Sylvamo, a global paper company operating in Europe, Latin America, and North America, reported a rise in its Q3 earnings today. The company's net income from continuing operations increased from $49M in Q2 to $58M in Q3. Adjusted operating earnings rose from $49M to $72M, while adjusted EBITDA grew from $124M to $158M. Cash provided by operating activities also saw a significant increase from $77M to $197M, and free cash flow rose from $33M to $155M.
Despite the earnings rise, commercial and operational highlights showed a decrease in price and mix by $55M due to lower paper prices in Europe and exports from Latin America, as well as lower global pulp prices. However, volume increased by $6M as a result of increases in Latin America and North America.
The company's Q4 outlook predicts an adjusted EBITDA of between $90M and $110M. Price and mix are expected to decrease by $20M-$25M due to prior paper price decreases in Europe. Volume is projected to improve by $20M-$25M due to seasonally stronger volume in Latin America and North America.
Sylvamo's CEO Jean-Michel Ribiéras stated that Q3 earnings were higher than their outlook. Measures were taken to maximize free cash flow, including selling and administrative cost reductions, shrinking working capital, and adjusting the timing of capital spending. Free cash flow for the year is now expected to exceed $270 million.
As part of its financial strategy, Sylvamo returned $85 million to shareholders this year, with plans to return a total of $125 million in 2023. In addition, the company initiated Project Horizon, a cost-reduction program aimed at streamlining the organization and making it leaner and stronger. The target is at least $110 million in run-rate savings by the end of 2024, with two-thirds of the savings expected from operational improvements in mills and supply chains.
Over its two years as an independent company, Sylvamo has reduced debt by 35%, generated more than $1.3 billion in adjusted EBITDA (19% margin), generated $568 million in free cash flow, and returned $200 million in cash to shareholders. The company's vision is to be the employer, supplier, and investment of choice. Sylvamo's net sales for 2022 were $3.6 billion.
In further developments, the board of directors increased the regular dividend by 20%, and a workforce reduction of approximately 150 positions is planned as part of Project Horizon. An incremental $150 million share repurchase program has also been authorized. A special dividend of $0.30 per share was declared, and $60 million was deposited in escrow to remove cash return limits in their credit agreement. The remaining authorization for share repurchase from May 2022 and September 2023 collectively had $167 million remaining. The effective tax rate for continuing operations for the third quarter of 2023 was 36%.
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