Q4 2023 Sylvamo Corporation Earnings Call
Okay.
Operator: Good morning, and thank you for standing by. Welcome to Sylvamo's fourth quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise.
Good morning, and thank you for standing by welcome to soap almost fourth quarter 2023 earnings call. All lines have been placed on mute to prevent any background noise. After the Speakers' remarks, you will have an opportunity to ask questions to ask a question. Please press. One then zero on your telephone keypad to withdraw.
Operator: After the speaker's remarks, you will have an opportunity to ask questions. To ask a question, please press one and zero on your telephone keypad. To withdraw a question, please press one and zero again.
Your question. Please press one zero again as a reminder, your conference is being recorded I'd now like to turn the call over to Hans Bjorkman, Vice President Investor Relations, Sir the floor is yours.
Operator: As a reminder, your conference is being recorded. I'd now like to turn the call over to Hans Bjorkman, Vice President, Investor Relations. Sir, the floor is yours.
Thanks, Greg Good morning, and thank you for joining our fourth quarter and full year 2023 call today.
Hans Bjorkman: Thanks, Greg. Good morning, and thank you for joining our fourth quarter and full year 2023 call today. Our speakers this morning are Jean-Michel Rivieres, Chairman and Chief Executive Officer, and John Simms, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers.
Our speakers. This morning are John Michel Riviera, Chairman, and Chief Executive Officer, and John <unk>, Senior Vice President and Chief Financial Officer.
Slides, two and three contain important information, including certain legal disclaimers for.
Hans Bjorkman: For example, during this call, we will make forward-looking statements that are subject to risks and uncertainty. We will also present certain non-US GAAP financial information. Reconciliations of those figures to U.S. GAAP financial measures are available in the appendix. Our website also contains copies of the earnings release as well as today's presentation. With that, I'll turn the call over to Jean-Michel. Thanks, Dan.
For example, during this call we will make forward looking statements that are subject to risks and uncertainties.
We will also present certain non U S GAAP financial information.
Reconciliations of those figures to U S. GAAP financial measures are available in the appendix.
Our website also contains copies of the earnings release as well as todays presentation.
With that I'll turn the call over to Joe Michele Thanks, Dan.
Jean-Michel Rivieres: Good morning, and thank you for joining our call. Let's turn to slide four, please. In 2023, we created value for shareholders by managing what we could control as we executed our three-pronged strategy of Commercial Excellence, Operational Excellence, and Financial Discipline to strengthen our competitive advantages in our core uncoated fishing market. First, we allocated cash to improve our financial position by repaying 76 million in debt, achieving a net debt adjusted by a bit of 1.2 times.
Good morning, and thank you for joining our call.
Turn to slide four please.
2020 suite, we created value for shareholders.
Managing what we could control as we execute our three pronged strategy.
Excellent.
Operationally and.
And financial discipline.
To strengthen our competitive advantages.
Cool uncoated freesheet market.
First we allocated cash to improve our financial position.
76 million in debt.
Giving a net debt to adjusted EBITDA of one two times.
Jean-Michel Rivieres: Second, to continue to deliver on our investment thesis. We earned $607 million, adjusted a bit there, generated $294 million in free cash flow, and returned $127 million in cash to shareholders. Third, we will invest to strengthen our low-cost assets. We have invested $210 million and continued to accelerate investment in high-return capital projects. We also acquired the 500,000-tonne new model made in Sweden for 167 million. This is a great asset, the talented team. The mill is performing well, and we are benefiting from the 40 million bulk mill modernization project that was completed just before. In a tough market, the mill generated about $50 million in cash before any allocated overhead.
Second.
We continued to deliver on our investment.
$607 million adjusted EBITDA generated 294 million and free cash flow and we've done hundred 27 million in cash to shareholders.
Third we are investing to strengthen our low cost assets.
<unk> invested 210 million continued to accelerating investment in high return capital projects.
We also acquired the <unk> Nomura made in Sweden 167 million.
This is a great asset.
Talented team the media is performing well and we are benefiting from the 40 million adult Mismo demonstration project.
That was completed just before the acquisition.
The test market.
Amid generated about $50 million in cash before any advocating Oh go ahead.
Okay.
Jean-Michel Rivieres: Slide 5, highlights of 2023 full year key financial metrics. I just did a bid that was $607 million, which was a 16% margin. Our $294 million of free cash flow was more than $7 per share.
Slide five highlights of 2023 key financial metrics.
Adjusted EBITDA was $607 million, which was a 16% margin.
Our $294 million of free cash flow was more than $7 per share.
Jean-Michel Rivieres: In 2023, our free cash flow was heavily weighted to the second half of the year, and we generated almost 90% of free cash during the second half. You may recall that in 20... generated about 75% of our pre-cash flow in this decade. Our adjusted operating earnings were $6.51 per share, and we regard our 23 financial results as solid considering uncutted industry conditions that were more unfavorable than expected.
In 2023, our free cash flow.
Everybody waited to the second half of the year, we generated almost 90% of free cash flow in the second half.
You may recall that in 2002, we generated about 75% of our free cash flow in the second half of the year.
Adjusted operating earnings were $6 51 per share.
We got about 20, <unk> financial results are solid considering and Gucci depreciate industry conditions were more favorable than expected.
