Adjusted Operating Earnings Per Share Up More
Than 85% vs. First Quarter 2022
Sylvamo (NYSE: SLVM), the world’s paper company, is releasing
first quarter 2023 earnings.
Message from the Chairman and Chief Executive Officer
“We generated $208 million in adjusted EBITDA, which was
consistent with our outlook of $205 million to $215 million, and
achieved a 22% adjusted EBITDA margin,” said Jean-Michel Ribiéras.
“We maintained a strong balance sheet and repurchased 80% of our
outstanding notes to eliminate restrictive covenants in the notes
agreement. These steps enabled us to continue on the path to
returning more cash to shareowners.”
Financial Highlights – First Quarter vs. Fourth
Quarter
- Net income from continuing operations of $97 million ($2.25 per
diluted share) vs. $88 million ($1.99 per diluted share)
- Adjusted operating earnings1 (non-GAAP) of $108 million ($2.51
per diluted share) vs. $87 million ($1.97 per diluted share)
- Adjusted EBITDA2 (non-GAAP) of $208 million (22% margin) vs.
$170 million (18% margin)
- Cash provided by operating activities from continuing
operations of $63 million vs. $142 million
- Free cash flow3 (non-GAAP) of $2 million vs. $84 million
Commercial and Operational Highlights – First Quarter vs.
Fourth Quarter
- Adjusted EBITDA, including $17 million from the newly-acquired
Nymolla mill, increased by $38 million, which was in line with our
guidance
- Compared to the fourth quarter, excluding Nymolla:
- Price and mix decreased by $8 million, due to pricing pressure
on both pulp and paper in Europe, while remaining stable in Latin
America and North America
- Volume declined by $34 million due to seasonal weakness in
Latin America and channel inventory destocking in Europe and North
America
- Operations and costs improved by $18 million, driven by lower
annual incentive plan expense in the first quarter and favorable
foreign exchange rates
- Planned maintenance outage expenses decreased by $31 million
with no planned outages
- Input costs improved by $14 million, driven by favorable energy
and transportation costs
- Free cash flow reflected increases in working capital and
annual incentive compensation payments
Second Quarter Outlook
- We expect adjusted EBITDA to be $115 million to $125
million
- Compared to the first quarter:
- Price and mix are expected to decrease by $45 million to $50
million, reflecting the realization of prior price decreases for
pulp in all regions and paper in Europe as well as less favorable
product mix
- Volume is projected to improve by $10 million to $15 million,
with seasonally stronger volume in Latin America
- Operations and costs are expected to increase by $10 million to
$15 million primarily due to unabsorbed fixed costs
- Input and transportation costs are projected to improve by $15
million to $20 million, with favorable trends in energy and
chemicals
- Total planned maintenance outage expenses are expected to
increase by $59 million, with two-thirds of 2023 planned
maintenance outage costs scheduled for the second quarter
Management Summary
We now project 2023 adjusted EBITDA of $720 million to $770
million, which reflects the impacts of previously announced pulp
price decreases, updated views on pulp and paper prices and volume,
continued channel inventory corrections and more favorable input
and transportation cost trends. We also now project free cash flow
of $250 million to $280 million.
The integration of our new mill in Sweden is proceeding well. We
expect Nymolla to continue strengthening our performance while
enabling us to serve customers across Europe and around the world
more effectively.
We maintained a strong balance sheet, achieving a net
debt-to-adjusted EBITDA ratio of 1.1x and improved our financial
flexibility by increasing our ability to return more cash to
shareowners. We repurchased $360 million of our 2029 notes, which
eliminated restrictive covenants related to the notes. We replaced
the notes with Term Loan A and short-term debt.
We returned $21 million of cash to shareowners in the first
quarter. Returning more cash to shareowners remains a priority.
We announced a cooperation agreement with our largest
shareowner, Atlas Holdings, in February. Our board added two
independent directors and terminated the shareholder rights plan
adopted in April 2022.
Our board also declared a quarterly dividend of $0.25 per share
for the second quarter, which we paid on April 27.
