Sylvamo Quarterly Results Meet Guidance

Slower Demand Recovery Drives Revised Annual Outlook, Company Remains Committed to $125 Million in Cash Returns

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

Financial Highlights – Second Quarter vs. First Quarter

• Net income from continuing operations of $49 million ($1.14 per diluted share) vs. $97 million ($2.25 per diluted share)
• Adjusted operating earnings¹ (non-GAAP) of $49 million ($1.14 per diluted share) vs. $108 million ($2.51 per diluted share)
• Adjusted EBITDA² (non-GAAP) of $124 million (13.5% margin) vs. $208 million (22.1% margin)
• Cash provided by operating activities from continuing operations of $77 million vs. $63 million
• Free cash flow³ (non-GAAP) of $33 million vs. $2 million

Commercial and Operational Highlights – Second Quarter vs. First Quarter

• Price and mix decreased by $38 million due primarily to lower paper prices in Europe, less favorable mix in Latin America and North America and lower global pulp prices
• Volume decreased by $2 million due to lower paper demand in North America and continued channel inventory corrections in Europe and North America, which more than offset seasonally stronger demand in Latin America
• Operations and other costs increased by $10 million, primarily driven by $15 million in higher unabsorbed fixed costs from increased economic downtime
• Planned maintenance outage expenses increased by $58 million, in line with guidance, during the heaviest outage quarter of the year
• Input costs improved by $24 million, driven by favorable energy, chemical and transportation costs

Third Quarter Outlook

• Adjusted EBITDA of $130 million to $150 million
• Compared to the second quarter:
  • Price and mix are expected to decrease by $60 million to $65 million
  • Volume is projected to improve by $15 million to $20 million, with seasonally stronger volume in Latin America and North America
  • Operations and other costs are expected to increase by $5 million to $10 million, mainly due to unabsorbed fixed costs while matching paper production with Sylvamo customer demand
  • Input and transportation costs are projected to improve by $15 million to $20 million, with favorable trends in fiber and chemicals
  • Total planned maintenance outage expenses are expected to decrease by $54 million

Management Summary from Chairman and Chief Executive Officer Jean-Michel Ribiéras

We achieved our second quarter earnings per share and adjusted EBITDA objectives. We delivered these results while facing challenging market conditions and during our heaviest planned maintenance outage quarter.

Our sales volumes were similar to the first quarter. The expected seasonal increase in volume did not materialize due to continued inventory corrections in Europe and North America, decreased demand due to Europe’s slowing economies and economic uncertainty in North America. Consequently, during the second quarter in Europe and North America, we took approximately 120,000 tons of economic downtime, roughly double the first quarter level. We also conducted extensive annual maintenance outages, which we executed safely and efficiently.

With respect to paper demand, we believe that our customers have completed the majority of their inventory corrections. We are now seeing very early indications that global advertising may be starting to rebound and we would expect demand in Europe and North America to begin to improve.

In the second quarter, we returned $41 million of cash to shareowners through dividends and share repurchases for a total of $61 million in cash returns in the first half of 2023. Our board of directors declared a quarterly dividend of $0.25 per share for the third quarter, which we paid July 6. We remain committed to returning a total of $125 million in cash to shareowners this year.

We now project adjusted EBITDA of $560 million to $600 million (formerly $720 million to $770 million) for 2023, reflecting lower paper demand and inventory channel corrections in Europe and North America, updated views on pulp and paper price and mix as well as higher unabsorbed fixed costs. These more than offset favorable input, transportation and operation cost trends. We continue to focus on free cash flow generation and now project free cash flow of $220 million to $250 million (formerly $250 million to $280 million.)

We will continue implementing our three-pronged strategy of commercial excellence, operational excellence and financial discipline. We expect to reduce costs and working capital to maximize earnings and free cash flow in the second half of the year. We will also continue to reinvest in our company to exit the downturn in an even stronger competitive position.

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)	Second Quarter 2023	First Quarter 2023	Second Quarter 2022
Net Sales	$919	$941	*$912
Net Income from Continuing Operations	49	97	84
Net Income	49	97	(59)
Business Segment Operating Profit	82	166	142
Adjusted Operating Earnings	49	108	90
Adjusted EBITDA	124	208	189
Cash Provided By Operating Activities From Continuing Operations	77	63	76
Free Cash Flow	33	2	39
*Includes adjustment to eliminate intra-segment sales in Europe

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). Second quarter 2023 net sales by business segment and operating profit by business segment compared with the first quarter of 2023 and the second quarter of 2023 are as follows:

Business Segment Results (In millions)	Second Quarter 2023	First Quarter 2023	Second Quarter 2022
Net Sales by Business Segment
Europe	$210	$230	$135
Latin America	250	222	249
North America	474	505	549
Inter-segment Sales	(15)	(16)	(21)
Net Sales	$919	$941	$912
Operating Profit by Business Segment
Europe	$(11)	$23	$17
Latin America	48	46	59
North America	45	97	66
Business Segment Operating Profit	$82	$166	$142
*Includes adjustment to eliminate intra-segment sales in Europe

Operating profits in the second quarter of 2023:

Europe – $(11) million compared with $23 million in the first quarter of 2023. Earnings were lower as lower operating and input costs were more than offset by lower price and mix, higher planned maintenance outages, higher unabsorbed costs due to economic downtime and lower operating profit contributed by Nymolla.

Latin America – $48 million compared with $46 million in the first quarter of 2023. Earnings were slightly higher as higher volumes and lower operating and input costs more than offset lower price and mix and higher planned maintenance outages.

North America – $45 million compared with $97 million in the first quarter of 2023. Earnings were lower as lower input costs were more than offset by lower price and mix, lower volumes, higher planned maintenance outages and higher unabsorbed costs due to economic downtime.

Effective Tax Rate

The reported effective tax rate for continuing operations for the second quarter of 2023 was 30%, compared to 31% for the first quarter of 2023. The lower rate for the second quarter was due to the mix of earnings in our regions.

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

The effective tax rate excluding net special items is a non-GAAP financial measure and is calculated by adjusting the income tax provision from continuing operations and rate to exclude the tax effect of net special items. Management believes that this presentation provides useful information to investors by providing a more meaningful comparison of the income tax rate between past and present periods.

Effects of Net Special Items

Net special items related to continuing operations in the second quarter of 2023 amounted to a net after-tax charge of $0 million ($0.00 per diluted share) compared with net after-tax income of $11 million ($0.26 per diluted share) in the first quarter of 2023.

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