SLVM - Sylvamo Releases Third-Quarter Results with Strong Earnings and Cash Flow

November, 10 2021 07:00 AM Sylvamo Corporation

Sylvamo Corporation (NYSE: SLVM), the world’s paper company, released third-quarter 2021 earnings.

Message from the Chairman and Chief Executive Officer

“We delivered strong earnings and significant cash in the quarter,” said Jean-Michel Ribiéras. “As we launch Sylvamo, we have good momentum for the fourth quarter and 2022. Our third-quarter adjusted EBITDA margin was 19.5%, reflecting strong performances by all three regions and lower maintenance outage costs. We project fourth-quarter adjusted EBITDA in the range of $140 to $150 million and adjusted operating earnings per share of $1.20 to $1.40. In the near term, we are focused on generating strong free cash flow, reducing debt and positioning Sylvamo for long-term value creation.”

Third-Quarter Highlights

Third-quarter net income of $92 million ($2.09 per pro forma share ¹ ) compared with $115 million ($2.61 per pro forma share) in the second quarter of 2021 and $51 million ($1.16 per pro forma share) in the third quarter of 2020
Third-quarter adjusted operating earnings ² (non-GAAP) of $100 million ($2.27 per pro forma share) compared with $68 million ($1.54 per pro forma share) in the second quarter of 2021 and $51 million ($1.16 per pro forma share) in the third quarter of 2020
Third-quarter adjusted EBITDA ³ (non-GAAP) of $177 million compared with $124 million in the second quarter of 2021 and $104 million in the third quarter of 2020

Third-Quarter Commercial and Operational Highlights

Price and mix improved by $30 million versus the prior quarter and volume improved by $12 million
Operations improved by $10 million and total planned maintenance outage expenses declined by $27 million versus the second quarter
Input costs increased by $26 million, reflecting higher costs for wood, energy, chemicals, packaging and distribution
Adjusted EBITDA margins for Europe, Latin America and North America were 19%, 30% and 15%, respectively

Fourth-Quarter Outlook

Price and mix are expected to improve by $30 to $35 million compared to the third quarter, reflecting continued realization of prior price increases
Volume is expected to improve by $10 to $15 million, reflecting continued strong demand in Europe and North America and seasonally stronger demand in Latin America
Operations are expected to increase by $15 million, reflecting seasonally higher costs in Europe and North America
Input costs and distribution are projected to increase by $35 to $40 million as prices for wood, energy, chemicals and other key inputs continue to increase
Total maintenance outage expenses are projected to increase by $24 million, primarily the impact of a 10-year cold mill outage at our Saillat mill and an extended cold mill outage at our Eastover mill
We also project $8 million in costs related to transition service agreements in the quarter and $4 million of one-time costs
Our gross debt-to-adjusted EBITDA ratio declined to 2.8x at the end of the third quarter, and we repaid $30 million of outstanding debt on Oct. 29

1

At the date of distribution of Sylvamo common shares by International Paper to its shareholders on Oct. 1, 2021, Sylvamo had 44,104,986 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.



2

Adjusted Operating Earnings (non-GAAP) are net earnings (GAAP) excluding net special items. 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 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, 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.

Pro Forma Net and Adjusted Operating Earnings per Share









Third Quarter 2021

Second Quarter 2021

Third Quarter 2020
Net Income (Loss)
$
2.09


$
2.61


$
1.16

Add Back – Net Special Items Expense (Income)
0.18


(1.07
)

—

Adjusted Operating Earnings
$
2.27


$
1.54


$
1.16

Select Financial Measures
(In millions)
Third Quarter 2021

Second Quarter 2021

Third Quarter 2020
Net Sales
$
908


$
844


$
738

Net Income (Loss)
92


115


51

Business Segment Operating Profit
137


85


62

Adjusted Operating Earnings
100


68


51

Adjusted EBITDA
177


124


104

Cash Provided By (Used For) Operating Activities
157


140


73

Free Cash Flow ⁽¹⁾
135


125


56

(1)

Free cash flow is a non-GAAP financial measure. A reconciliation of free cash flow to the most comparable GAAP measure, cash provided by (used for) operating activities, and disclosure regarding why we believe that free cash flow provides useful information to investors, is included later in this release.