Our 2030 goals demonstrate our commitment to produce paper in
the most responsible and sustainable ways. In April, we received
formal approval of our greenhouse gas emissions targets from the
Science Based Target initiative (SBTi). We expect to reduce our
2030 Scope 1, 2 and 3 greenhouse gas emissions by 35% from a 2019
baseline and define a pathway to net zero emissions.
Sylvamo will achieve its vision to be the world’s paper company
– the employer, supplier and investment of choice – by implementing
our three-pronged strategy of commercial excellence, operational
excellence and financial discipline.
1 Adjusted Operating Earnings (non-GAAP)
are net income (loss) (GAAP) excluding discontinued operations, net
of tax and net special items. Management uses this measure to focus
on ongoing operations and believes it is useful to investors
because it enables them to perform meaningful comparisons of past
and present combined operating results. The Company believes that
using this information, along with net income (loss), provides for
a more complete analysis of the results of operations. Net income
(loss) is the most directly comparable GAAP measure. For more
information regarding net special items, see the information under
the heading Effects of Net Special Items and the Condensed
Consolidated Statement of Operations and related notes included
later in this release.
2 Adjusted EBITDA (non-GAAP) is net income
(loss) (GAAP) excluding discontinued operations, net of tax, plus
the sum of income taxes, net interest expense (income),
depreciation, amortization and cost of timber harvested, transition
service agreement expense, stock-based compensation, and, when
applicable for the periods reported, net special items. Management
uses this measure in managing the operating performance of our
business and believes that Adjusted EBITDA and Adjusted EBITDA
Margin provide investors and analysts meaningful insights into our
operating performance and Adjusted EBITDA is a relevant metric for
the third-party debt. The Company believes that using this
information, along with net income (loss), provides for a more
complete analysis of the results of its operations. Net income
(loss) is the most directly comparable GAAP measure. For more
information regarding net special items, see the information under
the heading Effects of Net Special Items and the Condensed
Consolidated Statement of Operations and related notes included
later in this release.
3 Free Cash Flow is a non-GAAP measure and
the most directly comparable GAAP measure is cash provided by
operating activities from continuing operations. Management
utilizes this measure in connection with managing our business and
believes that Free Cash Flow is useful to investors as a liquidity
measure because it measures the amount of cash generated that is
available, after reinvesting in the business, to maintain a strong
balance sheet and service debt, and return cash to shareowners. It
should not be inferred that the entire Free Cash Flow amount is
available for discretionary expenditures. Free Cash Flow also
enables investors to perform meaningful comparisons between past
and present periods.
Select Financial
Measures
(In millions)
First Quarter 2023
Fourth Quarter 2022
First Quarter 2022
Net Sales
$
959
$
927
$
821
Net Income from Continuing Operations
97
88
55
Net Income
97
94
26
Business Segment Operating Profit
166
133
103
Adjusted Operating Earnings
108
87
59
Adjusted EBITDA
208
170
146
Cash Provided By Operating Activities From
Continuing Operations
63
142
48
Free Cash Flow
2
84
32
Segment Information
Sylvamo uses business segment operating profit to measure the
earnings performance of its businesses and is calculated as set
forth in footnote (f) under the "Sales and Earnings by Business
Segment" table (page 8). First quarter 2023 net sales by business
segment and operating profit by business segment compared with the
fourth quarter of 2022 and the first quarter of 2022 are as
follows:
Business Segment
Results
(In millions)
First Quarter 2023
Fourth Quarter 2022
First Quarter 2022
Net Sales by Business Segment
Europe
$
248
$
119
$
117
Latin America
222
289
215
North America
505
527
508
Inter-segment Sales
(16
)
(8
)
(19
)
Net Sales
$
959
$
927
$
821
Operating Profit by Business
Segment
Europe
$
23
$
12
$
2
Latin America
46
56
39
North America
97
65
62
Business Segment Operating
Profit
$
166
$
133
$
103
Operating profits in the first quarter of 2023:
Europe - $23 million compared with $12 million in
the fourth quarter of 2022. Earnings were higher as the $16 million
of operating profit contributed by Nymolla and lower operating and
input costs more than offset lower volumes.
