Sylvamo Corp: Form 10-Q for the period ended Mar 31, 2026

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included in “Financial Information” of this Quarterly Report on Form 10-Q (this “Form 10-Q”) and the Company’s Form 10-K for the three years ended December 31, 2025, 2024 and 2023. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those stated and implied in any forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Form 10-Q and in our 2025 Form 10-K, particularly under the headings “Risk Factors” and “Forward-Looking Statements.”

EXECUTIVE SUMMARY

First quarter 2026 net loss was $3 million ($0.08 per diluted share) compared with net income of $27 million ($0.65 per diluted share) for the first quarter of 2025. Net sales were $755 million in the current quarter compared with $821 million in the prior year. Cash used for operations was $10 million compared to cash provided by operations of $23 million in the first quarter of last year. Adjusted EBITDA was $29 million and our adjusted EBITDA margin was 4% compared to $90 million and an adjusted EBITDA margin of 11% in the first quarter of 2025. Free cash flow was $(59) million compared to $(25) million in the first quarter of 2025.

2026 is a transition year as we work through some short-term capacity constraints resulting from the termination of the Riverdale supply agreement at the end of April and the extended outage at Eastover later this year as we execute our strategic investments. Comparing our performance in the first quarter of 2026 to the prior year, volume decreased, primarily due to lower North America volume as we build inventory in response to the end of the Riverdale mill supply agreement and the extended Eastover mill outage later in the year. Price and mix decreased primarily in Europe. Operations and costs and input costs were unfavorable. Planned maintenance outage costs were lower as the prior year outage in our Saillat mill did not repeat. We continued to return cash to shareowners through an $18 million dividend payment during the quarter.

Our high-return strategic investments at our Eastover mill are on track and making solid progress. These projects will generate incremental earnings and cash flow over the long term. On May 7, 2026, we completed the refinancing of our accounts receivable securitization facility and Term Loan F to extend our debt maturity profile in order to sustain flexibility and maintain a strong financial position. With a strong financial position we can navigate geopolitical and economic challenges and focus on improving our customer experience, continue reinvesting in low-risk, high-return projects as well as execute through the end of the Riverdale supply and the Eastover mill outage later this year.

BUSINESS SEGMENT RESULTS

Overview

Management provides business segment operating profit, a non-GAAP financial measure, to supplement our GAAP financial information, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Management believes that business segment operating profit provides investors and analysts useful insights into our operating performance. Business segment operating profit is reconciled to Income (loss) before income taxes, the most directly comparable GAAP measure. Business segment operating profit may be determined or calculated differently by other companies and therefore may not be comparable among companies.

The following table presents a comparison of Income (loss) before taxes to business segment operating profit:

In millions

(a) We define business segment operating profit (loss) as our income (loss) before income taxes calculated in accordance with GAAP, excluding net interest expense, the impact of foreign exchange on a note receivable from our Brazilian subsidiary and net special items. We believe that business segment operating profit (loss) is an important indicator of operating performance as it 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.

(b) Net special items represent income or expenses that are incurred periodically, rather than on a regular basis. Net special items in the periods presented primarily include charges related to the termination of the Georgetown mill offtake agreement, environmental reserves in Brazil and other charges.

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

The following tables present net sales and operating profit (loss), which is the Company’s measure of business segment profitability, for each of the Company’s segments. See Note 15 Financial Information by Business Segment for more information on the Company’s segments.

Europe

In millions

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

Our Europe business segment sales were consistent with the same period in 2025, primarily due to lower sales price and mix ($16 million) and lower volumes ($4 million) which were offset by favorable foreign exchange ($20 million).

Europe operating losses were $20 million higher than the same period in 2025, primarily driven by lower sales price and mix ($16 million), lower volumes ($3 million) and higher operating ($9 million) and input costs ($4 million), primarily for energy, which more than offset lower planned maintenance outages ($12 million).

Latin America

In millions

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

Our Latin America business segment sales decreased $12 million compared to the same period in 2025, primarily driven by lower sales price and mix ($8 million) and lower volumes ($13 million), partially offset by favorable foreign exchange ($9 million).

Operating profit for Latin America was $22 million lower than the same period in 2025, primarily due to lower sales price and mix ($8 million), higher operating costs ($11 million), lower volumes ($3 million) and higher planned maintenance outages ($2 million) which more than offset lower input costs ($2 million), primarily for purchased fiber.

North America

In millions

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

Our North America business segment sales decreased $48 million compared to the same period in 2025, primarily due to lower sales price and mix ($6 million) and lower volumes ($42 million).

Operating profit for North America was $17 million lower than the same period in 2025, primarily due to lower volumes ($12 million), lower sales price and mix ($6 million) and higher input costs ($14 million), primarily due to higher energy, chemicals and distribution costs, which more than offset lower operating costs ($12 million) and lower unabsorbed costs due to economic downtime ($3 million).