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) below under the "Sales and Earnings by Business Segment" table (page 9). Third-quarter 2021 net sales by business segment and operating profit (loss) by business segment compared with the second quarter of 2021 and the third quarter of 2020 are as follows:

Business Segment Results
(In millions)
Third Quarter 2021

Second Quarter 2021

Third Quarter 2020
Net Sales by Business Segment





Europe
$
262


$
243


$
220

Latin America
200


189


150

North America
447


426


375

Corporate and Inter-segment Sales
(1
)

(14
)

(7
)
Net Sales
$
908


$
844


$
738

Operating Profit (Loss) by Business Segment





Europe
$
40


$
19


$
16

Latin America
44


44


17

North America
53


22


29

Total Business Segment Operating Profit
$
137


$
85


$
62

Operating profits (losses) in the third quarter of 2021:

Europe - $40 million compared with $19 million in the second quarter of 2021. Earnings were higher as higher average sales prices, higher volumes and lower planned maintenance outage expenses were partially offset by higher input costs.

Latin America - $44 million compared with $44 million in the second quarter of 2021. Earnings were stable as higher average sales prices and volumes were offset by higher input costs and higher planned maintenance outage expenses.

North America - $53 million compared with $22 million in the second quarter of 2021. Earnings were higher as higher average sales prices and lower planned maintenance outage expenses were partially offset by higher input costs.

Earnings Webcast

The company will host an audio webcast at 10 a.m. EST / 9 a.m. CST today. All those interested are invited to listen at investors.sylvamo.com.

Those who wish to participate should call +1-855-982-8078 (U.S.) or +1-469-886-1931 (international). The conference ID number is 9631345. Participants should call in no later than 9:45 a.m. EST / 8:45 a.m. CST.

Replays will be available at investors.sylvamo.com for one year and by phone for 90 days. To listen to the replay by phone, call +1-855-859-2056 and use conference ID number 9631345.

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 7,000 colleagues. Net sales for the last 12 months ending Sept. 30, 2021, were $3.3 billion. For more information, please visit Sylvamo.com.

Effective Tax Rate

The reported effective tax rate for the third quarter of 2021 was 24%, compared to 26% for the second quarter of 2021. The lower rate for the third quarter was due to an $8 million favorable Brazil court ruling that certain interest income is nontaxable.

Excluding special items, the operational effective tax rate for the third quarter of 2021 was 26%, compared with 20% for the second quarter of 2021. The lower operational effective tax rate in the second quarter is primarily due to a discrete period benefit of $3 million related to the adjustment of the tax basis in certain of the Company's fixed assets and a favorable remeasurement of a deferred tax asset due to a tax rate change of $4 million.

Effects of Special Items

Net special items in the third quarter of 2021 amount to a net after-tax charge of $8 million ($0.18 per pro forma share) compared with net after-tax income of $47 million ($1.07 per pro forma share) in the second quarter of 2021 and a net zero impact in the third quarter of 2020. For more information see the information under the Condensed 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 for the fourth quarter and the information under the heading “Fourth-Quarter Outlook”. 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.

SYLVAMO CORPORATION Condensed Combined Statement of Operations Preliminary and Unaudited (In millions)








Three Months Ended September 30,

Three Months Ended June 30,

Nine Months Ended September 30,


2021

2020

2021

2021

2020

Net Sales
$
908


$
738


$
844


$
2,530


$
2,213


Costs and Expenses











Cost of products sold
587

(a)
500

(f)
525

(d)
1,637

(a)
1,562

(f)
Selling and administrative expenses
47


50


58


146


150


Depreciation, amortization and cost of timber harvested
37


38


35


108


117


Distribution expenses
98


79


93


276


235


Taxes other than payroll and income taxes
9


10


6


22


22


Interest (income) expense, net
10

(b)
(2
)
(g)
(29
)
(e)
(19
)
(b)
(3
)
(g)
Income (Loss) Before Income Taxes
120


63


156


360


130


Income tax provision (benefit)
28

(c)
12


41


91

(c)
25


Net Income (Loss)
$
92


$
51


$
115


$
269


$
105

The accompanying notes are an integral part of this condensed combined statement of operations.

