Suzano Q1 2025 Earnings Report

Suzano EPS Results

• Actual EPS: $0.87
• Consensus EPS: $0.88
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Suzano Revenue Results

• Actual Revenue: $2.03 billion
• Expected Revenue: $11.82 billion
• Beat/Miss: Missed by -$9.79 billion
• YoY Revenue Growth: N/A

Suzano Announcement Details

• Quarter: Q1 2025
• Date: 5/8/2025
• Time: Before Market Opens
• Conference Call Date: Friday, May 9, 2025
• Conference Call Time: 8:30AM ET

Suzano (NYSE:SUZ) produces and sells eucalyptus pulp and paper products in Brazil and internationally. It operates through Pulp and Paper segments. The company offers coated and uncoated printing and writing papers, paperboards, tissue papers, and market and fluff pulps; and lignin. It also engages in the research, development, and production of biofuel; operation of port terminals; power generation and distribution business; commercialization of equipment and parts; industrialization, commercialization, and exporting of pulp and standing wood; road freight transport; biotechnology research and development; and commercialization of paper and computer materials. In addition, the company is involved in the business office, production packaging, and financial fundraising activities; research, development, production, commercialization, and distribution of wood-based textile fibers, yarns, and filaments produced from cellulose and microfibrillated cellulose; and research and development of wood raw materials for the textile industry. Suzano S.A. was formerly known as Suzano Papel e Celulose S.A. and changed its name to Suzano S.A. in April 2019. The company was founded in 1924 and is headquartered in Salvador, Brazil.

Suzano Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, thank you for holding and welcome to Suzano's conference call to discuss the results for the first quarter of twenty twenty five. We would like to inform that all participants will be in a listen only mode during the presentation that will be addressed by the CEO, Mr. Herbieto Abreu and other executive officers. This call will be presented in English with simultaneous translation to Portuguese. To change the audio, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter Portuguese room.

[Operator]

After that, you can select mute or regional audio. Before proceeding, please be aware that any forward looking statements are based on the beliefs and assumptions of Suzano's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. You should understand the general economic conditions, industry conditions, and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward looking statements. Now I will turn the conference over to Mr.

[Operator]

Herbieto Abriu. Please, you may begin your presentation.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Good morning, everyone, and thank you for attending the twenty twenty five first quarter conference call. Suzano has presented a set of results for the Pulp and Paper business, which are fully in line with our plan for the period. Inventory was rebuilt to normalized levels despite the concentration of maintenance downtimes in the first quarter. And pulp and paper invoicing prices, cash cost performance, CapEx disbursement and the main metrics of our balance sheets come as expected by the management. And the team will cover here during the call all the details regarding those points.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Looking now to the current environment, where the level of uncertainty escalated since April 2, the focus on strengthening our competitive position became even more critical in an increasingly unpredictable global landscape. Although Suzano already has the ability to generate free cash flow in any pulp price scenario, due to its resilience business model, going forward, we see room to become even more competitive, further reducing our cash costs, further reducing our SG and A cost and also caps per ton as we move ahead in 2025. And this is fully aligned with our total operational disbursement guidance for 2027. Our conservative approach is also valid to our financial strength. So deleveraging continues to be our priority.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Before handing over to Fabio, I would like also to reinforce that Susanne will keep it focused to well serve our customers globally, especially in a great trade turmoil. Fabio, let me hand over to you to cover the paper and packaging business.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

Thanks, Beto, and good morning, everyone. Please let's turn to the next page of the presentation. Our first quarter results were marked by price evolutions in our Brazilian and American operations. Sales volume growth on a year over year base, improvements in our Suzano packaging operations and results and higher costs in Brazilian operations to to the annual maintenance downtime on line one of the Mukuri mill. As you can see in this slide, we have segregated Suzano's packaging performance to provide you a detailed and transparent view of its progress and to enable you a comparable basis analysis with previous quarter of our mainstream business from Brazilian operations.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

Now talking about demand. Looking to the Brazilian market, according to IBA, print and write demand, including imports, increased by 21% in the first two months of the first quarter compared to the same period of last year. Sales from domestic producers grew by 23%, while imports grew by 19% on the same basis. 2025 is expected to be a record year in terms of paper demand for the Brazilian government textbook program. And therefore, domestic demand growth in Q1 reflected a higher than expected demand for uncoated wood free paper.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

Cut size in coated paper demands were stable year over year. Looking to other regions on a year over year basis and according to PPPC, demand for uncoated wood free papers, our main exported products has kept stable in North America, has shrunk 7% in Europe and grown 4.4% in Latin America. International markets continue to be oversupplied in Q1 and market dynamics could change going forward, depending on the outcome of ongoing trade discussions. Now addressing U. Paperboard demand.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

In Brazil, we saw 8% decline in the first two months of the quarter compared to the same period last year. This reduction reflected the cooling of the Brazilian economy and adjustments of the supply chain after strong second semester in 2024. In The U. S. Market, a FOX region for Suzano packaging operations according to Numera, boxboard demand has shrunk 1% on a year over year basis.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

