MEMPHIS, Tenn. (News release) -- Sylvamo, the world's paper company, is releasing first quarter earnings.

Management Summary from Chief Executive Officer John Sims

2026 continues to be 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 an upcoming extended outage at our Eastover, South Carolina, mill as we execute our strategic investments.

Our high-return strategic investments at Eastover are on track. The paper machine optimization project is scheduled for completion during a planned maintenance outage in the fourth quarter. The new cutsize sheeter is also on schedule and will be installed in the third quarter, ramping up in the fourth quarter. The hardwood line of the woodyard modernization project is running and already showing improved chip quality, and we expect to see improved yield moving forward. The softwood operation is expected to start up in the first quarter of 2027.

To serve our most valuable customers in the U.S. during this transition, we started importing from our mills in Europe, converting product using third-party vendors and building inventory. This resulted in lower sales volume and incremental costs in the first quarter. Changes in U.S. global tariff rates in late February prompted us to revise our plans and begin bringing product in from our operations in Brazil while ramping down imports from our Europe operations. We expect this to benefit Sylvamo by reducing the 2026 North America footprint transition costs by approximately $20 million at current tariff rates.

The first quarter played out largely as we anticipated with the exception of some reliability issues in Europe and Latin America. The root causes have mostly been corrected or will be during the upcoming annual outages. In the first quarter, we began implementing previously communicated uncoated freesheet paper price increases to customers across all our regions. We started to see the benefits of these increases in the first quarter in North America and Latin America and will continue to see realization of these increases across all regions into the second quarter.

Sylvamo generated a net loss of $3 million and adjusted EBITDA of $29 million, representing a 4% margin. Cash used for operating activities was $10 million, and free cash flow was negative $59 million.

As anticipated, free cash flow was lower than the fourth quarter, due to lower earnings, unfavorable impacts of our inventory build, the timing of payments and the payment of annual incentive compensation in the first quarter. These were partially offset by favorable cash collections related to Latin America's seasonally higher fourth quarter sales.

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.

-Capital Allocation

Our board of directors declared a $0.45 dividend for the second quarter, which we paid April 28.

We refinanced debt due in 2027 to extend our maturity profile, which allows us to navigate the current uncertain environment without changing our long-term approach to capital allocation.

Our capital allocation philosophy has not changed. We will deploy every dollar with the goal of improving our competitive position and delivering the best possible shareowner returns over time. We plan to maintain a strong financial position, reinvest in our business and return cash to shareowners.

-Regional Business Conditions

• In Europe, industry supply and demand remain challenging. Pulp prices improved throughout the first quarter, and we are realizing 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 in the first quarter, but now expect demand to increase each quarter this year. We are realizing the previously communicated paper price increases to our customers in Brazil, export customers across other Latin American countries as well as customers in the Middle East and Africa. We have communicated a second paper price increase effective in April to our customers across other Latin American countries as well as customers in the Middle East and Africa. We should continue to see additional realization in these regions through the second quarter.

• In North America, industry supply and demand dynamics have improved as roughly 7% of the annual uncoated freesheet industry supply was removed with the Riverdale mill conversion. After peaking in June 2025, imports into North America have declined significantly throughout the second half of last year and into the first quarter. We also began realizing previously communicated paper price increases to our customers and expect to see additional realization through the second quarter.

Our business is currently experiencing increasing energy, chemical, diesel and ocean freight costs due to the Middle East conflict and we expect the pressure to continue. We are focusing on what we can control across our regions to reduce costs and taking commercial actions to help offset the impacts.

-Looking Ahead

We are transforming Sylvamo into a lean, employee-driven, continuous improvement culture. Lean is a long-term, company-wide transformation focused on maximizing customer value by eliminating waste, improving performance, strengthening customer experience and achieving operational excellence and cost leadership over time. We kicked off our lean transformation in Latin America in the first quarter and will begin our efforts in North America in the second quarter.

We are focused on long-term value creation by making disciplined, data-driven decisions that position us for sustainable success and strengthen Sylvamo for decades to come. As industry conditions turn, our capital spending normalizes and the benefits from our investments begin to materialize, we have the potential to generate annually:

• > $300 million in free cash flow

• > 15% return on invested capital