Jean-Michel Rivieres: As we enter 2024, we are confident in our ability to continue to create value for our customers and shareholders. Slide 6 shows our fourth quarter key financial metrics, including an adjusted bid that was $117 million with a margin of 12%, generated $104 million in free cash flow as we continue to optimize our working capital. Our adjusted operating earnings were $1.16 per share.
As we enter 2024, where coffee that ability to continue to create value for customers and share owners.
Yeah.
Slide six shows our fourth quarter key financial metrics.
Adjusted EBITDA was 117 million with a margin of 12%.
We generated Andrew then well know that in free cash flow as we continued to optimize our working capital.
Adjusted operating earnings were $1 16 per share.
Jean-Michel Rivieres: These strong performances during challenging industry conditions demonstrate our agility and ability to adapt. I'm proud of how our teams collaborated to meet our customer needs and maximize gas. Now, John will review our four-squadron performance in more detail. John?
This strong performance during challenging industry conditions demonstrate our agility and ability to adapt.
I am proud of our teams collaborated to meet our customer needs maximize cash now.
Now John will review, our fourth quarter performance in more detail John.
John Simms: Thank you, Jean-Michel. Good morning, everyone, and thanks for joining us on our call. Slide seven shows our fourth quarter's $117 million of adjusted EBITDA, higher than our outlook of 90 to 110 million. Let's discuss the changes versus the third quarter. The price of mixed decreased by $25 million, largely due to earlier paper price decreases in all regions as well as an unfavorable mix in Latin America and North America. However, paper prices were stable in the fourth quarter in all regions.
Thank you Michele good morning, everyone and thanks for joining our call.
Slide seven shows our fourth quarter earnings.
Sure.
Our $117 million of adjusted EBITDA.
It's higher than our outlook of $90 million to $110 million.
Let's discuss the changes versus the third quarter.
Price and mix decreased by $25 million.
Largely due to earlier paper price decreases in all regions as well as unfavorable mix in Latin America, and North America.
Paper prices were stable in the fourth quarter in all regions.
Volume improved by $20 million due to seasonally stronger volume in Latin America.
And positive trend.
Both Europe and North America.
Yeah.
John Simms: Volume improved by 20 million due to seasonally stronger volume in Latin America and positive trends in both Europe and North America. Hawthorne, by 12, primarily due to higher seasonal operating costs in Europe and North America, as well as unexpected reliability issues with a third-party energy provider at our Cyotte Mill, had a 5 million impact. This issue has been resolved, and we're working to recover the full amount.
Operations and other costs increased by $12 million.
Primarily due to higher seasonal operating cost in Europe, and North America.
As well as unexpected reliability issue with a third party energy provider <unk>.
Mill.
10, a $5 million impact.
Yeah.
This issue has been resolved and we're working to recover the full amount.
These negative impacts were partially offset by lower economic downtime cost versus the third quarter.
Planned maintenance outage costs increased by $25 million with planned outages and all three regions.
John Simms: These negative impacts were partially offset by lower economic downtime costs versus the third quarter; planned maintenance outage costs increased by $25 million with planned outages in all three regions. However, input and transportation costs improved by $1 million, driven primarily by favorable chemical costs, more than offsetting seasonally high energy costs. Let's move the slide in. Current entity conditions are showing signs of improvement, and Europe and North America see improving order books, as well as lower import levels. In Latin America, we expect seasonally weaker demand in the first quarter.
And in transportation costs improved by $1 million.
Driven primarily by favorable chemical costs.
More than offsetting seasonally high energy costs.
Let's move to slide eight.
Okay.
Cowen entity conditions are showing signs of improvement.
In Europe, and North America, we continue to see improving order books as well as lower import levels.
In Latin America, we expect seasonally weaker demand in the first quarter.
Keep in mind in Latin America, historically demanded sequentially stronger in each calendar quarter.
Yeah.
We also expect improving demand Julian exports to other Latin America and offshore markets.
John Simms: Keep in mind, in Latin America, historically... We also expect improving demand for Brazilian exports to other Latin American and offshore markets. Let's go to slide nine. We expect to deliver first quarter adjusted EBITDA of $105 to $125 million. We project price and mix to decrease slightly, about 5 to 10 million. In the fourth quarter, we communicated pulp and paper price increases to our European and Latin American customers effective in January. We do, however, expect some price mixed erosion in North America. And as usual in the first quarter, we expected an unfavorable seasonal mix impact in Latin America. We expect volume to decrease by 10 to 15 million, reflecting seemingly weaker industry demand in Latin America.
Let's go to slide nine.
We expect to deliver first quarter, adjusted EBITDA of $100 million to $125 million.
We project price and mix decreased slightly about $5 million to $10 million.
In the fourth quarter, we communicated pulp and paper price increases to our European and Latin American customers affected in January.
We do however, expect some price and mix in North America.
And as usual in the first quarter, we expected unfavorable seasonal mix impact in Latin America.
Yeah.
We expect volume to decrease by $10 million to $15 million.
Reflecting seasonally weaker industry demand quarter and Latin America.
Operations and other costs are projected to improve by 2000 $25 million.
Primarily reflecting lower economic downtime.
We expect input and transportation cost increased by $5 million to $10 million.
Due to increased transportation costs, mostly in North America.
Higher fiber costs in Latin America.
Planned maintenance outages are projected decreased by $3 million.