Latin America - $46 million compared with $56 million in
the fourth quarter of 2022. Earnings were lower as lower operating
costs and planned maintenance outage costs were more than offset by
lower volumes.
North America - $97 million compared with $65
million in the fourth quarter of 2022. Earnings were higher as
lower operating and input costs, and lower planned maintenance
outages more than offset lower volumes.
Effective Tax Rate
The reported effective tax rate for continuing operations for
the first quarter of 2023 was 31%, compared to 28% for the fourth
quarter of 2022. The higher rate for the first quarter was due to
the mix of earnings in our regions and unfavorable U.S. rule change
restricting foreign tax credits in Brazil.
Excluding net special items, the effective tax rate for the
first quarter of 2023 was 30%, compared with 28% for the fourth
quarter of 2022.
Effects of Net Special Items
Net special items related to continuing operations in the first
quarter of 2023 amounted to a net after-tax charge of $11 million
($0.26 per diluted share) compared with net after-tax income of $1
million ($0.02 per diluted share) in the fourth quarter of
2022.
Earnings Webcast
The company will host an audio webcast at 10 a.m. EST / 9 a.m.
CST. All interested parties are invited to listen at
investors.sylvamo.com.
Parties who wish to participate should call +1-877-336-4440
(U.S.) or +1-409-207-6984 (international) and use access code
7148273. Participants should call in no later than 9:45 a.m. EST /
8:45 a.m. CST.
Replays are available at investors.sylvamo.com for one year and
by phone for 90 days, beginning at approximately noon CST the day
of the call. To listen to the replay by phone, call +1-866-207-1041
(U.S.) or +1-402-970-0847 (international) and use access code
9951284.
About Sylvamo
Sylvamo Corporation (NYSE: SLVM) is the world's paper company
with mills in Europe, Latin America and North America. Our vision
is to be the employer, supplier and investment of choice. We
transform renewable resources into papers that people depend on for
education, communication and entertainment. Headquartered in
Memphis, Tennessee, we employ more than 6,500 colleagues. Net sales
for 2022 were $3.6 billion. For more information, please visit
Sylvamo.com.
Forward-Looking Statements
This news release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934, including the
information under the headings "Second Quarter Outlook" and
"Management Summary." Any or all forward-looking statements may
turn out to be incorrect, and our actual actions and results could
differ materially from what they express or imply, because they
involve known and unknown risks, uncertainties and other factors,
many of which are beyond our control. These risks, uncertainties,
and other factors include those disclosed in the heading "Risk
Factors" in our Annual Report on Form 10-K for the year ended Dec.
31, 2022, filed with the U.S. Securities and Exchange Commission
(SEC) and in our subsequent filings with the SEC, available on our
website, Sylvamo.com. These forward-looking statements reflect our
current expectations, and we undertake no obligation to publicly
update any forward-looking statements, whether as a result of new
information, future events or otherwise.
SYLVAMO CORPORATION
Condensed Consolidated
Statement of Operations
Preliminary and Unaudited
(In millions, except per share
amounts)
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Net Sales
$
959
$
821
$
927
Costs and Expenses
Cost of products sold
688
(a)
620
(d)
654
(g)
Selling and administrative expenses
82
(b)
66
(e)
97
(h)
Depreciation, amortization and cost of
timber harvested
35
31
32
Taxes other than payroll and income
taxes
6
6
5
Interest expense (income), net
7
(c)
17
17
(i)
Income From Continuing Operations
Before Income Taxes
141
81
122
Income tax provision
44
26
34
Net Income From Continuing
Operations
97
55
88
Discontinued operations, net of
tax
—
(29
)
(f)
6
(j)
Net Income (Loss)
$
97
$
26
$
94
Basic Earnings Per Share
Income from continuing operations
$
2.28
$
1.25
$
2.02
Discontinued operations, net of taxes
—
(0.66
)
0.14
Net earnings (loss)
$
2.28
$
0.59
$
2.16
Diluted Earnings Per Share
Income from continuing operations
$
2.25
$
1.25
$
1.99
Discontinued operations, net of taxes
—
(0.66
)
0.14
Net earnings (loss)
$
2.25
$
0.59
$
2.13
Average Shares of Common Stock
Outstanding - Diluted
43
44
44
The accompanying notes are an
integral part of this condensed consolidated statement of
operations.
