Sylvamo Corp (SLVM)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included in Financial Information of this Quarterly Report on Form 10-Q (this “Form 10-Q”) and the Company’s Form 10-K for the three years ended December 31, 2025, 2024 and 2023. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those stated and implied in any forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Form 10-Q and in our 2025 Form 10-K, particularly under the headings Risk Factors and Forward-Looking Statements.

EXECUTIVE SUMMARY

Second quarter 2026 net loss was $11 million ($0.28 per diluted share) compared with net income of $15 million ($0.37 per diluted share) for the second quarter of 2025. Net sales were $806 million in the current quarter compared with $794 million in the prior year. Cash provided by operating activities was $38 million compared to $64 million in the second quarter of last year. Adjusted EBITDA was $60 million compared to $82 million in the second quarter of 2025. Free cash flow was $(23) million compared to $(2) million in the second quarter of 2025.

Comparing our performance in the second quarter of 2026 to the prior year, volume decreased, primarily due to lower North America volume with the termination of the Riverdale mill supply agreement and as we build inventory in response to the extended Eastover mill outage later in the year. Price and mix decreased in Europe but were partially offset by improved price and mix in North America. Operations and costs and input costs were unfavorable. Planned maintenance outage costs were lower as the prior year outage in our Saillat mill did not repeat and the current year outage in our Nymölla mill will take place during the fourth quarter. We continued to return cash to shareowners through an $18 million dividend payment during the quarter.

2026 is a transition year as we navigate the termination of the Riverdale supply agreement at the end of April and the extended Eastover outage later this year as we execute our strategic investments. We expect this North America footprint transition to have an unfavorable $85 million impact on full year 2026 Adjusted EBITDA. Our Eastover strategic investments, including our woodyard modernization and paper machine optimization, and new sheeter continue to make good progress. These investments will result in 60,000 additional tons of uncoated freesheet capacity annually, which will start to ramp up early next year. The benefits include reducing costs and improving our mix and efficiency, while enhancing service for our customers. We anticipate an incremental annual benefit of $50 million to Adjusted EBITDA from the paper machine speed-up and the new sheeter, including an estimated $30 million to $40 million benefit in 2027.

This has been a very dynamic year where we continue to adapt to changing conditions while executing the initiatives within our control. We remain focused on generating strong, sustainable results and creating long-term value through disciplined, data-driven decision-making that strengthens Sylvamo for decades to come.

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RESULTS OF OPERATIONS

The following summarizes our results of operations for the periods presented:

Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 2025

Net Sales

Net sales for the three months ended June 30, 2026 increased by $12 million compared to the same period in 2025. The increase was primarily due to favorable foreign exchange impact ($17 million) partially offset by lower sales price and mix ($7 million). Additional information on sales by business segment, excluding inter-segment eliminations, is provided in the section titled Business Segment Results.

Cost of Products Sold

Cost of products sold for the three months ended June 30, 2026 increased by $34 million compared to the same period in 2025. The increase was primarily driven by higher input costs, mainly related to distribution, fiber and energy costs ($23 million), unfavorable foreign exchange, operating and cost impacts ($29 million) and volume impacts ($8 million). These increases were partially offset due to lower planned maintenance outage costs ($25 million) and a favorable impact from foreign exchange on an intercompany note receivable from our Brazilian subsidiary ($1 million).

Selling and Administrative Expenses

Selling and administrative expenses for the three months ended June 30, 2026 decreased by $3 million compared to the same period in 2025. The decrease was primarily due to lower incentive compensation expense partially offset by the net impact of certain special items, including professional and legal fees ($4 million).

Depreciation, Amortization and Cost of Timber Harvested

Depreciation, amortization and cost of timber harvested for the three months ended June 30, 2026 decreased by $2 million compared to the same period in 2025 primarily due to lower timber depletion expense.

Taxes Other Than Payroll and Income Taxes

Taxes other than income taxes of $8 million for the three months ended June 30, 2026 was relatively consistent compared to $7 million in the same period in 2025.

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Interest Expense, Net

Interest expense, net for the three months ended June 30, 2026 increased by $1 million compared to the same period in 2025. This is primarily due to debt extinguishment costs ($2 million) and higher interest expense which were offset by higher interest income and the capitalization of interest costs for construction projects.

Income Tax Provision

Income tax provision for the three months ended June 30, 2026 increased by $7 million compared to the same period in 2025. This is primarily due to additional tax expense related to a change in valuation allowances for certain foreign deferred tax assets ($12 million) partially offset by lower tax expense resulting from lower pre-tax income.

Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 2025

Net Sales

Net sales for the six months ended June 30, 2026 decreased by $54 million compared to the same period in 2025. The change was primarily attributable to lower sales volume ($63 million) and sales price and mix ($37 million) partially offset by favorable foreign exchange impacts ($46 million). Additional information on sales by business segment, excluding inter-segment eliminations, is provided in the section titled Business Segment Results.

