Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mercer International Inc (MERC, Financial) reported significantly improved pulp pricing in Q2, with notable increases in all major markets.
- The mass timber business showed strong performance, with a 54% increase in production from Q1.
- The company successfully executed on tight deadlines in the mass timber segment, resulting in positive operating results.
- Mercer International Inc (MERC) maintained stable fiber costs for both pulp and solid wood segments in Q2.
- The company has a strong liquidity position with $581 million, including $263 million in cash and undrawn revolvers.
Negative Points
- Q2 EBITDA was significantly lower at $30 million compared to $64 million in Q1, primarily due to 37 days of planned major maintenance downtime.
- The company recognized a non-cash goodwill impairment of $34 million related to the Torgau facility due to ongoing weakness in the European lumber pallet and biofuel markets.
- Total pulp sales volumes decreased by 132,000 tonnes to 433,000 tonnes, driven by lower production from planned maintenance downtime and the disposition of the Cariboo Mill.
- Lumber production and sales volumes were down in Q2, reflecting lower production and weak market conditions.
- Mercer International Inc (MERC) reported a consolidated net loss of $68 million for Q2, compared to a net loss of $17 million in Q1.
Q & A Highlights
Q: Juan Carlos, once the projects at Torgue are completed, how do you see the percent of your lumber shipments that you sell to the US changing?
A: (Juan Bueno, President, CEO, Director) We expect a 25% increase in our timber capacity, adding about 240,000 cubic meters of lumber. The percentage of shipments to the US will fluctuate based on market conditions, ranging between 40% to 60%.
Q: How do you see the threat to NBSK from Suzano's new hybrid crane?
A: (Juan Bueno, President, CEO, Director) We believe substituting our softwood pulp with a new grade will be challenging. We don't see this as a significant threat, especially in markets with stringent quality requirements.
Q: Could you give a little color on what you're seeing in the Asian pulp market?
A: (Juan Bueno, President, CEO, Director) Hardwood prices have corrected by about $100 due to new supply, but softwood remains tight. We expect softwood prices to remain relatively stable, with only minor decreases.
Q: Are you seeing any signs of economic improvement in Germany?
A: (Juan Bueno, President, CEO, Director) Improvement is still timid. Germany is lagging behind the rest of Europe, especially in the construction sector. We expect signs of recovery in the second half of 2025.
Q: What are your updated thoughts on potential asset divestitures to expedite deleveraging?
A: (Richard Short, CFO, EVP, Secretary) The only asset currently on the books for sale is Sentinel. We don't expect any further write-downs on that.
Q: Can you talk about your order file and how that varies throughout the cycle?
A: (Richard Short, CFO, EVP, Secretary) We sell primarily spot in Asia and sell out the mills every month in Europe. Delivery times vary, with Europe taking one to two weeks and Asia taking 30 to 60 days.
Q: Is the mass timber business EBITDA positive at this point?
A: (Juan Bueno, President, CEO, Director) Yes, it has been EBITDA positive since Q4 of last year. We expect significant growth in 2024, with sales potentially doubling from 2023.
Q: What kind of EBITDA margins are you looking at for mass timber sales?
A: (Juan Bueno, President, CEO, Director) Long-term, we aim for EBITDA margins between 10% and 20%. Currently, margins are in the low single digits, but we expect them to grow as we add more shifts and optimize capacity.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
