Sylvamo Stock

Thank you. Good morning. Thank you for standing by. Welcome to Sylvamo's second quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, you will have an opportunity to ask questions. If you would like to ask a question, press star 1 to raise your hand. To withdraw a question, press star 1 again. a reminder, your conference is being recorded. I'd now like to turn the call over to Hans Bjorkman, Vice President of Investor Relations.

Sir, the floor is yours.

Thank you, Lucas. Good morning and thank you for joining our call. Our speakers this morning are John Sims, Chief Executive Officer, and Don Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. For example, during this call, we will make forward-looking statements that are subject to risks and uncertainties. We will also present certain non-US GAAP financial information. Reconciliations of those figures to US 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'd like to turn the call over to John. Thank you, Hans, and good morning, everyone. I'm glad that you're on the call and so you know, I'm on slide four, that's where I'm starting. Our second quarter highlights include continuing to implement the previously communicated uncoated free sheet price increases to our customers across all our regions. We also advanced our lean transformation journey to embed continuous improvement into how we run the business, so performance improvement employment becomes employee driven, systematic and self sustaining. We kicked off our lean efforts in our Latin America business and have value stream mapping underway at our Moji Gua Su and Trace Lagos mill to identify waste and unlock cost savings across end-to-end processes. In North America, we introduced lean at our Ticonderoga New York mill and our cut-sized seed plant in Sumter, South Carolina. and across corporate functions.

Lastly, we continue to make very good progress on our strategic investments that are East Silver Mill, which we will discuss in more detail later on this call. Let's move to the next slide. Slide five shows our second quarter key financial metrics. 2026 is a transition year to work through the termination of Riverdale Supply Agreement in the extended outage at Eastover. Adjusted even more than doubled sequentially to 60 million with a margin of 7%. Adjusted operating earnings were $0.03 per share. Pre-cash flow was negative $23 million, a $36 million improvement sequentially. And as in prior years, the majority of our free cash flow will be generated in the second half of this year.

Now I'll turn it over to Don to review our performance in more detail, Don.

Thank you, John, and good morning, everyone. Slide six contains our second quarter earnings bridge versus the first quarter. In the second quarter, we earned $60 million of adjusted EBITDA compared to $29 million in the prior quarter. Price and mix were favorable by 32 million, reflecting the implementation of paper price increases in all regions. Better mix in the Americas, as well as the implementation of price increases in Europe, pulp price increases in Europe. volume increased by 3 million driven by seasonally stronger demand in Latin America. Operations and costs were favorable by 22 million, largely driven by green energy credits in Europe and lower overhead. Plan maintenance outage costs were unfavorable by 24 million due to scheduled outages in all regions.

INPUT AND TRANSPORTATION COSTS WERE UNFAVORABLE BY 2 MILLION AS ENERGY COSTS WERE STABLE WHILE PURCHASED WOOD IN LATIN AMERICA AND TRANSPORTATION COSTS IN NORTH AMERICA WERE HIGHER. THESE WERE PARTIALLY OFFSET BY THE NONREPEAT OF A ONE-TIME CHARGE OF 10 MILLION FROM INTERNATIONAL natural gas cost in the first quarter. Let's move to slide 7 to walk through the industry conditions. European industry supply and demand remains challenging. Pulse prices improved throughout the first half and now seem stable. We continue realizing paper price increases, and we communicated another paper price increase effective mid-June as costs continue to increase and margins are at unacceptable levels. expect the realization to occur through the third quarter. In Latin America, we expect seasonally higher demand through the second half.

This should positively impact our volume and geographic mix. We continue realizing paper price increases to our export customers across other Latin American countries as well as the Middle East and Africa region. and should continue to see additional realization through the third quarter. In North America, industry supply and demand dynamics have improved as 7% of the annual uncoated free sheet industry supply was removed with International Papers Riverdale Mill paper machine conversion. In the second quarter, we saw imports into North America increasing compared to the previous quarter, reaction to the 10% global tariff window. We also continue realizing paper price increases and expect to see additional realization through the third quarter. respect the Middle East conflict continue pressuring energy, chemicals and transportation costs across our regions as we go through the year. Let's move to slide eight. As we move through the second half of the year, we expect better earnings across most of our key drivers. This slide provides some perspective to how we see the second half of the year as compared to the first half.

Price and mix should have a significant improvement with the price realization we've seen across all our regions and will continue into the third and fourth quarters. In addition, our mix in both Latin America and North America should be significantly better in the second half. Overall, we expect to have 75 million to 85 million benefit from better price and mix compared to the first half. Volume should have positive momentum given stronger seasonality in Latin America. which will be partially offset by less volume in North America due to the loss of the Riverdale volume and the extended outage at Eastover in the fourth quarter. Operations and other costs are also expected to be much better in the second half. Operational issues we had in the first half are now behind us with the exception of the debarking drum at Newmala. Plan maintenance outages will be unfavorable by approximately $5 million as we execute our heaviest planned outage quarter and take the extended downtime at our Eastover mill to complete the paper machine investments.

Input and transportation costs are expected to be favorable with lower fiber costs in Latin America and Europe. more than offsetting unfavorable energy, chemicals, and transportation due to the Middle East conflict across all regions. In total, we expect a much better earnings performance for the last six months of the I'll now turn it over back to John to talk about our strategic investments at Eastover and our long-term focus. John?.

Thank you, Don. I'll pick back up on slide nine. Our Eastover strategic investments, including our wood yard modernization and paper machine optimization and new sheeter continue to make good progress. Starting with the wood yard, the hardwood line has been performing extremely well since May, and we're seeing improved reliability and chip quality. The Woodyard Softwood line startup remains on schedule for the first quarter next year. The paper machine speed up project remains on schedule, on budget, and will be completed during our fourth quarter maintenance outage. This will result in 60,000 additional tons of uncured depreciate capacity annually which will start to ramp up early next year. The benefits including reducing costs, improving our mix and efficiency while enhancing service for our customers.

So to slide 10. Also within our e-service strategic investment, the new Sheeter project continues to make good progress. The Sheeter passed equipment acceptance testing in June, arrived in the US a few weeks ago, and the teams are preparing for the installation. We expect $50 million of annual benefits from the paper machine speed up and a new sheeter. We estimate roughly $30 to $40 million of that in 2027. Lastly, we completed a sale leaseback transaction with a third party for existing sheet plant to expand the attached warehouse by 300,000 square feet. The third party is investing the capital to expand the facility and will lease it back to us. The project will reduce supply chain costs, improve service to our customers while providing additional flexibility.

We expect this expansion to be completed in the first quarter of 2027 and contribute upwards of $5 million in savings per year. These four projects will generate 55 million of benefit per year. These strategic investments are high return projects which will generate incremental earnings and cash flow for the long run. Let's move to slide 11. In my letter to show owners in January, I described the areas that define our success. safety and well-being, employee engagement, customer centricity, operational excellence, cost leadership, and sustainability. Let's go to slide 12 to discuss these in more detail. As we aim to achieve world-class performance in the areas that matter to Savamo, we have set clear goals for each one. Today I want to share with you what we are working toward and how we will measure our progress to achieve these by 2030.

Safety and wellbeing is our most important responsibility. Our goal is to have a resilient safety culture in which serious injuries are eliminated. eliminate serious injuries it will be because our employees truly care and are aligned on relentlessly pursuing excellence ON EMPLOYEE ENGAGEMENT, WE HAVE NEARLY ACHIEVED WORLD-CLASS ENGAGEMENT WITH AN EMPLOYEE NET PROMOTER SCORE OF 46. Our focus is to be greater than 50. While we strengthen the capability and readiness of our teams and tap into their talents to help us achieve world-class performance. OUR CUSTOMER CENTRICITY, ON CUSTOMER CENTRICITY, WE ARE SETTING A NEW STANDARD FOR CUSTOMER EXPERIENCE AND LOYALTY. We will measure it through our customer net promoter score and through our perfect order performance delivering complete on time and without the defects. targeting a 20-point improvement in net promoter score and higher than 90 on the perfect order On operational excellence, we are targeting improving overall machine efficiency by 400 This is a measure of how well our assets run. Across leadership, we challenge ourselves to set an aggressive goal in order to drive margin improvement despite the significant inflationary cost pressures.

Our goal is to achieve three to five times our 2022 through 2025 average annual cash cost improvement rate. This will be enabled by our lean and digital transformation efforts. Lastly, on sustainability, we'll continue to operate responsibly to protect for uplifting communities and improve the planet every year. Underpinning all six are our talented team, lean management, and digital transformation. I'll conclude my remarks on slide 13. As you are aware, it has been a very dynamic year where we've been adopting and executing the initiatives that are under our control. We are focused on generating strong, sustainable results and long-term value by making discipline, data-driven decisions that strengthen Sabama for decades to come.

We will do this by diligently executing our flagship growth strategy, adhering to our disciplined capital allocation. institutionalizing lean continuous improvement. As industry conditions turn, capital spending normalizes and the benefits for our investments begin to materialize. We have the potential to generate annually over 300 million of free cash flow and greater than 15% return on invested capital.

So with that, I'll turn the call back to you, Lon. Thanks, John, and thank you, Don. Okay, Lucas, we're ready to take the questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Daniel Herriman with SITODI.

Daniel, please go ahead. Hey, guys. Good morning. Thank you so much for taking my questions. I'll start with two. In North America, margin was up at 15% versus 10% in the first quarter. And I'm curious if you could add more color on what drove this improvement and how much was priced in mix versus maybe lower sourcing costs from bringing new products. in from Brazil rather than Europe. And then leverage finished the quarter at 2.2 times with most of the free cash flow for the year expected in the back half. Can you give us a better idea of how much of the first half working capital bill reverses and where you expect to end the year on leverage? Thanks.

Yes, Daniel, I'll take your second question first. This is Don and good morning. SO THE WORKING CAPITAL BUILD WILL UNWIND BY THE END OF THE YEAR MOSTLY. AND AS WE TALKED ABOUT IN AN EARLIER CALL, THAT'S DUE TO THE EAST OVER MACHINE SPEED UP PROJECT BUILDING INVENTORY THROUGH WHAT WAS FIRST QUARTER, SECOND QUARTER, AND WE'LL to draw down fourth quarter, it should be pulled out. And your your first question back to North America, the margin improvement from first to second quarter, It was largely price and mix. And yes, price and mix and lower operations costs and a bit of lower input costs. But the key driver is price and mix for North America going into Q2 from one.

Just give a little bit more color, Daniel, on the working capital. North America is where we built the biggest inventory. It's about 50,000 tons that we expect to draw down in the second half. We will draw down in the second half.

Your next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew, please go ahead.

Hi, good morning. Thanks for taking my questions. It sounds like you're expecting lower North American volumes in the second half of the year, if I've understood your comments on slide 8 correctly. Is that sales volumes or production? I ask what the bogey might be for North American volumes at this point? Thanks.

Yes, Matthew, thanks for the question. So on North American's volume, so it will be both because both production, lower production and lower sales and, you know, we have Riverdale's gone, that's not our production, but the, supply from riverdale is gone but that'll impact sales in the second half and of course we've got the eastover outage which uh is is now it's longer than we thought. We originally planned for 45 days. It'll be a bit longer than that. So that'll reduce production as well for North America. And a bit of that flows through sales and volumes.

will be lower for those two main reasons. And one other point it would be, Don, is that, during this various situation, it's gone. With IEPA going away, we were able to take advantage of that and move on some volume from our Brazilian operations. But now with the new tariffs that are in effect, we said, but it's not economical. So we're actually bringing in less volume from Europe and Brazil than we expected. And so there'll be a little bit less than that.

I think your second question relative to North American volume as well. If you think about the impact of Riverdale going away so that supply is gone and I think we go from. what was about a little less than 100,000 tons this year. So that goes away. It was 90, I think through April. and we won't have that in 27, but yet we'll have the speed up from Eastover. And the plan from the speed up was a total of 60. We won't get all of that next year. as we'll be ramping up once we come out of the project in the quarter. But eventually those two things will be a net four.

Okay, so if I think about the Q4 25 presentation where we talked about 1.17 million tons in North American sales, I think it was. The variance is primarily a longer outage at Eastover. and then less volumes coming in from Latin America and Europe than you'd anticipated.

That's right. Okay. We also got slightly less time. from Riverdale, which we already experienced. So that, but Riverdale, I think in that flood, we were assuming a hundred, tons before they converted and they delivered about 90,000. But that impact's already been felt.

Okay, got it. Thank you. Next, it sounds like you have pricing as a tailwind across each segment into Q3. Could you maybe spend a minute just running through what price is currently announced and pending in the markets? Maybe talk about how price should trend sequentially by region. either on average or as the execute three in comparison to where you were in Q2. Thank you.

I'LL START WITH HOW WE SEE THE PRICE IN THE SECOND HALF. PRICE IN THE SECOND HALF. SO WE SAID 75 TO 85 MILLION SO WE SAID 75 TO 85 MILLION INCREMENTAL WHICH IS BOTH MIX INCREMENTAL WHICH IS BOTH MIX AND PRICE. I'd say 70% of that is price. And the majority of that is North America and then North Europe as well, which will will see some flow through. And your second question, repeat your second question.

Yes, it was kind of tied together. It was, I mean, what is announced depending on the markets and then, you know, how pricing trends sequentially by region from Q2 into Q3.

whoever you'd like to express that. Thank you. Yes, so I think, Great, thank you. We have a third price increase that's going through in Europe. So that's being implemented right now. We're actually seeing that in the month of July. So we'll see that through. And LATAM, we're seeing in the OLA markets and NIA. And that's me and realized in the third quarter, we're seeing that now.

