Executive Summary / Key Takeaways

• Deleveraging and Capital Discipline: Suzano is prioritizing deleveraging its balance sheet, aiming for a net debt to EBITDA ratio between 2x and 3x, with a cautious approach to capital allocation and a focus on value creation over diversification targets.
• Cerrado Project and Cost Leadership: The successful ramp-up of the Ribas mill, part of the Cerrado project, has significantly enhanced Suzano's cost competitiveness, with the mill achieving the best cash production cost in the company's portfolio and driving expected consolidated cost reductions.
• Strategic Downstream Expansion: Recent acquisitions in U.S. packaging (Suzano Packaging U.S.) and a stake in Lenzing, alongside a new joint venture with Kimberly-Clark (KMB) for tissue products, signal a strategic move into downstream segments and new geographies, aiming to extract value and leverage fiber-to-fiber substitution opportunities.
• Pulp Market Resilience Amidst Volatility: Despite an unpredictable global landscape, including trade tensions and oversupply, Suzano's resilient business model, normalized inventories, and focus on marginal cost analysis position it to navigate market cycles, with management believing current pulp prices are unsustainable below marginal production costs.
• Technological Edge in Fiber and Pricing: Suzano leverages its advanced eucalyptus plantations for cost-efficient, sustainable pulp and employs sophisticated algorithms for dynamic pricing, while actively pursuing fiber substitution initiatives that are driving increased demand for hardwood pulp.

A Foundation of Fiber and Foresight

Suzano S.A., a company rooted in nearly a century of history since its founding in 1924, has evolved from Suzano Papel e Celulose S.A. into a global leader in the pulp and paper industry. Headquartered in Salvador, Brazil, Suzano's core business encompasses a diverse portfolio including coated and uncoated printing and writing papers, paperboards, tissue papers, and market and fluff pulps. Beyond its traditional offerings, the company strategically diversifies into biofuel research, power generation, and biotechnology, underscoring a commitment to sustainable and integrated operations.

The company's strategic journey has been marked by significant investments aimed at solidifying its competitive advantages. A pivotal moment arrived around mid-2024 with the commissioning of the Ribas mill, a cornerstone of the ambitious Cerrado project. This initiative was designed to be a unique milestone, propelling Suzano to an even stronger position in the market pulp sector and significantly enhancing its cost competitiveness. The Ribas mill quickly demonstrated impressive operational capabilities, reaching 900,000 tons of production and 700,000 tons of sales in 2024, aligning with initial guidance. Its learning curve was completed ahead of schedule by the end of the fourth quarter of 2024, a testament to Suzano's operational prowess.

Competitive Dynamics and Technological Moats

Suzano operates in a highly competitive global arena, facing direct rivals such as International Paper (IP), Kimberly-Clark, WestRock (WRK), and Stora Enso (STE). Suzano's competitive edge is fundamentally built on its cost leadership, derived from its vast, highly productive eucalyptus plantations and vertically integrated operations. This allows the company to achieve qualitatively lower production costs and maintain superior control over its supply chain, often translating into stronger margins and cash flow compared to peers. For instance, its efficient raw material sourcing provides a distinct advantage over International Paper, which can be more exposed to commodity price fluctuations.

The company's core technological differentiation lies in its advanced silviculture and industrial processes for eucalyptus pulp production. This enables Suzano to consistently produce high-quality hardwood pulp with a superior yield, contributing to its position as one of the lowest-cost producers globally. The Ribas mill, a prime example of this technological leadership, achieved the best cash production cost within Suzano's asset portfolio in January 2025. This operational efficiency is a critical moat, allowing Suzano to generate free cash flow even in challenging pulp price scenarios.

Beyond its foundational pulp technology, Suzano is actively innovating in several areas. Its "fiber-to-fiber" initiatives are a significant technological differentiator, capitalizing on the growing trend of substituting softwood with hardwood pulp. This strategy is driven by a substantial price difference, currently around $200 per ton on a net basis between softwood and hardwood, and an increasing market share gain of 1 percentage point annually for hardwood, translating to an additional 600,000 to 700,000 tons of hardwood demand each year. This not only expands Suzano's addressable market but also positions it as a key partner for customers seeking more cost-effective and sustainable fiber solutions.

Furthermore, Suzano employs sophisticated technology and algorithms in its pricing system. This data-driven approach allows the company to assess market information from diverse sources, enhancing its awareness and knowledge to optimize pricing strategies and tactics dynamically. This technological application in commercial strategy provides a critical advantage in navigating volatile market conditions and maximizing revenue.

While Suzano excels in resource efficiency and biofuel diversification, it acknowledges areas for growth in global branding and innovation speed compared to consumer-focused giants like Kimberly-Clark or R&D-intensive Stora Enso. However, its strategic moves into downstream segments, such as packaging and tissue, are designed to address these gaps by leveraging its core fiber expertise and operational excellence.

Financial Performance and Strategic Momentum

Suzano's financial performance in recent periods reflects both the strength of its core operations and the impact of strategic investments. In the first quarter of 2025, the company reported BRL 4.3 billion in EBITDA for its pulp business, achieving a 49% EBITDA margin. This was despite lower volumes and invoicing prices, demonstrating the resilience of its business model. The paper and packaging segment also saw positive momentum, with Suzano Packaging's EBITDA improving by 67% quarter-over-quarter, driven by enhanced operational performance and new commercial contracts.

