Suzano Needs Its Promised Second-Half Pulp Recovery To Outrun Middle East Cost Inflation

Suzano heads into its third-quarter report with a promise to keep. Three months ago management argued that a tightening pulp market and firmer second-half demand would pull the company out of a margin squeeze caused by Middle East-driven cost inflation and a stumbling US packaging operation. The stock has already given that argument the benefit of the doubt, rising about 11% since the last report while the S&P 500 went nowhere. The November 5 release, due after the close, is where the recovery story has to start showing up in the numbers.

The bar itself is not demanding on profits. Consensus calls for earnings of $0.15 per share, roughly half the $0.29 earned a year ago, on revenue of about $2.38 billion, up 6.7%. That pairing tells the story: sales are expected to grow modestly while earnings contract sharply year over year, a sign that costs, currency and financing are eating much of the top line. Sequentially, though, the estimate implies real improvement from last quarter's $0.10 on $2.29 billion of revenue. The company does not provide earnings guidance in a form that maps neatly onto these figures. What it did do was reaffirm its full-year cash cost target of roughly R$800 per ton and its capital spending plan, with no cuts.

That cash cost figure is the first thing to check. Second-quarter cash cost climbed 5% to about R$843 per ton excluding downtime, pushed up by natural gas, caustic soda and chlorine dioxide, and the Middle East conflict added roughly R$275 million in costs, only about 60% of which hedges absorbed. Holding the R$800 average for the year requires a meaningful move lower in the back half. A clear step down this quarter would validate management's confidence. Another reading in the R$840s would raise doubts about whether the target is still realistic. The company has 85% of its second-half oil exposure hedged, which should cushion things, but hedges do not cover every chemical input.

The revenue side rests on pulp pricing and volume. Management pointed to unplanned downtime and closures of 2.5 million tons so far this year, well above all of 2024, and estimated that around 30% of global capacity is running below cash cost at current Chinese prices. Hardwood prices in the mid-$500s in China sit under many local producers' costs, which is the logic behind expecting prices to firm. Pulp sales of 2.9 million tons last quarter still trailed the year-ago level, so higher shipments plus an export price building on the $601 per ton realized in the second quarter would confirm the supply squeeze is real rather than theoretical.

Packaging and paper form the second test. The Kimberly-Clark joint venture, Arbex, closed on schedule July 1, and this is the first quarter that can show the efficiency gains management flagged. In the US, the Pine Bluff ramp-up ran long and the solid bleached sulfate operating rate sat at a soft 82%; normal operations there would remove a self-inflicted drag. In Brazil, strong paperboard volumes need to hold up against Chinese and Indonesian imports that pressured domestic paper margins. Leverage, which drifted up to 3.4 times, should stop climbing if free cash flow and land sales do their job.

Sentiment has cooled noticeably, with the bearish reading moving from about 6% to nearly 36% even as the stock rallied. Shares at $8.99 sit just under the 200-day average of $9.04 and roughly 6% below the post-report high, so this is not a breakout setup. The verdict comes down to one question: does falling cash cost combine with firmer pulp prices to widen margins? If so, the second-half narrative holds. If inflation keeps outrunning pricing, the recent rally looks premature.

This earnings preview was originally published on Earnings Whispers.

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