Sylvamo First Quarter Results In Line With Guidance

Sylvamo (NYSE: SLVM), the world’s paper company, is releasing first quarter 2023 earnings.

Message from the Chairman and Chief Executive Officer

“We generated $208 million in adjusted EBITDA, which was consistent with our outlook of $205 million to $215 million, and achieved a 22% adjusted EBITDA margin,” said Jean-Michel Ribiéras. “We maintained a strong balance sheet and repurchased 80% of our outstanding notes to eliminate restrictive covenants in the notes agreement. These steps enabled us to continue on the path to returning more cash to shareowners.”

Financial Highlights – First Quarter vs. Fourth Quarter

• Net income from continuing operations of $97 million ($2.25 per diluted share) vs. $88 million ($1.99 per diluted share)
• Adjusted operating earnings¹ (non-GAAP) of $108 million ($2.51 per diluted share) vs. $87 million ($1.97 per diluted share)
• Adjusted EBITDA² (non-GAAP) of $208 million (22% margin) vs. $170 million (18% margin)
• Cash provided by operating activities from continuing operations of $63 million vs. $142 million
• Free cash flow³ (non-GAAP) of $2 million vs. $84 million

Commercial and Operational Highlights – First Quarter vs. Fourth Quarter

• Adjusted EBITDA, including $17 million from the newly-acquired Nymolla mill, increased by $38 million, which was in line with our guidance
• Compared to the fourth quarter, excluding Nymolla:
  • Price and mix decreased by $8 million, due to pricing pressure on both pulp and paper in Europe, while remaining stable in Latin America and North America
  • Volume declined by $34 million due to seasonal weakness in Latin America and channel inventory destocking in Europe and North America
  • Operations and costs improved by $18 million, driven by lower annual incentive plan expense in the first quarter and favorable foreign exchange rates
  • Planned maintenance outage expenses decreased by $31 million with no planned outages
  • Input costs improved by $14 million, driven by favorable energy and transportation costs
  • Free cash flow reflected increases in working capital and annual incentive compensation payments

Second Quarter Outlook

• We expect adjusted EBITDA to be $115 million to $125 million
• Compared to the first quarter:
  • Price and mix are expected to decrease by $45 million to $50 million, reflecting the realization of prior price decreases for pulp in all regions and paper in Europe as well as less favorable product mix
  • Volume is projected to improve by $10 million to $15 million, with seasonally stronger volume in Latin America
  • Operations and costs are expected to increase by $10 million to $15 million primarily due to unabsorbed fixed costs
  • Input and transportation costs are projected to improve by $15 million to $20 million, with favorable trends in energy and chemicals
  • Total planned maintenance outage expenses are expected to increase by $59 million, with two-thirds of 2023 planned maintenance outage costs scheduled for the second quarter

Management Summary

We now project 2023 adjusted EBITDA of $720 million to $770 million, which reflects the impacts of previously announced pulp price decreases, updated views on pulp and paper prices and volume, continued channel inventory corrections and more favorable input and transportation cost trends. We also now project free cash flow of $250 million to $280 million.

The integration of our new mill in Sweden is proceeding well. We expect Nymolla to continue strengthening our performance while enabling us to serve customers across Europe and around the world more effectively.

We maintained a strong balance sheet, achieving a net debt-to-adjusted EBITDA ratio of 1.1x and improved our financial flexibility by increasing our ability to return more cash to shareowners. We repurchased $360 million of our 2029 notes, which eliminated restrictive covenants related to the notes. We replaced the notes with Term Loan A and short-term debt.

We returned $21 million of cash to shareowners in the first quarter. Returning more cash to shareowners remains a priority.

We announced a cooperation agreement with our largest shareowner, Atlas Holdings, in February. Our board added two independent directors and terminated the shareholder rights plan adopted in April 2022.

Our board also declared a quarterly dividend of $0.25 per share for the second quarter, which we paid on April 27.

Our 2030 goals demonstrate our commitment to produce paper in the most responsible and sustainable ways. In April, we received formal approval of our greenhouse gas emissions targets from the Science Based Target initiative (SBTi). We expect to reduce our 2030 Scope 1, 2 and 3 greenhouse gas emissions by 35% from a 2019 baseline and define a pathway to net zero emissions.

Sylvamo will achieve its vision to be the world’s paper company – the employer, supplier and investment of choice – by implementing our three-pronged strategy of commercial excellence, operational excellence and financial discipline.

1 Adjusted Operating Earnings (non-GAAP) are net income (loss) (GAAP) excluding discontinued operations, net of tax and net special items. Management uses this measure to focus on ongoing operations and believes it is useful to investors because it enables them to perform meaningful comparisons of past and present combined operating results. The Company believes that using this information, along with net income (loss), provides for a more complete analysis of the results of operations. Net income (loss) is the most directly comparable GAAP measure. For more information regarding net special items, see the information under the heading Effects of Net Special Items and the Condensed Consolidated Statement of Operations and related notes included later in this release.

