing thoughts to wrap up, and then we'll let you guys go into the rest of your day.

So I just want to reiterate, you know, the proposed sale of our European business will make Silamo a more focused company concentrated in North America and Latin America, where we see the greatest opportunities to create value.

Our flagship growth strategy and discipline capital allocation principles are unchanged.

We're currently executing our most significant investment at our ESABER mill that will drive a lot of value in the years to come, and that is progressing well. We're very pleased with what we're seeing so far.

We'll continue to invest in low-risk, high-return projects and NCOA-free sheet to maintain a strong balance sheet and return cash to shareowners.

We're focused on long-term value creation, our confident ability to generate strong EBITDA and free cash flow through the cycle.

And as we complete this transition of our footprint, we're going to share more about the long-term potential of the stronger Silvamo at the appropriate time. Thank you for joining this call.

Thank you for participating in Silvamo's second quarter 2026 earnings call. You may now disconnect.