Mercer International Experiences Mixed Q2 Results Amid Market Shifts

Mercer International Inc., a key player in the pulp and lumber sector, has released its financial results for the second quarter of 2024, showcasing a mixed performance. The company’s EBITDA dropped significantly to $30 million from $64 million in the prior quarter, largely due to scheduled maintenance at two mills. On a positive note, Mercer International benefited from increased pulp sales realizations as prices surged across all major markets. Nonetheless, sales volumes of pulp declined, and lumber prices remained under pressure. The company also reported a noncash goodwill impairment charge related to its Torgau facility. Looking forward, Mercer International predicts stable lumber prices and is concentrating on debt reduction and operational enhancements through strategic capital investments.

### Key Takeaways
– Mercer International’s EBITDA fell to $30 million in Q2 from $64 million in Q1.
– The EBITDA decline was primarily the result of about 37 days of planned maintenance, affecting results by approximately $60 million.
– Pulp sales realizations improved, with the North American NBSK list price averaging $1,697 per tonne, an increase of $257 from Q1.
– Pulp sales volumes decreased to 433,000 tonnes due to maintenance downtime and the sale of the Cariboo mill.
– A noncash goodwill impairment of $34 million was recognized for the Torgau facility.
– The company is prioritizing debt reduction and anticipates flat lumber prices in the upcoming quarter.
– Ongoing strategic capital projects aim to lower fiber costs and improve operational efficiency.
– The mass timber segment, comprising 35% of North American production capacity, has been EBITDA positive since Q4 of the previous year and is expected to expand.

### Company Outlook
– Mercer International foresees modest downward pressure on pulp prices in Q3 due to seasonal declines in paper demand.
– There has been a notable improvement in mass timber sales within the solid wood segment, countering lower lumber prices.
– Planned capital projects at the Torgau and Spokane mills are expected to enhance efficiency and reduce costs.
– The company is investigating sustainable alternatives to fossil fuels and is committed to achieving its 2030 carbon reduction objectives.

### Bearish Highlights
– Lumber prices continue to be weak, with the U.S. benchmark at $386 per thousand board feet.
– The shipping pallet market, particularly in Germany, shows ongoing weakness.
– Economic difficulties in Germany are hindering recovery in the construction sector and lumber prices.

### Bullish Highlights
– The pulp market is gaining strength due to heightened demand from European paper and tissue manufacturers alongside supply constraints.
– Mercer’s mass timber order backlog stands at $55 million, with expectations for short-term improvements in demand.
– The company’s mass timber business has been EBITDA positive since Q4 of the previous year and is projected for strong growth in 2024.

### Misses
– A noncash goodwill impairment of $34 million was acknowledged due to persistent weaknesses in the European lumber, pallet, and biofuel sectors.
– Pulp sales volumes declined due to downtime from maintenance and the mill divestment.

### Q&A Highlights
– CEO Juan Carlos Bueno noted the slower-than-expected recovery in Germany, particularly in construction.
– Discussion centered around the ongoing sale of Santanol and the optimistic outlook for the mass timber segment, targeting EBITDA margins between 10% and 20%.
– Plans for expanding mass timber operations include increasing shifts to optimize production.

In summary, Mercer International Inc. is navigating a challenging economic environment while focusing on debt reduction and operational enhancements. As market dynamics evolve, the company remains committed to sustainability and capitalizing on growth opportunities in various segments.