• Sales: Decreased by 2% year-on-year in Q3 2024.
• Comparable EBIT: EUR 291 million, representing 11.5% of sales; grew 32% year-on-year and 60% sequentially from Q2.
• Fixed Costs: Reduced by EUR 56 million year-on-year and EUR 107 million sequentially from Q2.
• Net Debt: EUR 2.8 billion.
• Net Debt to EBITDA Ratio: 1.59.
• Operating Cash Flow: EUR 242 million, impacted by a EUR 73 million increase in working capital.
• Pulp Price: Average pulp sales price decreased by 3% from the previous quarter.
• Free Cash Flow from Communication Paper Business: Nearly EUR 400 million over the past 12 months, with a 33% free cash flow return on capital employed.
• Annual Fixed Cost Savings: EUR 45 million from closing down operations in Germany.

• Warning! GuruFocus has detected 6 Warning Signs with UPMKF.

Release Date: October 29, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• UPM-Kymmene Oyj (UPMKF) reported a 32% year-on-year and 60% sequential increase in comparable EBIT, totaling EUR 291 million or 11.5% of sales.
• The Paso de los Toros pulp mill is fully ramped up, contributing positively to the company's earnings.
• Fixed costs were reduced by EUR 56 million year-on-year, demonstrating effective cost management.
• The company is well-positioned for growth in renewable fibers, advanced materials, and decarbonization solutions.
• UPM-Kymmene Oyj (UPMKF) expects its fourth-quarter comparable EBIT to be at a similar level or increase from the fourth quarter of last year.

Negative Points

• Q3 sales decreased by 2% from the previous year due to lower than expected volumes.
• Market demand for UPM-Kymmene Oyj (UPMKF)'s products slowed down, particularly in Europe, impacting sales and EBIT.
• The pulp market in China was soft during the summer, resulting in lower deliveries and decreased prices.
• High wood costs in Finland are unsustainable and have led to temporary downtime at pulp mills.
• The demand for advanced materials has been inconsistent, with a strong start to the year followed by a softening in Q2 and Q3.

Q & A Highlights

Q: Can you explain the expected quarter-on-quarter improvement, particularly in Raflatac and Energy business, and how much is driven by pricing versus volumes? Also, what are the expected energy-related refunds? A: The improvement is largely driven by seasonal factors, such as increased demand for Raflatac products during the holiday season and higher energy consumption in Finland. Pricing is harder to predict due to various influencing factors. As for energy-related refunds, they are expected to be similar to last year, but we do not provide specific numbers.

Q: How are you managing your pulp mill network given the elevated wood costs in the Nordics? A: We optimize our pulp mills in Finland and Uruguay as platforms rather than individual sites. In Finland, we focus on maximizing profitability rather than production, which may involve temporary downtimes when costs outweigh benefits. This approach allows us to manage the high wood costs effectively.

Q: What is the outlook for wood costs in Finland, and what factors could drive them down from current peak levels? A: The high wood costs in Finland are due to an imbalance between demand and supply. A structural solution is needed, either through increased supply or reduced demand. Price changes in pulp or construction materials could also alleviate some pressure.

Q: Regarding the Paso De Los Toros mill, what steps remain to reach the production cost target of $280 per ton? A: Key steps include reaching nominal capacity and completing the railway connection by year-end, which will reduce logistics costs. Continuous process optimization and potential capacity expansion beyond nominal levels will further improve costs over time.

Q: Has the stabilization in graphic paper deliveries affected UPM's market share, and will the closure of PM3 impact this further? A: While demand has stabilized after last year's decline, our focus remains on profitability rather than market share. The closure of PM3 is part of our strategy to protect profitability and generate cash, despite potential impacts on market share.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.