Suzano S.A. Q1 FY2026 earnings call

• Business Model Attributes: Suzano has distinct attributes in paper industry with resiliency. Operates under long-term international logistics contracts, has inside defense production of critical inputs, and maintains a hedge portfolio to mitigate energy cost and FX risks.
• EBITDA Performance: First quarter EBITDA reflects solid performance with volumes above historical seasonality, supported by higher pricing and G&A expenses offsetting inflation.
• Free Cash Flow: First quarter free cash flow affected by dividends, interest payments, and one-off capex. Capital allocation priority is strengthening capital structure and reducing net debit.
• JV with Kimberly Clark: Efficiency gains met, reinforcing value creation expectation.
• Headcount Reduction: Currently running operation with 10% less headcount than a year ago. Cash production cost in Q1 2026 100% aligned with operational plan and below 2025 levels on average for 2026.
• Logistics and Inputs: Long-term international logistics contracts protect against freight rate increases. Inside defense production of critical inputs mitigates supply risk and cost pressures. Hedge portfolio mitigates energy cost volatility.

Paper and Packaging Business

• Brazilian Operations: Volumes stable vs Q1 2025. Prices affected by lower export prices and FX impacts. EBITDA down 8% y-o-y mainly due to low export prices from Brazil and FX appreciation. COGS per ton 8% lower y-o-y and 6% lower q-o-q due to lower cash costs and logistics costs.
• U.S. Operations: Suzano Packaging saw lower volumes due to lower demand and LPB inventory reduction. EBITDA increased 167% y-o-y reflecting turnaround effects. Costs impacted by higher natural gas consumption and prices during winter storm. Q2 expected to see improved sales volumes and prices with price increases and cost index pass-through. Logistics costs to trend slightly higher with diesel and container rates. Annual maintenance at Suzano Packaging scheduled for early May, no sales impact.

Pulp Business

• First Quarter 2026: Sold 2.84 million tons of pulp, 200,000 tons increase vs Q1 2025. Production volumes below budgeted levels due to non-recurrent events during plan maintenance and ramp-up. EBITDA 4.1 billion reais, affected by higher volumes, lower costs, better prices in USD but impacted by FX appreciation. Inventories ended Q1 2026 low.
• Outlook for Q2 2026: Production output constrained by planned maintenance downtimes and lower operating rates, resulting in ~300,000 tons production reduction y-o-y. Inventory rebuild expected in Q2 but kept to minimum levels. Iran war has uneven implications across regions. Announced new round of price increases for May in Europe and North America. Supply and demand dynamics diverge between hardwood and softwood grades. Softwood producers face high inventory levels, declining prices, and many operating at loss.

• EBITDA and Volumes: First quarter EBITDA reflects solid performance with volumes above historical seasonality. Q2 expected to see improved sales volumes and prices in Brazilian and U.S. operations with price increases and cost index pass-through.
• Cash Costs: Expect average cash cost in 2026 to be below 2025 levels. Initial expectation for Q2 cash costs closer to Q1 but now anticipate low single-digit increase vs Q1 due to Middle East conflict impacts. Still target cash costs close to 800 reais per ton for full year 2026 excluding stoppages.
• Pulp Production: Q2 2026 production output constrained by planned maintenance downtimes and lower operating rates, resulting in ~300,000 tons production reduction y-o-y. Inventory rebuild expected in Q2 but kept to minimum levels.
• Price Increases: Announced new round of price increases for May in Europe and North America.

• Geopolitical Risks: Current geopolitical landscape poses risks such as increases in freight rates, supply risk from international logistics, and energy cost pressure linked to higher international oil prices.
• Market Risks: Different dynamics across regions and markets. For example, international markets for papers face weaker demand and excess capacity, while softwood producers face high inventory levels, declining prices, and many operating at loss.
• Logistics Risks: Iran war affecting logistics to key markets where there are important customers, although Suzano's unique logistics enabled delivery of pulp to customers in the region.
• FX Risks: Impact of Brazilian real appreciation on financial results, although FX hedge portfolio is offsetting some of this impact.

Q: Danielle Sasson from Itaú BBA asked about price drivers, implementation of price hikes, and inventory replenishment.

A: Leo responded that price drivers for hardwood are unchanged, implementation of price hikes differs by region (eastern markets cautious due to softwood situation, western markets able to implement price increases), and lower sales in Q1 is due to plan and maintenance downtimes, with inventory replenishment expected in Q2.

Q: Goldman Sachs asked about Suzano's strategy in China and share price performance.

A: Leo discussed fiber-to-fiber strategy and de-verticalization of integrated pulp-to-paper producers in Western markets. Beto mentioned management is not comfortable with share price, analyzing buybacks and capital allocation, and seeing a robust business in mid-long term.

Q: Rafael Barcelos from Bradesco VBI asked about buyback program, asset sales, dividend policy, and Pope Markets outlook.

A: Marcos said buybacks are being analyzed, considering leverage and valuation levels. Leo discussed Western and Eastern market dynamics, with Western markets having heated demand and Eastern markets facing challenges due to softwood situation.

Q: Leo Correa from PTG asked about cash cost guidance and CAPEX.

A: Iris said cash costs in Q2 expected to have low single-digit increase vs Q1, and target cash costs close to 800 reais per ton for full year excluding stoppages. Beto said CAPEX guidance is maintained and there's a trend of lower caps in coming years.

Q: Caio Greener from UBS asked about China and Western market divergence, wood chip markets.

A: Leo explained China's paper production is positive but softwood situation is a headwind. Wood chip prices are on the rise due to various factors and expected to keep increasing.

Q: Caio Ribeiro from Bank of America asked about market catalysts and asset repurposing.

A: Leo discussed factors like permanent closures, commercial downtimes, time-to-market of projects, and de-verticalization as market catalysts. Suzano is repurposing assets, e.g., starting fluff production at Limeira site.