Cost of Products Sold

Cost of products sold for the six months ended June 30, 2026 increased by $2 million compared to the same period in 2025. The change was primarily driven by higher input costs ($39 million), mainly related to distribution and energy costs, and unfavorable foreign exchange, operating and cost impacts ($60 million). These increases were largely offset by volume impacts ($39 million), lower planned maintenance outage costs ($35 million), a favorable impact from foreign exchange on an intercompany note receivable from our Brazilian subsidiary ($20 million) and lower unabsorbed costs due to economic downtime ($3 million).

Selling and Administrative Expenses

Selling and administrative expenses for the six months ended June 30, 2026 decreased by $3 million compared to the same period in 2025. The change was primarily the result of lower incentive compensation expense partially offset by the net impact of certain special items, including professional and legal fees ($4 million).

Depreciation, Amortization and Cost of Timber Harvested

Depreciation, amortization and cost of timber harvested for the six months ended June 30, 2026 decreased by $1 million compared to the same period in 2025 primarily due to lower timber depletion.

Taxes Other Than Payroll and Income Taxes

Taxes other than payroll and income taxes for the six months ended June 30, 2026 increased by $5 million compared to the same period in 2025 primarily related to higher energy taxes in Europe.

Interest Expense, Net

Interest expense, net for the six months ended June 30, 2026 increased by $1 million compared to the same period in 2025. This is primarily due to debt extinguishment costs ($2 million) and higher interest expense which were offset by higher interest income and the capitalization of interest costs for construction projects.

Income Taxes

Income tax provision for the six months ended June 30, 2026 decreased by $2 million compared to the same period in 2025. The change is primarily attributable to lower tax expense resulting from lower pre-tax income partially offset by additional tax expense related to a change in valuation allowances for certain foreign deferred tax assets ($12 million).

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BUSINESS SEGMENT RESULTS

Reconciliation of Net Income (Loss) to Business Segment Operating Profit

Management provides business segment operating profit, a non-GAAP financial measure, to supplement our GAAP financial information, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Management believes that business segment operating profit provides investors and analysts useful insights into our operating performance. Business segment operating profit is reconciled to net income (loss), the most directly comparable GAAP measure.

(a)    Business Segment Operating Profit (Loss) (non-GAAP) is net income (loss) (GAAP) plus the sum of income taxes, net interest expense, the impact of foreign exchange on an intercompany note receivable from our Brazilian subsidiary, and, when applicable for the periods reported,

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and related notes included in Item 8. Financial Statements and Supplementary Data of this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs that involve significant risks and uncertainties. Our actual results could differ materially from those stated and implied in any forward-looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly under the headings “Risk Factors” and “Forward-Looking Statements.”

The following generally discusses 2025 and 2024 items and year-to-year comparisons between 2025 and 2024. Discussion of historical items in 2023, and year-to-year comparisons between 2024 and 2023, can be found in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, filed with the SEC on February 21, 2025, under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The consolidated financial statements have been prepared in United States (“U.S.”) dollars and in conformity with accounting principles generally accepted in the United States (‘‘U.S. GAAP’’) and may not be indicative of the Company’s future performance.

EXECUTIVE SUMMARY

Full-year 2025 net income was $132 million ($3.24 per diluted share) compared with $302 million ($7.18 per diluted share) for 2024. Net sales decreased to $3.4 billion in the current year compared with $3.8 billion in 2024. Cash from continuing operations was $268 million in the current year compared to $469 million in the prior year. Adjusted EBITDA was $448 million in 2025 compared with $632 million in 2024. Additionally, our 2025 adjusted EBITDA margin was 13% compared to 17% in the prior year and free cash flow was $44 million compared to $248 million last year.

Comparing our performance in 2025 to 2024, challenging industry conditions contributed to lower volumes of uncoated freesheet across all three of our regions. Price and mix were unfavorable in Europe and Latin America but improved in North America. Planned maintenance outages were significantly higher due to two outages in Europe compared with one in the previous year. Europe and North America benefited from lower unabsorbed fixed costs due to reduced economic manufacturing downtime in 2025. Input costs and operations were unfavorable in all of our regions compared to 2024. We generated $44 million in free cash flow this year and returned $155 million in cash to shareowners. We also reinvested $224 million across our manufacturing network and Brazil forestlands to strengthen our low-cost position.

Looking ahead, 2026 will be a transition year for North America as we work through short-term capacity constraints with the Riverdale supply agreement exit and the execution of investments at our Eastover mill. We are prioritizing strategic projects with the fastest payback so that 2027 and beyond reflects lower costs, higher efficiency, and stronger cash conversion potential. We strive to create long-term shareowner 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 to increase future earnings and cash flow.

RESULTS OF OPERATIONS

When reading our financial statements and the information included in this Annual Report on Form 10-K, it should be considered that we have experienced, and continue to experience, several material trends and uncertainties that have affected our financial condition and results of operations and that could affect future performance. We believe that the following material trends and uncertainties are important to understanding our business.