And the same thing with the second price increase that we had in North America. that's being mostly implemented in the third quarter. So most of these price, you know, the 85, 75 to 85 debt, that Don talked about, a lot of that pricing is, we're seeing that flow through in the third quarter. Then that'll carry that, you know, we'd be relatively flat and carry into the fourth quarter.

Okay, perfect. Thanks for that. It lasts for me. On slide eight again here, under input and transportation costs, it sounds like lower fiber costs will only partially be offset by higher energy, chemicals, and transportation costs. It sounds like that benefit is specific to Europe and Latin America. Could you help us understand what's happening with fiber costs and how they're favorable in the back half? Thank you.

Yes, Matthew, and I'll start with Europe. So, you know, we've had a deliberate effort, especially at our new mill to reduce fiber costs there. And I think a lot of what we're seeing in the second half and into the fourth quarter is the benefits of that. Both market decreases and actions we've taken. So we'll see that benefit second half in Europe. And in Latin America, we had some higher costs in Q2 related to some of our outside wood purchases. They were, I would say, unusual, and we don't expect those to occur again in the second half.

So we'll be normalized in Latin America. As you know, most of our Latin American fiber is his own make, own produce.

Just to be maybe a little bit more. We've seen a decrease of about 20% since its peak, in the fourth quarter last year, but it takes six months or so for it to start to impact our operations and that's why we're seeing it in the third quarter.

OK, thanks for the color. I'll turn it back.

Your next question comes from the line of Mark, Mike Ruxland with Truist Securities. Mike, please go ahead.

Yes, thanks, John, Don, and Hans for taking my questions, and congrats on all the progress. I think, you know, about 18 months ago, I guess you hired a new head of EU. And then you also, that was subsequently followed by a mention of a decision on the EU strategic review. So that really implies then a timeline that you'll have a decision made regarding the and what's happening with your European operations around end of year. So just, can you give us an update to where that process ends? What the different options are in terms of, do you think you're going to continue to put money into those two assets, or are you continuing to shutting them or selling them? Because from our understanding, the cash cost of actually closing the asset seems to be manageable and would roughly imply a two-year payback and probably would be the most accretive option for shareholders. So any call you have on European operations and your plan there? Yes.

Yes, Mike, I think you characterized it correct in that we said that we were not happy with the performance with our European operations, but this time last year we made a significant management change because we wanted to see a accelerated performance and I have to say that, you know, we made a great change. We're seeing accelerated performance. We're focusing on our strategy there, which is mixed improvements when enabled by the investments we made at our SIOP mill. We're actually ahead of plan there. We're also looking at implementing significant cost reductions that we're seeing Sayat and Numola increased productivity and also efficiency and then we just talked about it's a wood cost They online that with our strategy I It's being executed and being executed much better and well, you know, but you know, as we said, the conditions are difficult in Europe and we're looking looking at the long term is are we satisfied with where we think we can get and we'll probably would be looking at somewhere in 2027 if we're not satisfied with the outlook that we've got that we may pursue other options and those other options are just about essentially everything that you named. it's not like we're starting, I mean, we've, we've been looking at that and, but it's, it's.

probably in 2027 we'll make the call. Got it. Okay, so a little bit longer than the 18 months that you initially outlined. Do you think it's going to be early 2027 in terms of making a determination? And then just one quick thing, John, in terms of the cost redux that you've achieved there, what are you ultimately targeting? Like you've achieved a certain amount already.

your targets in terms of improving the overall cost structure of europe well i mean uh when we look at what we're targeting we probably need um you somewhere between 50 million dollars or so So we can be where we are and it's not just cost reduction, it's mixed improvement, it's other things that go into that. get us at significantly above cash positive on a mid-cycle basis. greater than cost of capital returns. You know, and yes, I don't want to, I don't want to, I'm going to lock myself down into a specific, because we're making and looking at the Our focus is on Europe. We understand that the issue So I don't want to lock down the timeline. Things could be sooner, things could be later. You know, it depends on, how things play out, but that's, that's, I don't really want to commit to a certain date, you know, not,.

I totally understand. Two quick questions and then I'll just turn it over. You guys mentioned 75 to 85 million from better price mix in second half over the first half. way to help quantify the benefit from better volumes, better opt-in costs, better input costs. Anyway, just quantify that in the second half versus the first half. And then the second question, the poison pill ends in November. What's your plan regarding the poison pill? I mean, and if you have a great, good relationship with your... a shareholder and they're interested in purchasing more shares why stop them thank you.

So, Mike, relative to the second half quantifying volume, so we wanted to give you, give, you know, analysts and investors a sense of the 75 to 85 on price and mix because one, it's big, two, we're confident prices are in place and we'll see that carry through. We're confident on the planned maintenance outages. That's something that we typically execute well. on the volume and ops and other costs inputs uh there's there's more uncertainty we we are leaning in we're confident in our forecast but we chose not to provide specific guidance there.

And to your other question about. Yes, the shield of rights plan. The plan remains in place. The board hasn't made it yet a decisional what we're going to do in terms of when it does expire at the end of November. That'll be something we'll address with the board when we meet in September.

Thank you. Your next question comes from the line of George L. Stavos with Bank of America Securities Incorporated.

George, please go ahead. Hey guys, how are you? Thanks for the details. I'll ask you questions and then I'll come back in queue. First of all, we appreciate you actually providing the pricing guidance that is helpful. John, Don, if I heard you correctly, MOSAT hits in 3Q in a month. It incorporates what you have in the market, and there's not so much of a tail into fourth quarter. Did I correctly summarize that, or what would you do to modify ad correct what I just relayed. And again, thanks for the pricing guide on that.

We asked for that last question.

Yes, so George, thanks for the question. So it'll flow a little more evenly. The way John described those price increases is right, depending on how it flows through the quarter for each of the regions, but we will in 3Q versus 3Q. 4Q relative to price and mix. It's probably slightly more in Q4.

Okay. Then Q3. Would you be at a full run rate, recognizing it's not the full year, but would you be at a full run rate on what you have in the market as you're exiting fourth quarter? Would that be roughly what you'd be contemplating there? Yes. Yes. Yes.

We would. So North America definitely be at the run rate by fourth quarter, end of fourth quarter. LATAM as well, and Europe, that would be the expectation.

Okay, my second question. We noticed the tax rate moved up a little bit. In terms of your guide, that can be a lot of different things. It's probably mixed. But could you help us understand why the effective rate moved up a couple points? I'll come back. Thanks.

Yes, George, that is mainly due to Brazil valuation allowance that we took on a deferred tax asset in a Brazil export entity. And the reason we did that, it was related to the VAT rules are changing in the future. and we merged two entities to really take advantage of $30 million of VAT tax credits we have in that entity. And it came at the expense of this valuation allowance for deferred tax assets. So $30 million. and VAT credits and it was approximately $9 million for this expense.

OK, but we would have stranded. Go ahead, John. I was going to say, we would have stranded that $30 million of tax credits had we not made that move this year before the law changes.

Okay, but it implies no change in terms of mix or for that matter your ongoing profitability based on what you were at last quarter.

that's correct george yes okay thank you be right back.

A reminder that if you would like to ask a question, please press star 1 to raise your hand. Your next question comes from the line of Matthew McKellar with RBC Capital Markets. Matthew, please go ahead.

Hi, thanks. Just one more for me. I thought slide 12 was pretty interesting. So I think about the more kind of operational focus items there, operational excellence, cost leadership, and maybe to some degree customer centricity. How much of that, I guess, do you need to get right to get to your $300 million free cash flow to the group?.

Thanks. It's a good question because we think about it in terms of the to achieve what we want to do. We want to be there across all these metrics, but in terms of the 300 million, probably the most important area for us is to, is one is the cost leadership. You know, we need to... We need to increase the rate at which we can and the level that we can reduce cost given these high inflationary environments we've had. across all regions and input costs. And additionally, I think it's important with our customer centricity. I mean, it's very important that given our strategy, where the flagship growth strategy is and where we want to run and, you know, to our assets at the end of the year, you know, at full capability, we need to make sure that our customers We have intense customer loyalty as the market continues to decline. And so it's very important that the customers, that we build and serve our customers to a level that's well above their expectations.

Great. Thanks for the perspective. I'll turn it back. Okay. Thank you. Thank you.

Your next question comes from the line of George L. Stavos with Bank of America Securities Incorporated. George, please go ahead.

Two quick ones. Number one, guys, I remember last quarter the update relative to the earnings impact from the footprint alignment related to Eastover. There was effectively a $20 million for the view that you'd be bringing in some tons. I remember mostly from Brazil to help on your volume and it would be a bit more economical. Obviously with tariffs changing again, maybe that situation has changed and I think you implied it or commented to it in one of the earlier questions. Can you update us on where that stands? And then. There was a comment in the slide about Eastern over and the softwood line. I was just curious, how are you using softwood in the mix out there? I'll come back.

Thanks.

So George, I'll take that first question. So based on the tariff changes, we will not be able to bring in as much much product from Brazil as we anticipated last quarter. So it looks like we'll be back near that 85 million dollar estimate that we provided back in February from our q4 call so uh so when we we said 20 million it's um essentially gone away from Brazil rather.

So back to the $85 million that we originally estimated. Yes, George, and to your question about the softwood, we really have two lines in terms of our wood fiber that we supply the mill, both hardwood and softwood. And generally we put about 30 to 40 percent softwood in the products, and mostly that's in the converting grades, which need strength.

Yes, I wouldn't – I forgot about you have some grids used for converting.

I will turn it over. I'll come back. Thanks. Your next question comes from the line of Mike Foxland with Truist Securities. Mike, please go ahead.

Yes, thanks again for the additional questions. Just two quick ones. First, can you talk about the impact on the US market from additional Canadian tariffs? think the US imports around 7% of supply from Canada. And so I'm just wondering what the new tariffs if and when they're implemented would mean for additional tightness in the US market. Second question, just wanted to find out from you, you know, your most profitable Brazil mill is not backward integrated. the Moji mill is backward integrated and losing money. So can you remind me why it's important to be backward integrated into pulp in Brazil? And what I would also notice, there was an article recently that a domestic US mill has decided to rely on market pulp to produce paper and discontinue the use of internal pulp and that's actually improved their return profile. So any call you have on why the integration is necessary in Brazil. Thank you.

Yes, Mike, when you think about the process to produce paper, overall integrated bill. Not only are you fully integrated, are you using? wood to produce the you know the fiber, but you also use that process of reclaiming the chemicals. keep barking at that you get barked. So you end up producing your energy, both electricity and steam from the process of um you know cooking the uh the wood and when you add that together collectively, typically a much lower cost way to produce the products that we make on Kodoo Free Sheet if you have a good source of wood. You know, given the competitive situation where you actually may have high cost wood and relatively low cost energy potentially. that may make sense, but where you have low cost wood, it's going to make more sense to be fully integrated. You know, trace the ghost is a non-integrated mill, but it has a unique position being attached to a pulp mill. So unlike buying market pulp, And then having to repulp that and put it back into your processes, we get them directly from the pulp mill from the Cezanne mill. We get that in a wet flurry, so no transportation costs, no repulping yet.

And also we have an agreement with the state the Solana mill to provide steam and energy at very attractive rates. So yes, that makes that situation down and pretty good. It may not be the highest margin business we own, but it certainly is the highest cash generation business because also you don't have the capital cost on the back end of the.

I would add John and for Mike for your benefit. So, Louisa Antonio is actually our lowest cost mill. even compared to Trace Lagos and John's comment around on a cash basis is important because you don't have you got a lot less equipment at Trace Lagos but uh Luis Antonio fully integrated uh you know using fiber is as low as cost.

Thank you. You asked about the impact on the Canadian tariff, and that was the tariff that was applied was on a very narrow product line of uncoded free sheet. And as you mentioned, it's imported or exported or comes into the US at a very small volume. So the impact of that on the North America market is minuscule. from the TARIF perspective. Thank you.

Your next question comes from the line of George L. Staffos. Bank of America Securities Incorporated. George, please go ahead.

Hey, guys. Last two from me, one on Europe and one on the bridge into third quarter. So for Europe guys, can you, I think you're answering it to Matt and I might've missed it, but have you quantified what benefits you're getting from improved fiber in Numola or you know, with a reasonable time period, like in the next quarter or two, annualized what kind of benefit on fiber you expect to get in pneumo relatedly What are you seeing in the pulp markets in Europe right now and what it's doing to the cost curve, especially for the non-integrated guys. So, you know, that's question one broadly. Question two, if we think about what you reported for 2Q, you did $60 million. Again, thank you for the pricing guide. Let's say you get half of that 75 to 85, let's call it 40 million of the midpoint of 80 right you have maintenance which comes down 40 I believe 2 Q 2 3 Q again correct me from wrong so that that's an 80, should we assume that the the Brazilian tons that are not coming in, that negative 20 offsets, you know, whatever volume and ops benefit you'd get. So basically we're looking at an 80 million benefit, 3Q versus 2Q, you know, what other good guys might help you add to that total? Thank you guys and good luck in the quarter.