Three Months and Nine Months Ended September 30, 2021

(a)

Includes pre-tax loss of $7 million ($5 million after taxes) for the three months ended September 30, 2021, and net pre-tax income of $35 million ($23 million after taxes) for the nine months ended September 30, 2021, for the accrual of a foreign value-added tax refund in Brazil.

(b)

Includes pre-tax loss of $8 million ($5 million after taxes) for the three months ended September 30, 2021, and net pre-tax income of $20 million ($14 million after taxes) for the nine months ended September 30, 2021, for interest income associated with the accrual of a foreign value-added tax refund in Brazil.

(c)

Includes an $8 million tax benefit for three months and nine months ended September 30, 2021 associated with a favorable Brazil court ruling that certain interest income is nontaxable.

Three Months Ended June 30, 2021

(d)

Includes pre-tax income of $42 million ($28 million after taxes) for the three months ended June 30, 2021 for the accrual of a foreign value-added tax refund in Brazil.

(e)

Includes net pre-tax income of $28 million ($19 million after taxes) for the three months ended June 30, 2021 for interest income associated with the accrual of a foreign value-added tax refund in Brazil.

Three Months and Nine Months Ended September 30, 2020

(f)

Includes net pre-tax loss of $1 million ($1 million after taxes) for the three months ended September 30, 2020, and net pre-tax loss of $6 million ($5 million after taxes) for the nine months ended September 30, 2020, for the accrual of a foreign value-added tax expense in Brazil and an environmental reserve adjustment in Russia.

(g)

Includes net pre-tax income of $1 million ($1 million after taxes) for the three months ended September 30, 2020, and net pre-tax income of $2 million ($1 million after taxes) for the nine months ended September 30, 2020, for interest income associated with the accrual of a foreign value-added tax refund in Brazil.

SYLVAMO CORPORATION Pro Forma Earnings per Common Share Preliminary and Unaudited (In millions, except per share amounts)







Three Months Ended September 30,

Three Months Ended June 30, 2021

Nine Months Ended September 30,

2021

2020


2021

2020
Net Income (Loss)
$
92

$
51

$
115

$
269

$
105
Pro Forma Earnings Per Common Share









Net earnings (loss)
$
2.09

$
1.16

$
2.61

$
6.10

$
2.38
Pro Forma Shares of Common Stock Outstanding
44

44

44

44

44

At the date of distribution of Sylvamo common shares by International Paper to its shareholders on Oct. 1, 2021, Sylvamo had 44,104,986 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.

SYLVAMO CORPORATION Reconciliation of Net Income (Loss) to Adjusted Operating Earnings Preliminary and Unaudited (In millions, except per share amounts)










Three Months Ended September 30,

Three Months Ended June 30, 2021

Nine Months Ended September 30,

2021

2020


2021

2020
Net Income (Loss)
$
92


$
51


$
115


$
269


$
105

Add back: Net Special items expense (income)
8


—


(47
)

(45
)

4

Adjusted Operating Earnings
$
100


$
51


$
68


$
224


$
109


Three Months Ended September 30,

Three Months Ended June 30, 2021

Nine Months Ended September 30,

2021

2020


2021

2020
Pro Forma Earnings per Common Share as Reported
$
2.09


$
1.16


$
2.61


$
6.10


$
2.38

Add back: Net Special items expense (income)
0.18


—


(1.07
)

(1.02
)

0.09

Pro Forma Adjusted Operating Earnings per Share
$
2.27


$
1.16


$
1.54


$
5.08


$
2.47

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 Condensed 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 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, nine-month per share amounts may not equal the sum of the respective quarters.