John Simms: Operations and other costs are projected to improve by 2025 million, primarily reflecting lower economic downtime. We expect input and transportation costs to increase by $5 to $10 million, do the inquiry, in North America, and higher fiber costs in Latin America. Planned maintenance outages are projected to decrease by 3 million. Moving forward, we will continue to provide quarterly earnings guidance and selected annual financial metrics as shown on slide 17 in the appendix. On the advice of our high-conviction long-term shareholders, we will no longer provide four-year guidance for earnings or free cash. They have encouraged us to discontinue annual guidance and to continue our focus on growing long-term shareholder value. So let's go to slide 10.
Moving forward, we will continue to provide quarterly earnings guidance selected annual financial metrics as soon.
Slide 17 in the appendix.
On the advice of our high conviction long term shareowners will no longer provide full year guidance for earnings or free cash flow.
They have encouraged us to discontinue annual guidance and to continue our focus.
On growing long term shareholder value shareholder value.
Now, let's go to slide 10.
Okay.
We continue to reinvest in our low cost assets and will fund high return projects to increase our earnings and cash flow.
Our 2024 capital spending outlook includes $125 million to $130 million in maintenance and regulatory spending as.
As well as $30 million to $35 million of high return projects.
Our resilient lands are significantly.
Competitive advantage.
Eucalyptus plantation, but.
A material cost advantage relative to most other global competitors.
At 2023, we invested $34 million.
John Simms: We continue to reinvest to strengthen our low-cost assets, and we'll fund high-return projects to increase our earnings and cash flow. Our 2024 capital spending outlook includes $125 to $130 million in maintenance and regulatory spending, as well as $30 to $35 million for high-return projects. Our resilient forest lands are a significant competitive advantage. These eucalyptus plantations provide a material cost advantage relative to most other global competitors.
And this year, we will invest $35 million of forest land to increase our self efficiency and reduce our wood cost.
We're also investing $20 million this year.
<unk> million dollars.
<unk>.
With three year third party wood supply agreement to ensure adequate wood supply in 2024 through 2026.
Let's look at slide 11 for additional detail.
Brazilian forest land.
We source a majority of our work in Brazil.
And manage wood and supplement that with open market purchases.
Most of our wood needs comes from alright limit on strategic long term partnerships.
Our owned and managed.
Passing to produce.
Slide.
John Simms: We invested $34 million, and this year we'll invest $35 million in our forest lands to increase our self-sufficiency and reduce our wood cost. We're also investing $20 million this year and $12 million in 2025 for a three-year third-party wood supply agreement to ensure adequate wood supply in 2024 through 2026. Let's look at slide 11 for additional detail on our Brazilian forest land. We source the majority of our wood in Brazil from up, and manage forest land and supplement that with open market purchasing.
80% to 90% of our total would need voice land close to a mill.
However, several years of reduced planning combined with natural causes.
Largely drought in bars sports.
Forced us to harvest to zero.
These factors increased the amount of market would required to meet our needs.
We are currently purchasing about 25% of our wood on the open market.
And this would cost two to three times our own wood.
The increase in LIBOR stays in capital and wood supply.
The agreement will enable us to return to about 85% owned and managed by.
By 2027.
Let's move to slide 12.
In addition to providing global competitive advantages all Brazilians.
John Simms: Most of our wood needs come from our forest. Heavern, who are both strategic partners in this initiative, and then moving through the, is owned and managed forest has the capacity to produce or provide 80 to 90 percent of our total wood needs from forest lands close to our mills. However, several years of reduced planning combined with natural causes, largely throughout the bar, forced us to harvest trees early.
We have significantly increased.
In the fourth quarter, we commissioned a third party to appraise of Iceland.
And December they valued it at about $1 billion at the current exchange rate.
The updated valuation reflects an increase of about $600 million.
Our 2021 appraisal done by the same time.
Increasing demand for land and one in Brazil has driven this increase in valuation.
Oh five plans are not only with a global competitive advantage and also an enduring repository of shareowner value.
John Simms: These factors increase the amount of market wood required to meet our needs. We are currently purchasing about 25% of our wood from the open market, and this wood costs two to three times more than our owned wood. The increase in reforestation capital and a three-year wood supply means Freeman will enable us to return to about 85% owned and managed wood by 2027.
So now I'll turn it back over to you. Thanks Joan.
I'm on slide 13.
We are a cash flow story.
We are generating substantial cash over the past two years.
And importantly returned $90 million in cash to shareholders in 'twenty, two and $127 million in 2023.
Last year, we also had the positive 60 million in escrow, which allowed us to return more than 90 million limit in our credit agreements.
John Simms: In addition to providing global competitive advantages, I would say plans have significantly increased in value. In the fourth quarter, we commissioned a third party to appraise our forest land, and in December, they valued it at about $1 billion at the current exchange rate. The updated valuation reflects an increase of about $600 million on my 2021 appraisal done by the same firm. Increasing demand for land and wood in Brazil has driven this increase in valuation. Our forest lands are not only a source of global competitive advantage but also an enduring repository of biodiversity. She'll want to value it.
Returning cash to shareowners remains a key component of our capital allocation strategy.
In 2020 full we expect to return at least 40% of free cash flow to shareholders.
Slide 14 please.
We are confident in our ability to continue to create long term shareholder value by executive our strategy and delivering on our investment thesis.
Believing the promise of paper education.
Vacation entertainment.
We intend to increase our competitive advantages in the market we ship set.
We are a low cost global producer with strong supply position.
Jean-Michel Rivieres: So, now I'll turn it back over to you. Thanks, John. I'm on slide 13.
Cutting brands and talented teams.
