Suzano S.A. (SUZB3) Earnings Call Transcript

Good morning, ladies and gentlemen. Thank you for holding, and welcome to Suzano's Conference Call to discuss the results for the third quarter of 2026. [Operator Instructions] presentation that will be addressed by the CEO, Mr. Beto Abreu and another executive officers. This call will be presented in English with mountainous translation to Portuguese. To change the audio, you compress the global icon on the lower-right side of the Zoom screen and then choose to enter the Portuguese room. [Operator Instructions] Before proceeding, please be aware that any forward-looking statements are based on the beliefs and assumptions of Suzano's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to the future events, therefore, depend on circumstances that may or may not occur in the future. you should understand that general economic conditions, industrial conditions and other operating factors could also affect the future results of Suzano and could cause results to differ materially from those expressed in such forward-looking statements. Now I will turn the conference over to Mr. Beto Abreu. Please, you may begin your presentation.

Good morning, everyone, and thank you for joining our third quarter earnings call. This is a special call for Suzano as it's the first 1 in which we are reporting RBC's results in our financial statements. The BEx acquisition is perfectly aligned with the company strategy. we see a significant value creation opportunity, and it gave Suzano a more resilient business portfolio. I'm happy to share that RBC's first quarter with us came fully in line with our plan, once again showing Suzano's ability to deliver its promise since the transaction was announced more than a year ago. Q3 was marked by solid volumes, sales and pricing, a decline in cash cost despite a challenging geopolitical environment. and stable pro forma leverage of 3.4x in U.S. dollars, including RBC's last 12 months EBITDA. Management's priorities are now fully focused on continuing to improve our structure competitiveness, advancing our fiber-to-fiber initiatives reducing net debit and leverage starting already in Q4, our strongest quarter for 2026 and capturing the highly visible efficiency gains at RBC. Nothing else is on our agenda at the moment. With that said, I turn the floor over to Fabio, who will continue the presentation.

Thanks, Beto, and good morning, everyone. Please let's turn to the next page of the presentation. Before we start, I would like to highlight that Suzano page results in this quarter over the June September period. Since its inception, Suzano Packaging has been reported with 1 month life to our Brazilian operations. started this quarter report and be fully synchronized across both businesses. Looking at our markets in Brazil, print and ride demand grew 5% versus Q2 and 2% year-over-year. benefiting from seasonality and election-related coat paper demand. Paperboard demand remained under pressure, down 9% sequentially and 5% year-over-year amid softer domestic consumption environment in Brazil. IPs continue to rise with print and write paper and paperboard imports up 76% and 18% year-to-date through August, restereflecting global oversupply and a stronger FX. Turning to international print and write markets. PPPC reported a 2% decline in unborted-wood free demand in North America late in the first 8 months of the year, while Europe fell 4%. Now looking at paperboard in the U.S., market fundamentals is slightly improved during the quarter. Based on data from ASPA, ABS shipments were 2% quarter-over-quarter and 4% year-to-date, up higher production disruption at Nippon Dan Wave Titan region supply, especially in liquid packaging board, they may mark for Suzano packaging as DS operating rate is now at 85% better on a quarter-over-quarter but still below on a year-over-year in historical levels. During the quarter, our Brazilian operations performed well with a 3% growth in production quarter-over-quarter, even considering the annual planned shutdown at our Mucuri mill in August. Against last year, volumes from the Brazilian operations were stable. In our Suzano Packaging operations, the growth in production volumes in quarter-over-quarter and year-over-year, reflecting the additional month reported as explained before. Our sales volumes grew 10% quarter-over-quarter and remained stable year-over-year. High domestic volumes in Brazil were broadly stable. Exports from Brazilian operations decreased 9% versus Q2 and 27% year-over-year, reflecting nonrecurring impacts related to the implementation of our new SAP system in July. Export operations have since then improved and we are now working to have our backlog cleared in Q4. Suzana packaging sales grew on a quarter-over-quarter and year-over-year basis, but were limited to operational constraints at our Pine Bluff mill in Q3 and lower inventory levels. Despite higher import volumes in the Brazilian market, our Brazilian operations delivered a price increase over 2% quarter-over-quarter exposed packaging prices increased 6% in dollar terms over the same period. Now looking at our EBITDA, our combined operations perform decreased 14% quarter-over-quarter. Our Brazilian operations delivered stable volumes and higher prices, but higher SG&A in the period due to corporate expense allocations and higher logistics costs and COGS impacted by annual plant maintenance shutdown at Mucorimio which affect our performance in the quarter. At Susono package, Q3 EBITDA was significantly impacted by operational challenges at the pilot mill mainly related to asset reliability and production efficiency, resulting in lower operating rates, higher production costs and reduced inventory availability. In addition, raw materials and logistics costs increased in the quarter amid the more challenged geopolitic environment. Higher price increase helped mitigate part of this inflationary pressures. They were not sufficient to offset the operation heads. The operational issues faced in Q3 were substantially addressed by the end of September and the mill has been operating more consistently since then. We continue to prioritize reliability efficient, safety and cost competitiveness as we advance the turnaround of Suzano Packaging, support and gradual improvement in EBITDA performance and our tax positive cash flow by 2028, in line with the regional business plan. Looking ahead, in Brazil, we expect sales volumes to improve all historical seasonality, particularly in uncoated paper. Contepaper demand, on the other hand, should soften as the additional demand associated with the election cycle faces. For paperboard, we export stable demand with stronger year-end consumption, offset in part of the softer economic backdrop. Now I hand over to Leo, who will present the pulp business unit results..