However, demand for SBS boards, which Suzano packaging produces, has increased by 1% over the same period. Looking at Suzano figures, our sales volume performance in the quarter, Brazilian domestic market grew year over year with solid demand for our products, while exports from Brazil have declined due to our strategy to rebuild our inventories in Brazil and at our international warehouses. On a quarter over quarter basis, the decline in sales from our operations in Brazil is due to market seasonality. I would like to highlight the sales volumes on Suzano packaging, which increased by 62% on a quarter over quarter basis, driven by improved operational performance across the business. In terms of pricing, year over year and quarter over quarter increases in our Brazilian operations reflect the successful implementation of price announcements in our main product lines.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

Additionally, a more favorable FX contributed to higher net prices from our exports when compared to Q1 twenty twenty four. Turning to Suzano package, net prices rose 15% from Q4 twenty twenty four as a result of new commercial conditions on its main contracts that took effect in January 25. The EBITDA performance from our Brazilian operations was impacted by seasonality when compared to Q4 twenty four and by a major annual maintenance downtime at Line 1 of Mukuri Mill when compared to Q1 twenty twenty four. Although such downtime affect both volumes and costs during the quarter, significant upgrades were made to the paper machine, and we expect improved efficiency from Mukuri Line 1 going forward. I'm pleased to share further updates on Suzano Packaging, which EBITDA improved 67% on a quarter over quarter basis, underscoring the progress of our turnaround strategy.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

With operations approaching breakeven, we're confident in achieving positive EBITDA in the second half of this year. Looking ahead to Suzano's paper and packaging business performance, for now Brazilian operations, we expect lower costs for Q2 with no maintenance scheduled during the quarter. During Q2, we will have the annual downtime of Suzano package in Pine Bluff, which will impact our volumes and costs during the quarter. Due to macroeconomic uncertainty generated by the ongoing trade war, paper demand and prices in the international markets can be affected. In Brazil, we expect our prices to be stable for the rest of the year for cut size and uncoated figure rates.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

Price for paperboard and coated papers may follow the dynamic of international prices due to import volumes and prices in Brazil. Now I'll hand it over to Leo, who will present our pulp business results.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Thank you, Fabio, and good morning, everyone. Moving to the next slide of our presentation, I would like to begin by sharing some facts related to our pulp business unit during this past quarter. As I mentioned during our Q4 presentation, a higher than expected demand during the last months of 2024, mainly due to the effects of two unplanned events being the conversion of paper grade pulp to dissolving pulp by a Brazilian pulp player and the halting of Xiamen's operation in China allowed us to reach an all time high sales volume in Q4 twenty twenty four. But this also really stressed our global logistics operations as our pulp inventories became unsustainably low. As we entered Q1 twenty twenty five, even in a quarter where our production volumes were already impacted by our heavy maintenance downtime schedule, restocking to optimum operational levels was necessary across all our system and regions in order to restore operational efficiency, support our long term strategy and improve service levels to our contractual customers.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

I would highlight that our inventories are now normalized, and we do not foresee any need for further inventory buildups moving ahead. From a market perspective, Q1 twenty twenty five presented positive short term S and D fundamentals, mainly due to unexpected events, as I just stated. Price increases were implemented throughout Q1, in line with our price increase announcements. Despite this positive trend, invoicing of our order backlogs generated mainly in Q4 affected our average prices in the quarter. Order intake in Asia declined in March in anticipation of negotiations during Shanghai Pulp Week and amid growing uncertainties related to global trade, which have escalated since the April.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Looking to the upper right side of the slide, the combination of lower volumes and lower invoicing prices resulted in a BRL4.3 billion EBITDA, equivalent to 49% EBITDA margin. Now looking forward, I would like to highlight the following points. The uncertainty generated by announcement of tariffs and its potential toll in global GDP and trade has impacted our customer sentiment, pausing negotiations in China during the April. Since customers are still struggling to forecast how tariffs can affect their production plans, either directly or indirectly, both pulp buyers and sellers are on a price discovery mode as we speak. The tariff war affected the Chinese local market during most of April, where our sources on the ground reported downstream channel destocking, which, together with such tariff related uncertainties, resulted in a lower paper production when compared to March.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

As the month evolved and as pulp prices softened across several grades in Asia, Paper Producers came back to the negotiation table, resuming purchases only on the final days of the month. It is our belief that the Chinese market is pointing to a normalization in terms of purchase orders as we navigate into May. Despite the change in market sentiment in April, it is our belief that current prices are running at unsustainable levels as spot prices are already below the marginal cost of producers. Just released brand new estimates by a well known market consultancy point out that the marginal producers' cost has recently surpassed $600 per ton due mainly to appreciation of exchange rates in some regions, mainly Europe on the back of the tariff war. Finally, we would like to reaffirm our commitment with our valued customer base as we navigate the challenges of the current macroeconomic environment.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

With our pulp inventories already normalized in Q1 twenty twenty five and with zero willingness to increase them, we are well positioned to execute our commercial strategy in the coming quarters according to any prevailing market conditions ahead. With that said, I would now like to invite Aris to address the cash cost performance of the past quarter.

[Aires Galhardo, EVP - Pulp Operations Engineering & Energy at Suzano]

Thank you, everyone. Moving to cash cost slide. We can see the cash cost cash production cost performance excluding the impact of its cattle downtimes showed a temporary increase of 6% compared to fourth quarter twenty twenty four. This result was in line with the company's expectations, as I mentioned during our last earnings call. Such increase was mainly driven by a lower contribution from our larger, more competitive and surplus energy provider mills, which are taking off for schedule maintenance during the period.

