Sappi Q3 EBITDA falls 46% amid challenging market conditions

Investing.com -- Sappi (OTC:SPPJY) reported fiscal third-quarter EBITDA (excluding fair value) of $80 million, marking a 46% decline year-over-year and a 25% drop quarter-over-quarter.

The quarterly performance fell 6% short of Visible Alpha consensus estimates of $85 million and was 5% below expectations of $84 million. Adjusted earnings per share came in at -$0.04, down 15 cents year-over-year and 5 cents sequentially, missing consensus estimates by 2 cents.

The company’s weak performance stemmed from challenging market conditions resulting from persistent trade and tariff tensions, which put pressure on selling prices, particularly for dissolving wood pulp (DWP). An extended shutdown at the Saiccor mill had a $22 million impact, in line with the company’s guidance of approximately $20 million.

Dissolving pulp markets faced difficult conditions driven by U.S. tariff threats. China’s DWP oversupply pushed prices lower, despite stable demand for Sappi’s products. Pulp volumes decreased 4% year-over-year due to higher internal integration at the Matane Mill, while a scheduled shutdown at the Cloquet mill contributed to higher costs.

Graphic paper volumes outperformed the broader market contraction despite being in structural decline. The delayed start-up of Somerset Mill PM2 created operational disruptions, resulting in reduced production and higher costs.

Packaging (NYSE:PKG) and specialty papers volumes and prices remained flat year-over-year, but profitability was impacted by higher Somerset start-up costs. The plantation fair value price adjustment, excluded from EBITDA, was negative $9 million, compared to -$17 million in the second quarter of fiscal 2025 and +$3 million in the third quarter of fiscal 2024.

In Europe, adjusted EBITDA fell to $5 million from $27 million a year earlier and decreased by $17 million sequentially. While sales volumes remained relatively stable year-over-year, margins were adversely affected by lower selling prices, which declined 3% year-over-year.

North American sales totaled $404 million, 4% lower year-over-year, with adjusted EBITDA of $5 million falling behind the prior year quarter’s $33 million. This decline was affected by lower graphic paper and reduced pulp profitability from the scheduled shutdown at the Cloquet mill.

South African operations reported EBITDA of $64 million, down from $84 million a year earlier. Results were weaker largely due to lower regional sales volumes, increased variable costs, and a sharp decline in DWP selling prices. Sales volumes were constrained by low inventory and an extended shutdown at the Ngodwana mill.

The company’s last twelve months net debt to EBITDA ratio increased to 3.5x from 2.6x at the end of the second quarter as net debt rose by $277 million quarter-over-quarter and last twelve months EBITDA decreased by $68 million. Liquidity remains solid with $203 million cash on hand and $599 million from an undrawn revolving credit facility.

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