Mercer International Inc., a prominent player in the pulp and lumber industry, reported mixed results for the second quarter of 2024. The company's EBITDA saw a significant decrease to $30 million from $64 million in the previous quarter, primarily due to planned maintenance at two of its mills. Despite this, Mercer International experienced an uptick in pulp sales realizations as pulp prices rose across all major markets. However, pulp sales volumes dropped, and lumber pricing remained weak. Mercer International also recognized a noncash goodwill impairment charge related to its Torgau facility. Looking ahead, the company expects lumber prices to remain flat and is focusing on debt reduction and operational improvements through strategic capital projects.

Key Takeaways

• Mercer International's EBITDA fell to $30 million in Q2 from $64 million in Q1.
• The decrease in EBITDA was largely due to maintenance downtime at two mills, impacting results by about $60 million.
• Pulp sales realizations improved, with the North American NBSK list price averaging $1,697 per tonne, a $257 increase from Q1.
• Pulp sales volumes decreased to 433,000 tonnes due to maintenance downtime and the divestment of the Cariboo mill.
• Mercer International recorded a $34 million noncash goodwill impairment for the Torgau facility.
• The company is prioritizing debt reduction and expects flat lumber prices in the upcoming quarter.
• Strategic capital projects are underway to reduce fiber costs and enhance operations.
• The mass timber business, representing 35% of North American production capacity, is expected to grow and has been EBITDA positive since Q4 of the previous year.

Company Outlook

• Mercer International anticipates modest downward pressure on pulp prices in Q3 due to seasonal paper demand.
• The company's solid wood segment saw improved mass timber sales, balancing lower lumber prices.
• Strategic capital projects at Torgau and Spokane mills aim to improve efficiency and reduce fiber costs.
• The company is exploring sustainable alternatives to fossil fuels and remains committed to its 2030 carbon reduction goals.

• Lumber pricing remains weak, with the Random Lengths U.S. benchmark at $386 per thousand board feet.
• The shipping pallet market, especially in Germany, continues to show weakness.
• Economic struggles in Germany are causing a lag in the recovery of the construction sector and lumber prices.

Bullish Highlights

• The pulp market is improving, driven by increased demand from European paper and tissue producers and supply challenges.
• Mercer's mass timber order file stands at $55 million, with expectations of short-term demand improvement.
• The company's mass timber business has been EBITDA positive since Q4 of the previous year and is projected to grow strongly in 2024.

Misses

• A noncash goodwill impairment of $34 million was recognized due to ongoing weakness in the European lumber, pallet, and biofuel markets.
• Pulp sales volumes saw a decrease, impacted by maintenance downtime and mill divestment.

Q&A Highlights

• Juan Carlos Bueno commented on the economic challenges in Germany, noting a slower recovery than the rest of Europe, especially in construction.
• The company discussed the ongoing sale of Santanol and the positive outlook for the mass timber business, aiming for EBITDA margins between 10% and 20%.
• Plans to expand the mass timber business include adding more shifts and utilizing installed capacity to increase margins.