Sylvamo (SLVM) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025, and 2024, detailing operations, balance sheets, and cash flows, with a focus on the significant year-over-year decrease in net income and operating cash flow driven by lower net sales Condensed Consolidated Statements of Operations Net income significantly declined in Q2 2025 to $15 million from $83 million year-over-year, primarily due to reduced net sales from $933 million to $794 million Consolidated Statements of Operations Highlights (in millions, except per share amounts) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $794 | $933 | $1,615 | $1,838 | | Income Before Income Taxes | $20 | $113 | $53 | $173 | | Net Income | $15 | $83 | $42 | $126 | | Diluted EPS | $0.37 | $1.98 | $1.02 | $3.00 | Condensed Consolidated Balance Sheets Total assets increased slightly to $2,668 million as of June 30, 2025, driven by growth in total equity to $959 million, despite a decrease in cash and temporary investments to $113 million Balance Sheet Summary (in millions) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and temporary investments | $113 | $205 | | Total Current Assets | $977 | $1,063 | | Total Assets | $2,668 | $2,604 | | Total Current Liabilities | $635 | $682 | | Long-Term Debt | $767 | $782 | | Total Liabilities | $1,709 | $1,757 | | Total Equity | $959 | $847 | Condensed Consolidated Statements of Cash Flows Operating cash flow for H1 2025 significantly decreased to $87 million from $142 million year-over-year, primarily due to lower net income, while investment and financing activities remained stable or decreased Cash Flow Summary - Six Months Ended June 30 (in millions) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $87 | $142 | | Cash Used for Investment Activities | $(114) | $(113) | | Cash Used for Financing Activities | $(76) | $(95) | | Change in Cash | $(92) | $(75) | | Cash at End of Period | $113 | $205 | Notes to Condensed Consolidated Financial Statements Detailed notes disclose accounting policies, revenue recognition, debt, and contingent liabilities, highlighting decreased net sales across all geographic segments and an ongoing significant tax dispute in Brazil External Net Sales by Business Segment - Six Months Ended June 30 (in millions) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Europe | $371 | $412 | | Latin America | $387 | $443 | | North America | $857 | $983 | | Total | $1,615 | $1,838 | - The company is involved in a long-standing tax dispute in Brazil regarding the deductibility of goodwill amortization from a 2007 acquisition. As of June 30, 2025, assessments totaled approximately $108 million in tax and $278 million in interest, penalties, and fees. Under an agreement, Sylvamo is responsible for 40% of any assessment up to $300 million[49][50] - Total long-term debt decreased slightly to $767 million as of June 30, 2025, from $782 million at year-end 2024. The company was in compliance with all debt covenants as of the reporting date[59][70] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the significant Q2 2025 financial decline due to lower volumes, unfavorable European pricing, and higher maintenance costs, while Q3 anticipates continued price pressure but improved volume and reduced maintenance expenses, maintaining strong liquidity Q2 2025 vs Q2 2024 Performance (in millions) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net Income | $15 | $83 | | Net Sales | $794 | $933 | | Adjusted EBITDA | $82 | $164 | | Free Cash Flow | $(2) | $62 | - The decline in Q2 2025 earnings was attributed to decreased volume (primarily in North America), unfavorable price/mix in Europe, and significantly higher planned maintenance outage costs[90] - Q3 2025 Outlook: Management expects unfavorable price/mix, favorable volume from seasonality, stable input costs, and a $66 million improvement from having no planned maintenance outages[91] Business Segment Results All three business segments saw operating profit decline in Q2 2025, with Europe reporting a $38 million loss due to lower prices and higher maintenance, while Latin America and North America profits decreased due to lower volumes Business Segment Operating Profit (Loss) - Three Months Ended June 30 (in millions) | Segment | 2025 | 2024 | | :--- | :--- | :--- | | Europe | $(38) | $8 | | Latin America | $2 | $37 | | North America | $66 | $77 | | Total | $30 | $122 | - Europe's performance was negatively impacted by lower sales price/mix ($16 million) and higher planned maintenance outages ($28 million)[101] - North America's sales decrease of $74 million was primarily due to a $78 million decrease in volumes[110] Liquidity and Capital Resources Operating cash flow for H1 2025 decreased to $87 million due to lower net income, while capital spending remained consistent at $114 million, and $36 million in dividends and $40 million in share repurchases were executed - The decrease in operating cash flow in H1 2025 compared to H1 2024 was primarily due to lower net income, partially offset by changes in working capital[120] - Capital spending for H1 2025 totaled $114 million, with the largest portion ($62 million) allocated to the Latin America segment[123] - Financing activities in H1 2025 included paying $36 million in dividends and repurchasing $40 million of common stock[124] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposure have occurred since December 31, 2024, with detailed disclosures referenced from the 2024 Form 10-K - There have been no material changes in the Company's exposure to market risk since December 31, 2024[134] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during Q2 2025 - Based on an evaluation as of June 30, 2025, the CEO and CFO concluded that the company's disclosure controls and procedures were effective[135] - No changes occurred in the company's internal control over financial reporting during Q2 2025 that have materially affected, or are reasonably likely to materially affect, its internal controls[136] PART II. OTHER INFORMATION Legal Proceedings The company is not involved in any legal proceedings expected to materially adversely affect its financial condition, referencing tax and contingent liability disclosures from financial statement notes - The company is not involved in any legal proceedings that it believes will result in a material adverse effect on its financial condition or results of operations[138] Risk Factors No material changes to risk factors from the 2024 Form 10-K, except for an expanded discussion on significant risks from global economic, civil, and political conditions, including military conflicts and trade protection measures - The company's operations and performance are significantly dependent on global and regional economic, civil, and political conditions and stable trade relations[141] - Ongoing military conflicts, such as the war in Ukraine and conflicts in the Middle East, could have a material adverse effect, particularly on European operations, through transportation, energy, and supply chain disruptions[142] - The imposition of tariffs and other trade protection measures could disrupt cross-border flows of materials and products, increase costs, and negatively impact results[146] Purchases of Equity Securities by the Issuer and Affiliated Purchasers The company repurchased 362,824 shares in Q2 2025, with $42 million remaining available under the $300 million authorized share repurchase program as of June 30, 2025 Share Repurchases in Q2 2025 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | April 2025 | 674 | $67.07 | | May 2025 | 344,311 | $55.48 | | June 2025 | 17,839 | $53.82 | | Total | 362,824 | - | - As of June 30, 2025, $42 million remains available for repurchases under the $300 million share repurchase program. The company repurchased $40 million of shares during the first six months of 2025[150] Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents and certifications by principal executive and financial officers as required by Sarbanes-Oxley Act - The report includes certifications from the principal executive officer and principal financial officer pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[151]