[Aires Galhardo, EVP - Pulp Operations Engineering & Energy at Suzano]

Highlights here are lines one and two at Tres Lagomas And Rebus Mills. The negative impact of the lower contribution of the mills under maintenance can be seen across several components of the cash costs. Starting with wood, the cost increase this quarter was primarily due to our usual decision to temporarily extend the average harvesting radius at mills with scheduled maintenance. This approach help us avoid temporary demobilization of some service providers, which would otherwise reduce efficiency of the operational cycle. We also take advantage of its schedule on times to carry out additional maintenance activities at the mills, which is the main factor behind the increase in fixed costs this quarter.

[Aires Galhardo, EVP - Pulp Operations Engineering & Energy at Suzano]

Additionally, the lower volume of energy exports due to the maintenance schedule also impacted the cash costs, as shown in the slide. Lastly, I will note that some input costs were under pressure by higher price during the period, particular for caustic soda and natural gas. When we compare to the first part twenty twenty four, the increase in cash cost is mainly due to the FX depreciation impacting the price of Cosmic Soda, natural gas and chlorine dioxide. As for wood, the increase is primarily related to higher logistics costs, mainly due to the transportation model and the production mix from our pulp mills. It is worth noting that in the first part of twenty twenty four, we didn't have any scheduled mates and downtimes.

[Aires Galhardo, EVP - Pulp Operations Engineering & Energy at Suzano]

Looking ahead, we continue to expect a reduction in cash production cost ex downtime over the coming quarters. At an exchange rate of 5.8. The average for 2024 is expected to reach the same level seen in the fourth quarter twenty twenty four. Now I invite Marcos to continue the presentation.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

Thank you, Iris. Now on Slide seven, I'll talk about the leverage and the balance sheet of Suzano in the first quarter of twenty twenty five. Starting with the net debt, we started the quarter with a net debt of $12,800,000,000 We generated close to $500,000,000 in free cash flow. And we spent close to $200,000,000 in growth CapEx, mainly in our projects to increase fluff capacity and also tissue capacity. And we also made a very significant payment of interest on equity of nearly $400,000,000 And that's the reason why our net debt ticked up to 12,900,000,000 at the end of the quarter.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

Regarding our leverage, we also had a small uptick in our leverage from 2.9 times by the end of last year to three times net debt to EBITDA when measured in dollars by the end of the first quarter, explained, as I mentioned, by the small increase in our debt net debt during the quarter and also a small decline in our EBITDA for the last twelve months. As we remain close to the top of our leverage policy, we took a more cautious approach towards share buyback during the quarter. And I'll say that this reinforces our strong commitment to deleveraging Suzano's balance sheet. Regarding our amortization schedule, we maintained a very attractive and competitive cost of capital of 5% of our cost of debt, and we increased our average maturity from seventy three months to seventy six months during the quarter. This was mainly obtained by a liability management operation, which we did during the quarter, $1,200,000,000 at a rate of sulfur plus 145 basis points.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

Just to compare, this is better than a similar transaction that we did one year ago, in which we raised less than $1,000,000,000 paying a rate of sulfur plus 175 basis points. And that was for a five year loan, and this time we did for a six year loan. Moving to the next slide. We took advantage of the market volatility that occurred during the quarter to improve our balance sheet profile. First, we did a couple of hedges, improving our current portfolio of hedges.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

As you can see in the chart, our average put increased from BRL5.36 to BRL5.44 per dollar, and our calls increased from BRL6.16 to BRL6.28. So we not only improved the level of the currency that protects our balance sheet at 5.44%, but we also enlarged the band between the puts and the calls. Regarding our financial results, we had a positive financial result of BRL7.7 billion during the quarter, mainly explained by the BRL1.1 billion net financial expenses similar to last quarter, but also a meaningful impact from the change in the FX during the quarter. Remember that the FX at the end of last year closed at $6.19 per dollar, and at the end of the first quarter, it declined to 5.74 So we had a positive impact on the market to market of our debt in dollars, which mean BRL5.7 billion positive financial result. And we also had a positive impact of BRL3.1 billion, sorry, on the market to market of our derivatives.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

Okay. So now back to Berto for his final remarks.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Thank you, Marco. So looking ahead, I would like to summarize what we look for in 2025 as following. Firstly, the strategic focus on deleveraging and strengthening competitiveness, as I mentioned before. As part of Aide's speech, the cash production cost will decline in the coming quarters. So a good reference for 2025, it's the last quarter of twenty twenty four in terms of cost.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

A free cash flow generation at any poop scenario. And and the team at US is doing a tremendous job. So Suzano packaging operations, it's really on track to breakeven. I I would like to add the final one when we look ahead. It's considering the global macroeconomic turmoil, any investment from Suzano will, of course, require higher returns to to be implemented.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

So that's what we are looking ahead for 2025. Thank you very much.

[Operator]

We will now start the Q and A section for investors and analysts. Our first question comes from Mr. Rodolfo Angeli with JPMorgan. You can open your microphone.

[Rodolfo De Angele, Latam Oil, Gas, Metals & Mining Analyst at JP Morgan]

Hey. Good morning, everyone. So I'll do my two questions. My first one is is on pulp prices. We are, of course, in a period of, very high uncertainties.

