Sylvamo Corporation Q4 FY2025 earnings call

Vision

• John Sims outlined the vision of Sylvamo being legendary, focusing on defying expectations, creating lasting value, and achieving world-class excellence in safety, employee engagement, customer centricity, operational excellence, cost leadership, and sustainability.

Financial and Operational Details

• Donald Devlin discussed the fourth quarter earnings bridge, European market challenges (e.g., pulp prices rebounding, paper price increases in Europe), North America industry trends (e.g., improving operating rates, imports decline), capital spending outlook for 2026 ($245M), progress on Eastover investments (paper machine optimization, woodyard modernization), and North American sales volume bridging for 2026 including impacts from Riverdale supply agreement and Eastover outage.

In 2025, Sylvamo Corporation generated $448,000,000 in adjusted EBITDA, $44,000,000 in free cash flow, and had a net debt to adjusted EBITDA of 1.6 times. For the fourth quarter of 2025, adjusted EBITDA was $125,000,000 with a 14% margin and free cash flow was $38,000,000. Uncoated freesheet sales volume increased by 9% quarter over quarter in the fourth quarter.

• 2026 is a transition year for North America with expected adjusted EBITDA impacts from lower sales volume, external sourcing, and one-time outage costs. Capital spending in 2026 is expected to be $245M, returning to prior levels in 2027. The company has the potential to generate annually greater than $300,000,000 of free cash flow and greater than 15% returns on invested capital as industry conditions improve.

• European market challenges including industry downturns and wood cost fluctuations. Cold weather impacts on Riverdale resulting in a $10,000,000 charge in the first quarter of 2026. One-time costs in 2026 related to the North America transition that will not repeat in 2027.

Q: Hey, guys. Good morning. Thank you so much for taking my questions. I will start with two regarding operations in Europe, and then I will get back into the queue. But first, you called out wood costs in Sweden, then I was hoping you could update us on your efforts to improve mix and win new customers in the region. I believe you called out a few of those items on the third quarter call. And then similarly, with cut-size pricing down in the region versus the prior year, when we think about potential margin improvement in Europe, in fiscal 2026 and into 2027, how dependent is that improvement on price realization versus some of the internal levers you can pull?

A: Hey, Daniel. Thanks for your question. It is John Sims. In terms of the efforts around improving mix, one key driver to that was an investment we made at the Säffle mill, which was successfully started up and implemented in the last part of the fourth quarter. And I can tell you that what that does is it drives us, allows us to produce and sell more roll business into the converting markets versus commodity cut-size out of the Säffle mill. And I can tell you that our order books are full in terms of that segment, and so we are executing well against our plan to improve the mix at our Säffle mill. In terms of pricing, it has been a very tough market in Europe. It has been a long, probably one of the longest downturns that we have seen. Margins are very compressed. We have been significantly working to reduce costs at all our facilities, focusing on fixed costs at our Säffle mill and improving operational performance at our Nymölla mill. We exceeded our targets last year. We are going well with that. We have got additional plans. However, we do need the market to improve, and we are seeing that. So we talked about it. Pulp prices are going up in Europe. We have announced price increases to our customers in Europe as well as the export markets that we serve out of Europe. Those prices will be—we will start to realize that, though, in the second quarter. We will not see that in the first quarter, and that is going to be important to the margin improvement in Europe. We need to have prices go up. Current margins just are not sustainable at the current level.

Q: John, we appreciate the review of your vision. And your shareholder letter. There is a lot of focus on capital allocation and returns and in some ways, defending what the company has been doing. Have you been getting more investor questions on that topic in the last couple of quarters that prompted the discussion from you on your capital allocation? What is your discussion with investors, to the extent that you can comment, regarding that topic? Second point, as you think about Europe, how do you see Nymölla fitting? It is easy to get down on a business at the trough. Right? And your charge as leaders is to see and look longer term. And we get that. How does Nymölla fit? Säffle looks like it is doing great. Nymölla probably has been a bit disappointing. How do you see that fitting along the long-term picture for Sylvamo Corporation?

A: Yeah. Good morning, George, and thanks for those questions. I think when it comes to the capital allocation question that you are asking, it is really the questions that we have gotten from investors. We have not gotten many questions. We have gotten a lot of support in terms of alignment and agreement with our capital allocation priorities. I think one of the things that I have been focusing on as the new CEO is to reassure with investors what is going to change and what is not going to change going forward. And one of the things that we are stressing is we are not changing our strategy. We are going to be focused on our uncoated freesheet, nor will we be changing our capital allocation strategy. The priorities will be maintaining a strong balance sheet, reinvesting back in the business where it makes sense that we can generate high returns, and then returning cash to shareowners. And so just reaffirming that. I mean, I will take an opportunity. What is going to change, I think, is really we are going to transform the business. We are going to go through a lean transformation. Why? Because we want to focus on becoming much more customer centric with that, and we want to be able to drive continuous improvement, accelerate it, and reduce our cost, meeting customer needs while eliminating all waste. So we are going to be going through that transformation, if you will. We are going to be leading that off in Latin America, and then we will be driving that across all the businesses. Your next question, George, is around Nymölla and how that fits. You know, Europe has always been a bet on the future in terms of business. The market has been very difficult. We talked about it. The down cycle has been longer and deeper than what we expected. The other thing with Nymölla is the wood cost, which has made it much more challenging. The wood cost increased significantly more than what we expected going in there. That is turning, finally. We are starting to see some reductions in the wood cost, which Don mentioned. Now, it takes about three to six months for us to start to see that, and we will start to get the impact of that more toward the second quarter of the year. But as we look at Nymölla’s fit for us has always been a good fit for us because, number one, it is solely focused on uncoated freesheet. The cost position is good if the wood cost can get back down to where it needs to be, not where it is at right now. So the other thing is the mix for Nymölla is very attractive because it serves both the cut-size as well as the printing communication. So it has the capability to serve both of those markets, which was a good fit and also very synergistic for us. But as we said, you know, as I said, we are evaluating everything we can do in terms of around Europe to improve our performance there. We talked about that, I think, on the last call. We believe we have the right strategies for both facilities. We have got the right leadership. We have got very talented teams. We have got a really good focus on trying to improve those businesses. We are looking at all options, if you will, as we try to focus on improving our businesses in Europe.