Okay, it's a lot packed in there, George.

trying you know maybe take yes yes i appreciate that so on uh on europe let's talk about fiber so RELATIVE TO PULP, WHAT WE'RE SEEING WITH PULP ARE PULP PRICES COMING UP, BUT PROBABLY TO A STABLE POINT. AND RELATIVE TO THE NON-INTEGRATED PLAYERS, TODAY THERE ARE FEWER NON-INTEGRATED PLAYERS IN EUROPE THAN THERE WERE SOME years ago and I think the the what you traditionally saw where when pope went up it helped to put paper prices up. We're We're not seeing that as much anymore. Operating rates are still low. Pulp has come up somewhat. and we've gotten some traction on price but i think there's less relationship there and And, you know, pulp is up $112 a ton, euros a ton, sorry, say July year to date and prices are not up that much.

Okay. Relatedly, NUMLA and then the Bridge at 3Q. Thank you.

I THINK GEORGE, WE'RE NOT GOING TO, WHAT I SAID IS THAT WOOD COSTS HAVE COME DOWN ABOUT 20%. But we're going to see the impact of that. Like we're starting to just start to see the impact of that in the third quarter. and that'll carry through through the rest of the year.

and the breeding and the bridge yes back to your you're you're looking for more specifics on each of these, the buckets, if you will, for second half.

Yes, and I gave you some round numbers to work with when you're done.

Yes, and when I look at numbers at a very quick level, I mean, directionally, I would say you're in the ballpark. we would think. And of course there's some uncertainty around the input costs with the war, but generally that's right. The other thing too is, and maybe we need to talk about this in the volume and stuff. So we shipped the volume when the IEPA tariffs went away, We shipped, we made a change and moved from instead of importing in from our European operations, we imported in from Brazil. We've had to stop that due to the recent tariff implications, but that there was volume that was shipped into Brazil and not sold, right? Will be sold in the second half. I'm sorry to the US. And. Roughly, that means that you know the earnings for Brazil understand and we're going to see the impact of that in the second half in the mix.

And it's roughly nine to ten million dollars okay and and but that's not all going to hit the third quarter that'll as we sell it it'll be third and fourth quarter.

Okay. Thank you very much. We have reached the end of the Q&A session. I will now turn the call back over to John Sims for closing remarks. John, please go ahead.

Again, thank you for being on the call and thank you for the questions. We said and I said that 25 and 26 would be low points in our free cash flow generation and I would say that the first and second quarter were probably the nadir of that. But this is a transition year, 2026. And it is going to be a tail to have, which we've talked about during this call. Here we're executing our most significant investments that are Eastover Mill, and we'll drive a lot of value in the years to come. We've also launched our lane transformation, focused on exceeding our customer's expectations and driving improvement and accelerating that across all our operations. We are focused on the long-term value creation and will generate strong, sustainable results by diligently executing our flagship growth strategy, adhering to the disciplined capital allocation principles.

Becoming more customer-centric and institutionalizing lead management principles. We have a lot of confidence that we believe that as industry concerns, particularly in Europe and On the older markets, our capital spending normalizes and the benefits from our investments begin to materialize. We have the potential to generate annually greater than 300 million in cashflow, 15% greater than 15% returns on invested capital. So thank you. uh for being on the call thanks everybody have a great day and a great weekend bye.

Once again, we would like to thank you for participating in Silvamo's second quarter 2026 earnings call. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning. Thank you for standing by. Welcome to Silvamo's First Quarter 2026 Earnings Call. [Operator Instructions] 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 Don Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. 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 today's presentation. With that, I'd like to turn the call over to John.

Thank you, Hans, and good morning, everyone. I'm glad that you're joining our call. I'm on Slide 4. Today, I'd like to begin with a few important macro developments that have occurred since our fourth quarter call in February, which have led us to change our operating strategy to achieve our plans this year. First, the U.S. Supreme Court invalidated IEPA tariffs and the U.S. government responded to this by placing 10% tariffs on all trading partners. Europe had previously been at 15%, while Brazil was at 50%. This change benefits Sylvamo. And late in the first quarter, we began to bring product into the U.S. from our Brazilian operations while ramping down imports from our European operations.

Second, the Middle East conflict has resulted in higher energy, logistics and input costs. Across our regions, we are looking to reduce costs and taking commercial actions to help offset these impacts. Let's 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 taking this quarter.

The one exception is that our Nymolla Mill, where an issue with a debarking drum will not be corrected until the fourth quarter. We look at an important -- we took an important step in achieving our vision by launching our lean transformation journey in our Latin American business, along with our Mogi Guacu mill. I was in Brazil last week and was very encouraged by the energy and commitment the teams have in learning and executing the lean transformation. Lastly, yesterday, we completed the refinancing of our 2027 debt to extend our maturity profile, which sustains flexibility and maintains our strong financial position. Let's move to the next slide.

Slide 6 shows our first quarter key financial metrics. As a reminder from our last call, 2026 is a transition year as we work through some short-term capacity constraints due to 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 there. Our first quarter results came in as expected, except for the operational issues I mentioned.

We built inventory, which resulted in lower sales volume, and we also incurred the incremental cost due to sourcing and converting. We earned an adjusted EBITDA of $29 million with a margin of 4%. Adjusted operating earnings were negative $0.53 per share. As anticipated, free cash flow was impacted by lower earnings, the unfavorable impacts of our inventory build and the timing of payments. Keep in mind that our free cash flow is heavily weighted to the second half of the year. In the last few years, we generated the vast majority of our free cash flow in the second half, and we expect to do so again this year. Now I'll turn it over to Don to review our performance in more detail.

Thank you, John, and good morning, everyone. Slide 7 contains our first quarter earnings bridge versus the fourth quarter. As John mentioned, the quarter played out largely as we expected, with the exception of operations and other costs, which I'll cover shortly. In the first quarter, we earned $29 million of adjusted EBITDA compared to $125 million in the prior quarter. Price and mix were unfavorable by $13 million. Overall, mix was $17 million unfavorable, which more than offset the price improvements we saw in the quarter. About half of the mix was due to seasonably weaker mix in Latin America, which is normal for Q1, and the other half was driven by unfavorable North American customer and sourcing mix.

On the favorable side, paper prices improved in North America and Latin America as Q1 increases were implemented. Paper prices in Europe bottomed out in the quarter and previously communicated price increases are expected to realize in Q2. Volume decreased by $36 million due to normal Latin America seasonality and the anticipated inventory build in North America as we prepare for the end of the Riverdale Mill supply agreement and the extended Eastover mill outage in the fourth quarter. Operations and other costs were unfavorable by $29 million, with about half due to non-repeat of favorable fourth quarter items from year-end LIFO accounting in North America and green energy in Europe.

The other half was related to $9 million in manufacturing costs across our regions that John described earlier as well as $3 million in FX. Planned maintenance outage costs were flat Input and transportation costs were unfavorable by $18 million, primarily due to energy in North America, highly impacted by a onetime charge of $10 million from International Paper's Riverdale mill due to the exceptionally high natural gas cost from the winter storm.

Let's move to Slide 8. European industry supply and demand remains challenging, but pulp prices improved throughout the first quarter, and we are realizing the previously communicated paper price increases in April.

We have communicated a second paper price increase effective in May and expect the realization to occur through the second and third quarters. In Latin America, we moved from the seasonally strongest demand in the fourth quarter to the seasonally weakest first quarter, but now expect demand to increase each quarter throughout the year. This should positively impact our volume and geographic mix as the year progresses. We are realizing the previously communicated paper price increases to our customers in Brazil and to our export customers across other Latin American countries as well as the Middle East and Africa region and should continue to see additional realization throughout the second quarter.

In North America, industry supply and demand dynamics have improved as 7% of annual uncoated freesheet industry supply was removed with the Riverdale mill conversion. After peaking in June of last year, imports into North America have declined significantly throughout the second half of last year and into the first quarter. We also began realizing the previously communicated paper price increases to our customers and expect to see additional realization through the second quarter. We expect the Middle East conflict to continue pressuring costs across our regions as we go through the year.

We are already seeing increases in energy, chemicals, diesel and ocean freight in the second quarter. Let's move to Slide 9. As John mentioned earlier, the changes in U.S. tariffs have led us to bring in product from our Brazil operations while ramping down imports from our Europe operations. Last quarter, we provided you with an estimate of the adjusted EBITDA impacts of the North American footprint transition, which we indicated was about $85 million negative for the full year. Assuming that tariffs remain at the current levels, we now estimate total full year impact to be around $65 million negative, which is $20 million improvement from our prior estimate and will be realized mostly in the second half.

This improvement is the result of the mix improvement by redirecting our Brazil imports from the Middle East and Africa to the U.S. We will stay close to the situation and be prepared to go back to our prior plans should the tariffs increase in the second half. Let's move to Slide 10. Our capital allocation philosophy remains unchanged. We will deploy every dollar with the goal of improving. Let me go back -- excuse me. We're on Slide 10. This slide is to remind everyone of our planned maintenance outage schedule for the full year by region and by quarter.

We will have an increase of $20 million in the second quarter versus the first quarter as we have more outages in Latin America. 2026 is also different than past few years, where we have more than 80% of the total cost in the first half. This year, we had more than 50% of the total cost in the fourth quarter as we complete the investments in Eastover. Now let's move to Slide 11. Our capital allocation philosophy remains unchanged. We will deploy every dollar with the goal of improving our competitive position and delivering the best possible shareholder returns over time.

We plan to maintain a strong financial position, reinvest in our business and return cash to shareowners. The refinancing of our long-term debt allows us to navigate this uncertain environment without changing our thoughtful long-term approach to capital allocation. With a strong financial position, we can navigate the geopolitical and economic challenges and focus on improving 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.

These investments and improvements will help to grow earnings and cash flow in the future. Let's move to Slide 12. Yesterday, we refinanced 2027 debt to extend our maturity profile. We refinanced our term loan F that matured in 2027 with a new term loan F3 that matures in 2032. We also extended our accounts receivable securitization facility out to 2029. And here on Slide 12, you can see the before and the after picture of our maturity profile. This move provides flexibility and allows us to maintain our focus on taking care of our customers and improving our business while we navigate these external challenges. Further details are in the appendix and will be included in our 10-Q that will be filed later today. I'll now turn the call back to John.

Thank you, Don. I'll pick back up on Slide 13. Last quarter, I shared our vision that Sylvamo will be legendary. Legendary for the way we relentlessly pursue and achieve world-class excellence in all that we do. Consistently performing at world-class levels will create substantial lasting value for our employees, customers and shareowners and will enable us to be the employer, supplier and investment of choice.

Let's move to Slide 14. As we strive to achieve world-class standards in the areas that define our success, we are establishing an employee-driven continuous improvement culture by transforming the company to a lean-driven mindset. By incorporating a lean mindset and best practices into our everyday efforts across all functions, we expect significant improvement in the following areas: customer centricity. Lean transformation will help to enable a new standard of customer experience and loyalty, where we strive to be truly outstanding, and this is critical to our strategies.

Operational excellence, lean transformation will also help to enable best-in-class levels of efficiency, reliability and performance in our mills and supply chains, ensuring that our operations consistently deliver to the highest standards. Cost leadership, the impact that lean transformation will have on our customer centricity and operational excellence to combine to enable us to attain industry-leading cost effectiveness through an employee-driven continuous improvement culture, strengthening our competitive position and ensuring sustainable results.

Now let's turn to Slide 15. Lean is a long-term company-wide strategic transformation, not a short-term change program. Over the next 3 years, our objective is to embed continuous improvement into how we run the business, so performance improvement becomes systematic and self-sustaining. Our lean transformation is focused on maximizing customer value by eliminating waste, improving performance and engaging every employee, starting with a structured hands-on rollout supported by expert partners. We kicked off our efforts in our Latin American business and have value stream mapping underway at our Mogi Guacu mill to identify waste and unlock cost savings across end-to-end processes.

We will also be conducting Kaizen improvement events driving employee engagement and building a culture of continuous improvement from the ground up. Later this month, we'll kick off our lean efforts in our North America business and across our corporate functions at our world headquarters. We'll then roll out lean in our Ticonderoga mill later in the second quarter. We'll continue expanding across all regions, businesses and locations, targeting efficiency improvements and margin gains.

Let's go to Slide 16, where I'll provide an update on our investments at our Eastover mill. Our high-return strategic investments at our Eastover mill are on track and making solid progress. The paper machine optimization project will add 60,000 tons of uncoated freesheet, reduce costs and improve our mix and efficiency. This project is on schedule with the bulk of the work to be completed in the fourth quarter during a 45-day planned maintenance outage.

The brand-new state-of-the-art sheeter is also on schedule and will start to be installed in the third quarter and will be ramping up in the fourth quarter. The woodyard modernization project is on track. The hardwood line is operating as of May 1, and we're already seeing significantly improved chip quality and expect to see better yield going forward. We plan to start up the softwood operation in the first quarter of 2027. These are high-return projects that will generate incremental earnings and cash flow for the long term.

Now I'll conclude my remarks on Slide 17. As I stated in my CEO letter to shareowners earlier this year, 2025 and '26 will be low points in our free cash flow generation as we weather the cyclical industry downturns, particularly in Europe and complete these investments at our East River mill. We are focused on long-term value creation by making disciplined data-driven decisions that position the company for sustainable success and strengthen Sylvamo for decades to come.

We will generate strong and sustainable results by diligently executing our flagship growth strategy, adhering to our disciplined capital allocation principles, becoming more customer-centric, institutionalizing lean continuous improvement principles and digitally transforming our business and operations. As industry conditions turn, our capital spending normalizes, the benefits from our investments begin to materialize, we have the potential to generate annually greater than $300 million of free cash flow and greater than 15% returns on invested capital. So with that, I'll turn it back over to Hans. Hans?

