Sylvamo Q3 Earnings Call Highlights

Key Points

• Third-quarter results improved sharply: Adjusted EBITDA rose to $128 million from $66 million in Q2, supported by higher prices and lower maintenance costs; adjusted operating earnings were $1.33 per share and free cash flow was $16 million.
• Sylvamo plans to transfer its European business to a buyer under a proposed deal expected to close by the end of Q1 2027, subject to approvals. Sylvamo would receive rights to 20% of future distributions while focusing on North and Latin America.
• Growth investments are progressing: Eastover’s project is expected to add 60,000 tons of annual paper capacity, while an expanded Sumter plan would add 200,000 tons of converting capacity. Both projects are expected to generate returns above 30%.

Sylvamo NYSE: SLVM reported a sharp increase in third-quarter adjusted earnings as higher paper prices and lower maintenance costs helped offset rising transportation expenses. The paper producer also outlined a proposed transaction to transfer its European business and focus on North and Latin America.

Adjusted EBITDA rose to $128 million from $66 million in the second quarter, with a margin of 20%. Adjusted operating earnings were $1.33 per share, while free cash flow was $16 million, an improvement of $32 million from the prior quarter.

The results reflect continuing operations and exclude Europe, which is now reported as a discontinued operation. Vice President of Investor Relations Hans Bjorkman said prior-period segment results were recast to include roughly $6.5 million per quarter in corporate costs previously allocated to Europe.

Proposed Europe transaction

Chief Executive Officer John Sims said Sylvamo entered into a put option agreement with Midas Atlantic Partners, in partnership with The Najafi Companies, for a binding offer to acquire the European business. The company expects to complete required consultations with works councils and employee representatives and close the transaction by the end of the first quarter of 2027, subject to closing conditions, including regulatory approvals.

The proposed transfer includes mills in Saillat, France, and Nymölla, Sweden, as well as supporting forestry and business operations. Sylvamo expects to transfer the business with approximately €50 million in working capital and €35 million in net cash.

In exchange, Sylvamo would receive the right to 20% of future distributions. Sims said the company would have no equity ownership or voting position, but its economic interest would also apply to proceeds from a future sale and an appropriate interest in any joint venture. He said the interest would be indefinite and cannot be diluted, and Sylvamo would not be required to provide capital if the European business needed funding.

Sims said the proposed transaction would leave Sylvamo focused on markets where it sees the strongest opportunities to grow earnings and cash flow. The buyer would control the European operations without restrictions imposed by Sylvamo once the deal closes, he said.

Prices and maintenance aid earnings

Senior Vice President and Chief Financial Officer Don Devlin said third-quarter price and mix improved adjusted EBITDA by $25 million from the second quarter as the company implemented paper price increases in both regions. Volume was roughly flat: seasonally stronger demand in Latin America was offset by lower North American volume following the loss of supply from International Paper’s Riverdale mill.

Planned maintenance outage costs improved by $38 million because Sylvamo had no scheduled outages during the quarter. Operations and other costs improved by $6 million, while input and transportation costs were $6 million unfavorable, primarily reflecting higher transportation costs in both regions.

Devlin expects another approximately $6 million sequential increase in input and transportation costs in the fourth quarter. He said the company is using fuel surcharges, changes to customer and geographic mix, supply-chain initiatives and productivity improvements to mitigate the pressure.

In North America, Devlin said industry supply and demand remain healthy. He expects Sylvamo’s regional volume to be relatively flat in 2027 compared with 2026. In Latin America, Colombia’s cancellation of anti-dumping duties on Brazilian uncoated freesheet imports restored access to a market Sylvamo had previously served, he said.

Eastover and Sumter investments

Sylvamo’s paper machine optimization at its Eastover mill was about 60% through execution and remained on schedule and on budget, Devlin said. The project is expected to add 60,000 tons of annual uncoated freesheet capacity, with ramp-up beginning early in 2027. An approximately 50-day extended outage at Eastover was underway during the call.

The company also revised its plans for its Sumter, South Carolina, converting facility. Instead of replacing one of three existing sheeters, Sylvamo plans to keep all three and add a fourth. That would raise annual cutsize converting capacity by 200,000 tons to 500,000 tons, with the new sheeter expected to start early in the third quarter of 2027.

The change requires approximately $25 million in additional capital spending for facility infrastructure in 2027. Sims said the expansion will allow Sylvamo to bring outsourced converting in-house. Devlin estimated that approximately $20 million in incremental outsourced converting costs would continue in 2027 until the new sheeter is operating. The Eastover and sheeter investments are still expected to generate an internal rate of return above 30%, he said.

Cash flow and capital allocation

Asked whether normalized free cash flow could reach $400 million to $450 million after the proposed Europe transaction, Sims declined to provide a new target. He said Sylvamo would share more about its long-term potential after completing the proposed sale.

The company’s capital allocation priorities remain a strong balance sheet, investments expected to earn returns above its cost of capital and cash returns to shareholders, Sims said. He described the dividend as a foundation and said the company would prioritize share repurchases where opportunities exist.

Sims also said the board decided not to renew the shareholder rights plan adopted in November 2025. The plan expires on November 9.

About Sylvamo (NYSE:SLVM)

Sylvamo Corporation is a global producer of uncoated paper products. The company manufactures papers used for printing, copying, writing, publishing, commercial applications, notebooks, envelopes and other everyday communication needs. Its portfolio includes branded and private-label products serving businesses, retailers, publishers, printers and consumers.

Sylvamo operates paper mills and related facilities in North America, Latin America and Europe, with products sold to customers in numerous markets worldwide.

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