2 Adjusted EBITDA (non-GAAP) is net income (loss) (GAAP) excluding discontinued operations, net of tax, plus the sum of income taxes, net interest expense (income), depreciation, amortization and cost of timber harvested, transition service agreement expense, stock-based compensation, and, when applicable for the periods reported, net special items. Management uses this measure in managing the operating performance of our business and believes that Adjusted EBITDA and Adjusted EBITDA Margin provide investors and analysts meaningful insights into our operating performance and Adjusted EBITDA is a relevant metric for the third-party debt. The Company believes that using this information, along with net income (loss), provides for a more complete analysis of the results of its operations. Net income (loss) is the most directly comparable GAAP measure. For more information regarding net special items, see the information under the heading Effects of Net Special Items and the Condensed Consolidated Statement of Operations and related notes included later in this release.

3 Free Cash Flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operating activities from continuing operations. Management utilizes this measure in connection with managing our business and believes that Free Cash Flow is useful to investors as a liquidity measure because it measures the amount of cash generated that is available, after reinvesting in the business, to maintain a strong balance sheet and service debt, and return cash to shareowners. It should not be inferred that the entire Free Cash Flow amount is available for discretionary expenditures. Free Cash Flow also enables investors to perform meaningful comparisons between past and present periods.

Select Financial Measures
(In millions)	First Quarter 2023	Fourth Quarter 2022	First Quarter 2022
Net Sales	$ 959	$ 927	$ 821
Net Income from Continuing Operations	97	88	55
Net Income	97	94	26
Business Segment Operating Profit	166	133	103
Adjusted Operating Earnings	108	87	59
Adjusted EBITDA	208	170	146
Cash Provided By Operating Activities From Continuing Operations	63	142	48
Free Cash Flow	2	84	32

Segment Information

Sylvamo uses business segment operating profit to measure the earnings performance of its businesses and is calculated as set forth in footnote (f) under the “Sales and Earnings by Business Segment” table (page 8). First quarter 2023 net sales by business segment and operating profit by business segment compared with the fourth quarter of 2022 and the first quarter of 2022 are as follows:

Business Segment Results
(In millions)	First Quarter 2023	Fourth Quarter 2022	First Quarter 2022
Net Sales by Business Segment
Europe	$ 248	$ 119	$ 117
Latin America	222	289	215
North America	505	527	508
Inter-segment Sales	(16)	(8)	(19)
Net Sales	$ 959	$ 927	$ 821
Operating Profit by Business Segment
Europe	$ 23	$ 12	$2
Latin America	46	56	39
North America	97	65	62
Business Segment Operating Profit	$ 166	$ 133	$ 103

Operating profits in the first quarter of 2023:

Europe – $23 million compared with $12 million in the fourth quarter of 2022. Earnings were higher as the $16 million of operating profit contributed by Nymolla and lower operating and input costs more than offset lower volumes.

Latin America – $46 million compared with $56 million in the fourth quarter of 2022. Earnings were lower as lower operating costs and planned maintenance outage costs were more than offset by lower volumes.

North America – $97 million compared with $65 million in the fourth quarter of 2022. Earnings were higher as lower operating and input costs, and lower planned maintenance outages more than offset lower volumes.

Effective Tax Rate

The reported effective tax rate for continuing operations for the first quarter of 2023 was 31%, compared to 28% for the fourth quarter of 2022. The higher rate for the first quarter was due to the mix of earnings in our regions and unfavorable U.S. rule change restricting foreign tax credits in Brazil.

Excluding net special items, the effective tax rate for the first quarter of 2023 was 30%, compared with 28% for the fourth quarter of 2022.

Effects of Net Special Items

Net special items related to continuing operations in the first quarter of 2023 amounted to a net after-tax charge of $11 million ($0.26 per diluted share) compared with net after-tax income of $1 million ($0.02 per diluted share) in the fourth quarter of 2022.

For the complete press release, click here.

About Sylvamo

Sylvamo (NYSE: SLVM) is the world’s paper company with mills in Europe, Latin America and North America. Our vision is to be the employer, supplier and investment of choice. We transform renewable resources into papers that people depend on for education, communication and entertainment. Headquartered in Memphis, Tennessee, we employ more than 6,500 colleagues. Net sales for 2022 were $3.6 billion. For more information, please visit Sylvamo.com.

Contact:

Adam Ghassemi – adam.ghassemi@sylvamo.com – (901) 519-8115

Source: Sylvamo Corporation