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

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.

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.

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.

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.