Sylvamo (SLVM 24.08%), the company spun out of International Paper in 2021, is selling a lot more paper than Wall Street had expected.
Investors are taking note, sending Sylvamo shares up 24% as of 3 p.m. ET Thursday.
Sales and earnings come in ahead of expectations
Sylvamo is the international paper company created when International Paper decided to focus on its cardboard and cellulose fiber divisions. Sylvamo earned $1.16 per share in the fourth quarter of 2023 on revenue of $964 million, beating Wall Street estimates by $0.32 per share and $56 million, respectively.
Net sales were up 7.5% from the third quarter, though adjusted operating earnings and free cash flow declined from the previous three months. The company said it experienced an unfavorable pricing mix in Latin America and North America while dealing with higher costs in Europe related to a third-party energy provider.
The company is also making progress cutting costs. In the second half of 2023, Sylvamo reduced overhead expenses by $15 million annually, and it still expects to cut at least $110 million in annual costs by the end of 2024 through streamlining overhead, manufacturing, and supply chains.
Is Sylvamo a buy after its strong report?
There is still a big need for paper in this digital age, but also real questions about how much that demand will grow over time. Investors buying in to Sylvamo should expect the company to dedicate a lot of the cash it generates to shareholders, including a dividend currently yielding about 2.13%.
In Sylvamo’s short time as a public company, it has already exhausted its initial $150 million share buyback authorization and has about $150 million more remaining on a new program the board initiated in September. The company’s share count has fallen by almost 4% during that brief period.
Investors should not expect Sylvamo to be a tech-like growth story, but for those seeking predictable income and a slowly decreasing share count, this stock looks like an intriguing option. No matter how much information moves online, the need for paper isn’t evaporating as some futurists once predicted it would.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