Three Months Ended March 31, 2023
(a)
Includes incremental expense of $9 million
($7 million after taxes) related to the impact of the step-up of
acquired Nymolla inventory sold during the quarter.
(b)
Includes a pre-tax loss of $4 million ($3
million after taxes) for transaction costs related to the Nymolla
acquisition and pre-tax loss of $4 million ($3 million after taxes)
for professional and legal fees related to negotiations resulting
in a shareholder cooperation agreement.
(c)
Includes $9 million ($6 million after
taxes) of interest income related to tax settlements and a pre-tax
loss of $5 million ($4 million after taxes) related to debt
extinguishment costs.
Three Months Ended March 31, 2022
(d)
Includes a pre-tax loss of $2 million ($2
million after taxes) for one-time costs associated with the
spin-off.
(e)
Includes a pre-tax loss of $3 million ($2
million after taxes) for one-time costs associated with the
spin-off.
(f)
Includes a pre-tax charge of $68 million
($57 million after taxes) related to the impairment of our Russian
fixed assets.
Three Months Ended December 31, 2022
(g)
Includes a pre-tax gain of $10 million ($8
million after taxes) related to hedging the foreign exchange
exposure of the Nymolla mill purchase price.
(h)
Includes a pre-tax loss of $3 million ($2
million after taxes) for one-time costs associated with the spinoff
and a pre-tax loss of $1 million ($1 million after taxes) for
transaction costs related to the Nymolla acquisition.
(i)
Includes a pre-tax loss of $5 million ($4
million after taxes) related to debt extinguishment costs.
(j)
Includes pre-tax income of $6 million ($6
million after taxes) for the final gain on the disposal of our
Russian operations.
SYLVAMO CORPORATION
Reconciliation of Net Income
to Adjusted Operating Earnings
Preliminary and Unaudited
(In millions, except per share
amounts)
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Net Income (Loss)
$
97
$
26
$
94
Less: Discontinued operations, net of
tax
—
(29
)
6
Net income From Continuing
Operations
97
55
88
Add back: Net special items expense
(income)
11
4
(1
)
Adjusted Operating Earnings
$
108
$
59
$
87
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Diluted Earnings (Loss) Per Common
Share as Reported
$
2.25
$
0.59
$
2.13
Less: Discontinued operations, net of
tax
—
(0.66
)
0.14
Continuing Operations
2.25
1.25
1.99
Add back: Net special items expense
(income)
0.26
0.09
(0.02
)
Adjusted Operating Earnings Per
Share
$
2.51
$
1.34
$
1.97
SYLVAMO CORPORATION
Sales and Earnings by Business
Segment
Preliminary and Unaudited
(In millions)
Net Sales by Business
Segment
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Europe
$
248
$
117
$
119
Latin America
222
215
289
North America
505
508
527
Inter-segment Sales
(16
)
(19
)
(8
)
Net Sales
$
959
$
821
$
927
Operating Profit by Business
Segment
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Europe
$
23
$
2
$
12
Latin America
46
39
56
North America
97
62
65
Business Segment Operating
Profit
$
166
$
103
$
133
Income from Continuing Operations
Before Income Taxes
$
141
$
81
$
122
Interest expense (income), net
7
(a)
17
17
(d)
Net special items expense (income)
18
(b)
5
(c)
(6
)
(e)
Business Segment Operating Profit
(f)
$
166
$
103
$
133
Three Months Ended March 31, 2023
(a)
Includes $9 million ($6 million after
taxes) of interest income related to tax settlements and a pre-tax
loss of $5 million ($4 million after taxes) related to debt
extinguishment costs.
(b)
Includes a pre-tax loss of $4 million ($3
million after taxes) for transaction costs related to the Nymolla
acquisition, a pre-tax loss of $4 million ($3 million after taxes)
for professional and legal fees related to negotiations resulting
in a shareholder cooperation agreement and incremental expense of
$9 million ($7 million after taxes) related to the impact of the
step-up of acquired Nymolla inventory sold during the quarter.
