Suzano S.A. Q2 FY2026 earnings call

• Overall Operational Highlights

  • The company reported solid Q2 2026 operational results and strong free cash flow, demonstrating business resilience amid volatile geopolitical conditions.
  • The ABEX acquisition closed on July 1, 2026, on schedule, with full governance and management teams already in place. Focus has shifted to integration and capturing efficiency gains.
  • A leadership transition is complete: outgoing Vice President of Industrial Operations & Engineering Aries Galhardo was replaced by Carlos Anibal, a 23-year Suzano veteran with cross-functional experience across multiple business areas.
  • The company's top strategic priority is deleveraging the balance sheet following the ABEX acquisition, and reducing Total Operational Disbursing (TOD).

• Paper Segment Operational Updates

  • Positive volume and price gains, and lower SG&A were partially offset by inflationary pressures on wood, oil-based inputs, and logistics, plus longer-than-expected ramp-up after annual maintenance at the Pine Bluff Mill.
  • Brazil domestic print-and-write demand was stable YoY and grew 4% QoQ driven by seasonal election-related promotional activity. Paper board demand in Brazil grew 8% YoY and 11% QoQ, with customer inventory building ahead of announced price increases.
  • U.S. paper market adjusted for recent competitor capacity closures shows operating rates increased to 90%, which management expects will support improved market dynamics in H2 2026.

• Pulp Segment Operational Updates

  • Europe and North America pulp demand outperformed expectations, driven by stronger paper production and customer inventory replenishment ahead of expected cost increases, leading to consistent monthly price increases during Q2.
  • In China, narrow softwood-hardwood price spreads and high softwood availability at ports suppressed purchasing activity, leading to hardwood pulp price concessions by the end of the quarter. Approximately 30% of global pulp capacity is currently operating below cash cost at current CIF China prices.
  • Cash cost increases in Q2 were driven by higher prices for natural gas, caustic soda, chlorine dioxide, and wood, partially offset by stronger utility sales, FX effects, and fixed cost absorption from higher production volumes.

• Financial Risk Management

  • The company's hedging strategy offset ~60% of Q2 2026's 275 million reais in oil-related cost increases, with 85% of hedgeable oil exposure covered for H2 2026 and 35% covered for 2027. FX hedges delivered a positive 480 million reais cash adjustment in Q2 2026, with 57% of USD exposure covered.

Paper Business Segment: Domestic print and write volumes grew 4% YoY and 10% QoQ. Domestic paper board volumes grew 11% YoY and 28% QoQ, while Suzano packaging sales volumes remained stable QoQ and YoY. Brazilian paper operations EBITDA improved 28% QoQ, but declined 20% YoY due to lower prices, lower export volumes, and unfavorable FX. Suzano Packaging EBITDA was negatively impacted by a scheduled May maintenance outage, post-outage operational instability, and increased input and logistics costs from the Middle East conflict.

Pulp Business Segment: Suzano sold 2.9 million tons of pulp in Q2 2026, which is lower than Q2 2025 and slightly above Q1 2026. Average export price reached $601 per ton. Pulp segment EBITDA was $4.2 billion with a 48% margin, driven by higher USD prices, partially offset by higher inventory costs and FX headwinds.

Overall Financials: Net debt decreased from $13.0 billion in Q1 2026 to $12.8 billion in Q2 2026. Leverage ratio increased slightly from 3.3x to 3.4x. Average cost of debt is 5.1% in USD, with an average amortization schedule of 76 months. Cash cost excluding downtime was R$843 per ton in Q2 2026, a 5% sequential increase.

• Full year 2026 average cash cost excluding downtime is maintained at ~R$800 per ton, with management confident it will meet this target as lower costs in H2 2026 offset the higher Q2 level.
• Management expects higher demand and stronger sales in H2 2026 across both the paper and pulp segments.
• Management expects to deliver initial efficiency gains from the ABEX acquisition in H2 2026.
• The company maintains its target leverage ratio of below 2.5x net debt to EBITDA to be achieved by 2027-2028.

• Geopolitical volatility related to the ongoing Middle East conflict has pushed up prices for oil-related inputs (resins, chemicals), energy, and logistics, creating sustained cost pressure across business segments.
• Pulp market oversupply: current low Chinese hardwood pulp prices have left ~30% of global pulp capacity operating below cash cost, but announced production curtailments have so far been insufficient to rebalance market fundamentals.
• Weather-related supply risk: a stronger El Niño year increases the likelihood of typhoons and other weather disruptions in key pulp producing regions, which could impact wood availability and raise production costs. Forest license revocations in Indonesia also contribute to potential tightness in global wood supplies.
• Inflationary pressure on key inputs including wood, natural gas, and chemicals remains a headwind to cost reduction targets.
• Chinese pulp producer costs are rising due to higher imported wood prices, but potential overcapacity in Chinese paper production could lead to increased exports of finished paper, creating competitive pressure in regional markets, particularly Brazil.

Q: What factors will drive the expected decline in cash costs in H2 2026, and what is the deleveraging pathway to the 2.5x target by 2027-2028, including the role of divestments? / A: Free cash flow from core operations will be the primary driver of deleveraging, with ABEX contributing efficiency gains starting in 2027. Small non-core divestments of Brazilian land plots for higher-best use, already underway, will also help. Cash costs will fall in H2 2026 because there are no major planned maintenance downtimes (which reduces fixed cost absorption issues), and the Pangea wood supply agreement will reduce wood consumption ratios starting in H2.