Sylvamo Generates Strong Operating Cash Flow, Returns $127 Million in Cash to Shareowners in 2023

Sylvamo (NYSE:SLVM), the world's paper company, is releasing fourth quarter 2023 earnings.

Financial Highlights – 2023 Full Year

• Net income from continuing operations of $253 million ($5.93 per diluted share)
• Adjusted operating earnings¹ of $278 million ($6.51 per diluted share)
• Adjusted EBITDA² of $607 million (16% margin)
• Cash provided by operating activities from continuing operations of $504 million
• Free cash flow³ of $294 million
• Paid regular and special dividends totaling $57 million
• Repurchased 1,574,133 shares of our common stock for approximately $70 million, resulting in 41.2 million shares outstanding as of Dec. 31
• Ended the year with net debt of $730 million ($950 million of gross debt and $220 million cash on hand)

Financial Highlights - Fourth Quarter vs. Third Quarter

• Net sales of $964 million vs. $897 million (7.5% increase)
• Net income from continuing operations of $49 million ($1.16 per diluted share) vs. $58 million ($1.37 per diluted share)
• Adjusted operating earnings¹ of $49 million ($1.16 per diluted share) vs. $72 million ($1.70 per diluted share)
• Adjusted EBITDA² of $117 million (12% margin) vs. $158 million (18% margin)
• Cash provided by operating activities from continuing operations of $167 million vs. $197 million
• Free cash flow³ of $104 million vs. $155 million

Commercial and Operational Highlights – Fourth Quarter vs. Third Quarter

• Price and mix decreased by $25 million due primarily to prior paper price decreases as well as unfavorable mix in Latin America and North America
• Volume increased by $20 million due to seasonally stronger sales volume in Latin America and positive trends in Europe and North America
• Operations and other costs increased by $12 million due to seasonally higher costs in Europe and North America, including $5 million for an unexpected reliability issue with a third-party energy provider at our Saillat, France, mill and unfavorable foreign exchange variances. These costs were partially offset by lower economic downtime costs versus the prior quarter.
• Planned maintenance outage expenses increased by $25 million due to planned outages in all regions
• Input costs improved by $1 million, driven primarily by favorable chemical costs, more than offsetting seasonally high energy costs

First Quarter Outlook

• Adjusted EBITDA of $105 million to $125 million
• Compared to the fourth quarter:
  • Price and mix are expected to decrease slightly by $5 million to $10 million, primarily reflecting a seasonal, geographic mix shift in Latin America
  • Volume is projected to decrease by $10 million to $15 million, with seasonally weaker industry demand in Latin America
  • Operations and other costs are expected to improve by $20 million to $25 million due primarily to lower economic downtime
  • Input and transportation costs are projected to increase by $5 million to $10 million due to increased transportation costs, mainly in North America and higher fiber costs in Latin America
  • Total planned maintenance outage expenses are expected to decrease by $3 million

Management Summary from Chairman and Chief Executive Officer Jean-Michel Ribiéras

In 2023, we earned $607 million in adjusted EBITDA, generated $294 million of free cash flow and returned $127 million in cash to shareowners. We are proud of the way our teams adapted when challenged by uncoated freesheet market conditions that were significantly less favorable than expected. We continued to deliver on our promises to customers and shareowners.

We remain focused on allocating capital to drive long-term shareowner value. Last year, we invested $210 million to strengthen our low-cost assets and acquired a 500,000-ton uncoated freesheet mill in Nymolla, Sweden, for $167 million. In 2023, this mill generated strong cash flow, benefiting from the $40 million pulp mill modernization project completed just before the acquisition. We are also on track to deliver $20 million annual run rate synergies by the end of 2024. The Nymolla mill is strengthening our performance while enabling us to serve customers across Europe and around the world more effectively.

By the end of 2023, we exhausted our initial $150 million share repurchase program authorization and have approximately $150 million remaining on our September 2023 authorization. We will continue to return substantial amounts of cash to shareowners and look for opportunities to repurchase shares at attractive prices. Our board of directors declared a first quarter dividend of $0.30 per share, which we paid Jan. 25th.

In the second half of last year, we reduced overhead expenses by $15 million from budgeted levels in response to industry conditions. We also announced a structural cost reduction program, Project Horizon, to streamline our overhead, manufacturing and supply chain costs. Before inflation, we are targeting run rate savings of at least $110 million by the end of 2024.

Our Brazil forestlands are a significant competitive advantage. These eucalyptus plantations provide a material cost advantage relative to most other global competitors. In 2023, we invested $34 million, and this year, we will invest $35 million in our forestlands to increase our wood self-sufficiency and reduce wood costs.

In addition, we are investing $20 million this year and $12 million in 2025 for a three-year, third-party wood supply agreement to ensure adequate wood supply from 2024 through 2026.

Our forestlands have significantly increased in value. In December, a third party appraisal valued these assets at 4.8 billion reais (approximately $1 billion), an increase of 3 billion reais (roughly $600 million) from a 2021 appraisal. Increasing demand for land and wood in Brazil has driven this increase in valuation. Our forestlands are a significant global competitive advantage and an enduring repository of shareowner value.

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 9). Fourth quarter 2023 net sales by business segment and operating profit by business segment compared with the third quarter of 2023 and the fourth quarter of 2022 are as follows:

Operating profits in the fourth quarter of 2023:

Europe - $(23) million compared with $(14) million in the third quarter of 2023. Earnings were lower as slightly higher volumes, lower input costs and lower economic downtime were more than offset by higher operating costs, lower price and mix and higher planned maintenance outages.

Latin America - $48 million compared with $55 million in the third quarter of 2023. Earnings were lower as higher volumes were more than offset by lower price and mix, higher operating and input costs and higher planned maintenance outages.

North America - $52 million compared with $75 million in the third quarter of 2023. Earnings were lower as higher volumes, lower economic downtime and slightly lower input costs were more than offset by higher planned maintenance outages, higher operating costs and lower price and mix.

Effective Tax Rate

The reported effective tax rate for continuing operations for the fourth quarter of 2023 was 27%, compared to 36% for the third quarter of 2023. The higher rate for the third quarter was due to a change in estimated Annual Effective Tax Rate (AETR) to reduce the expected benefit of foreign tax attributes and also a mix of earnings in our regions.

Excluding net special items, the effective tax rate for the fourth quarter of 2023 was 25%, compared with 33% for the third quarter of 2023.

The effective tax rate excluding net special items is a non-GAAP financial measure and is calculated by adjusting the income tax provision from continuing operations and rate to exclude the tax effect at the applicable statutory rate of net special items. Management believes that this presentation provides useful information to investors by providing a more meaningful comparison of the income tax rate between past and present periods.

Effects of Net Special Items

Net special items related to continuing operations in the fourth quarter of 2023 amounted to a net after-tax charge of $0 million ($0.00 per diluted share) compared with a net after-tax charge of $14 million ($0.33 per diluted share) in the third quarter of 2023.

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 763504. 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 2 p.m. EST / 1 p.m. 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 3732910.

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 2023 were $3.7 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 "First Quarter Outlook" and "Management Summary from Chairman and Chief Executive Officer Jean-Michel Ribiéras." 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.

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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