Thanks, John, and thank you, Don. Okay. Samantha, we're ready for questions.

[Operator Instructions] Your first question comes from the line of George Staphos with Bank of America Securities.

Appreciate the detail. I'll ask a couple of questions and come back in the queue, but I do have a bunch to go through. I guess, first of all, John, the company talks about operational excellence being legendary in terms of service and the like. And I recognize you're still early in that journey. That said, what was going on with operations reliability in that $9 million number that you called out, particularly in LatAm, as I recall, and correct me if I'm wrong, I thought LatAm was expected to be better operationally or at least not as much of an issue as Europe in this quarter. So that's question number one.

Question number two, you called out or pointed to some mix factors in North America in the first quarter. What was behind that? And related to price, not expecting you to talk about future price increases forward-looking or whatever. But for the pricing that is in the markets right now in the publications, if we hold that, what price benefit do you get in 2Q versus 1Q sequentially or for the year?

George, thank you. I thank you for joining the call and your questions. So I anticipated the questions on the reliability issues. And yes, I mean, I guess, key to our performance if we're going to delight the customer and increase customer loyalty, reliability and operational efficiencies is critical to that. That's why we're implementing the lean process, but also we are strengthening and have been focusing on mill reliability process and systems. And the biggest focus we've got there is ensuring that we're investing to maintain the equipment and also we're putting in the right processes and also training and development of our workforce.

And those are all critical aspects to being world-class in that performance. And we're clearly not there. I mean this is what this indicates the issues that we've had is we've got work to do around our reliability. As it pertains to the particular items we had, both Mogi and Luiz Antonio had issues in the power plant and also in the digesters that needed to be fixed actually in the annual outage. So Mogi is right now down going through its annual outage. So the issues that we had in the first quarter, we actually continue to see that in the first month of this quarter, and now we're planning on fixing that. Luiz Antonio's outage is not until June.

So we are continuing to struggle some there with that mill and its performance, and that's driving higher increased operating costs, the use of chemicals and whatnot that's impacting us. If you look at Europe, the biggest issue we had was Saillat. There was a turbine generator that's operated by a third party that tripped. And the issues we had in Europe also occurred in area when it was a cold winter and probably the worst timing that we could have. But this issue knocked the Saillat mill offline for a couple of days until we could get back up and running.

And then Nymolla, we also had boiler issues at the beginning of the year. And then as I mentioned, I think, in the prepared remarks that we have 2 debarking drums in Nymolla, but one of debarking drums due to mechanical failure is offline. It won't be -- we won't be able to fix that until the fourth quarter this year.

Your second question.

I guess -- so just before we go there, you described what happened. I guess my question would be following up, why? So like why did the issues come up at Mogi in Louiz Antonio, why didn't necessarily -- not you, but the team sort of determine what was happening and prevent it from occurring. And the same thing in [indiscernible], especially with the boiler and the debarking.

Yes. So in terms of the why it would be different for each of these, whether it's mechanical failure or an operating area. We do a detailed root cause failure analysis on any of these significant events, and those have been done here. And then we put a lot of effort into ensuring that we correct and also communicate what we learned across those failures. But in all those cases, we think that -- except for the one in SIOP because that was out of our control, that was a third-party operator area.

Everyone points to an area where we've got to either improve our reliability process systems, identifying those areas that could fail and making sure that we're taking corrective actions before that occurs or training and improving the quality of our workforce so that the right operating decisions are made, and that's all what we're working on, George.

Appreciate that.

John I can take that...

On the pricing and mix?

Yes, George, this is Don. I'll take that mix question. So George, Q1, a couple of big things in mix in Q1. So in Latin America, it's seasonally weaker for us. And what's happened typically is there's less domestic Brazil volume, which is our most profitable and more export as a percentage of the mix. And so that has a -- we expect that. It's normal for the quarter. And in Brazil, what typically happens is it gets stronger as the year goes on all the way through the fourth quarter. And in North America, it's a little different situation. We are -- as we prepare for the Riverdale and Eastover, the Eastover outage later in the year and the Riverdale supply agreement going away, we're using third-party sheeting.

We're buying some volume from third parties buying paper. And we're doing this so that we have the inventory to serve our customers and really preserve our customers as we ramp up Eastover later in the year. And so it's a cost that shows up in mix because the margins on that either externally sourced or converted paper is a bit lower. So those are the 2 main reasons. And really, we cited this as a one -- the North American piece is a onetime in our February call that we wouldn't expect to have next year as we ramp up the over and the sheeting operations in Sumter.

Okay. And on the pricing impact?

Make sure I understand your third question was around the pricing and the pricing realization.

Yes. If we just hold where the publications are right now, what would it mean for benefit, if any, price-wise, 2Q versus 1Q or rest of year versus 1Q? However you want to discuss it?

Sure, George. So we announced increases across all the regions. So I think it's best if we just go around the regions to talk about what we saw and what we're in the process of realizing from what we've announced to our customers. So in North America, we communicated a price increase of 5% to 8% range to our customers. We're realizing that increase within that range. We began to -- we start to see that in March, and it's going to go through the bulk of it, we'll see that in the second quarter coming through. In Brazil, we announced a 5% increase on cut size for January, and we realized about 2/3 of that in the first quarter.

In the other LatAm markets, we communicated about a 7% increase for Q1, and we realized about 1/3 of that in the first quarter. And that's about all we're going to get from that one, but we did announce a second increase of 7% to customers for the second quarter we will start to realize that in May. In Middle East and Africa, and we export this from -- mostly from Brazil, but also some from our European operations, we implemented a 4% increase in the first quarter. and we realized that in the first quarter, and we're implementing a second increase for the second quarter, which we should start realizing in May.

And in Europe, we communicated a 4% increase to our customers in the first quarter. And in Europe, we actually saw prices go down in the first part of January. And then we started to see -- realize this 4% increase, and we'll get about half of it through April. And that's probably about all we're going to get from that first increase. However, we communicated the second increase of 8% effective in May, and we expect to start realizing that in the second quarter.

And you'd rather not give us a dollar number for 2Q versus 1Q at this juncture given all of that.

That's right. Yes.

Your next question comes from the line of Matthew McKellar with RBC Capital Markets.

A couple just on costs. Could you speak to the input and transportation cost pressures you're seeing compared to where you were at the start of the year, what does that incremental headwind look like on an unmitigated basis? And what amount do you expect to be able to mitigate in some way? And then just circling back on Nymolla debarker, what's the ongoing cost impact there before you can address that in Q4? And is that just a cost issue? Or are there constraints on production as well?

Thank you, Matt. This is Don. I'll take those questions. So relative to cost and input and transportation, -- what -- so the cost in Q1 was relatively small. But as we look forward and for Q2, in particular, we think it will be about $15 million, and that's across things like chemicals, energy and distribution. And it's split fairly evenly across our regions. So roughly $5 million per region. And for Nymolla, so this debarking drum issue, it occurred in March.

We're incurring about $1 million to $2 million a quarter of additional cost. And the plan is to do the repair in September. And so the fourth quarter, we should see improved costs. And really what we're doing is we're -- we have no impact to production as we're sourcing external chips, and that's the incremental cost.

Okay. And maybe just as a follow-up there, the $15 million you called out, is that essentially the sequential impact that we should expect quarter-on-quarter? Would you describe, I guess, the run rate cost impact any differently based on current costs?

It would be roughly that amount sequentially in Q2, yes.

And Matt, these are costs that are due to the Iran war situation. So how that plays out going forward, it's anybody's guess, but that's what we see really essentially for the first quarter -- second quarter.

Yes. And Matt, we had less than $2 million, $1 million to $2 million of what we would call war-related inflation in Q1. So it's 15 versus 1, call it, so roughly incremental. 14.

Okay. Okay. Fair enough. And then one more for me, and I'll jump back in the queue. Pretty high-level question. You talked about having the potential to generate $300 million of annual free cash flow. When we think about your investments and expansion in Eastover, investment in LatAm fiber supply, lean transformation and now prices inflecting in all regions, particularly maybe in North America where conditions seem quite tight. What else still needs to change in the market or in Sylvamo specifically to drive you to that $300 million level in 2027, at least on a run rate basis, particularly if we strip out some of the remaining $15 million or so of Eastover spend, I think you said trickles into the next year and maybe any ramp-up of your investments as well.

Yes. So Matt, it's John. I think you captured most of the big items. So certainly, the Eastover investments and what we're doing there, the better mix in Latin America on shifting exports from [ EMEA ] to U.S., improving mid-cycle margins, particularly in Europe, but also down in Brazil and the OLA markets, the other LatAm markets, improvement there. Lower cost and improved productivity, which we're going to be driving through the lean transformations, the work that we're doing, increasing reliability and workforce planning and training, lower wood costs, particularly in Europe, and that's really driven by Nymolla because we're seeing the decreases right now coming through.

We talked about it, but we'll provide probably more detail around what we're doing with digital transformation as it pertains really to our mill system as well as on the commercial area. We haven't really explained a lot of that, but we intend to do that in future earnings calls. And then capital spending will normalize. This is after the investment at Easter, we'll see capital spending come back to normalized level.

Okay. So I mean, is it fair to say it's kind of continued execution of some of the programs within your control and then markets getting a little better in other LatAm and European kind of regions?

That's right.

Yes, I think that's correct.

Your next question comes from the line of Daniel Harriman with Sidoti.

I just wanted to follow up on Matt's last question. I think the $300 million cash flow target for '27 was -- came out prior to these price increases across all 3 of your regions. So just wanted to get a sense from you of where you see the stock's valuation right now and other uses of that cash. I know there hasn't been any share repurchases in the past 2 quarters. I'm not sure if that has to do with the leverage ratio you want to get to prior to getting back into the market.

And then also around tariff sensitivity, based on the 10% tariff that's in place through July '24, just curious how you're thinking about the second half if that tariff structure changes either way or gets worse, would you go back to importing from Europe? Or are you exploring other opportunities as well?

Daniel, let me talk about the $300 million. So if you remember even from my CEO letter and based on that was expectations that we expected that the markets' margins, particularly in Europe, would normalize. It wasn't sustainable with where the margins are in Europe and also in the other LatAm markets. So that was built into some of that when we think about the $300 -- achieving the $300 million of cash flow.

I would add to that, Daniel, that a large portion of the path to this 300 million is Eastover. We pointed out in our previous earnings call in February, the onetimes that we're experiencing, but you're also -- we'll also see the benefits of additional volume from Eastover, which is our lowest cost mill. So a large portion of the 300 million will be Eastover operating after the speed up in the new sheeter, and that's a significant portion of the $300 million. And relative to -- we never said 2027. I think this $300 million is a goal for us in the future is the way John stated in his CEO letter.

Yes, but within 3 to 5.

Within 3 to 5 years, yes. So relative to the stock -- where we see the stock value and if I step back and think about our cash situation for the year and our capital allocation strategy philosophy. We look at 2026, we've got big commitments both in the Eastover. Prior year, we returned last year, 350% of our free cash flow to shareowners. We're managing cash levels as we focus on executing the Eastover footprint transition. We're making big strategic investments at Eastover. We want to make sure we have a strong balance sheet through 2026.

I think our philosophy around share buybacks is the same, and it's that if we believe it's our intrinsic value, the share is trading less than our intrinsic value, then we will do buybacks. I think 2026, we're being prudent to manage through a very uncertain year with tariff changes, with economic changes and the Middle East conflict impacts as well. And I think we got to navigate 2026.

But Daniel, let's be clear that we believe that our share price right now doesn't reflect the intrinsic value of the company. We believe it's undervalued. But we're taking a very conservative approach to cash just because of the issues -- not the issues, but the fact that we're in this transition period, so there's a big use of cash in the first half of this year. We've got a war in uncertainty. So we're taking a conservative approach with our balance sheet. And so we're deferring more to that than we are to taking an opportunity to buy back our shares.

And I think to your last question, Daniel, today, relative to the tariffs, today, the paper products from Brazil are subject to a 10% tariff under the Section 122, and it's consistent with the tariff applied to other countries. But as of today, that expires late in July, July 24. We expect the administration will apply new tariffs on Brazil before that expiration of the Section 122 tariff.

So it's difficult to predict what level the Brazil tariffs will be set. There was a Trump in Lula meeting yesterday, and the preliminary feedback is positive, but it still doesn't give an indication. I think that the way we're thinking about this is we have flexibility at the 10% level, it makes a lot of sense for us, and we'll continue to do that. If it goes to a different rate, we'll have to reconsider what we're doing for the balance of the year after July.

Your next question comes from the line of Michael Roxland with Truist Securities.

This is Nico Piccini on for Mike Roxland. First off, on Europe, I think you've mentioned in the past that business has been more of a bet on the future. And I'm just wondering how you see the path to improving earnings there and your thoughts on the business, especially as your peers in the area are either contracting or reorganizing given the weaker supply-demand dynamics? And then how is the -- when is that slated to be in the kind of lean transformation process?

So thank you for your question. Can you repeat your second one? I'm not sure, but what was your second question?

Yes. So the -- when does that fall in the lean transformation process that you're already doing in Latin America and are going to start doing in North America in 2Q?

