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The call presented a balanced picture: near-term performance was negatively affected by operational reliability issues, a large sequential drop in adjusted EBITDA (from $125M to $29M), inventory builds and rising input/transportation costs, and tariff/geopolitical uncertainties that create Q2 headwinds (~$15M). Offsetting these near-term challenges are executed strategic actions — company-wide price increases, a completed debt refinancing that extends maturities, the launch of a multi-year lean transformation, and on-track high-return investments at Eastover that support management's long-term target of >$300M annual free cash flow and >15% ROIC. Management expects improvements in pricing, mix and margins in the second half, but 2026 remains a transition year with most free cash flow weighted to H2.
The company reiterated 2026 is a transition year and provided numeric guidance and expectations: Q1 adjusted EBITDA was $29 million (4% margin) and adjusted operating earnings were negative $0.53 per share (versus $125 million adjusted EBITDA in Q4); free cash flow is expected to be heavily weighted to the second half as the business weathers near‑term headwinds but targets greater than $300 million of annual free cash flow and >15% ROIC over the next 3–5 years. Management now estimates the full‑year North America footprint transition will be about $65 million negative (improved from ~$85 million) and said most of that impact will hit in the second half; they expect previously announced price increases to realize more in Q2 (North America ~5–8%; Brazil cut‑size 5% with ~2/3 realized in Q1; other LatAm 7% with ~1/3 realized and a second 7% in Q2; MEA 4% with a second increase in Q2; Europe 4% with ~50% realized and an additional 8% effective in May). Operational reliability issues cost nearly $9 million vs Q4 and operations & other costs were $29 million unfavorable (price & mix unfavorable $13M, mix alone $17M; volume down $36M); input/transportation costs were $18 million unfavorable (including a one‑time ~$10M Riverdale gas charge), and management expects a Q2 war‑related input/transportation headwind of roughly $15 million (~$5M per region). Newmala’s debarker adds about $1–2M of incremental cost per quarter until repaired in Q4 (Sept), planned outage costs rise ~$20M in Q2 versus Q1 with >50% of total outage cost now in Q4 for Eastover, and Eastover investments (paper machine adding 60k tons, new sheeter in Q3 with ramp in Q4) remain on schedule and are expected to contribute up to ~$50M of value with material benefits as the asset ramps into 2027; balance‑sheet flexibility was increased via refinancing (term loan extended to 2032, A/R facility to 2029).
Implemented uncoated freesheet price increases across all regions: North America 5%–8% (realization beginning in March, bulk in Q2), Brazil ~5% on cut size (about two-thirds realized in Q1), other LatAm ~7% (one-third realized in Q1, additional 7% announced for Q2), Middle East & Africa 4% in Q1 with a second increase for Q2, Europe announced 4% in Q1 (about half realized) and a further 8% effective May.
Refinanced 2027 term loan (Term Loan F → Term Loan F3 maturing 2032) and extended accounts receivable securitization facility to 2029, improving maturity profile and preserving financial flexibility.
Launched multi-year lean continuous-improvement program starting in Latin America (Moju Wasu) with rollouts planned in North America, corporate, Ticonderoga and later Europe — management expects systematic efficiency, reliability and margin gains over the next 3 years.
High-return projects progressing: paper-machine optimization adding 60k tons of uncoated freesheet, new sheeter installation (Q3 installation, Q4 ramp), woodyard modernization (hardwood line operating May 1), and a $50M annual benefit target remains intact with ramp into 2027.
Generated adjusted EBITDA of $29 million with an adjusted EBITDA margin of 4% in Q1, providing a baseline while the company executes transition plans.
Estimated full-year negative impact from North American footprint transition/tariffs improved from approximately $85 million to ~$65 million (a $20 million improvement) due to mix benefits from redirecting Brazil exports to the U.S.
Management reiterated long-term potential to generate greater than $300 million of annual free cash flow and greater than 15% return on invested capital as markets normalize and investments ramp (time horizon of ~3–5 years).
Good morning. Thank you for standing by. Welcome to Sylvamo Corporation’s first quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After today’s prepared remarks, we will host a question and answer session. If you would like to ask a question, please press 1 to raise your hand. To withdraw your question, press 1 again. As a reminder, this conference is being recorded.
I will now turn the call over to Hans Bjorkman, vice president, investor relations. Sir, the floor is yours. Thanks, Samantha.
Good morning, and thank you for joining our first quarter 2026 earnings call. Our speakers this morning are John Sims, Chief Executive Officer, and Donald Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. During this call, we will make forward-looking statements that are subject to risks and uncertainties.
Across our regions, we are looking to reduce costs and taking commercial actions to help offset these impacts. Let us move to slide 5. Our first quarter highlights include implementing the previously communicated uncoated freesheet price increases to our customers across all our regions. We had a difficult first quarter operationally. Reliability issues, particularly in Europe and Brazil, negatively impacted us by almost $9 million relative to the fourth quarter, and we expect some additional costs in the second quarter. The root cause of these issues have been identified and fixed or will be corrected, and the annual outages will be taken this quart...