[Rodolfo De Angele, Latam Oil, Gas, Metals & Mining Analyst at JP Morgan]

We are seeing resale prices, coming down. So I just wanted to hear from from Leo if you can comment on how have been the talks with your clients. I know you mentioned the marginal costs already being breached when we compare to prices. But just if you could give us a little bit more of color on on exactly how the conversations are going, there's room for any moves at this point. That's my first one.

[Rodolfo De Angele, Latam Oil, Gas, Metals & Mining Analyst at JP Morgan]

And my second is for is for Beto. Beto, you you added a a bullet in your last slide, and I I wanna explore it a little bit. Of course, I'm talking about capital discipline. And in here, I just wanted to hear a little bit more also in terms of, how are you thinking about that when you think, you know, higher discount rates. Can you put also this in context with the other alternatives which are, you know, taking care of your balance sheet and also dividends and buybacks.

[Rodolfo De Angele, Latam Oil, Gas, Metals & Mining Analyst at JP Morgan]

That's it for me. Thanks.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Rodolfo. This is Lael here. I'm going to start with your first question related to pulp prices. Despite our will, as we were navigating the first quarter to implement a fourth price increase for April, after the tariff war announcement, the market was reseted in such a way that customers' uncertainty related in terms of what they would produce and what they would be destined to each market made all of them really leave the negotiation table in the beginning of the month. And this scenario in China lasted maybe up until the very end of the April, only during the April after customers had a bit more clarity, not all clarity yet, but a bit more clarity.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

And obviously, on their stock levels, the need also to replenish the system looking forward, customers came back to the table. Our intent of price increases for April was not executed. As you probably know, we had a price decline last month. Our price, a good proxy of it is what most of you saw today published on Chinese peaks for hardwood levels. And based on that price point, we see customers now wanting or starting again to renegotiate.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

And as I mentioned, I believe that in May, things will normalize or get close to a normalized level. Still today, buyers and pulp sellers are on this price discovery mode, which I mentioned in my opening speech. There is not clarity yet of what is this price point needed for a full establishment of market confidence and dynamics. And as I mentioned to you, Hawkins Rogers released a new report, and that's the source we used for several years, not only for this quarter related to the marginal cash cost of producers. And the new report, mainly impacted by the currency appreciation in Europe, shows that the marginal cost of producers today in hardwood is actually $625 per ton.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

So based on what you can see comparing it to current peaks, we already this kind of producers today are burning cash as we speak. And if you consider resale prices in China, which are on the $500 barrier, then this is even more aggravated, right? So that's why I really believe this is unsustainable as we speak and looking forward.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Thank you, Leo. Thank you, Rodolfo, for the question. Me cover your question maybe in four topics. The first one, as you know, the strategic for the company is still unchanged. So we still have the same direction in terms of capital allocation.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

We of course cannot go into the detail of any kind of opportunity that we have in the radar. But of course, considering the level of risk that we have in the current competitive environment today, it's we expect to have higher returns for any kind of opportunity that we might consider. Maybe I should share some more details for you. And if we considering if we consider all the opportunities, all the potential alternatives that we have today in the radar, we can and, pulling all of them together. I'm not saying that we're gonna do all of them.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

It's really possibilities, alternatives, opportunities that we are analyzing. If we add up all of them, we are talking about something like $3,000,000,000 total speaking. And but the the fact is that the global macroeconomic turmoil where the risk environment has increased, the requirement for returns for any of this investment become even higher. And finally, I think it's very important to mention as well, since I'm giving more granularity in this discussion, it's that in any in this context and take into account the company's cash generation, And let's put a period of time, which is let's consider in this conversation till end of twenty twenty six. So the deleveraging trend clear and we'll still remain in the very comfortable level in any scenario.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

I'm talking about a leverage which will be in the lower range of our financial policy. So I think all those things that I think we should take into account when we talk about capital allocation. So I hope that was clear to the question, Rodolfo.

[Rodolfo De Angele, Latam Oil, Gas, Metals & Mining Analyst at JP Morgan]

And if you just wanted to complement with where do buybacks and and shareholder return and also deleveraging kinda rank compared to potential new investments.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Yeah. Buyback and dividends, as you know, is always our alternative as part of our capital location strategy. And if we do not find alternatives, projects that it's not aligned with our strategy, it's not generating value for the shareholders in the long term and do not reach the level of returns that we are looking for, buybacks with a higher level of returns is always an alternative.

[Rodolfo De Angele, Latam Oil, Gas, Metals & Mining Analyst at JP Morgan]

Thank you.

[Operator]

Our next question comes from Rafael Barcelos with Bradesco BB. You can open your microphone.

[Rafael Barcellos, Head of LatAm Metals & Mining, Pulp & Paper and Cement - Senior Equity Research Analyst at Bradesco BBI]

Good morning, and thanks for taking my questions. So my first question is about your pulp sales volume. So, Lael, I know that Suzanna was running with pulp inventories below normal levels in recent quarters. But could you please give us a sense of the inventory buildup made during the first Q? Other than that, it would be very helpful if you could discuss a bit more about your volumes in May sorry, in April and May, if possible.

