Sylvamo on Nov. 9 released its third quarter 2023 earnings.
Financial Highlights - Third Quarter vs. Second Quarter
• Net income from continuing operations of $58 million ($1.37 per diluted share) vs. $49 million ($1.14 per diluted share)
• Adjusted operating earnings1 (non-GAAP) of $72 million ($1.70 per diluted share) vs. $49 million ($1.14 per diluted share)
• Adjusted EBITDA2 (non-GAAP) of $158 million (18% margin) vs. $124 million (14% margin)
• Cash provided by operating activities from continuing operations of $197 million vs. $77 million
• Free cash flow3 (non-GAAP) of $155 million vs. $33 million
Commercial and Operational Highlights - Third Quarter vs. Second Quarter
• Price and mix decreased by $55 million due primarily to lower paper prices in Europe and on exports from Latin America, as well as lower global pulp prices
• Volume increased by $6 million due to increases in Latin America and North America
• Operations and other costs improved by $1 million due to better operating and supply chain results offset by $13 million in higher unabsorbed fixed costs from increased economic downtime
• Planned maintenance outage expenses decreased by $55 million
• Input costs improved by $27 million driven by favorable fiber, chemical and transportation costs
Management Summary from Chairman and CEO Jean-Michel Ribiéras
Third quarter earnings were higher than our outlook. We took measures to maximize free cash flow, including selling and administrative cost reductions, shrinking working capital and adjusting the timing of capital spending. We now expect free cash flow for the year to be more than $270 million.
By the end of the third quarter, we returned $85 million to shareowners this year. In the third quarter, we also deposited $60 million in escrow to remove cash return limits in our credit agreement. As of Nov. 9, we have returned $110 million this year and plan to return a total of $125 million in 2023.
Our board of directors increased our regular dividend by 20%, declaring a fourth quarter $0.30 per share dividend and a special $0.30 per share dividend. We paid both, totaling $25 million, Oct. 17. The board also authorized an incremental $150 million share repurchase program. At the end of the third quarter, the May 2022 and September 2023 authorizations collectively had $167 million remaining. We will continue to look for opportunities to repurchase shares at attractive prices.
Sylvamo competes as a low-cost producer of commodity products sold in mature-demand, cyclical markets. In the spirit of continuous improvement, we initiated a cost reduction program called Project Horizon. The project will streamline our organization and cost structures and make us a leaner, stronger company.
Before inflation, we are targeting run rate savings of at least $110 million by the end of 2024. Approximately two-thirds of the target will come from operational improvements in our mills and supply chains. The balance will consist of selling and administrative cost reductions, including the elimination of approximately 150 positions, or nearly 7% of our global salaried workforce.
Since becoming an independent company just over two years ago, we note a few key milestones:
• Improved our financial position by reducing debt 35%
• Generated more than $1.3 billion in adjusted EBITDA (19% margin) and $568 million in free cash flow
• Returned $200 million in cash to our shareowners
We remain focused on uncoated freesheet and will create long-term value through our talented teams, iconic brands and low-cost mills in favorable locations. Sylvamo is a cash flow story. We will continue to leverage our strengths to drive high returns on invested capital, generate free cash flow and use that cash to increase shareowner value by maintaining a strong financial position, returning cash to shareowners and reinvesting in our business.
Operating profits in the third quarter of 2023:
Europe - $(14) million compared with $(11) million in the second quarter of 2023. Earnings were slightly lower as lower planned maintenance outages and lower input costs were more than offset by lower price and mix and higher unabsorbed costs due to economic downtime.
Latin America - $55 million compared with $48 million in the second quarter of 2023. Earnings were higher as lower operating and input costs and lower planned maintenance outages more than offset lower export price and mix.
North America - $75 million compared with $45 million in the second quarter of 2023. Earnings were higher as lower operating and input costs, higher volumes and lower planned maintenance outages more than offset lower price and mix and higher unabsorbed costs due to economic downtime.
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