• Operating EBITDA: $50 million in Q3, up from $30 million in Q2.
• Pulp Segment EBITDA: $55 million in Q3.
• Solid Wood Segment EBITDA: Negative $2 million in Q3.
• Softwood Pulp Sales Realizations: $814 per tonne in Q3, compared to $811 per tonne in Q2.
• Net Loss: $18 million in Q3, or $0.26 per share, compared to a net loss of $68 million or $1.01 per share in Q2.
• Cash Consumption: $24 million in Q3, compared to $11 million in Q2.
• Liquidity Position: $554 million at the end of Q3, a decrease of $26 million from Q2.
• Dividend: Quarterly dividend of $0.075 per share approved.
• Lumber Production: 122 million board feet in Q3, up 10% from Q2.
• Lumber Sales Volumes: 109 million board feet in Q3, down 7% from Q2.
• Electricity Sales Volume: 205 gigawatt hours in Q3, down 14 gigawatt hours from Q2.
• Consolidated Net Working Capital: Increased by roughly $36 million in Q3.
• Capital Expenditure: $27 million invested in Q3; 2024 capital spending expected between $95 million and $120 million.

• Warning! GuruFocus has detected 5 Warning Signs with MERC.

Release Date: November 01, 2024

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

Positive Points

• Mercer International Inc (NASDAQ:MERC) reported an increase in operating EBITDA to $50 million in Q3 2024, up from $30 million in Q2, driven by fewer days of planned maintenance downtime.
• The Pulp segment contributed a strong quarterly EBITDA of $55 million, indicating robust performance in this area.
• Softwood pulp markets remained steady with stable prices, and the North American NBSK list price increased by $65 per tonne from Q2.
• The company successfully completed refinancing of its 2026 senior notes, reducing debt by $100 million and extending maturities by two years.
• Mass timber operations within the Solid Wood segment showed strong performance, completing two large projects in the US and maintaining consistent revenue and margins.

Negative Points

• Unplanned downtime at several mills significantly reduced pulp production in Q3, negatively impacting EBITDA by approximately $20 million.
• The Solid Wood segment reported a negative EBITDA of $2 million, reflecting challenges in this area.
• Hardwood prices in China decreased due to new capacity, leading to a $4 million noncash inventory impairment against hardwood fiber inventories.
• Foreign exchange movements negatively impacted operating income by about $10 million due to a weakening US dollar.
• The company reported a consolidated net loss of $18 million for Q3, although this was an improvement from a $68 million loss in Q2.

Q & A Highlights

Q: What are Mercer International's deleveraging targets, and are there any plans for non-core asset sales to accelerate balance sheet transition? A: Juan Bueno, President and CEO, stated that the focus is on debt reduction in the medium term, with expectations for improved EBITDA due to strong foundations in softwood sales. They are proceeding with the sale of Santanol, which will provide additional cash. Richard Short, CFO, added that the long-term objective is to reach about 2.5x net debt.

Q: How might a potential US import tariff under a Trump administration affect Mercer's strategy for European lumber shipments to the US? A: Juan Bueno mentioned that while tariffs could strain US-bound shipments, Mercer has diversified markets, including improvements in Europe and the UK, reducing dependency on the US. He also noted that expected interest rate reductions could boost construction, potentially increasing lumber demand and prices.

Q: With elevated interest rates affecting construction, how competitive is the environment for mass timber projects, and what is the outlook for North American supply-demand balance? A: Juan Bueno highlighted that mass timber is competitive with concrete and steel, with the market growing over 20% annually. He expects this growth to continue, with significant opportunities as interest rates decrease, particularly in 2026 when construction activity is anticipated to rebound.

Q: Are there regional differences in European lumber markets, and what are the trends in fiber costs for pulp and sawmills? A: Juan Bueno noted that demand recovery is primarily seen in the UK. Fiber costs have remained flat due to strategic sourcing, with Canada benefiting from US contracts and Germany leveraging Mercer Holz's logistics. Despite overall fiber price increases in Europe, Mercer has maintained stable costs.

Q: What are the implications of a potential strike at the BC port for Mercer International? A: Juan Bueno stated that Mercer has contingency plans in place for both inbound and outbound logistics to mitigate any disruptions from a potential strike. They are prepared for a possible three-week extension, ensuring minimal impact on operations.

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