[Rafael Barcellos, Head of LatAm Metals & Mining, Pulp & Paper and Cement - Senior Equity Research Analyst at Bradesco BBI]

And ultimately, I mean, what we can expect in terms of sales volumes for 2025, okay? And my second question is about the Ribas do Rio Pado mill. So after the completion of the ramp up and the first maintenance downtime, Berto, I would really appreciate your evaluation of the mill operational performance. And other than that, I mean, if you could discuss whether there's any debottlenecking opportunity here or even like a brownfield project being analyzed? Thank you.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Rafael. Good morning. This is Leo here. Thanks for your question. So you are correct, right?

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

So we during fourth quarter, you might remember what was the upside versus estimations that we were able to perform, but all that brought us a toll, which we had to recover now in fourth quarter. So just by comparing our numbers to expectations by then, you'll see that this is roughly on the 200,000 ish area in terms of stock rebuild, which is equivalent to Serrado's inventories looking at it on a different perspective.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Rafael, just regarding the two questions that you made, one related to Ribas and the other one about any alternative to be considered in terms of expansion of pulp production. The first one, it's regarding the performance of HIBAS. We are really delivering all the metrics that we plan to do it. So it's really doing very well in terms of cost, in terms of stability. So we were able to do the first maintenance downtime during the first quarter.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

So, so far so good. So the team is really very proud about what we are doing with this facility. Regarding any brownfield, we are not considering the short term investments on pulp production, but when we consider the impact of return and ROIC in the long term, of course, the level of attractiveness of brownfields is usually higher than greenfield when we talk about expanding pulp capacity. Okay?

[Rafael Barcellos, Head of LatAm Metals & Mining, Pulp & Paper and Cement - Senior Equity Research Analyst at Bradesco BBI]

Okay. Just as a quick follow-up on the sales volumes question, Lael. Could you please provide or discuss your sales volumes in April and maybe in May? And ultimately, we can expect for sales volumes in 2025 or in the coming quarters? Thank you.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

No, Rafa. Obviously, this is quite sensitive to our commercial strategy. But as I have mentioned that we have finalized the rebuilding of our inventories to normalized levels and that we are going to be close to customers, empathic to customers and understanding how to support them at whatever this scenario is in terms of generating and supporting them in their sales needs. With the addition of Serrado, you can consequently conclude that our sales volumes will be higher than we had a year ago or every quarters of the years of the past years corresponding quarters of the past year.

[Rafael Barcellos, Head of LatAm Metals & Mining, Pulp & Paper and Cement - Senior Equity Research Analyst at Bradesco BBI]

Okay. Very clear. Thank you. Our

[Operator]

next question comes from Daniel Sasson with Itau BBA. You can open your microphone.

[Daniel Sasson, Head of Latam Steel, Mining, Pulp, Paper & Agribusiness and Cement at Itau BBA]

Hi. Hi, guys. Good morning, everyone. Thank you so much for for taking my questions. First, Beto, thank you for the details you've shared about the capital allocation alternatives that you have or at least about the $3,000,000,000 considering everything that you have that you are in a line or that you have in your radar screen.

[Daniel Sasson, Head of Latam Steel, Mining, Pulp, Paper & Agribusiness and Cement at Itau BBA]

My my follow-up on that regard would be, do you think that, for instance, with $3,000,000,000 in M and A transactions, that would be good enough for you to reach a level of revenue diversification that you would be happy with? So that would be something that we could think about, you know, kind of a cap or a target for your your M and transactions. Or the or or is that the sum of all the opportunities you have, and then you might not even reach that over the next, say, twelve, eighteen months. Just so we can understand how big potential capital allocation could be or if you think that these $3,000,000,000 would be already very interesting from a revenue diversification point of view? And and my second question, maybe, Lyle, we explored a bit the the the somewhat challenging momentum for demand, especially from China.

[Daniel Sasson, Head of Latam Steel, Mining, Pulp, Paper & Agribusiness and Cement at Itau BBA]

Can we try to to change gears here and think about where we could or the market could be wrong in regards to pulp prices or or when we could see a change in momentum? Do you think, for instance, that maybe the more constrained logistics if demand resumes more quickly than expected because of the somewhat muted volumes in April and maybe in May that could cause a glut in logistics, in maritime freight, for instance, and that could cause a panic buying sentiment? Or where do you think that we could be wrong in regards to this bad mood, let's put it this way, with pulp prices going into the second quarter and the third quarter of this year? Thank you so much, guys.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Daniel, let me start here, and then I will hand over to Leo. Daniel, I think a very simple way to answer your question is the following. We do not have a target of diversification. What do we have? It's a target of value creation.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

So this is what we will pursue in any capital allocation decision. So that's why I mentioned our so that's why I mentioned that we are really trying to analyze opportunities that can have even higher returns. So we are really will consider alternatives that in the long term will increase our returns for our shareholders. So sorry about being very clear about that, but doesn't make any sense having a target of diversification. So the the the driver here, it's really generating value.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

So I think this is the way that we should considering this. Don't and don't forget that competitiveness, it's really our main priority at this time. So as I mentioned in the introduction, our focus on keep reducing our cash costs, our SG and A, CapEx per ton, I would say that at this moment is our first priority. So let me hand over to Leo.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Thank you, Bethel. Hi, Daniel. So to answer your question, what are what is the glass half full that we see ahead of us coming and navigating into this latest part of the year? First, as I mentioned, prices today already break the breakeven point of higher cash cost producers. So especially being them based in Europe, as we have seen in several, several previous cycles, they are quick to react and quick to perform commercial downtimes in moments like this.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

