Slower Demand Recovery Drives Revised Annual Outlook, Company Remains Committed to $125 Million in Cash Returns
MEMPHIS, Tenn - Sylvamo (NYSE: SLVM), the world’s paper company, is releasing second quarter 2023 earnings.
Financial Highlights – Second Quarter vs. First Quarter
- Net income from continuing operations of $49 million ($1.14 per diluted share) vs. $97 million ($2.25 per diluted share)
- Adjusted operating earnings1 (non-GAAP) of $49 million ($1.14 per diluted share) vs. $108 million ($2.51 per diluted share)
- Adjusted EBITDA2 (non-GAAP) of $124 million (13.5% margin) vs. $208 million (22.1% margin)
- Cash provided by operating activities from continuing operations of $77 million vs. $63 million
- Free cash flow3 (non-GAAP) of $33 million vs. $2 million
Commercial and Operational Highlights – Second Quarter vs. First Quarter
- Price and mix decreased by $38 million due primarily to lower paper prices in Europe, less favorable mix in Latin America and North America and lower global pulp prices
- Volume decreased by $2 million due to lower paper demand in North America and continued channel inventory corrections in Europe and North America, which more than offset seasonally stronger demand in Latin America
- Operations and other costs increased by $10 million, primarily driven by $15 million in higher unabsorbed fixed costs from increased economic downtime
- Planned maintenance outage expenses increased by $58 million, in line with guidance, during the heaviest outage quarter of the year
- Input costs improved by $24 million, driven by favorable energy, chemical and transportation costs
Third Quarter Outlook
- Adjusted EBITDA of $130 million to $150 million
- Compared to the second quarter:
- Price and mix are expected to decrease by $60 million to $65 million
- Volume is projected to improve by $15 million to $20 million, with seasonally stronger volume in Latin America and North America
- Operations and other costs are expected to increase by $5 million to $10 million, mainly due to unabsorbed fixed costs while matching paper production with Sylvamo customer demand
- Input and transportation costs are projected to improve by $15 million to $20 million, with favorable trends in fiber and chemicals
- Total planned maintenance outage expenses are expected to decrease by $54 million
Management Summary from Chairman and Chief Executive Officer Jean-Michel Ribiéras
We achieved our second quarter earnings per share and adjusted EBITDA objectives. We delivered these results while facing challenging market conditions and during our heaviest planned maintenance outage quarter.
Our sales volumes were similar to the first quarter. The expected seasonal increase in volume did not materialize due to continued inventory corrections in Europe and North America, decreased demand due to Europe’s slowing economies and economic uncertainty in North America. Consequently, during the second quarter in Europe and North America, we took approximately 120,000 tons of economic downtime, roughly double the first quarter level. We also conducted extensive annual maintenance outages, which we executed safely and efficiently.
With respect to paper demand, we believe that our customers have completed the majority of their inventory corrections. We are now seeing very early indications that global advertising may be starting to rebound and we would expect demand in Europe and North America to begin to improve.
In the second quarter, we returned $41 million of cash to shareowners through dividends and share repurchases for a total of $61 million in cash returns in the first half of 2023. Our board of directors declared a quarterly dividend of $0.25 per share for the third quarter, which we paid July 6. We remain committed to returning a total of $125 million in cash to shareowners this year.
We now project adjusted EBITDA of $560 million to $600 million (formerly $720 million to $770 million) for 2023, reflecting lower paper demand and inventory channel corrections in Europe and North America, updated views on pulp and paper price and mix as well as higher unabsorbed fixed costs. These more than offset favorable input, transportation and operation cost trends. We continue to focus on free cash flow generation and now project free cash flow of $220 million to $250 million (formerly $250 million to $280 million.)
We will continue implementing our three-pronged strategy of commercial excellence, operational excellence and financial discipline. We expect to reduce costs and working capital to maximize earnings and free cash flow in the second half of the year. We will also continue to reinvest in our company to exit the downturn in an even stronger competitive position.
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