Sylvamo Releases First-Quarter 2022 Results - Lumber Blue Book
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Sylvamo Releases First-Quarter 2022 Results

General News

Sylvamo, the world’s paper company, is releasing first-quarter 2022 earnings.

Message from the Chairman and Chief Executive Officer

  • “We generated strong earnings and free cash flow,” said Jean-Michel Ribiéras. “We expect we will continue that trend and achieve pre-pandemic earnings levels, even excluding our Russian business. We have the right team to continue to service our customers and navigate input cost inflation and supply chain hurdles.”

First-Quarter Highlights

  • Net income of $26 million ($0.59 per diluted share) compared with $62 million ($1.41 per diluted share) in the fourth quarter of 2021; first quarter 2022 net income includes the impact of a $68 million ($57 million, net of tax) impairment charge for our Russian operations as we evaluate options to exit the business
  • Adjusted operating earnings1 (non-GAAP) of $87 million ($1.97 per diluted share) compared with $75 million ($1.71 per diluted share) in the fourth quarter of 2021
  • Adjusted EBITDA2 (non-GAAP) of $187 million (19.1% margin) compared with $170 million (17.5% margin) in the fourth quarter of 2021
  • Free cash flow3 (non-GAAP) of $73 million compared with $162 million in the fourth quarter of 2021
  • All reported results for the first quarter of 2022 include our Russia operations

First-Quarter Commercial and Operational Highlights

  • Price and mix improved by $53 million versus the prior quarter and volume decreased by $17 million due to slower seasonal demand in Eastern Europe and Latin America, while order backlogs remain strong
  • Operations and costs increased by $22 million and total maintenance outage expenses decreased by $26 million versus the prior quarter, reflecting fewer planned maintenance outages
  • Input and transportation costs increased by $24 million versus the prior quarter, reflecting higher costs for wood, energy, chemicals and distribution
  • Adjusted EBITDA margins for Europe, Latin America and North America were 16%, 27% and 17%, respectively
  • Repaid $33 million of debt, achieving a gross debt-to-adjusted EBITDA ratio of 2.1x

Second-Quarter Outlook

  • Price and mix are expected to improve by $60 million to $65 million ($50 million to $55 million, excluding Russia), compared to the first quarter, reflecting continued realization of prior price increases in all regions
  • Volume is expected to decrease $10 million to $15 million (remain stable, excluding Russia), with seasonally stronger Latin American volume offsetting more maintenance outages in North America
  • Operations and costs are expected to increase by $10 million to $15 million ($5 million to $10 million, excluding Russia), due to other costs
  • Input and transportation costs are projected to increase by $15 million to $20 million ($10 million to $15 million, excluding Russia), mainly due to higher prices of natural gas in North America and rising diesel costs affecting fiber delivery in Latin America
  • Total maintenance outage expenses are projected to increase by $25 million ($15 million, excluding Russia), as we conduct more planned maintenance outages
  • 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 costs are not included in adjusted EBITDA, and one-time costs are not included in adjusted EBITDA and adjusted operating earnings)

Management Summary

We continue to execute our three-prong strategy of commercial excellence, operational excellence and financial discipline. This approach generated a 19.1% adjusted EBITDA margin in the first quarter of 2022.

Global demand continues to strengthen in most regions as schools and offices reopen. As a result, our volumes remain strong, running at full capacity in all three regions. We also continue to realize the benefit of prior price increases, which allowed price and mix to outpace input cost increases.

Our facilities operated well in a challenging supply chain environment, navigating input cost inflation and supply chain hurdles. Most importantly, we continue taking care of each other and our customers.

This strategy generated $73 million in free cash flow, enabling us to pay down $33 million in debt and increase our cash position by $49 million.

We believe Sylvamo will continue creating value as we work to achieve our vision of being the employer, supplier and investment of choice. We are currently on a path to generate between $725 million and $775 million in adjusted EBITDA and $160 million and $180 million in free cash flow this year, excluding Russia for the full year.

Our path forward in Russia is driven by our primary value to always do the right things in the right ways for the right reasons. We have made the decision to exit Russia. We will do so in an orderly manner and are conducting a process to sell our Russian business. We are working to reach an agreement and plan to complete this process promptly, including obtaining approval from our board, as well as the required government approvals to execute a transaction.

We would not be in this position without our team members who continue overcoming challenges while remaining focused on serving customers and taking care of themselves and their teammates. We appreciate them for everything they do each day.

Segment Information

Operating profits in the first quarter of 2022:

Europe – $36 million compared with $16 million in the fourth quarter of 2021. Earnings were higher as higher average sales prices and lower planned maintenance outages more than offset seasonally weaker demand, higher operating costs and higher input costs.

Latin America – $40 million compared with $64 million in the fourth quarter of 2021. Earnings were lower as higher average sales prices were more than offset by lower seasonal demand, higher input costs and an unfavorable foreign exchange impact.

North America – $65 million compared with $43 million in the fourth quarter of 2021. Earnings were higher as higher average sales prices, higher volumes and lower maintenance outages more than offset higher input costs.

Effective Tax Rate

The reported effective tax rate for the first quarter of 2022 was 50%, compared to 38% for the fourth quarter of 2021. The higher rate for the first quarter was due to the mix of earnings in the U.S. and various income tax rates in non-US jurisdictions, the impairment of the Russian assets, and an unfavorable U.S. rule change restricting foreign tax credits in certain jurisdictions.

Excluding net special items, the operational effective tax rate for the first quarter of 2022 was 31%, compared with 29% for the fourth quarter of 2021.

Effects of Net Special Items

Net special items in the first quarter of 2022 amount to a net after-tax charge of $61 million ($1.38 per diluted share) compared with net after-tax charge of $13 million ($0.30 per diluted share) in the fourth quarter of 2021. For more information see the information under the Condensed Consolidated and Combined Statement of Operations and related notes included later in this release.

For the full first quarter results, 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.

Source: Sylvamo Corporation