We will leverage our strengths to drive our returns on invested capital and generate free cash flow.
Jean-Michel Rivieres: We are a cash flow story. We have generated substantial cash over the past two years. And importantly, we returned $90 million in cash to shareholders in 2022 and $127 million in 2023. Last year, we also deposited $60 million in escrow, which allowed us to return more than the $90 million limit in our credit agreement. Returning cash to shareholders remains a key component of our capital allocation strategy. In 2024, we expect to return at least 40% of pre-cash flow to shareholders. Slide 14.
We use that cash to increase shareholder value by.
Maintaining a strong financial position.
Any cash for share owners.
And reinvesting in our business.
We are confident in our future and motivated by the opportunities that lie ahead.
With that I'll turn the call back to Hans.
Thanks, John Michelle and thank you John Okay, Greg we're ready to take questions.
Okay. If you would like to ask a question. Please press one then zero on your telephone keypad to withdraw your question press one zero again, we do ask that you limit yourself to one question and one follow up question.
Jean-Michel Rivieres: We are confident in our ability to continue to create long-term shareholder value by executing our strategy and delivering on our investment vision. We believe in the promise of paper for education, communication, and entertainment. And we intend to increase our competitive advantages in the market we share; we are a low-cost global producer with a strong supply position, iconic brands, and talent will leverage our strengths to drive high returns on invested capital and generate free cash flow. We use that cash to increase shareholder value by maintaining a strong financial position, paying cash for share owners, and reinvesting in our business. We are confident in our future and motivated by the opportunities that lie ahead. With that, I'll turn the call back to Hans. Thanks, Jean-Michel, and thank you, John. Okay, Greg, we're ready to take questions. Okay, if you would like to ask a question, please press 1 then 0 on your telephone keypad. To withdraw a question, press 1 then 0 again.
One moment. Please for your first question.
Your first question comes from the line of George Staphos from Bank of America. Please go ahead.
Hi, everyone. Good morning can you hear me okay.
Good morning, George how are you thanks for the details.
I'll ask my two question and get back in queue first of all.
I know, you're not giving guidance past the first quarter, but how repeatable are the trends and what youre doing in operations and other cost they seem to have been a source even with some some offsets that.
You talked to seem to be a source of positive variance in the fourth quarter for you.
It's certainly a positive bridge item in the first quarter.
How how much longer can that go and how much is the cost reduction program driving that that's question number one.
Question number two to my recollection is the first time in a while that you've talked about.
The timberland values.
And in Brazil.
Uh huh.
Given our experience over the years covering the.
The Latin American producers that connection to to timberland is a source of competitive advantage.
Course of process improvement.
Are you, suggesting that over time this would be something you could disconnect from the portfolio or do you see this as a reason why.
You should be able to maintain your position grow grow profitably and either way not being sort of under its being underappreciated within the market. How should we think about what you're trying to say on timberlands here. Thank you.
George I always start by your second question and John who will take the first one so.
<unk>.
Our timberland is key to our competitiveness and it's really a key advantage.
Operator: We do ask that you limit yourself to one question and one follow-up question. Thank you. One moment, please, for your first question. Your first question comes from the line of George Staphos from Bank of America. Please go ahead. Hi, everyone. Good morning. Can you hear me okay? Good morning, George. How are you?
Reason why we updated a preserved as we think it was undervalued and that's the only reason.
We continue to invest in it and.
And I think this is a base up exactly as you mentioned of long term competitiveness.
Which we kind of felt of fiber is key in our paper advantage.
Jamba George I'll take your second question in terms of the ops variance knowledge, when we have that going forward.
George Leon Staphos: I'll ask my two questions and get back to you, first of all. You know you're not giving guidance past the first quarter, but how repeatable are the trends? Operations and other costs, off, certainly a positive, how, How much longer can that go on? Hawthorne, driving that.
So what we talked about.
I think it's important to note.
Order books have improved across all our regions, we sit here today.
In fact, we're running full in both Europe and Latam.
With a lot significantly less economic downtime.
In North America and that is.
Jean-Michel Rivieres: That's a question, question number. My recollection is the first time in a while that you've talked about, Hill. Uh, given our Latin American producers, that connection is a source. Prosser. Are you suggesting that over time... connect from the portfolio? Rowe. Proffitt, under it's being under, George, I will start with your second question and John will take the first one. So we thought. Our timberland is key to our competitiveness, and it's really a key advantage. The reason why we updated the prism is that we think it was undervalued, and that's the only reason. We continue to invest in it, and I think this is a basis for, exactly as you mentioned, long-term competitiveness, which we count on, and fiber is key to our paper advantage.
That's driven a lot of the operational group.
Last quarter downtime and we're solving more of the fixed costs that we.
In the first half of last year.
Second thing that we all.
We are continuing to start to get the benefits of some of this high return cost reduction capital that we started to invest in.
Spun, but really didn't start ramping that up.
Until next year.
And I think third we talked about.
Called classical rise.
Our cost reduction program liquids.
Both operational supply chain and SMA and.
And we started seeing some benefit of that a little bit and we expect to see a little bit in the first quarter really definitely start ramping up.
During the balance of the year.
Hey, John Forgive me just a point of clarification you said.
On the.
Reduction in Unabsorbed costs, if I heard you correctly youre going to see more of that this year or more I just want to make sure I heard the cadence on that correct because the phone cut out.
