Suzano S.A. (SUZ) Q1 2026 Earnings Call Transcript

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Overview

The earnings call presents a mixed outlook. Financial performance shows strong EBITDA growth in packaging and pulp sectors, but challenges exist with FX appreciation and inventory issues. The closure of the Rio Verde mill and JV with K-C are positive, but uncertainties in China and FX impact pose risks. Management's non-committal responses in the Q&A raise concerns. The reduced CapEx guidance is a positive sign of financial discipline, yet net debt increased. Overall, these factors suggest a neutral outlook, with no strong catalysts for significant stock movement within the next two weeks.

Key Financial Performance

EBITDA The EBITDA for Q1 2026 reflects a solid performance with volumes above Q1 2025, supported by higher pricing and G&A expenses that offset year-over-year inflation. This improvement is attributed to management's focus on structural competitiveness.

Free Cash Flow Free cash flow in Q1 2026 was impacted by specific items such as dividend payments, timing of interest payments under the debt schedule, and a one-off CapEx related to a wood swap with Eldorado last year. The company remains focused on reducing net debt.

Paper and Packaging EBITDA The EBITDA for Suzano Packaging increased by 167% year-over-year in Q1 2026, driven by turnaround effects. However, the overall paper and packaging EBITDA declined by 8% year-over-year due to lower export prices from Brazil and FX appreciation.

Cost of Goods Sold (COGS) per tonne COGS per tonne in Brazilian operations decreased by 8% year-over-year and 6% quarter-over-quarter in Q1 2026, driven by lower cash costs across all mills and lower logistics costs.

Pulp Sales Volume Suzano sold 2.84 million tonnes of pulp in Q1 2026, representing an increase of almost 200,000 tonnes compared to Q1 2025. This was consistent with the sales plan and market seasonality.

Pulp EBITDA Pulp EBITDA for Q1 2026 was BRL 4.1 billion, driven by higher volumes, lower costs, and better prices in U.S. dollar terms. However, it faced challenges from FX appreciation.

Cash Cost (Pulp) Cash cost excluding stoppage decreased by 7% year-over-year in Q1 2026, driven by factors such as a 10% depreciation of the U.S. dollar against the Brazilian real, lower wood costs, and reduced input prices.

Net Debt Net debt increased slightly to $13 billion in Q1 2026, mainly due to dividend payments, higher CapEx payouts, and concentrated interest payments. Leverage remained stable at 3.3x in U.S. dollars.

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Operating Highlights

Brazilian Paper Market Demand: Paper-wide demand in Brazil increased by 3% in the first two months of Q1 2026 compared to the same period last year, driven by stronger coated paper demand and higher volumes of imported uncoated wood-free paper.

Latin America Paper Demand: Demand in Latin America grew by 5% year-over-year, contrasting with a 7% decline in mature markets.

Brazilian Paperboard Demand: Demand for paperboard in Brazil grew by 6% in the first two months of Q1 2026 compared to the same period last year, supported by improved economic activity.

China Paper and Board Production: Production increased by 15% in Q1 2026 compared to Q1 2025, with growth across all paper segments.

Operational Efficiency in Logistics: Suzano operates with over 50 vessels, including 10 fully dedicated to its operations, ensuring reliable services and protection against freight rate increases.

Headcount Reduction: The company is operating with 10% fewer employees compared to the previous year, contributing to cost efficiency.

Cost Improvements in Brazilian Operations: Achieved an 8% reduction in COGS per tonne year-over-year and a 6% reduction quarter-over-quarter, driven by lower cash costs and logistics costs.

Energy Cost Management: Maintains a hedge portfolio to mitigate exposure to Brent-related volatility, with 90% of 2026 exposure covered.

JV with Kimberly-Clark: Efficiency gains have been mapped, reinforcing expectations of value creation and confirming the quality of the capital allocation decision.

Pulp Market Strategy: Focused on maximizing sales, fostering fiber substitution, and expanding the addressable market for hardwood pulp.

Hedging Strategy: Implemented robust FX and Brent hedging portfolios to navigate volatile market conditions and reduce financial risks.