Let me address the first question about the Europe question. So yes, it's a bet on the future because we believe that over time, the industry will continue to consolidate and become more hospitable to earning above cost of capital returns. in Europe as it does consolidate as the market declines. And that, of course, isn't right now the case. It's a market that is very fractured and margins are low. Where we are focusing on what we can control, and it's really specific to each of our -- 2 of our facilities. So in the Saillat, we've been focusing on significantly reducing fixed cost and also improving our mix of products, shipping more out of commodity cut size into more of the value-added roll business, which has higher margins and also into other type of grades there, and we're executing that, and that is going actually better than planned in terms of the mix improvement.

At our Nymolla mill, it's about reducing our wood costs. We've -- when we purchased that mill, there was an agreement that the wood was going to be supplied from a joint venture, S, we have moved away from that, taking control of our own sourcing of our own wood. We've seen wood cost has come down, and we're expecting that to continue to move. We're also increasing the yield and working on consuming less wood. We've also exported in cheaper wood from the local sources, putting a lot of efforts into reducing our wood cost there and also improving our operational efficiencies at our Nymolla mill.

We believe that these moves with the increasing pricing and margins there will improve the business. going forward. And I think your second question was around the lean transformation. And where we started -- this is -- we expect the lean transformation to be a 3-year process, but we expect to get immediate and significant report results in the areas that we start to implement that. We started at Mogi Guacu mill here just recently. We've already got target improvements in certain areas that is around almost a 50% improvement in certain areas.

But as I shared with you in the presentation, we're rolling that out here and going to be in North America at the corporate areas, we'll be going back to Brazil. And then next year, early next year, we'll be in Europe as well as at the Eastover mill. I'm not sure if that answers your question, but on the lean transformation.

Yes. No, that's helpful. I appreciate it. I just have 2 additional follow-ons. One is on the mix issue in North America in the first quarter, given that's related to the kind of the Eastover 4Q downtime and the Riverdale conversion, should that change quarter-to-quarter, like Q1 to Q2? I apologize if I missed that earlier. And then the second one is if you can comment how your relationship is with your large shareholder.

Yes, Nicccolo, I will take the first question relative to the mix. We do expect that to continue into Q2. And so what we're doing is we're making sure we have the inventory to enable us to serve customers as we get through as the Riverdale supply agreement goes away. And as I said, the Eastover speed up in sheer installation in Q4. So we're preparing to get through that big outage, which is 45 days at Eastover. So we'll build more inventory in Q2. It will look similar.

And then I think your second question was around our largest shareholder, happy to take that. Actually, in the first quarter, I did meet with them, and I'll share with you that they expressed to us they continue to support our strategy and have confidence in the management change. They were very supportive of my CEO letter. I thought we were spot on in terms of what we're focusing on and the long-term value creation targets of greater than $300 million of free cash flow and a 15% return on invested capital. So I would characterize our relationship with Atlas is very positive, and they continue to be very supportive of our strategy. And in fact, we continue to meet on almost on a quarterly basis. We expect to meet this quarter where we continue to get their feedback, guidance and...

On the company, and we do appreciate their feedback. Our next question comes from George Staphos with Bank of America Securities.

A few follow-ons. So first of all, Eastover, are you still on track for $50 million? Should we expect that in 2027? How is that going in terms of the value generation from that?

Yes. So George, thanks for asking the question on Eastover. Yes, everything is on track, as we said. So everything is moving on schedule within the budget that we planned from the capital spending, and we're expecting installation in the fourth quarter. And as we said, the sheeter is actually going to be landing here shortly, and we'll start to install that and start to ramp up in the training of the crew and getting that ready to operate by the time the Eastover is ramped up. And so we do have a ramp-up schedule. So the $50 million, we still are 100% behind that number. It will ramp -- you won't see the full $50 million in the first year because there will be a ramp-up period, but you'll see a significant portion of that in 2027.

And George...

$40 million, would that be significant as you see it, John? Sorry about that Don.

Yes. Yes, that's directionally right.

Yes. And just to add to that, George, the reminder of the onetimes go away. So you have the ramp up of the benefits and then the onetime costs go away. So Eastover improve next year is significant. Onetimes that we in Canada.

Yes. The $85 million, which is now $65 million, if I'm correctly refraining, okay, great. reminding. Okay, perfect. Second question. So with lean programs, right, my time covering the sector, usually, you put in lean programs when things are relatively smooth, right? It's continuous improvement. at Sylvamo right now, I know you're working on this, but you've got a lot of individual fires you're trying to put out. You've got the digester and power issues in South America. You've got debarking issues. You're trying to bring up Eastover. Why are you putting in a lean program now? Wouldn't it be better to...

Well, that's a good...

I mean everything is established and then you can do continuous improvement on a baseline?

George, I think the way we think about it is that first of all, we're going to have reliability issues. We want to minimize that as much as we can. But we believe that right now, where we are with our operations and our facilities, we certainly can fully implement the lean management system going forward. But we have a very engaged, highly engaged crew and team. We believe there's a lot more opportunity to really tap into the talent of those teams. And that's what lean does because it's an employee-driven continuous improvement. When I talk about being legendary in pursuing world-class excellence. We need every employee to be able to help us do that. And that's why we're implementing the lean it's the best mechanism, we think, from a cultural perspective to really tap into the talent, and we do have a very talented team. I think that's one of our strengths.

John, no doubt about that.

We would think it's a miss, George. Yes. We think it would be a miss for us not to tap into it now to wait. And generally, we believe that we're not in a crisis mode, right? It's -- we have an issue that hit us really hard in the first quarter, but it's not a systemic issue that we would want to wait to implement our lean journey.

Okay. I appreciate that. What incremental benefit should we get out of lean? You've had other cost reduction programs. What do you get next year incremental from lean to the bottom line at Sylvamo? And what do you think you get on an ongoing basis?

Well, we think that we could achieve probably double the improvement rate that we have been achieving, but that's when we fully implement it. So we're looking at 3 to 5 years. So as we ramp it up, we think we can double the improvement rate, which to lean to do. I mean what we've been faced with is not just us, but across the industry and across the industrial sector is increased rates of inflation and costs that's making the previous rates of improvement is not at the levels that it needs to be sustain margins.

Yes. John, I appreciate that. And we applaud that you're taking care of the house no matter the environment. But I was just trying to get a sense of what's behind the program, what benefit. And I know you said you get 2x the improvement, but what does that mean in terms of dollars? And then kind of my last question on this round, I appreciate you taking all these questions. Does there get to a point and when Europe just becomes -- I don't know how to say it, but too much of a drag relative to the performance you're seeing elsewhere in your operations and you need to think even more significantly about its place in the portfolio. So how much benefit from lean dollar-wise? And when does Europe become too big of a drag?

Or, from a dollar-wise to your question on the lean, we really haven't really talked about and publicly disclosed what our improvement levels are from a year-over-year and what our targets are. I'm hesitant to do that going forward. In terms of Europe, I think you -- we always -- and we have to, we continuously evaluate our portfolio as part of our capital allocation strategy and philosophy when we look at it as we -- I think I talked about on the last call and also we're looking at all options. We have to. We're looking at can we operate differently, how fast can we accelerate the improvements are there things that we can do differently.

And I think the question you raised is something we always -- we've got to continue to do, and that's look at the portfolio and does it make sense and are we -- is the right to be in Europe because ultimately, we want to drive value for our shareowners. But I can tell you right now, as we sit today, we believe that we have the right strategy that we're pursuing in Europe, and we think we've got the right leadership team. We're committed to our customers there, which we have very strong customers and relationships with. So we -- our strategy right now is to continue to improve the performance of that business.

Your next comes from the line of Matthew McKellar with RBC Capital Markets.

Just one follow-up, please. With how tariffs have evolved and assuming, I guess, they don't change in magnitude from here. So whatever happens after Section 122 looks something like the 10% level, would you expect to continue to supply some amount of Latin American paper into North American markets even after the Eastover expansion ramps up? And maybe just relatedly, what's your sense of how imports into the U.S. might be evolving more broadly, just at an industry level with tariffs resetting lower?

Yes, Matthew, I'll take the first part of your question relative to -- so we -- relative to the Brazil imports. So we do -- if the tariffs are in the right range for us at 10% is -- it works, we will continue to import from Brazil into North America. It's part of the supply plan even after the Eastover speed up. So it will be part of the plan. And it makes more sense for us if you think about low margins of Brazil exporting into Middle East and Africa versus bringing it to North America. And we have a pretty wide range on what makes sense from a tariff standpoint. So we'll continue to import.

Matthew, I think you asked -- did you ask what is the import situation in North America with the trend? Was that your second question?

Yes. That's right. Just at an industry level and post the IEPA tariffs coming off.

Yes. So we did see imports increase at the beginning part of the year. They got up to around 16% of demand, but we've seen a steady decrease of imports coming into North America, and it's roughly dropped down to the lower end of what's been typical at the lower end of the range, around 10% of total demand. And some of that is driven because of the tariffs. The other is -- some of it is impacted by the Iran war. So it's increasing freight costs, but also there was a mill that exported to the U.S. from that area that's not operating as a result of the war.

Okay. So even over the past month or so, there doesn't seem to be any kind of inflection in import activity that you're aware of despite, I guess, the tariffs moving lower and you kind of attribute that to in Atlanta and maybe transportation costs downstream of that?

That's right. So that's why we've actually seen imports continue to decrease, and we expect that to happen. There's a mill also in Finland that was exporting a lot of volume, I think 30,000 or so tons annually to the U.S., and that mill has been indefinitely idled as of November last year. So there's some little bit of things like that, that also have decreased the imports.

We have reached the end of our Q&A session. Thank you. I'll now turn the call back over to Hans Bjorkman for closing comments.

All right. I'll let John do a quick wrap up here, and then we'll let you get on to the rest of your day.

Yes. Thanks, Hans. And again, thank you for joining the call. As I said, 2025 and '26 will be low points in our free cash flow generation as 2026 is a transition year for us. And it also will be a year of 2 halves. In the first half, we will be impacted by the transition costs plus input costs, while the second half should see improved pricing and margins and mix improvements across all our regions. This will be a year where we're executing our most significant investments in our East River mill that will drive a lot of value in the years to come.

We have launched our lean transformation and focusing on exceeding our customers' expectations and driving improvement across our operations. We are focused on long-term value creation that will generate strong and sustainable results. by executing our flagship growth strategy and disciplined capital allocation. And as I said, as industry conditions turn, our capital spending normalizes and the benefits of our investments begin to materialize, we believe we have the potential to generate greater than $300 million of free cash flow and greater than 15% return on invested capital. So again, thank you for joining. I hope everybody has a good day. Bye.

Thank you.

Thank you for participating in Sylvamo's First Quarter 2026 Earnings Call. You may now disconnect.

Good morning. Thank you for standing by. Welcome to Sylvamo's Fourth Quarter 2025 Earnings Call. [Operator Instructions] 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, Kate. Good morning, and thank you for joining our Fourth Quarter and Full Year 2025 Earnings Call. Our speakers this morning are John Sims, Chief Executive Officer; and Don Devlin, Senior Vice President and Chief Financial Officer.

Slides 2 and 3 contain important information, including certain legal disclaimers. For example, during the 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 today's presentation.

With that, I'd like to turn the call over to John.

Thank you, Hans, and good morning, everyone. I'm glad that you are joining our call. For your reference, I'm on Slide 4. Before we begin discussing full year and quarterly results, I want to start by sharing with you my vision for Sylvamo, a vision that is fully embraced by our Board and our leadership team.

My vision is Sylvamo will be legendary. Yes, legendary. To be legendary is to defy expectations, create lasting value and inspire others. And what will be legendary for, we will be legendary for the way we relentlessly pursue and achieve world-class excellence in all that we do. This will create substantial and lasting value for our employees, customers and shareowners and will enable us to be the employer, supplier and investment of choice.

So let's move to Slide 5. We will strive to achieve world-class standards in the areas that define our success, and these are: safety and well-being. We will foster resilient safety and well-being culture in which serious injuries are eliminated and every team member returns home safe every day.

Employee engagement. We will be admired for cultivating a workplace where employees feel valued, empowered and inspired. Inspirational leaders at every level at Sylvamo will unite their teams around our vision and amplify each individual employee's talent by listening to them and engaging them to drive continuous improvement. We are passionate about making paper that educates, connects and enriches lives, and we will set high standards to achieve world-class performance together.

Customer centricity. We will set a new standard for customer experience and loyalty, striving to be truly outstanding. Our commitment is to deliver superior value and service to our customers, earning their trust and loyalty. This is critical to our strategy.

Operational excellence. We will achieve best-in-class levels of efficiency, reliability, performance in our mills and supply chains, ensuring that our operations consistently deliver to the highest standards.

Cost leadership. We'll attain industry-leading cost effectiveness through disciplined management and continuous improvement, strengthening our competitive position and ensuring sustainable results.

And finally, sustainability, we will operate responsibly, protecting and enhancing forests, uplifting communities and improving our planet's future through sustainable practices.

Let's go to Slide 6. As Sylvamo's CEO, my commitment to you is to allocate capital wisely and to focus on long-term value creation. I'll communicate transparently, providing context, rationale and honest assessment of our decisions and performance while making disciplined data-driven decisions that position the company for sustainable success and strengthen Sylvamo for decades to come. We seek to attract and retain high-quality, long-term shareowners who share our vision for disciplined capital allocation and sustainable value creation.

In 2024, following extensive dialog with our long-term shareowners, we discontinued providing full year adjusted EBITDA and free cash flow guidance. That decision reflected our belief that long-term value creation is best supported by disciplined capital allocation rather than focusing on short-term earnings targets.

