The Long and Short
Suzano continues making the case for relative value
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Suzano’s latest earnings continue to help the case for relative value in the credit, the world’s largest pulp producer. With the pulp price outlook having recently improved compared to expectations in late 2024 and with Suzano at the end of its latest project cap expenditure phase, the credit is likely to generate significant EBITDA and free cash flow in 2025 to drive its deleveraging strategy. This expectation combined with the relatively better liquidity in the Suzano capital stack makes Suzano as the preferable relative value compared to its Brazilian peer Klabin as well as the Chilean operators Celara and CMPC.
Suzano reported fourth quarter 2024 gross earnings of R$6.48 billion, slightly lower quarter-over-quarter though a solid 44% increase year-over-year. The print was better than consensus expectations as strong sales volumes and lower cash costs offset weaker pulp prices. Realized pulp export prices were $583 per ton in the quarter, a 13% decrease compared to the third quarter as higher supply depressed contract price levels. The higher sales volumes primarily came from the Cerrado mill ramp-up as well as fewer maintenance stoppages compared to the previous quarter, together with the ongoing fiber substitution effect. Suzano’s cash cost of pulp, net of downtimes, decreased 7% sequentially to R$807 trillion in the period, due to lower wood costs, reduced input consumption, cost dilution and higher revenues from Cerrado’s energy exports. As such, Suzano’s pulp division posted an EBITDA of R$5.7 billion, up 1% quarter-over-quarter and 88% of consolidated EBITDA.
Suzano’s paper division reported strong results also with sales volumes of 430kt—up 20% quarter-over-quarter and 11% year-over-year—driven mainly by incremental volumes from Suzano Packaging US, which started operations in October, as well as higher uncoated paper sales in the domestic market. The average net price in BRL increased 1% quarter-over-quarter, which was supported by the BRL weakness in the period. Despite the solid volumes however, EBITDA declined 9% quarter-over-quarter to R$751 million, mainly due to higher cash costs associated with the new Suzano US operation, as well as increased selling, general and administrative expenses.
Consolidated capital expenditure declined to R$3.3 billion in the quarter as the Cerrado project requirements have receded. This portends for higher free cash generation in 2025, following the positive R$1.2 billion in the fourth quarter, enabling a continued focus on deleveraging the balance sheet. At year end, net leverage in US dollars was 2.9x compared to 3.1x at both the third quarter 2024 and fourth quarter 2023. On the earnings call, management reiterated its plans to reduce leverage and not pursue M&A activities that would challenge this planned trajectory.
Exhibit 1: Summary financials for Suzano
Source: Company reports, Santander US Capital Markets
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