Suzano (SUZ) Q2 2026 earnings review
Pricing Gains Erased by Cost Inflation and FX Headwinds
Suzano posted a challenging Q2. Despite higher global pulp prices in USD (+8% YoY), a significantly stronger Brazilian Real and lower sales volumes drove a 13% YoY decline in net revenue. More concerning is the bottom line: Net Income plummeted 64% YoY to R$1.81B, and Adjusted EBITDA dropped 23%. Management's previous narrative of having reached an 'inflection point' on costs was broken this quarter, as pulp cash costs reversed course and accelerated upward due to geopolitical pressures on freight and chemicals. Furthermore, financial leverage continues to drift in the wrong direction, raising questions about capital allocation discipline just as the company closes its massive $1.3B Kimberly-Clark joint venture.
🐂 Bull Case
Adjusted Free Cash Flow surged 27% YoY to R$3.3B, driven heavily by working capital release (favorable changes in suppliers and payroll) and positive derivative cash settlements. This proves the underlying resilience of the cash generation machine.
Average net pulp price in the export market rose 8% YoY to US$601/t. The global hardwood market remained stable despite broader macroeconomic fears and new capacity additions.
🐻 Bear Case
Pulp cash costs (ex-downtime) hit R$843/t, up 5% sequentially and 1% YoY. This contradicts prior quarters' messaging that 2025 marked a permanent downward shift in structural costs.
Net Debt to EBITDA (US$) increased to 3.4x, reversing further away from the <2.5x target. With the US$1.3B payment for the Kimberly-Clark JV hitting in Q3, leverage pressures will intensify.
⚖️ Verdict: 🔴
Bearish. While Suzano remains a cash-generating powerhouse, the combination of re-accelerating unit costs, severe FX translation headwinds, and rising leverage undermines the near-term investment thesis.
Key Themes
Cost Deflation Narrative Reversing
In recent quarters, management touted an 'inflection point' for Total Operational Disbursement, driving pulp cash costs down to R$778/t by 25Q4. That trend is now reversing. Q2 cash costs (ex-downtime) climbed to R$843/t. Management explicitly cited indirect effects from the Middle East conflict inflating natural gas, caustic soda, and chlorine dioxide prices, compounded by longer wood hauling distances and higher diesel costs. Reaching their R$800/t full-year guidance will require a dramatic deceleration in H2 costs.
Leverage Creep Challenges Capital Allocation
Deleveraging has been Suzano's stated 'first priority', with a target of pushing Net Debt to EBITDA below 2.5x (and an absolute target of US$11B). Instead, leverage is accelerating upward, reaching 3.4x in USD terms this quarter (up from 3.0x a year ago). Gross debt rose 2% QoQ to R$92.7B due to local currency fundraising. This worsening debt profile comes exactly as the company closed its US$1.3B Kimberly-Clark joint venture acquisition on July 1, meaning Q3 will see a massive cash outflow that will further stress these ratios.
FX Headwinds Masking Price Strength
The macroeconomic environment dealt a severe blow to top-line realization. While average net pulp prices rose 8% YoY in US Dollars, the average USD depreciated 11% against the BRL (from 5.67 to 5.05). Consequently, the net pulp price in local currency actually fell 4%, acting as a heavy anchor on R$-denominated EBITDA and net revenue metrics.
Hedging Program Mitigates External Shocks
While operational costs suffered from geopolitical oil and freight spikes, the financial hedging program proved highly effective. Derivative operations resulted in a R$976M income in Q2. More importantly, cash settlements on the hedge portfolio provided a positive R$824M adjustment (including R$147M specifically from commodity hedges tied to Brent crude). This actively smoothed out the cash flow impact of the very energy cost pressures management blamed for COGS inflation.
Paper Segment Margins Decelerating
The paper business, which previously acted as a resilient buffer during pulp weakness, is showing signs of fatigue. Paper Adjusted EBITDA dropped 27% YoY to R$521M, and EBITDA margins compressed from 24% to 18%. This was driven by a 5% drop in average net R$ prices (heavily impacted by international market translation) and higher cash COGS stemming from scheduled maintenance and freight.
Other KPIs
Reversing the prior quarter's weakness, operating cash flow (Adj EBITDA less maintenance capex) increased 14% QoQ to R$2,885M. This was driven by lower maintenance capex per tonne and slightly higher EBITDA per tonne sequentially, though it remains down 30% YoY due to the weaker overall EBITDA baseline.
Decelerating significantly YoY (-11%), primarily driven by lower volumes shipped to Asia, contradicting prior periods' strong demand narratives for Chinese imports. However, it stabilized with a 2% QoQ uptick driven by European and North American shipments.
Guidance
Stable. The company maintained its guidance for an average cash cost of R$800/t for 2026. However, given Q1 came in at R$802 and Q2 hit R$843, achieving this full-year average implies a severe deceleration in costs during the second half of the year. This is highly dependent on an assumed average Brent crude price of US$84/bbl and FX of 5.07.
Stable target, but achievement is delayed. Management explicitly stated the expectation that the net debt (US$11B) and leverage (<2.5x) targets will be achieved during fiscal years 2027 and 2028. Currently at 3.4x, the timeline stretches the deleveraging narrative over a multi-year horizon.
Key Questions
Path to Cost Guidance
With H1 pulp cash costs averaging roughly R$822/t and geopolitical pressures remaining elevated, what specific operational levers give you confidence in hitting the ~R$800/t full-year guidance in H2?
Leverage Math Post-KC JV
Leverage ended Q2 at 3.4x in USD terms before the US$1.3 billion payment for the Kimberly-Clark JV on July 1. How high do you expect peak leverage to reach in Q3, and does this alter any plans for shareholder remuneration or further CapEx reductions?
Asian Volume Weakness
Pulp sales volumes dropped 11% YoY, heavily attributed to lower shipments to Asia. Is this a function of Suzano's active inventory management, or are you seeing a fundamental deceleration in Chinese end-market demand?