So there can be a sudden disruption on the supply side of the equation. As you mentioned, constraints in logistics is also a topic that we are closely following, not only because of unexpected new patterns of demands in route A to route B, but also because of all this news in terms of U. S. Tolls in China based or China constructed vessels, which is highly impacting competitors who use containers as their main logistics method. So all of that has to be seen as well and can create a huge opportunity for Suzano due to our very differentiated logistics scheme and our ability to move our vessels much more quicker than our peers.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Third, an upside obviously is a revision of the tariffs, right? Because if tariffs are revised down, mainly in terms of U. S.-China trade, this can generate a burst or a reestablishment of our customer sentiment and therefore, an uptick in demand much higher than we can cope with under our current pulp planning to that region. And last but not least, as we also see in several in cycles like this one is the demand coming from integrated Chinese pulp to paper producers. My expectation is that taking into consideration the prices that we see of the local Chinese pulp producers selling in their market, which might be a good proxy in terms of what we see in Chinese resale prices.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Several, several, producers today, integrated pulp and paper producers in China, in my view, already are below breakeven. So it is expected that quickly these guys will come to the market as pulp buyers generating an unforecasted swing in demand as well. So this is a list of all the positive possible momentums that we have ahead of us.

[Daniel Sasson, Head of Latam Steel, Mining, Pulp, Paper & Agribusiness and Cement at Itau BBA]

Perfect. Thank you so much, Beth and Lau.

[Operator]

Our next question comes from Caio Grine with UBS. My

[Caio Greiner, Equity Research Director at UBS Group]

first question, circling back to the internationalization theme. I wanted to ask you specifically about your capital location and potential acquisitions in The U. S. So how did the recent developments regarding U. S.

[Caio Greiner, Equity Research Director at UBS Group]

Trade policy change Suzano's intention to acquire assets in in The US markets? Shorter term, I mean, would that would the company be seeing this with the lenses of an elevated uncertainty and taking more of a wait and see approach to better understand what the trade policy is going to look like before making a move? Or has the strategy not changed at all? And it could be even seen as an opportunity to acquire assets at lower prices. My second question, maybe to Lael, I know that you mentioned that we're seeing industry cash cost inflation.

[Caio Greiner, Equity Research Director at UBS Group]

But I mean, we're seeing a deflationary shock, especially considering oil prices down significantly. And I just wanted to understand a little bit more, how do you see this impact to the industry cash cost level? I mean, what, do you think that was considered in the in the consultant and the consultant framework to increase, their marginal cost their marginal cost, for, for high cost producers? Or is that, I mean, is that not really considered? Can can you talk a little bit more about the about the the moving parts of this of this recent revision?

[Caio Greiner, Equity Research Director at UBS Group]

Thank you very much.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Okay. Kyle, we're going to change the orders here. I'm going to start with your second question, okay? So yes, it was also considered by Hawkins, right? But the main effect that is bringing the cash cost from the mid-500s up and over $600 is the FX in terms of the Swedish krona and euro in the region impacting all of their cost structure.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

So in that terms, where we see a plus 10% variation in terms of currency, that's the main driver for this revision in terms of upward trends in terms of marginal cash cost producers. It's important to say that it's not only Europe, right? The marginal cash cost producers in our view today, sharing all this analysis that Hawkins Wright has published, is based in Europe. Some other Asian markets outside China, like Japan and South Korea, for example. But it is in Europe where we see a quicker adjustment in terms of production rates, commercial downtimes when markets like this are getting closer and closer to inversion or to inflection points?

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Caio, thank you for your question. Regarding capital allocation in US, I think on the strategy point of view, we do not have any change at this moment. Of course, we are analyzing very carefully the market locally. And I think something to monitor very on the very on the high level of detail is any impact on demand. So this is something that we will keep analyzing to see if the uncertainty and the, you know, the feelings that we have locally in the local economy can impact demand in our sector.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

But generally speaking, if we consider the strategy in the mid long term at this time, there's it's still unchanged.

[Caio Greiner, Equity Research Director at UBS Group]

Thank you.

[Operator]

Our next question comes from Caio Ribeiro with Bank of America. Your microphone is enabled.

[Caio Ribeiro, Analyst at Bank of America]

All right. Good morning. Thank you for the opportunity. So first off, in past years, Suzano has announced production cuts during down cycles for pulp. So I wanted to ask you if under the current environment, you see that decision once again making sense.

[Caio Ribeiro, Analyst at Bank of America]

And if yes, which variables you're paying close attention to in order to formalize that decision? And would also be interesting to hear from you what, if anything, is fundamentally different in terms of inventories held by customers or producers, profitability level of papermakers and your competitors, particularly on the the softwood side or that cost support. I know you already alluded to it increasing, but if you could translate, you know, what's different between this down cycle and previous down cycles, that would be very, very helpful. And then secondly, as you assess the M and A opportunities, right, I know that you'll be focused on seeking opportunities that offer attractive returns. But on our numbers, your stock trades this year at around 5.5 times, IV to EBITDA, and offers a 10 to 11% free cash flow yield.