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Risk or Challenges

Geopolitical Landscape: The current geopolitical environment is causing cost pressures, particularly in energy and logistics. The ongoing conflict in the Middle East and the Iran war are impacting logistics, energy costs, and supply chains, leading to increased operational costs.

International Logistics: While Suzano has mitigated some risks with long-term contracts and dedicated vessels, the broader geopolitical tensions and rising freight rates pose challenges to maintaining cost efficiency and reliable services.

Energy Costs: Higher international oil prices are pressuring energy costs. Although Suzano has a hedge portfolio to mitigate Brent-related volatility, the company still faces exposure to rising energy costs.

Market Demand and Pricing: International markets for paper and packaging are experiencing weaker demand and excess capacity, leading to price pressures. Export prices have been affected by tariffs and FX impacts, particularly in the U.S. market.

Production and Inventory Challenges: Pulp production volumes were below budgeted levels due to non-recurrent events during planned maintenance and ramp-ups. This has led to low inventory levels, which may impact the ability to meet demand efficiently.

Softwood Pulp Market: High inventory levels and declining prices in the softwood pulp market are creating an unsustainable environment, with 40% of global softwood capacity operating at a loss. This could lead to competitive pressures and market imbalances.

Operational Costs: Temporary operational factors, such as higher input consumption and increased wood costs, have driven up cash costs. Additionally, maintenance shutdowns and weather-related events have added to cost pressures.

Regulatory and Tariff Impacts: Export prices have been negatively impacted by tariffs, particularly in the U.S. market, reducing profitability and competitive positioning.

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Guidance & Outlook

Average Cash Cost: Suzano expects its average cash cost in 2026 to be below 2025 levels, despite cost pressures from the geopolitical environment. This forecast assumes Brent oil prices at $85 per barrel and current input assumptions.

Paper and Packaging Business Outlook: Sales volumes and prices from Brazilian and U.S. operations are expected to improve in Q2 2026 due to seasonality, price increases, and cost index pass-throughs in U.S. contracts. Industrial cash costs in Brazil are expected to remain stable, while logistics costs may rise slightly due to increased diesel prices and container rates. Annual maintenance at Suzano Packaging is scheduled for early May, temporarily impacting production costs but not sales.

Pulp Business Outlook: Suzano plans to rebuild inventories in Q2 2026 after low levels in Q1. Production output will be constrained by planned maintenance downtimes, resulting in a 300,000-tonne reduction year-over-year. The company expects balanced hardwood pulp fundamentals and has announced price increases for May in Europe and North America. Suzano aims to maximize sales while addressing fiber substitution and expanding the hardwood market.

Hedge Portfolio Impact: Suzano's Brent hedge portfolio, covering nearly 90% of its 2026 exposure, caps oil costs at $69 per barrel, mitigating the impact of higher oil prices. The company expects a positive cash adjustment of BRL 810 million over the next two years if Brent prices remain at $104 per barrel. Additionally, its FX hedge portfolio offsets the impact of BRL appreciation, with a potential positive cash adjustment of over BRL 4 billion if the currency remains at 5.22.

Capital Allocation and Debt Management: Suzano remains focused on strengthening its capital structure and reducing net debt. The company issued BRL 2.5 billion in CPR with an 11-year term and BRL 180 million in incentivized debentures with a 15-year maturity, both at competitive costs.

Joint Venture with Kimberly-Clark: The JV is progressing as planned, with closing expected in Q3 2026. Efficiency gains have been identified, reinforcing expectations of value creation.

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Shareholder Return Plan

Dividend Payments: The free cash flow in the first quarter of 2026 reflects specific cash flow items in the quarter, as we know dividend payments, also the timing of interest payments under our debt schedule and also a one-off CapEx related to the wood swap with Eldorado last year.

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Key Q&A

Q:What are the current price drivers in the pulp market, and why are price hikes harder to implement in China compared to Europe?

A:The price drivers remain unchanged, including restrictions in Indonesia, healthy Chinese demand, and tight supply. Price hikes are harder to implement in China due to the fiber-to-fiber agenda and the competitive dynamics with softwood pulp. In Europe, the price gap between fibers allows for successful price increases.