Thanks, Fabio, and good morning, everyone. Let's now turn to our pool business unit, where I'd like to share with you the highlights for our third quarter of 2026 as well as my view for the upcoming months. This past quarter was marked by solid invoicing by Suzano in line with last year. In China, paper and board production posted a slight growth when compared to Q3 '25. And as usual, our customers spend their pulp purchases in order to support the higher production pace from September through December, the strongest seasonal period of the year. Despite healthy demand market pulp dynamics reflected 2 distinct business environment as the quarter unfolded. In the first half of Q3, customers continued destocking in anticipation of new pulp supply coming from OCC at the time expected to start up in Q4 26. By mid-quarter, and with the announcement that the project had been delayed into Q1 27 customers rapidly increase pulp purchases to meet their late Q3 and their Q4 production plans, creating a significantly more favorable environment for market pulp producers. This supportive scenario was also fostered by pulp inventories at Chinese ports, which continued to decline during Q3. At the same time, low pool price levels in China in July and August below the cash cost of some local producers led certain integrated players to reduce their own pull production rates and shift to market pulp purchases. Despite hardwood soften price spreads remaining below historic levels, especially in Asia, fiber-to-fiber substitution continues at a healthy pace. -- as customers seek every possible saving and recognizing that the current weak softwood market is unsustainable long term. As an example, in Europe, according to Etopokdata, hardwood pulp consumption was stable in Q3 when compared to Q3 '25, while softwood consumption fell 9%. The quarter was also marked by growing reports of permanent pulp mill closures as well as an increase in unexpected downtimes. According to market consultancies, more than 900,000 tons of bridge chemical pulp was removed from the market as Q3 unfolded, again improving S&D dynamics. On such context, we have sold 3.19 million tons in Q3 with an average export price of $591 per ton, a slight decline when compared to Q2 26 and 13% higher than Q3 '25. Looking at the right side of my slide, the BRL 4.8 billion in EBITDA, up 12% quarter-over-quarter with a 50% EBITDA margin was mostly driven by higher volumes, lower costs and a more favorable FX when compared to Q2 26. Now looking forward, I would like to highlight the following points. In October, we were able to implement our announced price increases globally while maintaining our planned sales volumes. In China, at these new prices, our customers confirm their order intake with volumes at historic levels. At the same time, pulp production costs in China continues to rise. On top of the $30 per BDMT, over 2025 lows, which translates roughly into $60 per tonne increase on pulp production costs. As I have mentioned during our previous call. Our sources on the ground report an additional $10 per DMT increase from this July to September or $20 per ton of additional cash costs, bringing our estimated cash cost in China to a range between the low $500 to $5.60. And the cost pressure in our sector is not exclusive to China. Pulp producers worldwide continue to face a broad cost inflation in their value chain. -- and an ongoing geopolitical tensions and weather-related events. Now talking about the supply side of the equation, we are closely monitoring the impacts of El globally and more specifically in Indonesia, wildfires in this country, following a pattern similar to 2015, are reportedly affecting the forest base supporting the country's pulp production although the remains unclear. Depending on the severity of the wildfires and their impact with has or wood availability, the ongoing pulp project in Indonesia may face further start-up delays or have lower ramp-up curves. For the coming months, we also see the confirmation of our thesis that looking only at gross new capacity as a result of new projects in the pipeline is not enough to forecast price levels. Permanent closures already reached over 1 million tons of breach chemical pulp since the beginning of this year and expected downtimes are rising and reaching 2.3 million tons so far Several pulp projects, both market pulp and verticalization have been delayed during 2026. And we are enthusiastic to share that the first cases of deverticalization in investment markets are starting to materialize. Unfortunately, due to confidentiality agreements, we can yet publicly not disclose them Suzanne, the fourth quarter is seasonally marked by higher sales volumes to support our customers' increasing demand, and we are prepared to deliver another strong Q4. Today, we are running with invoicing backlogs in some cases, reaching more than 2 months, and we seek to reestablish normalized levels until the end of the year. With that said, I would now like to invite Carlos -- welcome back, Carlos, to address our cash cost performance during the past quarter.