Macroeconomic Conditions

The Company’s operating results are typically closely tied to changes in the general economic conditions in Europe, Latin America and North America, as well as general global economic conditions. The Company’s profitability and operating results are dependent on the price of our products and the market price of raw materials (primarily wood fiber and chemicals), energy sources and third-party transport of our goods. Historically, economic and market shifts, inflationary pressures, fluctuations in

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capacity and changes in foreign currency exchange rates have created changes in prices, sales volume and margins for our products.

Consumer Behavior

Factors that impact the demand for our products include general macroeconomic conditions, consumer preferences, movements in currency exchange rates, consumer spending, commercial printing and advertising activity, adoption of electronic mediums, and white-collar employment and the shift to hybrid work models.

DESCRIPTION OF BUSINESS SEGMENTS

The Company’s reportable business segments, Europe, Latin America and North America, are organized by geography and are consistent with the internal structure used to manage these businesses. Each of our segments derive their revenue from the manufacture and sale of paper and pulp products. The following summary describes the products and services offered in each of the segments as of December 31, 2025:

Europe

Our Europe segment produces a broad portfolio of uncoated freesheet papers for numerous uses and applications, and market pulp. We operate two integrated mills in the region, one in Saillat, France and one in Nymölla, Sweden. Located in the Limousin region of France, the Company’s Saillat mill produces both paper and market pulp. It is the only mill in France to cover the entire production process from wood harvesting to paper, and is one of the leading cutsize producers in France and Western Europe. The Saillat mill produces UFS papers, such as copy paper, and value-added products such as tinted paper and colored laser printing paper under leading brands such as REY. In 2025, we made investments in our finished roll production capabilities to improve our product mix and also allow us to enhance our business in graphic and high-speed inkjet printing papers under the brand Berga. The Saillat mill has some of the highest environmental credentials for our products. In January 2023, the Company acquired a paper mill in Nymölla, Sweden. The integrated mill has two pulp lines and the capacity to produce approximately 500,000 short tons of uncoated freesheet on two paper machines. The mill produces several brands, including Multicopy, and paper used for office printing, business forms, digital printing, offset for printing books and much more. The Nymölla mill has an excellent environmental footprint, which complements Sylvamo’s purpose to produce paper in the most responsible and sustainable ways.

Latin America

Our Latin American segment focuses on uncoated freesheet paper and market pulp, supported by the management of approximately 250,000 acres of certified eucalyptus forestlands in Brazil. With a total uncoated freesheet paper capacity exceeding 1.1 million short tons, our three mills in Brazil serve both regional and international markets, being a key supplier in Latin America and a solid global exporter, reaching customers worldwide. Our portfolio includes market-leading brands such as Chamex and Chamequinho copy papers, widely recognized by consumers and distribution channels for their superior quality. Additionally, Chambril offset papers are trusted by printers and converters for their versatility and reliability across various applications. Chambril is available in a wide range of basis weights and specifications to meet the demands of books, notebooks, inserts, leaflets, and industrial end-use requirements. All the products are primarily made from sustainably sourced eucalyptus, which is cultivated and harvested in less than seven years. Latin America operations combine sustainable forestry practices, operational excellence, strong brands and global distribution network.

North America

Our North American segment manufactures uncoated freesheet papers at its mills in Eastover, South Carolina and Ticonderoga, New York and has an offtake agreement to purchase the uncoated papers produced by International Paper’s Riverdale mill in Selma, Alabama. This offtake agreement is expected to terminate in May 2026. The North American papers business comprises three product lines, Imaging Papers, Commercial Printing Papers and Converting Papers. The imaging papers business, which comprises roughly half of the North American segment’s volume, produces copy paper for use in copiers, desktop and laser printers and digital imaging. These products are important for office use, home office use and in businesses such as education, healthcare and financial services. The commercial printing business comprises about 17% of the North American segment’s volume, and end-use applications in the commercial printing business include advertising and promotional materials such as brochures, pamphlets, greeting cards, books, annual reports and direct mail. The converting business manufactures a variety of grades that are converted by our customers into envelopes, tablets, business forms, file folders and several specialty grades.

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Uncoated papers are sold under private label and brand names that include Hammermill®, Springhill®, Williamsburg, Accent®, DRM® and Postmark®.

BUSINESS SEGMENT RESULTS

Management provides business segment operating profit, a non-GAAP financial measure, to supplement our GAAP financial information, and it should be considered in addition to, but not instead of, the financial statements prepared in accordance with GAAP. Management believes that business segment operating profit provides investors and analysts useful insights into our operating performance. Business segment operating profit is reconciled to Income from continuing operations before income taxes, the most directly comparable GAAP measure. Business segment operating profit may be determined or calculated differently by other companies and therefore may not be comparable among companies.

The following table presents a comparison of income from continuing operations before income taxes to business segment operating profit:

(a)    We define business segment operating profit as our income from continuing operations before income taxes calculated in accordance with GAAP, excluding net interest expense (income), foreign exchange on a note receivable from our Brazilian subsidiary and net special items. We believe that business segment operating profit is an important indicator of operating performance as it is a measure reported to our management for purposes of making decisions about allocating resources to our business segments and assessing the performance of our business segments.

(b)    Net special items represent income or expenses t

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