Non-GAAP Financial Measures

Management provides Adjusted EBITDA, a non-GAAP financial measure, to supplement our GAAP financial information, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Management uses this measure in managing the operating performance of our business and believes that Adjusted EBITDA provides investors and analysts meaningful insights into our operating performance and is a relevant metric for the third-party debt. Adjusted EBITDA is reconciled to Net income (loss), the most directly comparable GAAP measure. Adjusted EBITDA may be determined or calculated differently by other companies and therefore may not be comparable among companies.

In millions

(a) Net special items represent income or expenses that are incurred periodically, rather than on a regular basis. Net special items in the periods presented primarily include charges related to the termination of the Georgetown mill offtake agreement, environmental reserves in Brazil and other charges.

(b) We define Adjusted EBITDA (non-GAAP) as net income (loss) (GAAP), net of taxes plus the sum of income taxes, net interest expense, depreciation, amortization and cost of timber harvested, stock-based compensation, the impact of foreign exchange on a note receivable from our Brazilian subsidiary, and, when applicable for the periods reported, special items.

Free cash flow is a non-GAAP measure and the most directly comparable GAAP measure is cash provided by operating activities. 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. 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 following is a reconciliation of cash provided by operating activities to free cash flow:

In millions

The non-GAAP financial measures presented in this Form 10-Q as referenced above 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 utilize identical calculations, the Company’s presentation of non-GAAP measures in this Form 10-Q may not be comparable to similarly titled measures disclosed by other companies, including companies in the same industry as the Company.

LIQUIDITY AND CAPITAL RESOURCES

Overview

Our ability to fund the Company’s cash needs depends on our ongoing ability to generate cash from operations and obtain financing on acceptable terms. Based upon our history of generating strong operating cash flow, we believe we will be able to meet our short-term liquidity needs. We believe we will meet known or reasonably likely future cash requirements through the combination of cash flows from operating activities, available cash balances and available borrowings through the issuance of third-party debt, as needed.

A major factor in our liquidity and capital resource planning is our generation of operating cash flow, which is highly sensitive to changes in the pricing and demand for our products. While changes in key operating cash costs, such as raw materials, energy, mill outages and distribution expenses do have an effect on operating cash generation, we believe that our focus on commercial and operational excellence, as well as our ability to manage costs and working capital, will provide sufficient cash flow generation to meet our operational and capital spending needs.

The terms of the agreements governing our debt contain customary limitations as well as other provisions. These provisions may also restrict our business and, in the event we cannot meet the terms of those provisions, may adversely impact our financial condition, results of operations or cash flows.

Operating Activities

Cash used for operating activities totaled $10 million for the three months ended March 31, 2026, compared with cash provided by operating activities of $23 million for the three months ended March 31, 2025. The decrease in cash provided by operating activities in 2026 relates primarily to lower net income offset by timing of cash flows related to working capital.

Cash used for working capital components (accounts and notes receivable, inventories, accounts payable and accrued liabilities, and other) was $28 million for the three months ended March 31, 2026, compared with cash used for working capital components of $50 million for the three months ended March 31, 2025. The three months ended March 31, 2026 working capital components primarily reflect $54 million of cash provided by our accounts and notes receivables, offset by $56 million, $23 million and $3 million of cash used for our inventories, accounts payable and accrued liabilities, and other operating activities, respectively. The three months ended March 31, 2025 working capital components primarily reflect $30 million and $4 million of cash provided by our accounts and notes receivable and inventories, offset by $63 million and $21 million of cash used for our accounts payable and accrued liabilities, and other operating activities, respectively.

Investment Activities

The total cash used for investing activities for the three months ended March 31, 2026 increased from the three months ended March 31, 2025, due to increased capital spending in the current year.

The following table shows capital spending by business segment:

In millions

Capital spending primarily consists of purchases of machinery and equipment related to our global mill operations and reforestation and timber purchase costs in Latin America.

Financing Activities

Cash used for financing activities for the three months ended March 31, 2026 primarily reflects the payments of $15 million, $3 million, $3 million, and $25 million on our outstanding principal debt balances for the AR Securitization, Term Loan F-2, Term Loan A, and Revolving Credit Facility, respectively. These amounts are primarily offset by a draw on our AR Securitization and Revolving Credit Facility of $13 million and $90 million, respectively, as well as a receipt of $11 million from other financing arrangements. During the three months ended March 31, 2026 the Company also paid $18 million in dividends and repurchased no shares pursuant to our share repurchase program. Cash used for financing activities for the three months ended March 31, 2025 primarily reflects the payments of $5 million, $3 million, and $3 million on our outstanding principal debt balances for the AR Securitization, Term Loan F-2, and Term Loan A, respectively. These amounts are primarily offset by a draw on our AR Securitization of $22 million. During the three months ended March 31, 2025 the Company also paid $18 million in dividends and repurchased $20 million of our shares pursuant to our share repurchase program.