Three Months Ended March 31, 2022
(c)
Includes a pre-tax loss of $5 million ($4
million after taxes) for one-time costs associated with the
spin-off.
Three Months Ended December 31, 2022
(d)
Includes a pre-tax loss of $5 million ($4
million after taxes) related to debt extinguishment costs.
(e)
Includes a pre-tax gain of $10 million ($8
million after taxes) related to hedging the foreign exchange
exposure of the Nymolla mill purchase price, a pre-tax loss of $3
million ($2 million after taxes) for one-time costs associated with
the spinoff, and a pre-tax loss of $1 million ($1 million after
taxes) for transaction costs related to the Nymolla
acquisition.
(f)
As set forth in the chart above, business
segment operating profit is defined as income from continuing
operations before income taxes, but excluding net interest expense
(income) and net special items. Business segment operating profit
is a measure reported to our management for purposes of making
decisions about allocating resources to our business segments and
assessing the performance of our business segments.
Reconciliation of Net Income
to Adjusted EBITDA and Adjusted EBITDA Margin
Preliminary and Unaudited
(In millions)
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Net Income (Loss)
$
97
$
26
$
94
Less: Discontinued operations, net of
tax
—
(29
)
6
Net Income From Continuing
Operations
97
55
88
Adjustments:
Income tax provision
44
26
34
Interest expense (income), net
7
17
17
Depreciation, amortization and cost of
timber harvested
35
31
32
Stock-based compensation
7
4
4
Transition service agreement expense
—
8
1
Net special items expense (income)
18
5
(6
)
Adjusted EBITDA
$
208
$
146
$
170
Net Sales
$
959
$
821
$
927
Adjusted EBITDA Margin
21.7
%
17.8
%
18.3
%
Adjusted EBITDA and Adjusted EBITDA
Margin by Business Segment
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Adjusted EBITDA
Europe
$
31
$
8
$
16
Latin America
63
56
72
North America
114
82
82
Total Business Segment Adjusted
EBITDA
$
208
$
146
$
170
Net Sales (excluding discontinued
operations and inter-segment sales eliminations)
Europe
$
248
$
117
$
119
Latin America
222
215
289
North America
505
508
527
Total Business Segment Net
Sales
$
975
$
840
$
935
Adjusted EBITDA Margin
Europe
13
%
7
%
13
%
Latin America
28
%
26
%
25
%
North America
23
%
16
%
16
%
SYLVAMO CORPORATION
Condensed Consolidated Balance
Sheet
Preliminary and Unaudited
(In millions)
March 31, 2023
December 31, 2022
Assets
Current Assets
Cash and temporary investments
$
191
$
360
Accounts and notes receivable, net
441
450
Contract assets
33
30
Inventories
506
364
Other current assets
38
39
Total Current Assets
1,209
1,243
Plants, Properties and Equipment, Net
938
817
Forestlands
340
322
Goodwill
133
128
Right of Use Assets
37
35
Deferred Charges and Other Assets
141
165
Total Assets
$
2,798
$
2,710
Liabilities and Equity
Current Liabilities
Accounts payable
$
409
$
453
Notes payable and current maturities of
long-term debt
104
29
Accrued payroll and benefits
53
81
Other current liabilities
160
165
Total Current Liabilities
726
728
Long-Term Debt
954
1,003
Deferred Income Taxes
198
183
Other Liabilities
130
118
Equity
Common stock, $1 par value, 200.0 shares
authorized, 44.5 shares and 44.2 shares issued and 42.6 shares and
42.6 shares outstanding at March 31, 2023 and December 31, 2022,
respectively
44
44
Paid-In Capital
32
25
Retained Earnings
2,116
2,029
Accumulated Other Comprehensive Loss
(1,305
)
(1,338
)
887
760
Less: Common stock held in treasury, at
cost, 1.9 shares and 1.6 shares at March 31, 2023 and December 31,
2022, respectively
(97
)
(82
)
Total Equity
790
678
Total Liabilities and Equity
$
2,798
$
2,710
Condensed Consolidated
Statement of Cash Flows
Preliminary and Unaudited
(In millions)
Three Months Ended March
31,
2023
2022
Operating Activities
Net income from continuing operations
$
97
$
55