Thanks, Leo, and good morning, everyone. I will cover pulp cash cost, Page 6 of our presentation. Our cash cost, excluding downtime was BRL 85 per ton in the quarter, down 2% versus Q2 26 -- the improvement was mainly driven by operational efficiency captured after the maintenance downtimes in the previous quarter. Lower specific input consumption, better fixed cost dilution and lower wood costs supported by lower specific wood consumption. These gains were partially offset by higher chemical and energy costs, reflecting both direct and the indirect impact of the conflict in the Middle East as well as the stronger U.S. dollar. It is worth noting that approximately BRL 14 per ton of our cash cost in the quarter was related to commodity cost pressures associated with this conflict in the Middle East. -- adjusting for this cogen factor, cash cost would have declined and again, would have declined 4% and quarter-over-quarter, highlighting the underlying operational improvements captured during the period. Looking now to the year-over-year performance. Our cash costs, excluding again, downtime, increased 3%, mainly reflecting higher chemical and energy costs, once again, associated with direct and indirect impacts of the conflict in the Middle East on the global commodity and energy markets. We also saw higher wood costs, mainly driven by labor and maintenance inflation in our harvesting operations. These headwinds were partially offset by operational efficiency gains with better fixed cost dilution from higher production volumes and stronger energy sales. The weaker U.S. dollar against the Brazilian real benefited the cash cost performance. Overall, we continue to demonstrate solid cost discipline despite a more challenging geopolitical and commodity cost environment. As we look to the year-end, our operational execution remains broadly in line with the assumptions underlying our original cash cost outlook. However, commodity energy cost pressures have proven more persistent than initially anticipated as the conflict in the Middle East continues to affect global supply chains and commodity markets. Combined with a strong U.S. dollar, these exogenous factors have increased our cost base beyond our original assumptions. As a result, we are updating our full year 2026 cash production costs, excluding downtime guidance from BRL 800 per ton, to approximately $825 per tonne. Important to say that absent means external pressures, we would be on track. We would be on track to deliver our original $800 per ton cash cost targets. Now I turn the floor over to Marcus, who will continue the presentation.