Jean-Michel Rivieres: Your second question concerns the optarians and how much, when we would have that going forward? So what we talked about, I think it's important to note, is that our order books have improved across all our regions today. In fact, we're running full in both Europe and LATAM, and with significantly less economic downtime in North America, and that has driven a lot of the operational improvements. Porter, Dalton, and we're solving more of the fixed costs that we had in the first half of last year. Second thing is we are continuing to start to get the benefits of some of the cost-reduction capital that we started to invest in, you know, but we really didn't start ramping that up until next year, and I think third, we talked about what we call Project Horizon, that's our cost-reduction program, both Operational Supply Chain and SMA. And we started seeing some benefits of that a little bit in the first, we expect to see John, forgive me; just a point of clarification.
Yes.
If you look at even in the fourth quarter and.
And Youll see it in the appendix we took about 90000.
Tons less lack of order downtime in the fourth quarter got it and what I said within the first quarter.
That is somewhat what's driving the operation.
Hope that we gave.
Because we're running.
All right now in the first quarter than we were even.
Okay. Thank you I've got that.
I'll be back.
If there are any additional questions. Please press one zero.
Next we'll go to the line of Harman Dot from RBC. Please go ahead.
Hi, Good morning, Thanks for taking my question. This is harman filling in for Matt Mackellar.
I guess one quick question I had was just around and apologies if.
This was mentioned in the first question I had some technical difficulties, but.
With the high return projects that the company looking out into 'twenty.
Are you able to share any incremental details on what sort of things you're pursuing and.
How that could shake out in terms of increased margins or even potentially supporting more cost reductions as you got lined with project horizon.
Yes, and thanks for joining the call also passed all congratulations over to mats and understand.
John Simms: You said... on unabsorbed costs, and more of that, or more. I just want to make sure I heard you correctly. Yes, so if you look at even in the first fourth quarter, and you'll see in the appendix, we took about 90,000 tons less lack of order downtime in the fourth quarter. And what I said within the first quarter, that someone was driving the operations outlook that we gave because we're running more full right now in the first quarter than we did last year. OK. I've done it.
No.
Having a baby.
Yeah I'll give you. An example, we have so.
And this also talked about really the agility I think we have as a company because we are singly focused on oncology Ricci, but.
There was a large mill that was shut down in South Carolina, and Charleston, and it was a large consumer of wood chips.
Significant cost reduction projects.
And this year.
Operator: If there are any additional questions, please press 1 and 0. Next, we'll go to the line of Harmon Dott from RBC. Please go ahead. Hi, good morning. Thanks for taking my question. This is Harmon filling in for Matt McKellar.
Is increasing our capacity to handle ships.
And our mill Eastover, so that we could take advantage of the increased supply that come about because of that bill.
Closure.
Some of the type of projects, we have done in fact, just recently.
Harmon Dott: I guess one quick question I had was just around, and apologies if it was mentioned in the first question. I had some technical difficulties but... with the high return projects that the company is looking at. Are you able to share any incremental details on what sort of things you're pursuing and, you know, how that could shake out in terms of, you know, increased margins or even potentially supporting more cost reductions as you've outlined with Project Horizon? Yes, Armin, and thanks for joining the call. Also, pass our congratulations over to Matthew on his stand and fight against having a baby.
Completed.
A chemical recovery project in East Dubuque.
As.
Also we've already is already seeing results.
Pretty.
Returns in terms of cost reductions that we started to experience in your EBIT that January.
Typically these projects that we have with targeted almost $30 million.
High return.
These returns are well over 20%.
Returns, even much higher than that.
Awesome that's great.
That's helpful color.
And I suppose.
Just.
I guess more broadly.
With the Red Sea crisis would you be seeing.
Additional European product show up in North America.
Given the increased cost of reaching Asian markets from Europe, I guess, our last check with <unk> sort of said that north American outbound shipping costs.
John Simms: That's exciting. I'll give you an example of what we have. So, and this also talks about the agility I think we have as a company because we're singularly focused on long-coded 3G, but there was a large mill that was shut down in South Carolina, in Charleston, and it was a large consumer of wood chips. Significant cost reduction projects we'll be investing in this year are increasing our capacity to handle chips in our mill at East, so that we can take advantage of the increased supply now that's Closer. So those are some of the types of projects done.
Somewhat flat, but inbound are up so we were just hoping to get some more perspective on that.
Yes.
It's hard to tell what the implication is going to be in terms of.
What we are seeing right now in Europe as decrease of importance.
Some of the transit time.
Asia.
It's almost increase.
About four week, we understand.
Imports from Asia to get into Europe, so that could have an impact.
Absolutely important.
In Europe, which then means that more domestic supply SB stay on <unk> service that need.
But.
I would say right now it's hard to tell with the with the impact that.
<unk> is going to be it's certainly increasing freight costs.
All exporters increased freight.
John Simms: In fact, just recently, we completed a chemical recovery project in Eastover that has already started seeing results, pretty significant returns in terms of cost reduction. We started experiencing it here even in January. Typically, these projects that we have, you know, we targeted almost $30 million in high return projects. These returns are well over $20 billion. Charns, even much higher. Awesome. No, that's, that's great. That's helpful color.
Freight costs as well as fleet.
And concerning.
What are you asking about Europe.
Export overseas, we export very little from Europe to overseas.
Our production in Europe was to remain in Europe, and we are a very few going to middle East Africa.
So it's really not impacting us so fall significantly.