After careful consideration, we've decided to discontinue providing quarterly adjusted EBITDA outlook. We believe this change further aligns our external communications with how we manage the business and our goal to attract and retain high-quality long-term shareowners who share our vision of long-term value creation.

Importantly, this decision does not represent a reduction in transparency. As you will see, we will provide a lot of detail throughout this call. We also will continue to provide selected financial metrics as outlined on Slide 25 in the appendix.

Now let's discuss the full year results. Turning to Slide 7. You can see that in 2025, we generated 12% return on invested capital as we executed our strategy during challenging industry conditions. We maintained a very strong financial position and balance sheet, achieving a net debt-to-adjusted EBITDA of 1.6x. We earned $448 million in adjusted EBITDA, generated $44 million in free cash flow and returned $155 million in cash to shareholders. We reinvested $224 million across our manufacturing network and our Brazil forestlands to strengthen our low-cost position. We also accelerated development of high-return capital investments. We are committed to being the investment of choice and believe we can generate significant shareowner returns in the future by executing our strategy.

Slide 8 highlights our 2025 full year key financial metrics. Our adjusted EBITDA was $448 million with a 13% margin. We generated $44 million of free cash flow, and our adjusted operating earnings were $3.54 per share.

Let's move to Slide 9. Our fourth quarter highlights include commercial success with our uncoated freesheet sales volume increasing quarter-over-quarter by 9%. Our operational teams also executed well, and our paper machines' productivity continued to improve. We took advantage of a planned maintenance outage at our Eastover mill to begin the upgrades to our paper machine project and significantly advanced the work on our woodyard project.

Let's move to the next slide. Slide 10 shows our fourth quarter key financial metrics. In the fourth quarter, we earned adjusted EBITDA of $125 million with a margin of 14% and free cash flow was $38 million. And we generated adjusted operating earnings of $1.08 per share.

Now I'll turn the call over to Don to review our performance in more detail.g challenging industry conditions. We maintained a very strong financial position and balance sheet, achieving a net debt-to-adjusted EBITDA of 1.6x. We earned $448 million in adjusted EBITDA, generated $44 million in free cash flow and returned $155 million in cash to shareholders. We reinvested $224 million across our manufacturing network and our Brazil forestlands to strengthen our low-cost position. We also accelerated development of high-return capital investments. We are committed to being the investment of choice and believe we can generate significant shareowner returns in the future by executing our strategy.

Slide 8 highlights our 2025 full year key financial metrics. Our adjusted EBITDA was $448 million with a 13% margin. We generated $44 million of free cash flow, and our adjusted operating earnings were $3.54 per share.

Let's move to Slide 9. Our fourth quarter highlights include commercial success with our uncoated freesheet sales volume increasing quarter-over-quarter by 9%. Our operational teams also executed well, and our paper machines' productivity continued to improve. We took advantage of a planned maintenance outage at our Eastover mill to begin the upgrades to our paper machine project and significantly advanced the work on our woodyard project.

Let's move to the next slide. Slide 10 shows our fourth quarter key financial metrics. In the fourth quarter, we earned adjusted EBITDA of $125 million with a margin of 14% and free cash flow was $38 million. And we generated adjusted operating earnings of $1.08 per share.

Now I'll turn the call over to Don to review our performance in more detail.

Thank you, John, and good morning, everyone. Slide 11 contains our fourth quarter earnings bridge versus the third quarter. In the fourth quarter, we earned $125 million of adjusted EBITDA compared to $151 million in the prior quarter. Price and mix was unfavorable by $21 million, primarily due to mix across the regions as well as lower paper prices in Europe and some of our Brazilian export markets. Volume increased by $18 million, largely due to Latin America and North America. Operations and other costs were unfavorable by $4 million, primarily due to seasonally higher costs in Europe. Planned maintenance outage costs were unfavorable by $17 million as we executed an outage at our Eastover mill after having no planned outages in the prior quarter. Input and transportation costs were slightly unfavorable by $2 million.

Let's move to Slide 12. The overall European industry supply and demand environment continues to be challenging. However, market conditions have started to show signs of improvement as pulp prices began to rebound in the fourth quarter and the improvement continues into the first quarter. Our European cutsize paper prices exited 2025 EUR 100 per ton below where we exited the year in 2024. We communicated paper price increases to our customers and expect the realization to begin in the second quarter. Wood costs in Southern Sweden are starting to ease, although there is typically a 3- to 6-month lag before we see relief in our operations.

In Latin America, demand is moving from the seasonally strongest fourth quarter to the seasonally weakest first quarter. This is also negatively impacting our geographic mix in the first quarter. We communicated paper price increases to our Brazil -- customers in Brazil and have started to see realization in January. We also communicated paper price increases to our export customers across other Latin American countries as well as Middle East and Africa region and are starting to see some realization in those regions in February.

Turning to North America. Industry operating rates are improving. After peaking in June of last year, imports into North America have declined significantly throughout the second half of '25. We communicated paper price increases to our customers and expect the realization to begin in the second quarter. 2026 will be a transition year for North America as we work through short-term capacity constraints with the Riverdale supply agreement exits and the execution of the Eastover investments. The next few slides will provide the details and context for how this will impact this year's financial results.

Slide 13 shows our capital spending outlook, which is expected to be $245 million in 2026 as we execute the majority of the $145 million investment at our Eastover mill. We expect '27 to return to prior levels as we wind down these strategic Eastover investments. And we are prioritizing strategic projects with the fastest payback so that '27 and beyond reflects lower costs, higher efficiency and stronger cash conversion potential.

Let's go to Slide 14. To provide an update on our Eastover investments, these high-return strategic projects will add 60,000 tons of uncoated freesheet, reduce costs and improve our mix and efficiency. The paper machine optimization project is on schedule with the bulk of the work to be completed in the fourth quarter during a 45-day planned maintenance outage. This outage is about 30 days longer than a typical maintenance outage. Brand-new state-of-the-art sheeter will replace an existing cutsize sheeter, which is also on schedule and will be installed at the same time as the paper machine optimization work.

The woodyard modernization project is on track, and we will be ramping up our hardwood operation in the second quarter. We are planning to start up the softwood operation in the first quarter of 2027. Again, we are investing in high-return projects like these to generate future earnings and cash flows.

On Slide 15, let me walk you through how we see the North American sales volume bridging from 2025 to 2026. First, we expect to receive about 100,000 tons from Riverdale this year, which is 160,000 tons less than 2025.

Second, the extended planned maintenance outage at Eastover will result in 30,000 fewer tons this year. To narrow this gap, we will be sourcing about 80,000 tons from our European operations. This will have a negative adjusted EBITDA impact to our European business of about $20 million due to tariffs and freight costs. We expect to gain another 35,000 tons productivity year-over-year. And we will also bring some additional external volume into our system to ensure we continue to serve our customers during this transition. Net difference is around 55,000 tons of lower sales volume in North America, with the majority occurring in the first quarter as we use our capacity to build inventory.

As a result, we will have an approximate $20 million negative adjusted EBITDA impact in North America in the first quarter due to lower sales volume.

On top of these items, we will have some additional impacts, which I'll provide more detail on the next slide, 16.

We have a clear plan to meet our most valuable customer needs during this transition. We're building inventory ahead of the extended Eastover outage in the fourth quarter, importing from our European operations, and we'll use external conversions to supplement our internal sheeting capacity. We'll then draw down inventory as we move through the second half of the year as the Riverdale supply agreement winds down and the strategic investments at Eastover are implemented in the fourth quarter.

In 2026, we will expect a negative $45 million adjusted EBITDA impact in North America from a combined sourcing mix, external conversion, freight impacts and onetime outage costs. Working capital timing over the course of the year nets to a negative $25 million overall related to inventory build and drawdown throughout the year and the settlement of our payable to International Paper for the Riverdale tons we buy.

Let's go to Slide 17 to pull all of this together. So here is a summary of the year-over-year adjusted EBITDA and cash impacts that we expect to incur over the course of 2026. North America adjusted EBITDA impacts will total approximately $65 million across these 3 items, $20 million from lower sales volume of 55,000 tons, $20 million from external sourcing, conversion costs and freight, $25 million from Eastover onetime outage costs. Not related to this transition, but we also expect a $10 million charge in the first quarter from International Paper due to unusually high energy costs resulting from the recent cold weather that impacted the Riverdale mill.

Europe adjusted EBITDA impacts will total approximately $20 million due to U.S. tariffs and freight on the 80,000 tons we'll be shipping to the U.S. From a free cash flow standpoint, in addition to the flow-through of these adjusted EBITDA impacts, we should expect a negative $25 million impact related to working capital.

In summary, 2026 is a transition year for North America and the $85 million of onetime costs will largely not repeat in 2027. We will also not have the onetime $10 million charge from Riverdale for the cold weather impacts that I mentioned. We are doing all of this in order to serve our valuable customers and be able to ramp up the Eastover volumes in '27 after we gain the additional 60,000 tons of paper machine optimization project and 30,000 tons from the non-repeat of the extended outage. We will benefit from the additional tons from Eastover, the efficiency and flexibility and lower cost of the new sheeter as well as low cost from Eastover.

On Slide 18, this illustrates our planned maintenance outage schedule for the full year by region and by quarter. Unlike last year, we had major planned maintenance outages in both mills in Europe. And this year, we only have a major outage at the Nymolla mill and it's in the fourth quarter.

2026 is also different than in the past few years where we had more than 80,000 tons or 80% of the total annual planned maintenance outage costs in the first half. This year, we have more than 50% of the total cost in the fourth quarter as we complete the Eastover investments.

We strive to create long-term shareholder value by executing our strategy and delivering on our investment thesis. Keeping a strong financial position is the cornerstone of our capital allocation framework. This allows us to reinvest in our business, to strengthen our competitive advantages through the cycle and increase future earnings and cash flow.

Since becoming an independent company just over 4 years ago, we've earned $2.5 billion in adjusted EBITDA, reinvested over $800 million to strengthen our business, generated over $960 million in free cash flow, reduced debt by more than $675 million and returned over $0.5 billion to cash to shareowners.

I'll now turn the call back to John on Slide 20.e 15, let me walk you through how we see the North American sales volume bridging from 2025 to 2026. First, we expect to receive about 100,000 tons from Riverdale this year, which is 160,000 tons less than 2025.

Second, the extended planned maintenance outage at Eastover will result in 30,000 fewer tons this year. To narrow this gap, we will be sourcing about 80,000 tons from our European operations. This will have a negative adjusted EBITDA impact to our European business of about $20 million due to tariffs and freight costs. We expect to gain another 35,000 tons productivity year-over-year. And we will also bring some additional external volume into our system to ensure we continue to serve our customers during this transition. Net difference is around 55,000 tons of lower sales volume in North America, with the majority occurring in the first quarter as we use our capacity to build inventory.

As a result, we will have an approximate $20 million negative adjusted EBITDA impact in North America in the first quarter due to lower sales volume.

On top of these items, we will have some additional impacts, which I'll provide more detail on the next slide, 16.

We have a clear plan to meet our most valuable customer needs during this transition. We're building inventory ahead of the extended Eastover outage in the fourth quarter, importing from our European operations, and we'll use external conversions to supplement our internal sheeting capacity. We'll then draw down inventory as we move through the second half of the year as the Riverdale supply agreement winds down and the strategic investments at Eastover are implemented in the fourth quarter.

In 2026, we will expect a negative $45 million adjusted EBITDA impact in North America from a combined sourcing mix, external conversion, freight impacts and onetime outage costs. Working capital timing over the course of the year nets to a negative $25 million overall related to inventory build and drawdown throughout the year and the settlement of our payable to International Paper for the Riverdale tons we buy.

Let's go to Slide 17 to pull all of this together. So here is a summary of the year-over-year adjusted EBITDA and cash impacts that we expect to incur over the course of 2026. North America adjusted EBITDA impacts will total approximately $65 million across these 3 items, $20 million from lower sales volume of 55,000 tons, $20 million from external sourcing, conversion costs and freight, $25 million from Eastover onetime outage costs. Not related to this transition, but we also expect a $10 million charge in the first quarter from International Paper due to unusually high energy costs resulting from the recent cold weather that impacted the Riverdale mill.

Europe adjusted EBITDA impacts will total approximately $20 million due to U.S. tariffs and freight on the 80,000 tons we'll be shipping to the U.S. From a free cash flow standpoint, in addition to the flow-through of these adjusted EBITDA impacts, we should expect a negative $25 million impact related to working capital.

In summary, 2026 is a transition year for North America and the $85 million of onetime costs will largely not repeat in 2027. We will also not have the onetime $10 million charge from Riverdale for the cold weather impacts that I mentioned. We are doing all of this in order to serve our valuable customers and be able to ramp up the Eastover volumes in '27 after we gain the additional 60,000 tons of paper machine optimization project and 30,000 tons from the non-repeat of the extended outage. We will benefit from the additional tons from Eastover, the efficiency and flexibility and lower cost of the new sheeter as well as low cost from Eastover.

On Slide 18, this illustrates our planned maintenance outage schedule for the full year by region and by quarter. Unlike last year, we had major planned maintenance outages in both mills in Europe. And this year, we only have a major outage at the Nymolla mill and it's in the fourth quarter.

2026 is also different than in the past few years where we had more than 80,000 tons or 80% of the total annual planned maintenance outage costs in the first half. This year, we have more than 50% of the total cost in the fourth quarter as we complete the Eastover investments.

