Sylvamo Releases Fourth-Quarter Results With Robust Earnings and Cash Flow

Sylvamo, the world’s paper company, released fourth-quarter 2021 earnings.

Message from the Chairman and Chief Executive Officer

“During our first quarter as a stand-alone company, we delivered strong earnings and generated significant cash,” said Jean-Michel Ribiéras. “Our fourth-quarter adjusted EBITDA was $170 million, reflecting strong commercial and operational performances globally. We generated $162 million of free cash flow, which we used to pay down debt by $124 million and increase cash on hand by $48 million. We also achieved a gross debt-to-adjusted EBITDA ratio of 2.4x, strengthening our balance sheet and increasing our flexibility to increase shareowner value.

“Momentum is strong heading into 2022 despite input cost, labor and supply chain challenges. We are well positioned to increase our earnings and generate strong cash flow in 2022. We project first-quarter adjusted EBITDA of $180 to $190 million and adjusted operating earnings per share of $1.70 to $1.90. We remain focused on generating strong free cash flow, further reducing debt and creating long-term stakeholder value.”

Fourth-Quarter Highlights

Net income of $62 million ($1.41 per diluted share) compared with $92 million ($2.09 per pro forma share¹) in the third quarter of 2021
Adjusted operating earnings² (non-GAAP) of $75 million ($1.71 per diluted share) compared with $100 million ($2.27 per pro forma share) in the third quarter of 2021
Adjusted EBITDA³ (non-GAAP) of $170 million (17.5% margin) compared with $177 million (19.5% margin) in the third quarter of 2021
Free cash flow⁴ (non-GAAP) of $162 million compared with $135 million in the third quarter of 2021

Fourth-Quarter Commercial and Operational Highlights

Price and mix improved by $41 million versus the prior quarter and volume improved by $14 million, reflecting solid industry fundamentals and continued commercial excellence performance by our teams
Operations improved by $2 million and total planned maintenance outage expenses increased by $24 million versus the prior quarter
Input costs increased by $39 million versus the prior quarter, reflecting higher costs for wood, energy, chemicals, packaging and distribution
Adjusted EBITDA margins for Europe, Latin America and North America were 9%, 35% and 13%, respectively, with Europe and North America margins being impacted by maintenance outages in those regions
Repaid $124 million of debt, achieving a gross debt-to-adjusted EBITDA ratio of 2.4x at year-end

First-Quarter Outlook

Price and mix are expected to improve by $35 to $40 million compared to the fourth quarter, reflecting continued realization of prior price increases in all regions
Volume is expected to be down by $13 to $18 million, reflecting seasonally weaker demand in Latin America and Eastern Europe
Operations and costs are expected to increase by $18 to $20 million, reflecting the non-repeat of $7 million favorable overhead benefits and environmental credits in Europe and a $10 million favorable North America LIFO adjustment, both in the fourth quarter
Input and transportation costs are projected to increase by $18 to $23 million due to higher fiber, chemicals and transportation costs
Total maintenance outage expenses are projected to decrease by $31 million, reflecting fewer outages during the winter months in the northern hemisphere
We also project $8 million in costs related to transition service agreements in the quarter and $15 million of one-time costs (transition service agreements cost are not included in adjusted EBITDA and one-time costs are not included in adjusted EBITDA and adjusted operating earnings)

Management Summary

Global industry demand continued to recover and we expect this to continue in 2022 as more white-collar workers return to their offices. We expect our first-quarter volume to be down with seasonally weaker demand in Latin America.

Throughout the fourth quarter, we continued to realize prior price increases. In the first quarter, we expect price and mix to further improve, reflecting continued realization of prior price increases in all three regions and our focus on commercial excellence. Our improved price and mix allowed us to offset significant cost increases for wood, chemicals, energy and freight. We expect incremental input and transportation cost inflation in the first quarter.

Our mills ran well and we executed extensive maintenance outages in our Eastover and Saillat mills safely, efficiently and on budget. We expect higher first-quarter operating expenses, reflecting the absence of the fourth-quarter benefits described in the first-quarter outlook. Maintenance outage expenses will decline significantly in the first quarter since we tend to avoid maintenance outages in the northern hemisphere during the coldest months.

Reflecting our commitment to financial discipline, we repaid $124 million of debt and increased our cash balance by $48 million in the fourth quarter. Our strong fourth-quarter cash generation included an approximate $65 million benefit because we were not required to pay International Paper for Georgetown and Riverdale distribution center inventories until 2022. We will make $77 million in required inventory payments in monthly installments over the first six months of this year. We also intend to continue to reduce debt.

Most importantly, we appreciate the contributions of our more than 7,500 colleagues, who worked safely and continued to operate through the significant challenges posed by the global pandemic and supply chain bottlenecks. We are also grateful for our customers and their patience as we navigate the challenging supply chain conditions.

¹	At the date of distribution of Sylvamo common shares by International Paper to its shareholders on Oct. 1, 2021, Sylvamo had 43,949,277 total common shares outstanding. The calculation of pro forma earnings per share for each period presented utilizes the common shares at the date of distribution as the basis for the calculation of weighted average common shares outstanding for periods prior to the spinoff because, at that time, Sylvamo did not operate as a separate, stand-alone entity, and no shares or equity-based awards were outstanding prior to the date of distribution. This share count reflects a change from the prior period to reflect an immaterial adjustment to the number of outstanding shares held by International Paper on the spin-off record date.
²	Adjusted Operating Earnings (non-GAAP) are net earnings (GAAP) excluding 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. For more information regarding net special items, see the information under the heading Effects of Special Items and the Condensed Combined Statement of Operations and related notes included later in this release.
³	Adjusted EBITDA (non-GAAP) is net income (loss) (GAAP) excluding the sum of income taxes, net interest (income) expense, depreciation, amortization and cost of timber harvested, transition service agreement expense, stock-based compensation, and, when applicable for the periods reported, special items. Management 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. For more information regarding net special items, see the information under the heading Effects of Special Items and the Condensed Combined Statement of Operations and related notes included later in this release.
⁴	Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operations. Management 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 in the future. It should not be inferred that the entire free cash flow amount is available for discretionary expenditures. By adjusting for certain items that are not indicative of the Company’s ongoing performance, free cash flow also enables investors to perform meaningful comparisons between past and present periods.

Operating profits in the fourth quarter of 2021:

Europe – $16 million compared with $40 million in the third quarter of 2021. Earnings were lower as higher average sales prices were more than offset by higher planned maintenance outage expenses and higher input costs.

Latin America – $64 million compared with $44 million in the third quarter of 2021. Earnings were higher as higher average sales prices and volumes more than offset higher input costs.

North America – $43 million compared with $53 million in the third quarter of 2021. Earnings were lower as higher average sales prices were offset by higher planned maintenance outage expenses and higher input costs.

For the complete press release, click here.

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 7,500 colleagues. Net sales for 2021 were $3.5 billion. For more information, please visit Sylvamo.com.

Contact:

Hans Bjorkman – Investor Contact – hans.bjorkman@sylvamo.com – (901) 419-3525

Source:Sylvamo Corporation

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