Got you no that's helpful and yes, thanks, again I'll come back.
Next we'll go back to the line of George Staphos from Bank of America. Please go ahead.
Yes. Thank you very much just on that on that point that was raised.
Just before.
I know you arent really quantifying it but is the impact from Asia. If there is a positive on reduced imports into Europe more on converted products on more or more on.
John Simms: And I suppose, I guess more broadly, with the Red Sea crisis. Would you be seeing, you know, additional European products show up in North America? given the increased cost of reaching Asian markets from Europe. I guess, you know, our last check with Greasy sort of said that North American outbound shipping costs were somewhat flat, but inbound or up. So we were just hoping to get some more perspective on that. Yeah, Harmon, it's hard to tell what the implications are going to be of the Red Sea Christ, what we are seeing right now in Europe, and some of the transatoms coming from Asia.
No.
Cut size and graphic papers overall that in turn is leading to better demand for for you and or your customers.
Mostly I would say George cut size vessels the easier too.
To export.
So mostly you would see from Asia.
Cut size.
Well on the Allstate business because of the various sizes.
It's much more difficult.
For any ex Florida that man days.
Yeah.
The commercial credit.
Okay.
And John as John Michelle My next question I'll come back in queue again.
It related point, so to the extent that we've seen pulp prices continue to rise in Europe.
Recognizing Asia, we're starting to see them fade a bit.
Is that cost curve or let me say it differently, how does the cost curve shifted sufficiently ware.
Jean-Michel Rivieres: Thomas and Chris, about four weeks, we understand, imports from Asia to get into Europe. So it could have an impact that is absolutely in Europe, which then means that more domestic supply has to be, say, on shore, surface at me. But I would say right now it's hard to tell what the impact of, certainly, right there. Law, a great cause as well as the, concerning what you were asking about Europe exporting overseas, we export very little from Europe to overseas, our production in Europe mostly remains in Europe, and we have a very few going to the Middle East and Africa.
That's also beginning to have an impact on supply within Europe I E. The curve shifted some of your non integrated.
<unk> are having some difficulty producing ore really that's.
That's not really having much of an effect at this juncture from what you can see.
I think George it's a good question I think it's in fact, no from the right.
The pulp prices in Euro I've gone up 160 euros from Las jet trusted today.
So it is for sure impacting the non integrated players in Europe.
And that's maybe one of the.
The reason why we're seeing operating rates backup I in Europe, and having a very strong demand.
Jean-Michel Rivieres: So it's really not impacting us so far significantly. Gotcha. No, that's helpful. And, uh, yeah. Thanks again.
It impacted we also know the inventory correction in Europe.
Is behind us.
Industry inventory are quite flu activity around knowing paypal, so multiple factors, but bulk price has an impact.
Operator: I'll come back. Next, we'll go back to the line from George Staphos from Bank of America, please go ahead, yeah, thank you very much just on that point. All right, aren't really quantified. The impact from Asia... here, more on converted products. Size. Mostly, I would say George's cut size. That's what's easier to...
Shawn Michelle ultimately look I realize it's our job not yours, but to the extent that you have a view on this.
Is there.
Kind of a view in terms of how much.
Now is kind of in the red in terms of industry production relative to the cost curve.
And if you don't have a view that's fine I just thought I'd ask if you had an equal share it.
I don't but I would I don't have the number precisely so all I can make.
George Leon Staphos: Okay, So mostly you see from Asia are the cut size, you know, and the role in the offset business because of the various sizes that you have to have. Quill, for any exporter, that man is not. Aldis and the Commercial Credit Union. And John and Jean-Michel, my next question, and I'll come back with related points.
No worries, maybe a guess a very high level of guests.
And it might be about 10%.
Okay. Thank you very much I'll turn it over.
Once again, if you have a question please press <unk> zero.
Yes.
And we will go back to the line of George Staphos. Please go ahead.
Hi, guys.
To the extent that there's been some pricing reductions in North America as memory serves at least in terms of published indices.
Jean-Michel Rivieres: So to the extent that we the whole price is continuing to rise, you know, recognizing Asia has that cost curve... has a cost curve. We're, that's all, are having some difficulties, or really that's not really the case. I think, George, it's a good question.
How much of that if you can quantify recognizing you're not tied to risi.
In your contracts per se.
But how much of that is baked into your guidance.
If anything at all for the first quarter.
And you know to.
To the extent that you could size it.
Broadly how much would be something we need to make sure we model for over the rest of the year, recognizing you're not guiding on on to Q3 <unk>.
So George.
I cannot give you an exact price basis I can give you a trend we saw the assemblies. He reports you did as.
Jean-Michel Rivieres: I think it's impacting, you know, from the trust. Paul, and that's maybe one of the reasons why we're seeing operating rates back up high in Europe and having very strong demand. It might impact it.
You mentioned it we do not report to our pricing too easy.
Uh huh.
I would say our new trend, we might have the direction correct.
But we have seen in the past that in absolute value.
Jean-Michel Rivieres: We also know the inventory collection in Europe is behind us, and Industry Inventory is quite low, actually, right now, on paper. So multiple factors, but power price has an impact. Michelle, ultimately, look, I realize it's our job, not yours, but... that you have, and you both. I don't, but I would, uh, I don't have the number precisely.
We see differently.
So we know absolute most.
Mostly from third quarter to the weeks flat, we expect slight erosion.
North America, not a huge one it's lagged one and at the same time should we expect.
Because of too.