Q:Why has Suzano not been able to replenish inventory levels, and did logistic challenges impact Q1 revenues?

A:Suzano could not replenish inventory levels due to maintenance stoppages and ramp-up issues, not logistics challenges. Lower Q1 sales were planned due to seasonality, and production recovery is expected in the second half of the year.

Q:What is Suzano's strategy in China regarding integrated mills and de-verticalization?

A:Suzano is engaging with integrated mills to discuss de-verticalization, aiming to make them more competitive by shutting down their pulp production and relying on Suzano for pulp supply. This is part of their fiber-to-fiber agenda.

Q:What is Suzano's response to the disappointing share price performance?

A:Management is not comfortable with the share price performance and attributes it to factors like FX and geopolitical issues. They are focused on deleveraging, disciplined capital allocation, and considering buybacks as an alternative.

Q:What is Suzano's plan for inventory replenishment and production recovery in Q2 2026?

A:Suzano plans to replenish inventories minimally in Q2 2026 and expects sales output to be higher than Q1 2026. They aim to recover production in the second half of the year to align with demand pickup.

Q:What are Suzano's views on the pulp market dynamics in China and Western markets?

A:In China, demand is positive, but softwood pulp faces challenges due to fiber-to-fiber substitution and increased domestic softwood production. In Western markets, demand is stronger, and price increases have been successfully implemented.

Q:What is Suzano's stance on asset sales and dividend policy?

A:Suzano is analyzing divestitures of non-core assets to accelerate deleveraging. They aim to maintain a lower leverage level before considering changes to their dividend policy.

Q:What are Suzano's views on wood chip prices and their impact on pulp fundamentals?

A:Wood chip prices are rising due to tighter supply and increased demand from new capacity in China. This trend is expected to continue, putting upward pressure on costs and impacting pulp fundamentals.

Q:What are Suzano's long-term views on the pulp market and potential rebalancing factors?

A:Suzano sees potential rebalancing through permanent closures, increased downtimes, delayed projects, and de-verticalization. They believe these factors can address the oversupply scenario.

Q:Does Suzano have plans to repurpose assets for diversification?

A:Yes, Suzano is repurposing assets, such as starting fluff production at their Limeira site, and exploring other alternative pulp fibers like unbleached kraft.

Q:Review of Unclear Management Responses

A:Management avoided providing specific production and inventory figures for Q1 and Q2 2026, citing company policy. They also did not disclose detailed plans for asset sales or changes to dividend policy, keeping responses general and non-committal.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

SUZ Transcript

Suzano S.A. (SUZ) Q1 2026 Earnings Call Transcript

Unknown4-30

Suzano S.A. (SUZ) Q4 2025 Earnings Call Transcript

Positive2-11

The earnings call highlighted strong financial performance with record pulp shipment volumes, increased EBITDA, and reduced cash costs. The new share buyback program and improved packaging business volumes further enhance shareholder value. Despite some uncertainties in CapEx guidance, the overall sentiment is positive, supported by optimistic market dynamics and strategic focus on deleveraging. The Q&A section reinforced confidence in market positioning and cost management, contributing to a positive outlook.

Suzano S.A. (SUZ) Q3 2025 Earnings Call Transcript

Unknown11-8

The earnings call presents a mixed outlook. Positive elements include cost reductions from the Eldorado deal, optimism in the U.S. Packaging business, and strategic focus on growth in the U.S. paper market. However, concerns arise from increased production costs due to rising wood chip prices, an unsustainable pulp market scenario, and management's reluctance to provide clear financial guidance. The overall sentiment is balanced, with both positive and negative factors, leading to a neutral stock price prediction.

Suzano S.A. (NYSE:SUZ) Q1 2025 Earnings Call Transcript

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The earnings call highlights several concerns: increased net debt and leverage, cash cost pressures, and oversupplied markets affecting demand. The cautious approach to share buybacks and stalled price negotiations further dampen sentiment. Although there is optimism about breakeven in U.S. operations, the lack of specific guidance and uncertainties in client negotiations weigh negatively. These factors suggest a negative outlook, particularly in the absence of positive catalysts like new partnerships or strong guidance.

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