Good morning, everyone. Moving to Slide 7. This is our first quarter after closing the RBC acquisition, and the first time we report consumer goods as a separate segment. To make the quarter easier to compare, we also show pro forma RBC figures for prior periods. The Consumer Goods division posted an EBITDA of BRL 803 million with a 16% margin. RBC contributed with BRL 694 million. Our Brazilian operations added BRL 109 million, up 31% year-on-year, driven by strong volumes and lower costs. Arik is performing in line with what we underwrote. Over the last 12 months, RBC generated EBITDA slightly above million, confirming that the business kept running smoothly between signing and closing, despite the negative impacts of the Middle West conflict remain highly confident that we will extract value from this division, and we expect to see increasing efficiency gains in our results in the coming quarters. Moving to Slide #8. We -- let me walk you through our net debt. Excluding -- are Net debt for Suzana continued to decline from $12.8 billion in June to $12.5 billion in September. -- reported net debt, including abex reached $14.7 billion at the end of the quarter, impacted by the value we paid for Kimberly Clark for our 51% stake and the full consolidation of RBC net debt. Important to mention that deleveraging remains our top priority, and we provided a guidance that our net debt should be under $14 billion by the end of 2026. Our pro forma leverage, which includes RBC's last 12-month EBITDA remained at 3.4x, stable compared with June. Important to mention that we continue to have a very comfortable debt amortization schedule with 73 months of average and also a competitive cost of them. Moving to Slide 9. We would like to highlight our strong FX hedging portfolio. In third quarter 2026, we generated BRL 294 million in positive cash adjustments. And in the 9 months year-to-date, we generated BRL 825 million. At the end of the quarter, our 0 cost collar portfolio had a notional of $4.8 billion, with an average put strike at TRY 6.04 per dollar and an average call of RMB 6.95 per dollar. These hedges cover 65% of our FX exposure. As a sensitivity, if the FX rate, September's close of BRL 5.8. We expect more than BRL 4.1 billion in cash adjustments throughout the next 24 months. Now moving to Slide 10. We will comment on our commodity hedges. Oil prices remained high during the quarter with Brent prices averaging $91 per barrel which compares with $68 per barrel a year ago, and we closed September at $98 per barrel. This is the main source of pressure on our cost oil-linked inputs, chemicals and logistics. Our hedging program for natural gas and broker helped to offset in third quarter 2026. Our hedges generated BRL 91 million in positive cash adjustments. And year-to-date, this positive cash adjustments totaled nearly BRL 300 million. For 2027, we have coverage for nearly 65% of our hedgeable exposure. And if [ Brent ] stays at $98, which was the level that it closed the quarter, we would expect around BRL 477 million in total cash adjustments from this portfolio. With that, I will hand it back to Beto for his final remarks.

Thank you, Marcus. Looking forward and it's a kind of summary of the team just presented our last quarter, we see a positive trend, and we are really expecting to be, as I said before, our strongest quarter of the year. And this will allow us to keep focusing on deleveraging our net debt and keep focusing on strengthening our TOD competitiveness. And important to say that we haven't started yet gaining the efficiencies that was in the plant for Abe. So in the fourth quarter, we will also be able to start gaining those efficiency that was planned in the business plan. So that's the main elements for the next quarter. So having said that, I would hand over for the Q&A session.

[Operator Instructions] Our first question comes from Daniel Sasson from Itau BBA.

My first question is on prices and order intakes. You mentioned that the October price increases were implemented globally without impacting the planned sales volumes with intakes in China at historical levels at been prices. You're also running invoicing backlog of more than 2 months in some cases. Does this give you confidence that the market can absorb another price increase in December? Or are you seeing meaningful difference between China and Europe in terms of the ability to implement further increases -- and still on Q2, you mentioned the initial delay from 4Q 26. You have the first part 27, that figured a meaningful restocking cycle in China, as you mentioned. We are now flagging the white fires Indonesia, could result in delays or further delays or a slower ramp-up. Has the recent events there changed your base case for the start of time, your ramp-up curve of if and if the project is for further out, would that materially change your top price outlook for next year? And my second question on cash cost. You reiterated your BPO guidance, right, which points to a pub cash cost of $77 per tonne next year, which includes maintenance stoppages it's -- maybe if you could walk us through your -- what would be the case if we use the same effects and commodity assumptions, brand price assumptions, for instance, in your updated 2026 guidance, what would the 787 per ton guidance look like -- and how do you bridge the reduction from 2026 to 2027 between lower downtime or wood cost or fixed cost dilution that would give us some comfort to factor in your guidance for next year despite a more challenging than anticipated 2026, right?

