Sylvamo Quarterly Results Higher Than Guidance, Cost Reduction Program Announced

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

Financial Highlights – Third Quarter vs. Second Quarter

• Net income from continuing operations of $58 million ($1.37 per diluted share) vs. $49 million ($1.14 per diluted share)
• Adjusted operating earnings¹ (non-GAAP) of $72 million ($1.70 per diluted share) vs. $49 million ($1.14 per diluted share)
• Adjusted EBITDA² (non-GAAP) of $158 million (18% margin) vs. $124 million (14% margin)
• Cash provided by operating activities from continuing operations of $197 million vs. $77 million
• Free cash flow³ (non-GAAP) of $155 million vs. $33 million

Commercial and Operational Highlights – Third Quarter vs. Second Quarter

• Price and mix decreased by $55 million due primarily to lower paper prices in Europe and on exports from Latin America, as well as lower global pulp prices
• Volume increased by $6 million due to increases in Latin America and North America
• Operations and other costs improved by $1 million due to better operating and supply chain results offset by $13 million in higher unabsorbed fixed costs from increased economic downtime
• Planned maintenance outage expenses decreased by $55 million
• Input costs improved by $27 million driven by favorable fiber, chemical and transportation costs

Fourth Quarter Outlook

• Adjusted EBITDA of $90 million to $110 million
• Compared to the third quarter:
  • Price and mix are expected to decrease by $20 million to $25 million, primarily reflecting prior paper price decreases in Europe and unfavorable geographic mix in Latin America and North America
  • Volume is projected to improve by $20 million to $25 million, with seasonally stronger volume in Latin America and positive trends in North America
  • Operations and other costs are expected to increase by $25 million to $30 million due primarily to seasonally higher costs in Europe and North America
  • Input and transportation costs are projected to increase by $5 million to $10 million, mainly due to seasonally higher energy
  • Total planned maintenance outage expenses are expected to increase by $25 million

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

Third quarter earnings were higher than our outlook. We took measures to maximize free cash flow, including selling and administrative cost reductions, shrinking working capital and adjusting the timing of capital spending. We now expect free cash flow for the year to be more than $270 million.

By the end of the third quarter, we returned $85 million to shareowners this year. In the third quarter, we also deposited $60 million in escrow to remove cash return limits in our credit agreement. As of Nov. 9, we have returned $110 million this year and plan to return a total of $125 million in 2023.

Our board of directors increased our regular dividend by 20%, declaring a fourth quarter $0.30 per share dividend and a special $0.30 per share dividend. We paid both, totaling $25 million, Oct. 17. The board also authorized an incremental $150 million share repurchase program. At the end of the third quarter, the May 2022 and September 2023 authorizations collectively had $167 million remaining. We will continue to look for opportunities to repurchase shares at attractive prices.

Sylvamo competes as a low-cost producer of commodity products sold in mature-demand, cyclical markets. In the spirit of continuous improvement, we initiated a cost reduction program called Project Horizon. The project will streamline our organization and cost structures and make us a leaner, stronger company.

Before inflation, we are targeting run rate savings of at least $110 million by the end of 2024. Approximately two-thirds of the target will come from operational improvements in our mills and supply chains. The balance will consist of selling and administrative cost reductions, including the elimination of approximately 150 positions, or nearly 7% of our global salaried workforce.

Since becoming an independent company just over two years ago, we note a few key milestones:

• Improved our financial position by reducing debt 35%
• Generated more than $1.3 billion in adjusted EBITDA (19% margin) and $568 million in free cash flow
• Returned $200 million in cash to our shareowners

We remain focused on uncoated freesheet and will create long-term value through our talented teams, iconic brands and low-cost mills in favorable locations. Sylvamo is a cash flow story. We will continue to leverage our strengths to drive high returns on invested capital, generate free cash flow and use that cash to increase shareowner value by maintaining a strong financial position, returning cash to shareowners and reinvesting in our business.

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)	Third Quarter 2023	Second Quarter 2023	Third Quarter 2022
Net Sales	$897	$919	$968
Net Income from Continuing Operations	58	49	109
Net Income	58	49	57
Business Segment Operating Profit	116	82	175
Adjusted Operating Earnings	72	49	112
Adjusted EBITDA	158	124	216
Cash Provided By Operating Activities From Continuing Operations	197	77	146
Free Cash Flow	155	33	114

Segment Information

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

Business Segment Results
(In millions)	Third Quarter 2023	Second Quarter 2023	Third Quarter 2022
Net Sales by Business Segment
Europe	$184	$210	$130
Latin America	246	250	270
North America	476	474	589
Inter-segment Sales	(9)	(15)	(21)
Net Sales	$897	$919	$968
Operating Profit by Business Segment
Europe	$(14)	$(11)	$19
Latin America	55	48	58
North America	75	45	98
Business Segment Operating Profit	$116	$82	$175

Operating profits in the third quarter of 2023:

Europe – $(14) million compared with $(11) million in the second quarter of 2023. Earnings were slightly lower as lower planned maintenance outages and lower input costs were more than offset by lower price and mix and higher unabsorbed costs due to economic downtime.

Latin America – $55 million compared with $48 million in the second quarter of 2023. Earnings were higher as lower operating and input costs and lower planned maintenance outages more than offset lower export price and mix.

North America – $75 million compared with $45 million in the second quarter of 2023. Earnings were higher as lower operating and input costs, higher volumes and lower planned maintenance outages more than offset lower price and mix and higher unabsorbed costs due to economic downtime.

Effective Tax Rate

The reported effective tax rate for continuing operations for the third quarter of 2023 was 36%, compared to 30% for the second quarter of 2023. The higher rate for the third quarter was due to a change in estimated Annual Effective Tax Rate (AETR) to reduce the expected benefit of foreign tax attributes and also a mix of earnings in our regions.

Excluding net special items, the effective tax rate for the third quarter of 2023 was 33%, compared with 30% for the second 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 third quarter of 2023 amounted to a net after-tax charge of $14 million ($0.33 per diluted share) compared with net after-tax income of $0 million ($0.00 per diluted share) in the second 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