[Caio Ribeiro, Analyst at Bank of America]

And any M and A, I believe, has to be analyzed on a comparative basis to purchasing your own stock, right? So do you see opportunities out there that exceed the returns that your own stock offers in terms of its discounted valuation? Thank you.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

Caio. Marcos here talking about the potential production cuts question that you mentioned. We're always analyzing here our cash cost. We don't analyze our cash cost as an average. We analyze on an event driven basis.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

So we analyze the most important metric that we're looking at here is the variable cost and the marginal variable cost that we have in each of our mills. So we would be considering the marginal cost of wood and most likely the most expensive one would be the wood that we buy from third party. We would also analyze the wood that is farther away from our mills, which impacts logistics. Logistics. We would also impact would also analyze the impact that this would the production cut would have in our energy cost and our energy balance of our mills as well.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

So this is part of our day to day analysis. Of course, in a period where prices become more the price of armament becomes more challenging, this analysis become more frequent and more intense here at the company. And we are, at this moment, discussing a lot about that as well.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Caio, this is Lael here. I'm going to jump in to answer your question in terms of what's different on the competitor side. I think the main focus that I would like to bring to answer this question is pointing to softwood producers. Because if this is already trending to be a tough cycle for hardwood producers, as I explained, I would say that it's even tougher for those who are producing softwood today. You know, futures in China for softwood are on the low, dollars 600 level, even having reached that level a few days ago, now a bit back up.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

And this obviously is completely unsustainable when you think about the softwood cost structure globally. So we expect that this commercial adjustments or commercial downtimes will be extremely accelerated when it comes to softwood producers globally, which opens to us a huge opportunity again in terms of fiber to fiber and again using softwood as a substitution for all of these downtimes or all of these volumes.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

Kai, regarding your question on the buybacks and the returns on the buybacks, we see our share price depressed at this point, most likely because of the cycle that we're leaving and also the uncertainties on the market. Of course, believe that at these levels returns of buybacks are quite attractive. But as I mentioned in the beginning, we are also looking at our leverage as a boundary here for what we do in terms of capital allocation. As we reach and as we get closer to the maximum range of net leverage of three times, we should have a more cautious approach on capital allocation, which includes the buyback.

[Caio Ribeiro, Analyst at Bank of America]

Perfect. That's clear. Thank you, Marcos, Leo.

[Operator]

Our next question comes from Masu Faridji with Goldman Sachs. Your microphone is enabled.

[Marcio Farid Filho, Vice President at Goldman Sachs]

Hi, everyone. Thank you. Thank you for the opportunity. A couple of points on on my side. Maybe, Lau, if you can follow-up on the the cash cost curve side because I think it's it's where investors discussions are gonna be if you see some price accommodation.

[Marcio Farid Filho, Vice President at Goldman Sachs]

My understanding is that the $600 delivered to China, and some of the producers, you know, in Japan, Europe, North America, they basically don't sell to China. Right? So they save another $50 at least in terms of freight because they they sell mostly local. And historically, China has been the one that has been more sensitive to prices as well. And I understand that China production cost today is in the low 400s, which is lower than the past cycle.

[Marcio Farid Filho, Vice President at Goldman Sachs]

So just trying to understand, I mean, the level of confidence in terms of production adjustments outside of China for this cycle. And similar to what Caio asked them, where, when and how would Suzano react a potential production slowdown? Because you have another at least 500,000 tons extra to sell this quarter versus last quarter in a more challenging scenario. So just trying to understand how you're going to be able to place these volumes in the market or if there's going to be some production adjustments in the short term or it's longer dated? And secondly, on the paper side, Fabio, I think good job on the sequential improvements in terms of profitability.

[Marcio Farid Filho, Vice President at Goldman Sachs]

Trying to understand next steps and where and what else is needed to get to breakeven and what's the outlook for The U. S, especially paper packaging operations? Thank you.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Macio, Leo here. Thanks for your question. You are I share your vision, but let me try to point out how we analyze this. First of all, the marginal cost of producers, as I mentioned today, is based on a group of producers in Europe, mainly affected by the FX on the back of the tariff war, also in South Korea and Japan. Traditionally and historically, we see that South Koreans and Japan and Japanese producers are less reactive in moments like this in terms of production curtailments, and Europeans are more reactive.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

So that's why I believe personally that these adjustments might come more towards Europe than to the other Asian countries. You are correct. They this cash cost curve is based on a CIF China port analysis. Most of them, most of Europeans, Japanese or South Koreans sell in their local market. But as a commodity, through time, all markets follow whatever is going on in China.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

Now markets are not completely separated, especially when you have a more logistics more available as we do have today. So obviously, we will see if this trend continues in China. It is my expectation that we're going to see spot deals in Europe and markets surrounding Europe like Middle East, Turkey or other Northern African markets reacting quick and matching or searching to match China peaks levels. And in this case, this is a key market for Europeans, there will be a big impact in that sense. In terms of China, I defer a bit in terms of how you position yourself.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

It is our view that, yes, the Chinese pulp producers are more competitive in the cycle due to the availability of cheaper wood. But it is our view that this marginal cost of producers range from the mid-400s to, I would say, a little bit over, $500 or let's put it this way, 500. But also, if we include Bumble players here, then we have a bit over $500 in that account. And regardless of who is right or who's wrong, if you compare to the existing resale prices, it's unsustainable either way, right? So if it's mid-400s, high-400s or a bit lower-400s, it's still cash destructive, what we're seeing on this resale or the local industry selling, their pulp in China.