Reconciliation of Net Income (Loss) to Adjusted EBITDA and Adjusted EBITDA Margin Preliminary and Unaudited (In millions)







Three Months Ended September 30,

Three Months Ended June 30, 2021

Nine Months Ended September 30,

2021

2020


2021

2020
Net Income (Loss)
$
92


$
51


$
115


$
269


$
105

Adjustments:









Income tax provision (benefit)
28


12


41


91


25

Interest (income) expense, net
10


(2
)

(29
)

(19
)

(3
)
Depreciation, amortization and cost of timber harvested
37


38


35


108


117

Stock-based compensation
3


4


4


10


11

Net Special items expense (income)
7


1


(42
)

(35
)

6

Adjusted EBITDA
$
177


$
104


$
124


$
424


$
261

Net Sales
908


738


844


2,530


2,213

Adjusted EBITDA Margin
19.5
%

14.1
%

14.7
%

16.8
%

11.8
%

Adjusted EBITDA and Adjusted EBITDA Margin by Business Segment

Three Months Ended September 30,

Three Months Ended June 30, 2021

2021

2020

Adjusted EBITDA
$
177


$
104


$
124

Europe
49


27


27

Latin America
59


31


59

North America
69


46


38

Total Business Segment Adjusted EBITDA
$
177


$
104


$
124

Net Sales (excluding Corporate and Inter-segment Sales)
$
909


$
745


$
858

Europe
262


220


243

Latin America
200


150


189

North America
447


375


426

Total Business Segment Net Sales
$
909


$
745


$
858

Adjusted EBITDA Margin





Europe
19
%

12
%

11
%
Latin America
30
%

21
%

31
%
North America
15
%

12
%

9
%

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 as well as the after-tax effect of items considered by management to be unusual (net special items) as reflected in the Condensed 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.

SYLVAMO CORPORATION Sales and Earnings by Business Segment Preliminary and Unaudited (In millions)






Net Sales by Business Segment











Three Months Ended September 30,

Three Months Ended June 30, 2021

Nine Months Ended September 30,

2021

2020


2021

2020
Europe
$
262


$
220


$
243


$
743


$
682

Latin America
200


150


189


557


434

North America
447


375


426


1,255


1,114

Corporate and Inter-segment Sales
(1
)

(7
)

(14
)

(25
)

(17
)
Net Sales
$
908


$
738


$
844


$
2,530


$
2,213

Operating Profit (Loss) by Business Segment













Three Months Ended September 30,

Three Months Ended June 30, 2021

Nine Months Ended September 30,


2021

2020


2021

2020

Europe
$
40


$
16


$
19


$
82


$
62


Latin America
44


17


44


131


46


North America
53


29


22


93


25


Total Business Segment Operating Profit
$
137


$
62


$
85


$
306


$
133













Income (Loss) Before Income Taxes
$
120


$
63


$
156


$
360


$
130


Interest (income) expense, net
10

(a)
(2
)
(e)
(29
)
(c)
(19
)
(a)
(3
)
(e)
Other special items, net
7

(b)
1

(f)
(42
)
(d)
(35
)
(b)
6

(f)
Business Segment Operating Profit (g)
$
137


$
62


$
85


$
306


$
133

T hree Months and Nine Months Ended September 30, 2021

(a)

Includes net pre-tax loss of $8 million ($5 million after taxes) for the three months ended September 30, 2021, and net pre-tax income of $20 million ($14 million after taxes) for the nine months ended September 30, 2021, for interest income associated with the accrual of a foreign value-added tax refund in Brazil.

(b)

Includes net pre-tax loss of $7 million ($5 million after taxes) for the three months ended September 30, 2021, and net pre-tax income of $35 million ($23 million after taxes) for the nine months ended September 30, 2021, for the accrual of a foreign value-added tax refund in Brazil.

Three Months Ended 30, 2021

(c)

(d)

Includes net pre-tax income of $42 million ($28 million after taxes) for the three months ended June 30, 2021 for the accrual of a foreign value-added tax refund in Brazil.