Contractual Obligations

Our 2025 Form 10-K included disclosures of our contractual obligations and commitments as of December 31, 2025. We continue to make the contractually required payments, and, therefore, the 2025 obligations and commitments described in our 2025 Form 10-K have been reduced by the required payments.

Capital Expenditures

For the three months ended March 31, 2026, we have invested approximately $49 million, or 6.5% of net sales, in total capital expenditures. Over that period, we spent approximately $28 million, or 3.7% of net sales, in maintenance, regulatory and reforestation capital expenditures, and approximately $21 million, or 2.8% of net sales, in high-return capital projects. Our annual maintenance, regulatory and reforestation capital expenditures are expected to be in the range of approximately $165 to $190 million per year (before inflation) for the next several years, which we believe will be sufficient to maintain our operations and productivity. In addition, we expect to spend approximately $95 million on high-return projects in 2026.

PILLAR TWO DIRECTIVE

The Organization for Economic Co-operation and Development (“OECD”) Pillar Two Model Rules established a minimum global effective tax rate of 15% on country-by-country profits of large multinational companies. European Union member states along with many other countries have adopted or expect to adopt the OECD Pillar Two Model effective January 1, 2024, or thereafter. The OECD and other countries continue to publish guidelines and legislation that include transition and safe harbor rules. We continue to monitor new legislative changes and assess the global impact of the Pillar Two Model Rules. Based on our initial assessment, Pillar Two should not have a material impact to the Company’s income tax provision.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. GAAP requires the Company to establish accounting policies and to make estimates that affect both the amounts and timing of the recording of assets, liabilities, revenues and expenses. Some of these estimates require subjective judgments about matters that are inherently uncertain.

Accounting policies whose application may have a significant effect on the reported results of operations and financial position of the Company, and that can require judgments by management that affect their application, include the accounting for impairment or disposal of long-lived assets and goodwill and income taxes.

The Company has included in the 2025 Form 10-K a discussion of these critical accounting policies, which are important to the portrayal of the Company’s financial condition and results of operations and require management’s judgments. The Company has not made any changes in these critical accounting policies during the first three months of 2026.

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains information that includes or is based upon forward-looking statements. Forward-looking statements forecast or state expectations concerning future events. These statements often can be identified by the fact that they do not relate strictly to historical or current facts. They typically use words such as “anticipate,” “assume,” “could,” “estimate,” “expect,” “project,” “intend,” “plan,” “believe,” “should,” “will” and other words and terms of similar meaning, or they relate to future periods. Some examples of forward-looking statements include those relating to our business and operating outlook, future obligations and anticipated expenditures.

Forward-looking statements are not guarantees of future performance. Any or all forward-looking statements may turn out to be incorrect, and actual results could differ materially from those expressed or implied in forward-looking statements. Forward-looking statements are based on current expectations and the current economic environment. They can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and other factors that are difficult to predict. Although it is not possible to identify all of these risks, uncertainties and other factors, the impact of the following factors, among others, on us or on our suppliers or customers, could cause our actual results to differ from those in the forward-looking statements: global or regional economic, civil, political conditions or trade developments, including protective trade measures and the Middle East conflict; adverse climate and weather conditions, including risks to our forestlands and mills from drought, fires or floods; reduced demand for our products due to the cyclical nature of the paper industry, the industry-wide secular decline in paper demand, or competition from other businesses; increased costs or reduced availability of the raw materials, energy, transportation (truck, rail and ocean) and labor needed to manufacture and deliver our products; disruptions at our manufacturing facilities; information technology risks including potential cybersecurity breaches affecting us or third parties with which we do business; extensive environmental, tax and other laws and regulations in Brazil, Europe, the United States and other jurisdictions to which we are subject, including our compliance costs and risk of liability and loss for violations; our reliance on a small number of customers; and the factors disclosed in Item 1A. Risk Factors of our 2025 Form 10-K, as such disclosures may be amended, supplemented or superseded from time to time by other reports we file with the U.S. Securities and Exchange Commission (the “SEC”), including subsequent annual reports on Form 10-K and quarterly reports on Form 10-Q.

We assume no obligation to update any forward-looking statements made in this quarterly report to reflect subsequent events or circumstances or actual outcomes.

Information relating to quantitative and qualitative disclosures about market risk is shown on page 41 of the Company’s 2025 Form 10-K, which information is incorporated herein by reference. There have been no material changes in the Company’s exposure to market risk since December 31, 2025.

Management carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2026. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of such date and designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is: recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting:

In the first quarter of 2026, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

The risk factors that affect our business and financial results are set forth under Part I, Item 1A, “Risk Factors,” in our 2025 Form 10-K. There have been no material changes to the risk factors described in the 2025 Form 10-K. The risk factors in Item 1A. Risk Factors in the 2025 Form 10-K and the risks described in this Form 10-Q or our other SEC filings could cause our actual results to differ materially from those stated in any forward-looking statements.