[Leonardo Grimaldi, EVP - Pulp Commercial & Logistics at Suzano]

You asked a question about when will Suzano react. Let me put it this way. Commercially, if Marcos allow, I will sell, we will sell all the volume that we produce, that Iris produce, no matter what. We have reestablished our inventory levels. So whatever is available for us to sell, we will sell.

[Marcio Farid Filho, Vice President at Goldman Sachs]

Thank you. Very clear. Thanks, Al.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

Marcio, let me take your second question here. Thank you. It's it's Fabio here. We're very happy with the progress that we have had so far during this first seven months of our US operations as as you have seen in the in the slide that we have presented. And we have three main drivers that we're still looking at in order to improve the results moving forward.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

The first one is cost, raw material cost, fixed cost. We still have some room for improvements moving forward. The second one is it's about prices. We had 15% price increase in the first quarter versus our fourth quarter. And we had we have already negotiated a second round of pricing increases with our contractual customers that we will hit in the second half of the year from, you know, the beginning of the second semester.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

So that's already already negotiated and should and they will will help us in the second half of the year. And the third one is operational stability. This is, you know, probably the main effort that we have here. It's an old mill, and we're bringing all the Suzano expertise, you know, with with the current expertise that we have with the people at the mill in order to improve its operations, lowering consumption, and improving cash cost. So these are the three main drivers that, you know, we have that will help us in the second half of the year.

[Fabio Almeida de Oliveira, Executive VP of Paper & Packaging at Suzano]

Second quarter result will be impacted by the by the annual maintenance that we had in April was on schedule, was a little bit under budget, but it will impact our second quarter results. But we're very optimistic about the second half of the year breakeven in EBITDA during that period.

[Marcio Farid Filho, Vice President at Goldman Sachs]

Thanks. Thanks, Fabio.

[Operator]

Our next question comes from Eugenia Cavallero with Morgan Stanley.

[Eugenia Cavalheiro, Analyst at Morgan Stanley]

Two of them actually and first maybe asking on what Petto said in his initial remarks related to the higher return required for investments given the uncertainty. Would it be possible to give us more clarity on that and maybe a number of what you wish to see as a return to be able to proceed with an investment? And then the second one, if we think about the $3,000,000,000 opportunity that you mentioned and taking into consideration the company's strategy of deleveraging, but also taking into account the level of free cash flow generation expected for the next couple of years, I wanted to understand if management would feel comfortable with the dividend policy related to the free cash flow generation. Thank you.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

Thank you, Eugenia. Let me start for the end. Of course, when we talk about, deleveraging, considering any capital allocation, we are not considering any change in our, dividend policy. So this is part of calculation. Regarding your question about the level of returns, it's something that, you know, it's difficult to share.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

It will depend of the deal. But what I can say to you is this, is that if you have a different level of risk in the environment, the requirement for returns has to change, must change. We see capital allocation and risk management working together. So we must always analyze both things at the same time. The exact number in terms of return, although, higher, than we used to consider, it's something that, we cannot share at this time.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

And, so I think it was the two questions that you made, Eugenia. Maybe, Marcos,

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

you you can complement. Yeah. Just complementing, Eugenia. We can and we have been doing that in the past. As we generate more cash, we were able to, deliver an extraordinary dividend.

[Marcos Moreno Chagas Assumpção, EVP - Finance & IR at Suzano]

And also, were able to make more buyback more active in the past years. So even though we don't have a formal policy, have been following kind of what you consider there as we generated more cash, we were able to provide more returns to our shareholders.

[Operator]

Thank you. The Q and A section is concluded. We would like to hand the floor back to Mr. Beato Abrio for his final remarks.

[João Alberto Fernandez de Abreu, Director & CEO at Suzano]

So firstly, thank you very much for all of you for attending our twenty twenty five first quarter call. Thank you for the questions. Also, if there are any further, clarification, our RI team is always available. So thank you very much for all of you.

[Operator]

The Suzano S. A. First quarter of twenty twenty five conference call is concluded. The Investor Relations department is available to answer any further questions you may have. Thank you and have a good day.

Participants

Executives

• João Alberto Fernandez de Abreu, Director & CEO
• Fabio Almeida de Oliveira, Executive VP of Paper & Packaging
• Leonardo Grimaldi, EVP - Pulp Commercial & Logistics
• Aires Galhardo, EVP - Pulp Operations Engineering & Energy
• Marcos Moreno Chagas Assumpção, EVP - Finance & IR

Analysts

• Rodolfo De Angele, Latam Oil, Gas, Metals & Mining Analyst at JP Morgan
• Rafael Barcellos, Head of LatAm Metals & Mining, Pulp & Paper and Cement - Senior Equity Research Analyst at Bradesco BBI
• Daniel Sasson, Head of Latam Steel, Mining, Pulp, Paper & Agribusiness and Cement at Itau BBA
• Caio Greiner, Equity Research Director at UBS Group
• Caio Ribeiro, Analyst at Bank of America
• Marcio Farid Filho, Vice President at Goldman Sachs
• Eugenia Cavalheiro, Analyst at Morgan Stanley