Daniel, this is Leo here. Thanks for your question. Just to tackle the first part of it and rephrasing what I have mentioned in my speech, we confirmed that during October, our price increase announcements were fully implemented with no concessions and that our volumes are right in line with plan and that the order intake volumes with our Chinese customers and other Asian countries, customers are also fully aligned with historic volumes with no decrease at all. Looking forward, obviously, sharing our price outlook is a very sensitive information, and we won't do that. But there are several moving factors as we stand and which we are analyzing to decide directionally or to what intensity we will be moving. On the last few days and weeks, 2 main events happened both in Indonesia. First, obviously, the intensification of the wildfires affecting the wood base, which is needed for, in our view, to start up or to an efficient ramp-up curve of Okta. And a lot of issues with Hays and sources that we have on the ground have also mentioned that had, in a sense, also jeopardize for some days or week the construction of the site. And more recently during this week, -- you all know about the news on the fire at Okine mill. That's still unclear in terms of how much of the mill has been affected up to now, what we know is that the fires affected the cooling tower of OCI on which was on planned downtime. So was expected return in November 8, November 9. So the sources that we have on the ground and also connecting with our customers in the region and with traders in the region. The information we have is that this company is going to try to interconnect the cooling system that was being built or built for with One, and that's a distance as we understand, of approximately 2, 2.5 kilometers. So they're going to try to do this interconnection to then restart Q1. So to that sense, that will start to take longer than expected. So there's a market pulls just for that purpose. And then obviously, after a fire of this extent happens, there's always a worry on safety and what other parts of the mills were affected. So it is our estimation that the ramp-up of OKI post maintenance downtime will be slower or more careful than originally expected, therefore, also affecting availability of market pulp in the market. And our sources also show and present that inventory levels at APP system, including the pulp needed for their paper mills in China and in the region are below normalized levels. Most reports present lower than 15 days. So obviously, there's this huge crunch and that probably will happen in China and in Asian markets to be unfolded and to be known during the next, I would say, 5 to 10 days. So there's a lot of moving parts, a lot of clarity and is all key for us to position our short-term price strategy. And I would say that a bit more midterm and critical for us is clarity on O Q2. If it really starts in Q3, mid-Q3, and the situation is as planned for Suzano, but any delay would also favor a better supply and demand dynamics looking forward.

Daniel, Mark here. Taking your second question. You mentioned about our guidance for the TLD for 2027, which is BRL 1,983. -- and embedded on that there is an assumption of the cash cost of $787 million, right? Remember that, that assumption carries a oil prices of $70 per barrel. Okay? We will soon update you with our TOD guidance for 2027, as we always do by the end of the year. But just to give you a hint here, the revision that we did on our cash cost from $800 to $825 had 2 major impacts, right? The first 1 was the FX that we had before at 507 and we move it to 520. And the other one was the change in the assumption of oil prices from $84 per barrel to $94 per barrel. The biggest contributor to the guidance change was definitely the higher oil prices and its consequence and impact on the other chemicals and logistics as well, okay?

Our next question comes from [indiscernible] for Goldman Sachs.

Sorry, I want to follow up on Sasson's questions. I think you painted a very good picture on your earning remarks. We talked about significantly better market in the second quarter, fiber to fiber continuing cash costs rising is lower ramp-up curve for local producers in China. Closure is happening, unexpected downtime, deverticalization happening, 2 months backlog. I mean, can you get better than that? And I wonder why you are now surprise hike for Europe and not for China in that scenario? Obviously, you had, like you said, 2 new events with Foire being an issue last week and obviously, with the general fires in Indonesia as well. So obviously, 2 new news in the last week, not under your control, but you're painting on very good picture prices are struggling or it wasn't easy, as I understand, to get to $600 in China or not as easy as you would expect with this scenario. So just wondering what else you need to see to push harder and to see further price momentum there? And then maybe a question to Fabio. Fabio what's the plan with the U.S. operations? I understand you've done a lot of work, and I think things have -- the operations are a lot better than you initially -- when you initially started. But obviously, is still a little bit behind where we would expect in terms of profitability as well. So if you can talk a little bit about the plans for U.S. and when you expect those operations to be free cash breakeven, that would be great.

