Sylvamo Corp (SLVM)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 results were mixed: revenue of $0.821B beat consensus slightly while Adjusted EBITDA of $90M and EPS were down sequentially due to seasonally weak Latin America demand, heavier maintenance, and North America operational issues; management reaffirmed a second-half improvement narrative tied to lower outage costs and improved operations .
• Versus Wall Street consensus (S&P Global), revenue modestly beat by ~0.6%, while EPS missed by ~1% and Adjusted EBITDA missed by ~5.9%*; guidance for Q2 2025 Adjusted EBITDA was set at $75–$95M, below Q1 guidance levels due to the heaviest outage quarter of the year .
• Segment softness centered in Europe (operating loss of $(24)M) and Latin America (lower volumes and mix), while North America faced $10M of operational headwinds; management emphasized local sourcing and shipments (90%+ in EU/NA, 80% in LatAm) and a 1.1x leverage ratio with no major maturities until 2027 .
• Capital allocation remained shareowner-friendly: $18M dividend paid in Q1, $20M buybacks, $62M remaining on the $150M repurchase authorization, and continuing $0.45 quarterly dividend declarations .
• Near-term stock narrative: Q2 outage headwinds cloud the near-term, but catalysts include operational normalization in NA, pricing mix improvements in LatAm/NA, and second-half EBITDA uplift; macro tariff uncertainty and European cost inflation remain watch points .

What Went Well and What Went Wrong

What Went Well

• “Cash flow story” reiterated with ongoing commitment to maintain a strong balance sheet, reinvest in high-return projects, and return cash to shareowners; Q1 returned ~$40M via dividend ($18M) and buybacks ($20M) .
• Sequential price/mix improvements expected in Q2 (+$5–$10M), alongside operations and other costs improving by $10–$15M, and input/transport costs improving by $5–$10M; stronger second-half earnings guided on lower outage costs and better commercial results .
• Strategic progress in North America: continued price increase realizations and multi-year Eastover investments ($145M) to modernize a paper machine (+~60k tons) and install a new sheeter—projects targeting >30% IRR and >$50M annual EBITDA uplift .

What Went Wrong

• Europe posted an operating loss of $(24)M in Q1 due to higher operating/input costs, heavier outages, and unfavorable price/mix; management acknowledged earnings below expectations and outlined cost/mix improvement plans and wood-cost mitigation (targeting ~10% reduction) .
• North America experienced ~$10M impact from operational issues (Ticonderoga/Eastover) and lower volumes, compounded by less Riverdale mill supply (~30% below expected) pushing some orders into Q3 .
• Seasonally weak Latin America demand pressured volumes/mix and contributed to a sequential drop in Adjusted EBITDA and margins; free cash flow was negative (-$25M) on lower operating cash and higher capex .

Financial Results

Consolidated metrics (sequential and YoY view)

Segment breakdown

KPIs

Q1 2025 vs Wall Street consensus (S&P Global)

Values retrieved from S&P Global.*

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We expect quarterly earnings to significantly improve in the second half of the year as we benefit from lower planned maintenance outage expenses, improved commercial results and better operations.” — Jean‑Michel Ribiéras .
• “Over 90% of our raw materials are sourced locally… In Europe and North America, more than 90% of our shipments stay within their respective region. In Latin America, 80% of our shipments remain in the region.” .
• “We currently have a 1.1x leverage ratio with no major maturities until 2027… and the availability of our $400 million revolver.” .
• “Sylvamo is a cash flow story and will remain so… generate free cash flow… maintain a strong financial position, reinvest in our business and return cash to shareowners.” .
• On leadership: COO appointment and CFO transition (May 1) ahead of CEO retirement at year-end; continuity emphasized .

Q&A Highlights

• Operational issues: Reliability challenges at Ticonderoga/Eastover and reduced Riverdale supply (~30% below plan) impacted Q1 by ~$10M; partial resolution expected with some orders pushed to Q3 .
• Europe recovery levers: Saillat capability upgrades to shift into specialty rolls; Nymölla wood-cost actions (direct sourcing, imports, yield improvements) targeting ~10% cost reduction; aiming for significant improvement by 2026 and cost of capital by 2027 .
• Tariff effects: Signs of pre‑buying raising imports into North America; pulp price declines in Europe amid weaker China demand; management monitoring secondary effects .
• Capex cadence: Full-year capex unchanged ($220M–$240M); heavier outages in H1, Eastover project spend throughout the year; FCF heavily weighted to H2 as in prior years .
• Demand and imports: Apparent NA demand down ~1% but underlying demand down ~3%–4% given import timing; domestic operating rates low‑90s; inventory absorption expected over time .

Estimates Context

• Q1 2025 comparison: Revenue beat consensus by ~0.6%, while Primary EPS and Adjusted EBITDA missed (~1.0% and ~5.9%* respectively); sequential downtick consistent with heavier outages and NA operational issues .
• Q2 2025 setup: Guidance embeds the heaviest outage quarter (+$36M expenses; $63M spend), tempered by price/mix and cost tailwinds; consensus will likely reflect near-term EBITDA pressure with a second-half recovery path as operations normalize* .

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Near-term: Expect Q2 earnings pressure from outages despite improving price/mix and operations; watch for resolution of NA reliability issues and Riverdale supply normalization .
• Second-half setup: Lower outage costs and better operations support EBITDA/margin recovery; monitor LatAm mix tailwinds and price realizations in NA/Brazil .
• Europe is the swing factor: Execution on wood-cost reduction (~10%), mix upgrades and cost actions will drive medium-term earnings repair; management set expectations for 2026 improvement and 2027 cost-of-capital targets .
• Structural earnings uplift: Eastover modernization and new sheeter (>30% IRR; +$50M annual EBITDA) underpin medium-term free cash flow growth starting 2026 .
• Capital allocation remains disciplined: $0.45 dividend maintained and opportunistic buybacks ($62M remaining); strong balance sheet (1.1x leverage, no major maturities until 2027) provides resilience .
• Macro/watch items: Tariff outcomes, European cost curve, energy/FX, and import dynamics in NA can affect spreads and mix; management’s local sourcing and regional shipment footprint mitigate risk .
• Trading lens: Fade near-term outage-driven weakness; position for H2 uplift contingent on operational normalization and LatAm seasonality; Europe turnaround execution is the key valuation rerating catalyst .