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

Sylvamo (NYSE: SLVM), 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.

Segment Information

Sylvamo uses business segment operating profits to measure the earnings performance of its businesses and is calculated as set forth in footnote (g) under the "Sales and Earnings by Business Segment" table (page 8). Full-year and fourth-quarter 2021 net sales by business segment and operating profit (loss) by business segment compared with full-year 2020, the third quarter of 2021 and the fourth quarter of 2020 are as follows:

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.

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 +1-855-982-8078 (U.S.) or +1-469-886-1931 (international). The conference ID number is 7459224. 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, approximately two hours after the call. To listen to the replay by phone, call +1-855-859-2056 and use conference ID number 7459224.

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.

Effective Tax Rate

The reported effective tax rate for the fourth quarter of 2021 was 38%, compared to 24% for the third quarter of 2021. The higher rate for the fourth quarter was due to a $9 million expense resulting from a valuation allowance on French deferred tax assets.

Excluding special items, the operational effective tax rate for the fourth quarter of 2021 was 29%, compared with 26% for the third quarter of 2021. The higher operational effective tax rate in the fourth quarter is primarily due to $2 million of withholding taxes on Russian dividends during the quarter.

Effects of Special Items

Net special items in the fourth quarter of 2021 amount to a net after-tax charge of $13 million ($0.30 per diluted share) compared with net after-tax charge of $8 million ($0.18 per pro forma share) in the third quarter of 2021. For more information see the information under the Consolidated and Combined Statement of Operations and related notes included later in this release.

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 our projected adjusted EBITDA and adjusted operating earnings per share for the first quarter, the information under the heading “First-Quarter Outlook” and expectations stated under the heading “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 Registration Statement on Form 10 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.

The Company calculates Adjusted Operating Earnings (non-GAAP) by excluding the effect of items considered by management to be unusual (net special items) as reflected in the Consolidated and Combined Statement of Operations and related notes included in this release from the earnings reported under GAAP. Management uses this measure to focus on on-going operations, and believes that it is useful to investors because it enables them to perform meaningful comparisons of past and present consolidated and combined operating results. The Company believes that using this information, along with net income, provides for a more complete analysis of the results of operations by quarter. Net income (loss) is the most directly comparable GAAP measure.

Since earnings per share are computed independently for each period, twelve-month per share amounts may not equal the sum of the respective quarters.

The Company calculates Adjusted EBITDA (non-GAAP) by excluding the sum of income taxes, net interest (income) expense, depreciation, amortization and cost of timber harvested, transition services agreements expense, stock-based compensation, as well as the after-tax effect of items considered by management to be unusual (net special items) as reflected in the Consolidated and Combined Statement of Operations and related notes included in this release from the earnings reported under GAAP. 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. The Company believes that using this information, along with net income, provides for a more complete analysis of the results of its operations. Net income (loss) is the most directly comparable GAAP measure.

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.

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.

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