We strive to create long-term shareholder value by executing our strategy and delivering on our investment thesis. Keeping a strong financial position is the cornerstone of our capital allocation framework. This allows us to reinvest in our business, to strengthen our competitive advantages through the cycle and increase future earnings and cash flow.

Since becoming an independent company just over 4 years ago, we've earned $2.5 billion in adjusted EBITDA, reinvested over $800 million to strengthen our business, generated over $960 million in free cash flow, reduced debt by more than $675 million and returned over $0.5 billion to cash to shareowners.

I'll now turn the call back to John on Slide 20.

Yes. Thank you, Don. Our flagship growth strategy remains unchanged. We will invest in low-risk, high-return projects to strengthen our uncoated freesheet capabilities and grow earnings and cash flow. This strategy is underpinned by 3 fundamental beliefs. The world will continue to rely on uncoated freesheet to educate, communicate and entertain for years to come. Our North America and Latin American businesses offer returns on smart investments in our assets and business processes that are well above cost of capital. Our competitive advantages, low-cost assets, iconic brands, strong customer relationships, global footprint and talented teams position us to successfully deliver on our strategy.

Our capital allocation philosophy also remains unchanged. We will deploy every dollar with the goal of improving our competitive position and delivering the best possible shareowner returns over time.

We will continue to maintain a strong balance sheet, reinvest in our business with discipline to strengthen operations and customer experience and return cash to shareowners.

Let's go to Slide 21. As I stated in my CEO letter to shareowners a few weeks ago, 2025 and 2026 will be low points in our free cash flow generation as we weather the cyclical industry downturns, particularly in Europe and complete investments at our Eastover mill.

We are focused on our long-term value creation will generate strong and sustainable results by diligently executing our flagship growth strategy, adhering to our disciplined capital allocation principles, becoming more customer-centric, institutionalizing lean management principles and digitally transforming our business operations.

As industry conditions turn, our capital spending normalizes and benefits from our investments begin to materialize, we have the potential to generate annually greater than $300 million of free cash flow and greater than 15% returns on invested capital.

I'll conclude on Slide 22. We seek to attract and retain high-quality, long-term shareowners who share our vision for disciplined capital allocation and sustainable value creation. We look forward to deepening our dialog at Investors Day later this year, where we will share more details on our strategy, capital allocation priorities and progress towards achieving our vision.

I'll now turn it over to Hans.

Thank you, John, and thanks, Don. All right, Kate, we're ready to take questions.

[Operator Instructions]Our first question is from Daniel Harriman with Sidoti.

I'll start with 2 regarding operations in Europe, and then I'll get back into the queue. But first, you called out wood costs in Sweden, but then I was hoping you could update us on your efforts to improve mix and win new customers in the region. I believe you called out a few of those items on the third quarter call.

And then similarly, with cutsize pricing down in the region versus the prior year, as we think about potential margin improvement in Europe in fiscal '26 and into '27, how dependent is that improvement on price realization versus some of the internal levers you can pull?

Dan, thanks for your question. This is John Sims. In terms of the efforts around improving mix, one key driver of that was an investment we made at the Saillat mill, which was successfully started up and implemented in the last part of the fourth quarter. And I can tell you that, what that does is, it drives us -- allows us to produce and sell more roll business into the converting markets versus commodity cutsize out of the Saillat mill. And I can tell you that our order books are full in terms of that segment and so we're executing well against our plan to improve the mix at our Saillat mill.

In terms of pricing, it's been a very tough market in Europe. It's been a long -- it's probably one of the longest downturns that we've seen. Margins are very compressed. We've been significantly working to reduce costs at all our facilities, focusing on fixed cost at our Saillat mill and improving operational performance at our Nymolla mill. We exceeded our targets last year. So we're going well with that.

We've got additional plans. However, we do need the market to improve, and we're seeing that. So we talked about pulp prices are going up in Europe. We've announced price increases to our customers in Europe as well as the export markets that we serve out of Europe. Those prices will be -- we'll start to realize that though in the second quarter. We won't see that in the first quarter, and that is going to be important to the margin improvement in Europe. We need to have prices go up. Current margins just aren't sustainable at the current level.

Our next question is from George Staphos with Bank of America.

My 2 questions, and I'll go back in queue, are a little bit longer term. To start, John, we appreciate the review of your vision and your shareholder letter. There's a lot of focus on capital allocation and returns and in some ways, defending what the company has been doing, and that's all well and good. Just if you could tell us, have you been getting more investor questions on that topic in the last couple of quarters that prompted the discussion from you on your capital allocation? What's your discussion with investors to the extent that you can comment regarding that topic?

Second point, as you think about Europe, how do you see Nymolla fitting? It's easy to get down on a business at the trough, right? And your charge as leaders is to see and look longer term, and we get that. How does Nymolla fit? Saillat looks like it's doing great. Nymolla has probably been a bit disappointing. How do you see that fitting in the long-term picture for Sylvamo?

Thanks for those questions. I think when it comes to the capital allocation question that you're asking, it's really the questions that we've gotten from investors, we haven't gotten many questions. We've gotten a lot of support in terms of alignment and agreement with our capital allocation priorities.

I think one of the things that I've been focusing on as the new CEO is to reassure with investors what is going to change and what's not going to change going forward. And one of the things that we're stressing is we're not changing our strategy. We're going to be focused on uncoated freesheet nor will we be changing our capital allocation strategy.

And the priorities will be maintaining a strong balance sheet, reinvesting back in the business where it makes sense that we can generate high returns and then returning cash to shareowners.

And so just reaffirming that. I mean and I'll take an opportunity. What is going to change, I think, is really, we're going to transform the business. We're going to go through a lean transformation. Why? Because we want to focus on becoming much more customer-centric, and we want to be able to drive continuous improvement, accelerate it and reduce our cost. So meeting customer needs while eliminating all waste. And so we're going to be going through that transformation, if you will. We're leading that off in Latin America, and then we'll be driving that across all the businesses.

Your next question, George, was around Nymolla and how that fit. Europe has always been a bet on the future in terms of the business. The market has been very difficult as we talked about, the down cycle has been longer and deeper than what we expected. The other thing with Nymolla is the wood cost, which has made it much more challenging. The wood costs increased significantly more than what we expected going in there. That is turning now. So finally, we're starting to see some reductions in the wood cost, which Don mentioned. Now it takes about 3 to 6 months for us to start to see that. And so we'll start to get the impact of that more towards the second quarter of the year.

But as we look at the Nymolla fit for us is -- has always been that a good fit for us because, number one, it's solely focused on uncoated freesheet. The cost position is good if the wood cost can get back down to where it needs to be, not where it's at right now.

So the other thing is the mix for Nymolla is very attractive because it serves both the cutsize as well as the printing and communications. So it has the capability to serve both of those markets, which was a good fit and also very synergistic for us.

But as we said -- as I said, we are evaluating everything we can do in terms of around Europe to improve our performance there. We talked about that, I think, on the last call. We believe we have the right strategies for both facilities. We believe that we've made a management change there. We've got the right leadership. We've got very talented teams. We've got a really good focus on trying to improve those businesses. So we're looking at all options, if you will, as we try to focus on improving our businesses in Europe.

John, just quickly and I'll turn it over. Related to wood costs, I wouldn't expect it would be the case, but is there any sense to maybe looking at purchased pulp and taking the pulp line offline for a period or not?

Yes, George, I mean, we are -- we're looking at all options, whether that makes sense or not.

And does it currently?

We're still evaluating that.

[Operator Instructions]Our next question is from Matthew McKellar with RBC Capital Markets.

I'd like to just follow up on George's last question about fiber costs, kind of a related question. I think Lenzing wants to scale up production at the TreeToTextile facility at Nymolla. Will that have any direct or indirect kind of impact to your operations and costs there? Any kind of read-through to fiber costs kind of over the longer term? Would appreciate some perspective there.

Yes, Matthew, thank you. This is Don. So that will not have an impact on our fiber costs there for Nymolla project.

Great. That's straightforward. And just shifting over to kind of the shareowner letter and some of the messages today. John, you're talking about lean management, digital transformation. Could you help us just get a sense of the size of the opportunity you're thinking about here either in terms of profits or kind of capital efficiency and how that interacts with the digital transformation? What kind of investments are kind of required to advance to the state you envision?

And then I think there was a comment that you're kicking off some of these initiatives in Latin America. Are you able to help us understand why that region is where you're focused first?

Yes. Now first, when it comes to the lean transformation, it's really driving an employee-driven continuous improvement. And we want to double in terms of the improvement that we've been getting across our facilities in terms of cost reductions, but also in terms of satisfying our customers' needs.

And really part of our strategy and key to our strategy is increasing customer loyalty in all our regions. And we need to become more flexible to meet our customers' needs. We need to reduce lead times. We need to deliver -- we need to increase our perfect order in terms of delivering to them. And so, yes, it's hard to quantify right now in terms of absolute dollars, what we believe and expect, but the expectation is high. We're raising the bar in terms of our improvement initiatives, and we believe that the lean principles, the lean will be a key driver of that.

And I just had discussions with the Latin America team about them leading this effort for us and why we are starting with Latin America as the leading and it's because we think they have the greatest success -- will have the greatest success in launching this with Sylvamo.

Why do we do that? Because we believe that if you look at the past performance of our Latin America team, a lot of it has been driven by using the lean tools, if you will, and where we want to get in terms of world-class performance in our operations, servicing our customers, they've been there. We want them to get there again, and they can pave the way for Sylvamo.

Great. And then last one for me, I'll turn it over. I was a bit surprised to see you pause share repurchase in the quarter. Apologies if I missed something in your opening remarks. Was there anything keeping go to the market? I think you mentioned some interaction with a significant shareholder. Please correct me if I captured that incorrectly? Or is that maybe in recognition of just a heavier CapEx year in '26?

Yes, Matthew, good question. So when we think about capital allocation, we also -- you have to consider the cash flows that we expect. And so as we look into 2026, the plans we have, the capital intensity plus the inventory build that I discussed earlier and the cash required for that, we thought it was prudent not to make share repurchases in the quarter.

And yes, Matthew, when you think about what we did in the year between dividends and share repurchases, it was $155 million in 2025. So it was 350% of our free cash flow for the year. So we felt like we were sufficient in the year. And thinking forward, we're prudently managing cash.

[Operator Instructions]Our next question is from George Staphos with Bank of America.

I'll ask 3 questions and turn it over. So John, Don, the $10 million additional, I assume that's in addition to the $85 million net negative from the footprint realignment, if you will, for 2026. So in reality, it's -- I realize it goes away, but it's a $95 million negative. Would that be correct, number one?

Number two, companies do Analyst Days, Investor Days when they have something to share that is above and beyond what you've talked about over the course of quarters. And actually, credit to you, you've done a lot over the last couple of quarters to talk about your vision, talk about your capital allocation, talk about the projects that are coming. So what are you hoping to convey that's not already been conveyed in your last couple of quarters in an Analyst Day that will come up in 2026.

Lastly, we appreciate the detail on the effect of outages on Riverdale, on Eastover, et cetera, and the impact that's having on costs and also on working capital. Yet I'm curious why you think providing guidance, even quarterly guidance encourages more of a short-term nature.

Speaking for analysts and investors on this call, we ultimately come up with our own forecast. We appreciate the guidance. We'd like to know what's in the assumptions. And I'm just curious why you view providing no guidance as a benefit to longer-term investors and analysts as opposed to -- or providing the guidance.

John, I'll take the -- George, thank you for the questions. I'll take the first one there on the $10 million. So yes, that was related to Riverdale, and it is in addition to the $85 million. So you're correct, it's $95 million. And it is onetime, cold weather, the gas prices spiked and so you're basically paying peak prices with very short-term notice. So that was our portion of the costs associated with Riverdale and it would be a nonrepeat.

And maybe relative to Investor Day, I'll start and then John, of course, add in. As you think about Investor Day and what we want to share, if you think about John's vision and our road back to $300 million in cash flow and 15% return on invested capital, we're going to share the things -- our path to get there, right? We'll share the things that we're going to do across our business for lean, the things we're going to do digital transformation and the things we're going to do for customers to drive value in operations. And I think that is above and beyond, especially considering where we are today.

John, will you add to that?

Yes. Just to add to that, it's also -- we really haven't had an Investor Day since we spun from International Paper, which is a long time ago now. But -- so we felt with the transition to me as the new CEO, it's very appropriate to be able to come out and have meetings at Investor Day with investors where we can talk about, as Don said, what is our strategy? I think it's pretty clear. We said we haven't changed it. But now how do we -- by region and what are these initiatives that we're just talking about in terms of lean digital transformation and other efforts that we believe support and execute our strategy to grow earnings and cash flow. So that's the reason we're going to do that, George.

And then finally, back to your question around dropping the quarterly guidance, I think it really still goes back to why we even dropped the full year guidance is that we're going to continue to provide a lot of detail like we did even in this call, but we believe that we don't want to -- we manage the business on a long-term basis. That's how we focus on, not on a quarterly basis. Of course, we're measuring and following our results daily in terms of our -- how we're tracking against our longer-term plans, but our belief is that this aligns more with what we're seeking, which is quality long-term shareowners who share our vision for long-term value creation.

