Sappi Reports Improved Third-Quarter Performance, Expects Stronger Q4 on North America Momentum

Sappi reported third-quarter results for the period ended June 2026 with Adjusted EBITDA of US$53 million, in line with the improved outlook provided to shareholders in July. The company said operational improvements, particularly in North America, ongoing cost reduction initiatives and disciplined capital allocation helped offset the impact of weaker selling prices, inflationary pressures and challenging global market conditions.

The company said the continued ramp-up of the Somerset Mill PM2 paperboard machine in North America remained a key strategic driver during the quarter, while group-wide cost reduction measures and disciplined capital spending supported performance. CEO Steve Binnie said improved operational performance in North America and continued cost discipline helped mitigate weaker pricing and inflationary pressures. However, Sappi continued to face pressure from lower selling prices across several product categories, higher logistics and chemical costs linked to geopolitical tensions in the Middle East, and an unfavourable US dollar/South African rand exchange rate that affected profitability in South Africa.

Despite the difficult operating environment, Sappi maintained liquidity of approximately US$783 million at quarter-end. Net debt increased only marginally from the prior year through disciplined capital allocation and cash management. Capital expenditure during the quarter totalled US$62 million, primarily directed toward essential maintenance and operational reliability projects.

Regional performance

North America delivered the strongest improvement in profitability during the quarter, supported by increasing paperboard production from Somerset Mill PM2, improved operational efficiencies and higher sales volumes. Demand for dissolving wood pulp (DWP) remained healthy, with prices strengthening on favourable viscose staple fibre market fundamentals. Packaging and speciality papers also benefited from increased paperboard production, although graphic paper markets continued to experience structural demand declines globally.

Binnie said the company's strategic priorities remain focused on expanding its packaging and speciality papers business, improving operational performance, reducing costs and maintaining financial flexibility, adding that progress during the quarter positions Sappi for a stronger fourth quarter.

In South Africa, profitability declined compared with the previous year due to lower sales volumes and selling prices, particularly in the pulp business where lower US dollar selling prices and adverse exchange rate movements created headwinds. Demand for dissolving wood pulp and containerboard remained resilient, supported in part by strong citrus export activity, while scheduled maintenance at the Ngodwana Mill affected profitability. Office paper and newsprint demand remained stable.

Sappi also highlighted increasing levels of low-cost paper imports into South Africa, saying import competition continues to pressure pricing. Binnie said South Africa remains a strong business with competitive assets and healthy demand across several markets but noted that growing imports present challenges for local manufacturers and warrant greater policy attention.

North America's commercial ramp-up of Somerset Mill PM2 continued to accelerate, with paperboard sales volumes increasing 63% year over year. Higher production volumes, improved operational stability and cost efficiencies strengthened earnings, while recent industry paperboard price increases are expected to support future profitability. Binnie said the project continues to deliver the operational and commercial benefits anticipated and is expected to become an increasingly important contributor to earnings as efficiencies improve.

In Europe, financial performance improved compared with the prior year, mainly due to strategic cost reduction and rationalisation initiatives. Although weak market conditions and declining graphic paper demand continued to weigh on volumes, lower fixed costs and operational improvements supported profitability. Sappi also said the proposed graphic papers joint venture with UPM continues to move through the regulatory approval process.

Outlook

Looking ahead, Sappi said geopolitical tensions in the Middle East continue to create uncertainty and inflationary pressures across global supply chains, but market fundamentals across several key product categories are improving. The company expects to benefit from stronger dissolving wood pulp pricing, continued progress at Somerset Mill PM2, lower maintenance costs and recent paperboard price increases in North America. As a result, Sappi expects fourth-quarter FY2026 Adjusted EBITDA to be materially higher than the third quarter.

Binnie said that while uncertainty persists in the global economic and geopolitical environment, improving market fundamentals and momentum across Sappi's businesses support the company's strategy of strengthening its balance sheet and delivering improved fourth-quarter performance.

According to the company, Sappi manufactures woodfibre-based pulp, packaging and speciality papers, graphic papers and biomaterials using renewable resources. The company operates manufacturing facilities across three continents and sells its products in more than 150 countries.