For the full year 2024, Suzano delivered a robust R$23.8 billion in EBITDA, with its dollar-denominated leverage standing at 2.9 times net debt to EBITDA. This strong performance was underpinned by record sales volumes and the establishment of a new, lower baseline for cash costs. The pulp business, in particular, saw its EBITDA increase by 37% to nearly R$21 billion in 2024, with a 56% EBITDA margin, benefiting from higher USD prices, increased volumes, and favorable foreign exchange rates.

Cash flow generation remains a hallmark of Suzano's financial health. In Q1 2025, the company generated approximately BRL 500 million in free cash flow, even while investing around $200 million in growth CapEx for fluff and tissue capacity projects. The company also reported a significant positive financial result of BRL 7.7 billion in Q1 2025, largely due to a BRL 5.7 billion positive impact from the market-to-market valuation of its dollar-denominated debt and a BRL 3.1 billion positive impact from derivatives, both influenced by a favorable FX shift from BRL 6.19/$ at the end of 2024 to BRL 5.74/$ at the end of Q1 2025.

Liquidity is robust, with Suzano maintaining a competitive cost of capital at 5% for its debt and extending its average maturity from 73 to 76 months in Q1 2025 through a $1.2 billion liability management operation. The company's comprehensive portfolio of zero-cost hedges, totaling $6.9 billion at the end of 2024, provides substantial protection against BRL appreciation. Over the past three years, Suzano has returned over R$10 billion to shareholders through dividends, interest on equity, and share repurchases, including R$4.3 billion in 2024 alone, equivalent to a 6% dividend yield.

Strategic Initiatives and Future Outlook

Suzano's strategic roadmap is clearly defined by deleveraging, enhancing competitiveness, and extracting value from recent strategic moves. The company aims to further reduce cash costs, SG&A, and CapEx per ton, aligning with its total operational disbursement guidance for 2027. The successful ramp-up of the Ribas mill is central to this, with management confirming that the "peak of higher cost is already behind us" and expecting cash production costs to decline in the coming quarters, using Q4 2024 as a reference for 2025.

The company's expansion into downstream segments is gaining traction. Suzano Packaging U.S. is on track to achieve positive EBITDA in the second half of 2025, driven by improved operational performance, renegotiated commercial contracts, and secured synergies. This turnaround is a key focus for value extraction. The investment in Lenzing, a minority stake with board representation, is a strategic entry into the textile market, allowing Suzano to learn and potentially scale in the dissolving pulp and fiber-based textile sectors. The recently announced US$3.4 billion joint venture with Kimberly-Clark for tissue products further solidifies Suzano's commitment to downstream diversification and internationalization.

In the pulp market, while global macroeconomic turmoil and trade discussions introduce uncertainty, Suzano remains confident in its resilient business model. Management believes current pulp prices, particularly around the $500 per ton mark in China, are unsustainable given that the marginal cost of producers, especially in Europe, has surpassed $600 per ton, reaching $625 per ton for hardwood due to currency appreciation. This dynamic is expected to lead to supply disruptions from commercial downtimes by higher-cost producers, potentially supporting a price recovery. Suzano is determined to maintain its normalized pulp inventory levels, with no plans for further buildups, and will adjust production if marginal returns are deemed inappropriate.

For its paper and packaging business, Suzano anticipates stable domestic prices for cut size and uncoated woodfree papers for the remainder of 2025, with paperboard and coated paper prices potentially following international dynamics. Non-Brazilian operations expect lower costs in Q2 2025 due to fewer maintenance schedules, though the Pine Bluffs facility will undergo annual downtime.

Risks and Considerations

Despite a compelling growth narrative, investors should consider several risks. The ongoing "tariff war" and broader macroeconomic uncertainty pose a significant threat to international paper demand and prices, as evidenced by customer sentiment and paused negotiations in China in early 2025. Suzano's exposure to commodity price fluctuations, particularly for dollar-linked inputs like caustic soda and natural gas, can pressure cash costs, even as FX depreciation benefits overall cash generation.

Logistical challenges, including port congestions and vessel delays, have historically impacted export volumes and costs, creating a "perfect storm" for Brazilian exporters. While Suzano is actively seeking alternatives, these disruptions could persist. The company's deleveraging target, while a priority, could be influenced by unexpected capital allocation opportunities or prolonged market downturns. Furthermore, while the U.S. market is attractive, local economic uncertainty could impact demand.

Conclusion

Suzano S.A. stands as a resilient and strategically evolving powerhouse in the global pulp and paper industry. Its core investment thesis is anchored in a relentless pursuit of cost leadership through advanced, vertically integrated eucalyptus plantations, exemplified by the successful Cerrado project and its Ribas mill. This operational excellence, coupled with a disciplined approach to deleveraging, provides a robust financial foundation.

The company's strategic expansion into downstream packaging and tissue, alongside its investment in Lenzing, signals a clear intent to diversify revenue streams and leverage its fiber expertise in new, high-growth markets. These moves, supported by a data-driven pricing system and a focus on fiber substitution, are designed to enhance long-term value creation. While global trade tensions and commodity price volatility present ongoing challenges, Suzano's proactive management, strong cash flow generation, and commitment to shareholder returns position it favorably. Investors looking for a company with a strong competitive moat, a clear growth trajectory, and a disciplined financial strategy in the essential materials sector may find Suzano an attractive long-term opportunity, particularly as its technological leadership in fiber and operational efficiency continues to drive value.