John, I take the answers and ultimately, it's up to you to run the company as you and the Board see fit. But running a company on a long-term basis and providing guidance, frankly, are 2 separate topics. And again, respectfully, you should trust that the investors and analysts take your assumptions and your guidance and then we come up with our own forecast. So I don't think one means you run the company any differently than you would have otherwise for what it's worth. But we appreciate the time. I appreciate the detail. I just want to make that comment, and we'll let you go. Good luck in the quarter.

We appreciate your comment. Thank you, George.

I'll now turn the call back over to Hans Bjorkman for closing comments.

All right. John, a lot we covered. I'll leave you one more shot to just kind of close up to wrap up the day.

Thank you again, everybody, for joining this call. I think 2026 is going to be an exciting year for us. We will be executing our most significant investment in our Eastover mill and that will drive a lot of value in the years to come. We are also beginning our lean transformation, focusing on exceeding our customers' expectations and driving improvement across our operations as well as making significant progress on our digital transformation.

As I said, we are focused on long-term value creation and we will generate strong and sustainable results by diligently executing our flagship growth strategy and adhering to disciplined capital allocation principles.

As industry conditions turn, and they are, our capital spending normalizes and the benefits from our investments begin to materialize, we have the potential to generate annually greater than $300 million of free cash flow at greater than 15% return on invested capital. Thank you again for joining the call.

Thanks, everybody. We appreciate your interest, and we look forward to the continued dialogs over the coming weeks and months. Have a great day.

Once again, we would like to thank you for participating in Sylvamo's Fourth Quarter 2025 Earnings Call. You may now disconnect.

Good morning. Thank you for standing by. Welcome to Sylvamo's Third Quarter 2025 Earnings Call. [Operator Instructions] 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, Tina. Good morning, and thank you for joining our third quarter 2025 earnings call. Our speakers this morning are Jean-Michel Ribiéras, Chairman and Chief Executive Officer; John Sims, Senior Vice President and Chief Operating Officer; and Don Devlin, Senior Vice President and Chief Financial Officer. Slides 2 and 3 contain important information, including certain legal disclaimers. 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 today's presentation. With that, I'd like to turn the call over to Jean-Michel.

Thanks, Hans. Good morning, and thank you for joining our call. I'll start on Slide 4 with our third quarter highlights. Our uncoated freesheet sales volume increased quarter-over-quarter by 7%. Our teams also executed well, resulting in improved operational performance. We returned $60 million in cash to shareowners by distributing $18 million in third quarter dividend and repurchasing $42 million in shares. Our Board also approved a new $150 million share repurchase authorization in the quarter. Let's move to the next slide. Slide 5 shows the third quarter key financial metrics. We earned adjusted EBITDA of $151 million with a margin of 18%. Free cash flow was $33 million and we generated adjusted operating earnings of $1.44 per share. Now I will turn it over to Don to review our performance in more detail.

Thank you, Jean-Michel, and good morning, everyone. Slide 6 contains our third quarter earnings bridge versus the second quarter. The $151 million of adjusted EBITDA was in line with our outlook of $145 million to $165 million. Price and mix was unfavorable by $14 million, primarily driven by paper and pulp prices in Europe. Volume increased by $14 million, mainly driven by stronger seasonality in Latin America and North America. Operations and other costs were favorable by $5 million, driven by improved operational performance. Planned maintenance outage costs improved by $66 million as we had no planned outages at our mills. Input and transportation costs were unfavorable by $2 million.

Let's move to Slide 7. North America and Brazil industry conditions are solid while Europe and other Latin America are challenged. In Europe, market conditions continue to be very challenging. Pulp and uncoated freesheet prices remained under pressure. However, some pulp grades started to show signs of recovery at the end of the third quarter. Uncoated freesheet demand is down 5% year-over-year through September, while supply is down 7%. Wood costs in Southern Sweden are starting to ease, recently decreasing by a reported 8%.

In Latin America, demand remains mixed. Brazil is up 3% year-over-year through September and prices are stable. However, demand in Latin -- other Latin American countries are down 5%. Pricing is under pressure in some countries. Even though the majority of this demand decline is due to Argentina and Mexico, some countries across other Latin America are having economic challenges as well. This demand decline in addition to shifts in global trade flows is resulting in continued pricing pressure across other Latin America. North America demand is stable year-over-year through September. Imports were up 46% year-over-year through August in anticipation of the tariffs are expected to moderate. In fact, customer feedback indicates inventories from increased imports are being consumed and returning to normal levels.

Industry supply was reduced by 6% in the third quarter after Pixelle closed their Chillicothe Ohio mill in August. There's still uncertainty caused by the U.S. tariffs, which may take a while to settle out. Let's go to Slide 8. Looking ahead, we expect to deliver fourth quarter adjusted EBITDA of $115 million to $130 million. We project price and mix to be unfavorable by $20 million to $25 million, primarily due to paper prices in Europe and mix across the regions. We expect volume to be favorable by $15 million to $20 million, largely due to Latin America and North America. Other operations and other costs are projected to be unfavorable by $5 million to $10 million, primarily due to seasonally higher costs, and we expect input and transportation costs to be stable.

Planned maintenance outages will be unfavorable by $18 million as we have 1 outage in North America planned in the quarter. Let's move to Slide 9. In August, International Paper announced plans to convert their uncoated freesheet paper machine at its Riverdale mill to produce containerboard by the third quarter of 2026. Last week, we announced we would continue to receive uncoated freesheet from Riverdale Mill until May 2026. Riverdale should supply us with approximately 260,000 tons in 2025 and we expect to receive around 100,000 tons in 2026. As a result of the supply agreement ending, we will optimize our product segment and customer mix and leverage our European mills to supply the U.S. and Mexico.

We will be building inventory over time to help bridge the gap until our Eastover investments are complete, and we have the additional 60,000 tons of incremental capacity, which is expected to ramp up in the fourth quarter of 2026. Let's go to Slide 10. The Riverdale amendments we recently executed had a few components. One component was the IP agreeing to a $15 million reduction to the $100 million payment we would owe to IP in the event we sell the Brazil forest lands. We have no intention of selling forest lands as we believe we are unlocking value every day by producing uncoated freesheet. Owning forest lands in Brazil is a unique strength that differentiates Sylvamo. These assets provide a competitive advantage and goes beyond operational benefits. Direct control over wood fiber ensures security of supply, reduces exposure to market volatility and supports long-term cost management.

Our forest lands represent a significant part of our intrinsic value that we feel is not reflected in our current market valuation. We recently had an appraisal completed on our forest lands, which are now valued at almost BRL 5 billion. Forest lands are tangible and appreciating resources that are the cornerstone of our strategy, delivering cost advantages and a source of intrinsic value for our shareholders. Now I'll turn the call over to John.

Thank you, Don, and good morning, everyone. I'll pick up on Slide 11. As we navigate through cyclical industry conditions and headwinds, we are focused on the things we can control. We are continuously working to improve our business. We are driving operational excellence and strategic initiatives across all our regions. These efforts should improve margins, reduce costs and strengthen our competitive position. In Europe, we're improving our product mix, winning new customers at our Saillat mill. We're actively working to reduce wood cost at Nymolla, a key lever of cost efficiency. Additionally, we're focused on reducing fixed costs and improving operational efficiency and reliability across the European region. In Latin America, we've secured new strategic Brazilian customers and further develop key partnerships in other Latin American countries, expanding our market presence.

We're investing to improve wood sales efficiency to reduce costs by decreasing the need of higher cost third-party wood. Our team is also executing a pipeline of more than 100 initiatives across the entire business designed to strengthen EBITDA and cash flow. In North America, we're focused on strategic commercial initiatives to improve volume and margin by reducing supply chain costs and optimizing inventory. Finally, we're investing in our flagship mill in Eastover, South Carolina to improve our competitive advantages by lowering costs, enhancing efficiency and increasing capacity by 60,000 tons. Across all regions, these initiatives reflect our commitment to customers' operational efficiency and strategic investments to deliver sustainable value.

So let's move to Slide 12. Our long-term capital allocation strategy drives shareholder value. We are focused on maintaining a strong financial position, reinvesting in our business and returning cash to shareowners. Our healthy financial position allows us to stay focused on our customers with a long-term perspective in mind, especially during times of challenging industry conditions like we're currently experiencing in some of our markets. It enables reinvesting in our business, enhancing our reliability, productivity and improving our service through operational excellence initiatives and it preserves the flexibility to return cash to shareowners.

Dividends are an important part of our cash returns to shareholders and after paying $0.45 per share in all 4 quarters, we have returned approximately $73 million through dividends this year. Another strategic pillar of cash returns to shareowners are share repurchases. We will continue to evaluate opportunities to repurchase shares at attractive prices, especially when we feel our valuation is well below our intrinsic value. This is why in the third quarter, we repurchased $42 million worth of shares at an average price of $44.74, exhausting the remaining amount of our share repurchase authorization. This brings our year-to-date share repurchases to $82 million. In September, the Board also approved a new $150 million share repurchase authorization.

Slide 13. Our strategy is to be singularly focused on uncoated freesheet paper which remains the largest and most resilient segment in the graphic paper space. We view the uncoated freesheet industry landscape as an opportunity. We are investing to strengthen our competitive advantages to drive earnings and cash flows. We view these investments as high return and low risk as we are staying in our core product line and reinforcing our position as a supplier of choice for customers. We will leverage our strength to generate high returns on invested capital. I'll now wrap up my comments on the next slide, Slide 14.

You likely saw some public filings yesterday related to Atlas Holdings and a couple of our directors resigning. I want to spend a minute discussing this topic. At the direction of Atlas Holdings, Karl Meyers and Mark Wilde resigned from the Board effective November 5. I would like to thank both of them for their contribution to Sylvamo. As a reminder, they both joined our Board in 2023 as part of a cooperation agreement with Atlas. Sylvamo Board also thanks them for their service. With these resignations, the restrictions on Atlas and the cooperation agreement will terminate. When we move to the Q&A portion of this call, I hope you can appreciate that we will not be taking questions or commenting further on this matter.

We appreciate your cooperation on that. Lastly, as we prepare for our leadership transition on January 1, and I am honored to lead Sylvamo as the next CEO. As Jean-Michel is retiring at the end of the year, on behalf of our senior lead team and all the employees of Sylvamo, I would like to take this opportunity to thank him for his 4-plus years of dedication to Sylvamo as its CEO. He led Sylvamo through the spin-off and other challenges in our first few years and has been instrumental to Sylvamo's success, positioning it for further long-term value creation. We wish him all the best. Jean-Michel, would you like to say a few words?

Thanks, John. I appreciate your kind words and well wishes. Leading Sylvamo has been an absolute honor these past 4 years, and I'm pleased with everything we have accomplished. I would like to thank our employees, customers, suppliers and investors for their support and partnership. I'll leave knowing that the company is in very good hands, and its brighter days ahead of it. As I've said many times before, I'm confident in the future for Sylvamo and motivated by the opportunities that lie ahead. Thank you. I'll now turn it over to Hans.

Thanks, Jean-Michel. John and Don. Okay, Tina, we're ready to take questions.

[Operator Instructions] Our first question comes from Daniel Harriman with Sidoti.

Jean-Michel, congratulations on the retirement, and we certainly appreciate all your help since we've had you under coverage. I just have -- I'll start off with 1 today, and then I'll get back in the queue. But regarding North America, you highlighted stable demand even with imports running higher earlier than the year. And as those inventories continue to be worked down, I'm wondering if you think we can expect that normalization to translate into potentially a more stable or improved pricing environment as we move into 2026.

Daniel, it's John Sims. Thanks for your question. Yes, we're expecting and we are already seeing and we heard from our customers that the inventory is being working down -- worked down from the import surge that occurred earlier in the year as a result of the threat of tariffs, if you will. And that is working through the system and also the fact that imports have actually started to decrease coming in as a result of the tariff. And then also, you have the closure of the Chillicothe mill that we talked about, so that the operating rate should improve and strengthen going into next year.

Our next question comes from the line of Matthew McKellar with RBC Capital Markets.

Just a follow-up on the last one there. How far along are we in that process of inventories being consumed? Are they approaching normal levels today? Is that something you'd expect by year-end? Or will that process continue into '26?

No, I would say that we're approaching normal levels right now. That's how we're seeing it currently.

Okay. Very helpful. And then a couple of quick ones on Riverdale, and how you're preparing for the end of that supply agreement. Can you give us a sense of how much inventory you're intending to build to bridge you to that incremental capacity at Eastover? And then maybe what kind of working capital investment you'd expect? And then at the time that the cancellation of that supply agreement was announced, I think you said the impact to 2026 EBITDA would be about $30 million at current margins. Is that still a good estimate of what you expect the impact to be based on how margins may have evolved and any changes to your plans since that time?

Matthew, this is Don. Thanks for the question. So for the first part of your question, we plan to build about 60,000 tons of inventory through the year. Most of it will happen in the first half leading up to the Eastover outage for the conversion speed up of Eastover. And then we plan to consume that inventory in the balance of the year. So from beginning to end, it would even out and relative to the $30 million, I think in the previous call, we estimated the impact to Riverdale to be about $30 million. And that's the same. That hasn't changed for 2026.

[Operator Instructions] And with no further questions in queue, I will now hand the call back to Hans Bjorkman for closing remarks.

Thanks, Tina. We appreciate it, and thank you all for joining our call today. We appreciate your interest in Sylvamo, and we look forward to our continued conversations over the coming weeks. Thank you.

Thank you. Bye.

Once again, we would like to thank you for participating in Sylvamo's Third Quarter 2025 Earnings Call. You may disconnect.