Sylvamo NYSE: SLVM reported first-quarter 2026 results that management described as largely in line with expectations, excluding operational reliability issues in Europe and Brazil that weighed on earnings and are expected to create some additional costs in the second quarter.
Chief Executive Officer John Sims said the quarter was shaped by several macro developments, including changes to U.S. tariff policy and higher costs tied to conflict in the Middle East. He said the U.S. Supreme Court’s invalidation of IEEPA tariffs, followed by the U.S. government’s move to place 10% tariffs on all trading partners, was favorable for Sylvamo because Brazil had previously faced a 50% tariff while Europe had been at 15%.
“This change benefits Sylvamo, and late in the first quarter, we began to bring product into the U.S. from our Brazilian operations while ramping down imports from our European operations,” Sims said.
First-Quarter Earnings Decline on Volume, Mix and Cost Pressures
Sylvamo reported first-quarter adjusted EBITDA of $29 million, down from $125 million in the fourth quarter. Adjusted EBITDA margin was 4%, and adjusted operating earnings were a loss of $0.53 per share. Sims said free cash flow was affected by lower earnings, inventory build and timing of payments, while noting that free cash flow is typically weighted toward the second half of the year.
Chief Financial Officer Don Devlin said price and mix were unfavorable by $13 million compared with the prior quarter, as $17 million of unfavorable mix more than offset price improvements. About half of the mix impact came from normal seasonal weakness in Latin America, while the other half was tied to North American customer and sourcing mix.
Volume was unfavorable by $36 million due to normal Latin American seasonality and a planned inventory build in North America as the company prepares for the end of the Riverdale Mill supply agreement and an extended outage at the Eastover Mill later this year.
Operations and other costs were unfavorable by $29 million. Devlin said about half of that reflected the non-repeat of favorable fourth-quarter items, including year-end LIFO accounting in North America and green energy in Europe. The remaining impact included $9 million of manufacturing costs tied to reliability issues and $3 million of foreign exchange.
Input and transportation costs were unfavorable by $18 million, primarily due to energy in North America. Devlin said that included a one-time $10 million charge from International Paper’s Riverdale Mill related to high natural gas costs from a winter storm.
Operational Issues Hit Europe and Brazil
Sims said the company had “a difficult first quarter operationally,” with reliability issues in Europe and Brazil negatively affecting results by nearly $9 million versus the fourth quarter. He said root causes had been identified and either fixed or scheduled for correction, with one exception: a debarking drum issue at the Nymölla mill in Europe that will not be corrected until the fourth quarter.
In response to an analyst question, Sims said the Mogi Guaçu and Luiz Antônio mills in Brazil experienced issues in power plants and digesters that needed to be addressed during annual outages. Mogi Guaçu is currently undergoing its outage, while Luiz Antônio’s outage is scheduled for June.
In Europe, Sims said the Saillat mill was knocked offline for several days after a turbine generator operated by a third party tripped. Nymölla also had boiler issues early in the year, in addition to the debarking drum failure.
Devlin said the Nymölla debarking issue is adding roughly $1 million to $2 million of cost per quarter. He said there is no production impact because the company is sourcing external chips, but the added cost is expected to continue until repairs are completed, with improvement expected in the fourth quarter.
Tariff Changes Improve North American Transition Outlook
Management lowered its estimate of the full-year adjusted EBITDA impact from the North American footprint transition. Devlin said the company now expects a full-year negative impact of about $65 million, compared with a prior estimate of $85 million, assuming current tariff levels remain in place. The $20 million improvement is expected mostly in the second half of the year.
Devlin said the improvement reflects mix benefits from redirecting Brazilian exports from the Middle East and Africa to the U.S. He added that the company will remain prepared to shift back to prior plans if tariffs increase in the second half.
In the question-and-answer session, Devlin said Brazilian paper products are currently subject to a 10% tariff under Section 122, which expires in late July. He said the company expects the administration to apply new tariffs on Brazil before expiration, but the level is difficult to predict.
“At the 10% level, it makes a lot of sense for us, and we’ll continue to do that,” Devlin said. “If it goes to a different rate, we’ll have to reconsider what we’re doing for the balance of the year after July.”
Pricing Actions Underway Across Regions
Sylvamo said it implemented previously communicated uncoated freesheet paper price increases across all regions. In North America, Sims said the company communicated a 5% to 8% increase and began realizing it in March, with the bulk expected in the second quarter.
In Brazil, Sims said the company announced a 5% cut-size increase for January and realized about two-thirds of that in the first quarter. In other Latin American markets, the company communicated a roughly 7% first-quarter increase and realized about one-third, with a second 7% increase announced for the second quarter.
In Europe, Sims said paper prices declined early in the quarter before beginning to improve. The company communicated a 4% increase in the first quarter and expects to realize about half of it through April, while a second 8% increase was communicated for May and is expected to begin realizing in the second quarter.
Devlin said the company expects demand in Latin America to increase each quarter through the year. He also said North American industry supply and demand dynamics improved after 7% of annual uncoated freesheet industry supply was removed with the Riverdale Mill conversion.
Eastover Investments and Lean Transformation Remain Priorities
Sylvamo said its strategic investments at the Eastover Mill remain on schedule. Sims said the paper machine optimization project is expected to add 60,000 tons of uncoated freesheet, reduce costs and improve mix and efficiency. Most of the work is scheduled for completion during a 45-day planned maintenance outage in the fourth quarter.
Sims said a new sheeter is also on schedule, with installation beginning in the third quarter and ramp-up in the fourth quarter. A woodyard modernization project is progressing as well, with the hardwood line operating as of May 1 and the softwood operation expected to start in the first quarter of 2027.
Management reaffirmed that Eastover is expected to generate $50 million of value, though Sims said the full benefit will not be seen in the first year because of ramp-up. In response to an analyst question, he said $30 million to $40 million in 2027 was “probably roughly right.”
The company also launched a lean transformation initiative in Latin America, beginning with its Mogi Guaçu mill. Sims described lean as a three-year, company-wide effort aimed at improving customer centricity, operational excellence and cost leadership. He said the company plans to roll out lean efforts in North America and corporate functions later this month, followed by the Ticonderoga mill later in the second quarter and Europe early next year.
Sylvamo also refinanced debt maturing in 2027, replacing its Term Loan F with a new Term Loan F3 maturing in 2032 and extending its accounts receivable securitization facility to 2029. Devlin said the refinancing extends the company’s maturity profile and supports financial flexibility.
Sims reiterated that 2025 and 2026 are expected to be low points in free cash flow generation as the company navigates industry downturns and completes Eastover investments. He said Sylvamo continues to see potential to generate more than $300 million of annual free cash flow and more than 15% returns on invested capital as industry conditions improve, capital spending normalizes and investment benefits materialize.
About Sylvamo NYSE: SLVM
Sylvamo Corporation, trading on the New York Stock Exchange under the ticker SLVM, is a leading global producer of uncoated freesheet paper. The company was established in October 2021 through a spin-off from International Paper, creating an independent entity focused exclusively on the development, manufacturing and marketing of high-quality uncoated paper products. Headquartered in Memphis, Tennessee, Sylvamo draws on decades of industry experience inherited from its predecessor, positioning itself to meet evolving customer needs in paper-based communications and packaging applications.
The company’s core product portfolio includes office and digital print papers, direct mail and marketing materials, catalog and commercial printing papers, and a range of specialty and value-added grades.
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