Price increases announced to our customers in Europe, and in Brazil, and Latam, We expect twice increase on the other regions.
Okay.
And then back to Europe, and I'll turn it over.
The performance for the quarter.
Was somewhat below our expectations now.
Jean-Michel Rivieres: So all I can make is, uh, maybe a guess, a very high level guess, and it might be about 10%. Thank you very much. Once again, if you have a question, please press 1 and 0, and we'll go back to the line with George Staphos. Please go ahead.
That's neither here nor there that's our forecast versus your actual but was performance in Europe as you had expected.
In terms of that that loss and.
You know what if we again youre not guiding for the full year.
But should we expect that ultimately Europe should be breakeven or better for this year and what are the bigger bridge items two to get you. There. If in fact, that's your euro assumption. Thank you.
Operator: Hi guys. Um... Dent that there's been some price. America. How much of that, if you can quantify... and you're not. Contracts per se. How much of that is... God, at all for the first quarter. Size. Model 4 over the rest.
Yeah. So.
Uh huh.
23, as you know in Europe was difficult it was addressed in terms of demand.
Prices of bulk which affected our Siamese adult.
Jean-Michel Rivieres: So George, I cannot give you an exact price, but I can give you a trend. We saw the same report you did. As you mentioned, we do not report our pricing. On a trend, Wheezy might have the direction correct, but we have seen in the past, and in absolute value, we see it differently. So in our Outlook, mostly from the third quarter actually, we expect slight erosion in North America. Not a huge one; a slight one.
You'll note aging saia, which costed us $20 million.
And then your road edge in the fourth quarter and pneumonia.
We had an issue with the turbine we mentioned in the same mid which is oven now, which costed us $5 million.
And it was really the address of the cycle in terms of pricing.
So we clearly see 24 rebounding significantly and Uh huh.
Book to very soon be talking but positive.
Earnings while Europe, So we're quite positive about Europe.
It's more cyclical than any other businesses, so sometimes it's a bit frustrating, but on average we really believe Europe would be good pneumonia is performing very well <unk> performing.
Jean-Michel Rivieres: And at the same time, we expect, because of two price increases announced to our customers in Europe and in Brazil, and last time, we expected price increases on the other regions, back to Europe, and I'll turn it over, um... Porter. Lohr. That's neither here nor there, that's our forecast versus your actual..., but was performance in Europe as you'd expect, that loss and what, and you're not guiding for the full year. But should we expect that, ultimately, Europe will breakeven or better for this year, and what are the bigger bridge items, get you there, if in fact... Yeah, so. Twenty-three, as you know, in Europe was difficult.
Performing well.
Order book as I mentioned is food and we've seen drives increasing so Europe is rebounding.
Kentucky, it's tailwind for 24.
Okay.
I don't want to go ahead, and say that it was a trough, but it was a significant.
Thinking about in terms of demand decline that we had.
Europe.
It was even worse in COVID-19.
Forget.
How much volume.
And shipments were down and also pulp prices.
Yes.
One third of its capacity is pulp facilities.
Certain extent more exposed to the cyclical pulp prices than the.
Other.
In our other middle.
Jean-Michel Rivieres: It was a trough in terms of demand. The prices of pulp, which affect a lot of our saya mills, were down. We had an annual outage in Saya, which costed us $20 million. We had an annual outage in the fourth quarter in Lumula.
But as Michelle said, we said earlier, we're currently running pool, right now and and.
In Europe.
That's a very positive we also the prices going up.
Both the paper and pulp.
So the reason.
That's helped us with pulp prices going up already almost $160 per ton purchases trough, which indicate that Europe would be better.
Jean-Michel Rivieres: We had an issue with the turbine we mentioned in the fan mill, which is over now, which cost us $5 million, and it was really the trough of the cycle in terms of prices. So we clearly see 24 rebounding significantly and hope to very soon be talking about positive earnings for Europe. It's more cyclical than any other business, so sometimes it's a bit frustrating.
Thank you.
Next we'll go back to the line of Harman Dot from RBC. Please go ahead.
Yeah.
Hi, Thanks, I just had a couple of quick follow ups on the cost reduction plan and apologies. If it was mentioned earlier had some technical difficulties at the start of the Q&A, but.
Jean-Michel Rivieres: But on average, we really believe Europe would be good. Numola is performing very well. Saya is performing well. The other book, as I mentioned, is food.
For just just had a quick clarify that $15 million reduction in overhead expenses is that factored into your $110 million target or is this on top of it and I. Suppose secondly, it's owed there'll be an update to the prior inflation assumption I believe it was around $50 million with Q3 results.
Jean-Michel Rivieres: And we've seen prices increase. So Europe is rebounding. McKinley, it's tailwind for 24.
John Simms: Thank you all. Europe, it was even worse than COVID when you look at how much volume and shipments were down, and also boat prices skyrocketed. One-third of its capacity is pulp, so it is, to a certain extent, more exposed.
Yes.
$50 million that we reported for the fourth quarter.
Additive, but was not included in the 110 targets we talked about.
What did the third quarter.
And the.
The inflation number that we provided critical 50 million that won't be update that's still that's still a good number.
Got you Yeah. That's all from my end. Thank you.
And next we'll go back to the line of George Staphos. Please go ahead.