Three Months and Nine Months ended September 30, 2020

(e)

(f)

(g)

As set forth in the chart above, business segment operating profit is defined as income (loss) before income taxes, but excluding net interest (income) expense and other special items, net. Business segment operating profit is a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the performance of our business segments and is presented in our financial statement footnotes in accordance with ASC 280.

SYLVAMO CORPORATION Condensed Combined Balance Sheet Preliminary and Unaudited (In millions)





September 30, 2021

December 31, 2020
Assets



Current Assets



Cash and Temporary Investments
$
132


$
95

Accounts and Notes Receivable, Net
422


400

Related Party Receivable
25


221

Inventories
344


342

Other current assets
96


61

Total Current Assets
1,019


1,119

Plants, Properties and Equipment, Net
911


974

Forestlands
285


293

Goodwill
136


143

Right of Use Assets
43


46

Deferred Charges and Other Assets
343


336

Total Assets
$
2,737


$
2,911

Liabilities and Parent Company Equity



Current Liabilities



Accounts Payable
$
315


$
259

Notes Payable and Current Maturities of Long-Term Debt
126


4

Accrued Payroll and Benefits
73


68

Related Party Payable
110


25

Other Current Liabilities
160


134

Total Current Liabilities
784


490

Long-Term Debt
1,393


22

Deferred Income Taxes
163


170

Other Liabilities
132


117

Parent Company Equity



Parent Company Investment
1,892


3,592

Accumulated Other Comprehensive Loss
(1,627
)

(1,480
)
Total Parent Company Equity
265


2,112

Total Liabilities and Parent Company Equity
$
2,737


$
2,911

SYLVAMO CORPORATION Condensed Combined Statement of Cash Flows Preliminary and Unaudited (In millions)



Nine Months Ended September 30,

2021

2020
Operating Activities



Net income (loss)
$
269


$
105

Depreciation, amortization and cost of timber harvested
108


117

Deferred income tax provision (benefit), net
(8
)

(44
)
Stock-based compensation
10


11

Changes in current assets and liabilities



Accounts and notes receivable
(28
)

98

Related party receivable
(13
)

(13
)
Inventories
(9
)

41

Related party payable
3


12

Accounts payable and accrued liabilities
99


(55
)
Other
(52
)

(47
)
Cash Provided By (Used For) Operating Activities
379


225

Investment Activities



Invested in capital projects
(54
)

(59
)
Cash pool arrangements with Parent
202


7

Other
(8
)

1

Cash Provided By (Used For) Investment Activities
140


(51
)
Financing Activities



Net transfers (to) from Parent
(359
)

(201
)
Special payment to Parent
(1,520
)

—

Issuance of debt
1,499


—

Reduction of debt
(6
)

(15
)
Cash Provided By (Used for) Financing Activities
(386
)

(216
)
Effect of Exchange Rate Changes on Cash
(96
)

48

Change in Cash and Temporary Investments
37


6

Cash and Temporary Investments



Beginning of the period
95


135

End of the period
$
132


$
141

SYLVAMO CORPORATION Reconciliation of Cash Provided by Operations to Free Cash Flow Preliminary and Unaudited (In millions)







Three Months Ended September 30,

Three Months Ended June 30, 2021

Nine Months Ended September 30,

2021

2020


2021

2020
Cash Provided By (Used For) Operating Activities
$
157


$
73


$
140


$
379


$
225

Adjustments:









Cash invested in capital projects
(22
)

(17
)

(15
)

(54
)

(59
)
Free Cash Flow
$
135


$
56


$
125


$
325


$
166

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20211110005567/en/

Investor Contact: Hans Bjorkman, 901-419-3525, hans.bjorkman@sylvamo.com
Media Contact: Adam Ghassemi, 901-419-4436, adam.ghassemi@sylvamo.com

Company Name:	Sylvamo Corporation
Stock Symbol:	SLVM
Market:	NYSE
Website:	sylvamo.com

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