Depreciation, amortization, and cost of
timber harvested
35
31
Deferred income tax provision (benefit),
net
5
7
Stock-based compensation
7
4
Changes in operating assets and
liabilities and other
Accounts and notes receivable
82
16
Inventories
(81
)
(26
)
Accounts payable and accrued
liabilities
(100
)
(62
)
Other
18
23
Cash Provided By Operating Activities from
Continuing Operations
63
48
Cash Provided By Operating Activities from
Discontinued Operations, net
—
44
Cash Provided By Operating
Activities
63
92
Investment Activities
Invested in capital projects
(61
)
(16
)
Acquisition of business, net of cash
acquired
(167
)
—
Cash Provided By (Used for) Investment
Activities from Continuing Operations
(228
)
(16
)
Cash Provided By (Used for) Investment
Activities from Discontinued Operations, net
—
(3
)
Cash Provided By (Used for) Investment
Activities
(228
)
(19
)
Financing Activities
Dividends paid
(10
)
—
Issuance of debt
427
—
Reduction of debt
(407
)
(35
)
Repurchases of common stock
(10
)
—
Other
(8
)
(4
)
Cash Provided By (Used for) Financing
Activities from Continuing Operations
(8
)
(39
)
Cash Provided By (Used for) Financing
Activities from Discontinued Operations, net
—
—
Cash Provided By (Used for) Financing
Activities
(8
)
(39
)
Effect of Exchange Rate Changes on
Cash
4
15
Change in Cash Included in Assets Held
for Sale
—
46
Change in Cash and Temporary
Investments
(169
)
3
Cash and Temporary Investments
Beginning of the period
360
159
End of the period
$
191
$
162
SYLVAMO CORPORATION
Reconciliation of Cash
Provided by Operations to Free Cash Flow
Preliminary and Unaudited
(In millions)
Three Months Ended
March 31,
Three Months Ended
December 31,
2022
2023
2022
Cash Provided By Operating Activities
From Continuing Operations
$
63
$
48
$
142
Adjustments:
Cash invested in capital projects
(61
)
(16
)
(58
)
Free Cash Flow
$
2
$
32
$
84
Reconciliation of Net Income
From Continuing Operations to Adjusted EBITDA - 2023
Outlook
Estimates
(In millions)
Three Months Ended
June 30,
2023
Twelve Months Ended
December 31,
2023
Net Income From Continuing
Operations
$37 - $44
$338 - $370
Adjustments:
Income tax provision
16 - 19
149 - 162
Interest expense (income), net
13
47
Depreciation, amortization and cost of
timber harvested
37
148
Stock-based compensation
8
28
Net Special items expense
4
10 - 15
Adjusted EBITDA
$115 - $125
$720 - $770
Reconciliation of Cash
Provided by Operations to Free Cash Flow - 2023 Outlook
Estimates
(In millions)
Twelve Months Ended
December 31,
2023
Cash Provided By Operating Activities
From Continuing Operations
$460 - $515
Adjustments:
Cash invested in capital projects
(210 - 235)
Free Cash Flow
$250 - $280
The non-GAAP financial measures presented
in this release have limitations as analytical tools and should not
be considered in isolation or as a substitute for an analysis of
our results calculated in accordance with GAAP. In addition,
because not all companies use identical calculations, the Company’s
presentation of non-GAAP measures in this release may not be
comparable to similarly titled measures disclosed by other
companies, including companies in the same industry as Sylvamo.
Management believes certain non-U.S. GAAP
financial measures, when used in conjunction with information
presented in accordance with U.S. GAAP, can facilitate a better
understanding of the impact of various factors and trends on the
Company’s financial condition and results of operations. Management
also uses these non-U.S. GAAP financial measures in making
financial, operating and planning decisions and in evaluating the
Company’s performance.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230509005437/en/
Investor Contact: Hans Bjorkman, 901-519-8030,
hans.bjorkman@sylvamo.com Media Contact: Adam Ghassemi,
901-519-8115, adam.ghassemi@sylvamo.com
Sylvamo (NYSE:SLVM)
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