John Simms: Paul Weiss than our other mills. But, you know, as Jean-Michel said, and we said earlier, we're currently running full in Europe, and so that's very positive. We also have prices going up, both in paper and pulp. So it'd be I think that's helped us with poll prices going up already to almost $160 per ton for Trough would indicate that Europe would be better. Next, we'll go back to the line of Harmon Dott from RBC. Please go ahead.
I guess last one for me now you're not the only company in South America, that's talked about having a go farther from its own mills for wood and do a bit more third party wood.
And.
Although the company in particular I'm thinking of is more.
You know packaging grade.
Production, but he is here a broader issue that's been affecting the producers has it been just the droughts or has there been something else Thats gone on either in terms of maybe over harvesting or under investing that not just for <unk>.
John Simms: Hi, thanks. I just had a couple quick follow-ups on the cost reduction plan, and apologies if it was mentioned earlier that there were some technical difficulties at the start of the Q&A. But for clear, I just had a quick clarification that the $15 million reduction in overhead expenses is that factored into your $110 million target, or is this on top? And, secondly, would there be an update to the prior inflation assumption? I believe it was around $50 million with Q3 results. Yeah, Harman, the amount that we reported for the fourth quarter is additive or was not included in the 110 targets we talked about when we reported the third quarter. And the inflation number that we provided, you're correct; it was $50 million. That won't be up yet. That's still good.
Silvana, you've seen elsewhere, just some quick thoughts there and I'll turn it over.
I think you some of our competitors talked about the same thing we did on some plantations.
But the six to seven years ago.
Where.
Whose plantation have suffered under the seven year cycle.
Ralph.
Natural cozies, which having that impacted that has impacted all Brazil Yan.
I stripped plantation, so we're not the only one.
This is not the case anymore, but it's been two years and we also specifically more significantly from our best companies.
Reduced some of our investments in the phase III during <unk>, which we are.
Six seven year cycle, so we're seeing the impact of that now.
John Simms: Gotcha. Yep. That's all from my end. Thank you, and next, we'll go back to the line at George Staphos. Please go ahead.
Which is why we've had to go more outside in market than we usually do and we wanted to.
So did you try.
Uh huh.
Operator: Hi guys, or not. America that's talked about having to go farther. Hardy, the company in particular. Is there a broader issue that's been affected? Drought, over-harvesting, or under-investing.
Neither would because there is a strong demand of routine.
Brazil right now so the demand is clearly strong.
So the demand for us.
The natural causes which have reduced the productivity of plantation is that impact we're feeling and.
John Simms: I think some of our competitors talked about the same thing we did on some plantations about six to seven years ago, where those plantations suffered under the seven-year cycle of drought, natural causes which have, in fact, impacted all Brazilian forestry plants, so we're not the only one; it is a seven-year cycle. So we think about the impact of that now, which is why we've had to go into the outside market more than we usually do. And we wanted to solidify the need for wood because there is a strong demand for wood here. Arpain on these issues. We'll make up for that. South America overall and, down there, that place.
Our strategic investment into very valuable for us for that.
We have the we can make up for that.
I mean, we're starting to see a little bit of an uptick in South America overall in box shipments, obviously, that's a bit more softwood, but you know to the extent that we see a bit of a rebound there does that put your wood position, maybe make it a bit more precarious and mean that next quarter or quarter down the road youre talking about further.
Inflation that you are contending with or are you as much as you get.
<unk> well set for the rest of the year.
With the investments we've made we feel like we're well set okay.
Thank you Sean Michel Good luck in the quarter. Thank.
Thank you John Thank you.
And at this time there are no further questions I'd now like to turn the call back to Huntsville Workman for any closing comments.
John Simms: Carrier, quarter or quarter down the road, you're talking, you're relatively well-suited. With the investment we've made, we feel like we're well set. Thank you. And at this time, there are no further questions. I'd now like to turn the call back to Hans Bjorkman for any closing comments. Thanks, Greg.
Thanks, Greg before we wrap up the call John Michel any closing comments yeah. Just thank you first of all for joining the call.
We're a cash flow story in 2003, we generated $294 million in free cash flow and we had 727 million to shareholders.
Hans Bjorkman: Before we wrap up the call, Jean-Michel, any closing remarks... Yeah, just thank you first of all for joining the call. We're a cash flow story. In 2023, we generated $294 million in free cash flow and returned $127 million to shareholders. We allocate capital to increase shareholder value. We use cash to maintain a strong balance sheet, return cash to shareholders, and we invest to strengthen our business. And we're confident in our ability to generate strong earnings and free cash flow through the cycle. We are confident about 2024.
We allocate capital to increase shareowner value.
Use cash to maintain a strong balance sheet, returning cash to shareowners and we invest to strengthen our business and we are confident.
Our ability to generate strong earnings and free cash flow through the cycle.
We are confident for 2024 thank.
Thank you John Michel and thanks, everyone for joining US today. We appreciate your interest Obama and we look forward to continued conversations in the coming weeks and months ahead. Thank you so much.
Once again, we would like to thank you for participating in so if almost fourth quarter 2023 earnings call you may now disconnect.
Jean-Michel Rivieres: Thank you, Jean-Michel, and thanks to everyone for joining us today. We appreciate your interest in Sylvamo, and we look forward to continued conversations in the coming weeks and months ahead. Thank you so much. Once again, we would like to thank you for participating in Sylvamo's fourth quarter 2023 earnings call. You may now disconnect. We're sorry, your conference is ending now. Please hang up.
Yeah.
Yeah.
We're sorry your conferences ending now please hang up.