Marcio. This is Leo here. Yes. So first of all, we had announced the second pool price increase for Europe and not in China. And that, again, as you have mentioned, it's important to say that's all pre having a clear view on the effect of the wild fires in Indonesia. And also prefire Q1 event. So that was before understanding the effects of these 2 important variables to the S&D dynamics in our sector. We have actually announced 2 price increases for each region. So they are kind of walking simultaneously with a delay in Europe as usual. And what makes us watchful in China or made us prior to these 2 events are 2 main points. First is timing for increasing margins of our customers. We all know that prices in uncoated wood free coal to dot and every board are not doing well are falling in China. But this 3 paper grades our paper and packaging grades are mostly integrated as we speak. And what really drives the demand of pulp and the dynamics of pulp in the market are tissue and specialty papers, which represent roughly 80% of the hardwood pulp demand in that country. We know tissue prices are increasing in China. They have been on this positive trend for the last 2 months. So our intention was to give time for margin recoveries. And we see today margins at historic levels in tissue, a bit compensated also with fiber to fiber in that country. Second variable that we are watchful are prices of softwood pulp. We know the situation there is much more critical than it is for hardwood supply and demand dynamics. At China prices, there was just a recent update from 1 of the main consultants in the business at China prices 51% of all global softwood production would be losing money. And this is unsustainable, right? So we're also waiting and seeing what will happen to softwood and if that will give us a better leeway in terms of our price strategy looking forward. As it is today, price differentials in China are much lower than historic averages are roughly $50 plus/minus $10 depending on the grade and which we think is not sustainable. It's also important to say, as in my opening speech, I mentioned that closures have again got traction during the year. And we are monitoring that closely. Again, with the adjustment of a mill who decided to get back in business, total closures of softwood from January to October. The announcements totaled roughly 1.1 million tons -- and when we factor that in, actually, their curves as of the moment, they're all stopping -- of the 1.1 million tons of closures in softwood, the fact to market up to now is 380,000 tonnes. So most of it is coming as of Q4 and in Q1 and 2027 as well. So we have to see how all these factors unfold. Again, margins of our customers, how much or could softwood prices move or how quick they could start moving up in China, then factor in these 2 new variables in Indonesia to decide what to do.

Thank you for your question. I'm going to address our U.S. operations. You're right. It was a very challenging quarter for us. When we bought this facility here in the United States. The main bottleneck that we had in terms of operations was the paper part of the mill. That was the major bottleneck that with lower operating rates higher cost, low quality. And since then, we have put a lot of efforts and we have improved a lot the paper side of the mill. Last year, we have no major issues at the paper side. This year, we had no major issue on the paper side. The issues that we have had this year were on the pulp side of the mill and the power utilities, which is now the main focus of our efforts here to bring stability to the mill. As I said in my speech, in September, the mill has already stabilized. October, we had a good month in terms of production was a normal level, both on the pulp side and the paper side of the mill. And we are focused in on 2 fronts. So first front is to continue to stabilize the mill, increase our operating rate levels at the mill efficiency lot of our products and reducing costs. And also, we have a series of all projects that we are working on with the small projects, higher returns that can help us to increase the EBITDA that we generate at themes. So that's -- these are the 2 fronts that we are working on. And we are still pursuing our business plan that we had prior to the acquisition, which is to bring this mill to cash positive in 2028.

Our next question comes from Lucas Laghi from XP Investments.

I have 2 questions. First of all, I think on mean with the differences on the accounting format that you are providing market, I think it becomes easier to understand the level of integration of the pulp that you're selling in the company. So just thinking of what's the optimal level that you expect RBC integration to become over time? I think a part of it is already integrated by your own pulp production, but just trying to understand what's the optimal integration level that you pursue for this asset over time? And how should we think of this kind of ramp up between this -- the integration of the pop that you produce internally. And I mean taking out the guidance of net debt below $14 billion. I think it implies very -- as you indicated, very strong free cash flow standpoint for just understanding if there is any, let's say, cash enhancement initiative included in this guidance or if it's only related to the operating free cash flow related to your robust expected sales and operating standpoint in and if there is any -- I mean, just if you could comment on any asset sale or expect for the short term, I mean any other potential cash enhancement initiatives that should

Our next question comes from Marcelo Razi from BTG.