Mercer(MERC) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Second Quarter 2025 Selected Highlights Mercer International Inc. reported a significant decline in financial performance for Q2 2025, with Operating EBITDA turning negative and net loss increasing compared to both the previous quarter and the same quarter last year Selected Financial Highlights | Metric | Q2 2025 | Q1 2025 | Q2 2024 | | :----- | :------ | :------ | :------ | | Operating EBITDA | -$20.9 million | $47.1 million | $30.4 million | | Net Loss | -$86.1 million | -$22.3 million | -$67.6 million | | Net Loss per Share | -$1.29 | -$0.33 | -$1.01 | CEO Commentary & Strategic Initiatives CEO Juan Carlos Bueno attributed the weak Q2 2025 results to global trade uncertainties, weaker pulp demand in China, and a negative impact from the depreciating dollar. The company also recognized an $11 million non-cash impairment on hardwood inventory and is progressing its "One Goal One Hundred" cost-saving program, while prudently pausing quarterly dividends due to market uncertainty - Operating results for Q2 2025 reflect impacts of ongoing uncertainties in the global trade environment and a weaker dollar, contributing to weaker pulp demand in China[3] - Depreciation of the dollar relative to the euro and Canadian dollar had a negative impact of approximately $26 million on Operating EBITDA for Q2 2025 compared to Q1 2025[3] - An $11 million non-cash impairment was recognized on hardwood inventory at the Peace River mill due to lower hardwood prices in China[3] - Progressing "One Goal One Hundred" program targeting $100 million in profitability improvement actions by the end of 2026 (using 2024 as a baseline), with approximately $5 million realized to date and $25 million anticipated by the end of 2025[4][6] - Quarterly dividend paused to prudently allocate capital amidst ongoing market uncertainty, with a long-term commitment to a competitive dividend as uncertainties are resolved[4][11] Market Outlook & Operational Updates The company anticipates a decrease in softwood pulp prices in Q3 2025 across key markets, while hardwood pulp prices are expected to remain relatively steady. Lumber prices are projected to increase in both the U.S. and Europe. Per unit fiber costs are expected to be lower for German pulp mills but marginally higher for German solid wood operations. Pulp mills experienced 29 days of downtime in Q2 2025, with 18 days planned for Q3 2025 - Anticipate a decrease in softwood pulp prices across key markets in Q3 2025 amidst the current economic environment and seasonality. Hardwood pulp prices are expected to be relatively steady[7] - Expect lumber prices to increase in the U.S. in Q3 2025 due to duties imposed on Canadian lumber imports and reduced supply, and modestly increase in Europe due to strong demand and higher fiber costs[8] - Per unit fiber costs for German pulp mills are expected to be lower in Q3 2025 due to reduced demand, while Canadian pulp mills' costs are expected to be relatively stable. German solid wood operations anticipate a marginal increase due to a temporary reduction in regional logging and continued strong demand[9][25][34] - Pulp mills had 29 days of downtime (approximately 40,900 ADMTs) in Q2 2025, including 23 days of planned annual maintenance. A total of 18 days of planned annual maintenance downtime is expected in Q3 2025[10][24] - Solid wood segment results continue to be negatively impacted by high interest rates in Europe, but moderate growth is beginning. The mass timber business maintains a healthy order book with a significant increase in 'win rate' on new project bids, expected to positively impact results in 2026[11] Consolidated Financial Performance Three Months Ended June 30, 2025 Compared to 2024 Total revenues decreased by 9% in Q2 2025 compared to Q2 2024, primarily due to lower pulp and manufactured products sales. Costs and expenses also decreased, but Operating EBITDA significantly declined to negative $20.9 million from positive $30.4 million, driven by lower sales realizations, negative foreign exchange impacts, higher fiber costs, and an inventory impairment Consolidated Financial Performance (Q2 2025 vs Q2 2024, in millions) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :----- | :------ | :------ | :--------- | | Total Revenues | $453.5 million | $499.4 million | -9.2% | | Costs and Expenses | $511.9 million | $543.2 million | -5.8% | | Operating EBITDA | -$20.9 million | $30.4 million | N/A (negative swing) | | Net Loss | -$86.1 million | -$67.6 million | +27.4% | - The decrease in costs and expenses was driven by fewer days of planned annual maintenance downtime, partially offset by foreign exchange losses, higher per unit fiber costs, and an $11.0 million non-cash impairment recognized against hardwood inventory[14][15] - In Q2 2024, costs and expenses included a non-cash goodwill impairment of $34.3 million related to the Torgau facility[15] Six Months Ended June 30, 2025 Compared to 2024 For the first half of 2025, total revenues decreased by approximately 9%, and Operating EBITDA significantly declined to $26.2 million from $94.0 million in the same period of 2024, primarily due to higher fiber costs, lower pulp and manufactured product sales realizations, negative foreign exchange impacts, and the hardwood inventory impairment Consolidated Financial Performance (YTD 2025 vs YTD 2024, in millions) | Metric | YTD 2025 | YTD 2024 | Change (%) | | :----- | :------- | :------- | :--------- | | Total Revenues | $960.5 million | $1,052.8 million | -8.8% | | Costs and Expenses | $1,012.2 million | $1,097.0 million | -7.8% | | Operating EBITDA | $26.2 million | $94.0 million | -72.1% | | Net Loss | -$108.4 million | -$84.3 million | +28.6% | - Costs and expenses in the first half of 2025 decreased primarily due to lower pulp sales volumes, partially offset by higher per unit fiber costs, foreign exchange losses, and the non-cash impairment recognized against hardwood inventory[36] - In the first half of 2024, costs and expenses included a non-cash goodwill impairment of $34.3 million and a non-cash loss of $23.6 million from the dissolution of the Cariboo Pulp & Paper Company mill joint venture[36] Segment Results Pulp Segment The pulp segment's Operating EBITDA turned negative in Q2 2025, decreasing to -$10.3 million from $31.7 million in Q2 2024. This was mainly due to lower pulp sales realizations, negative foreign exchange impacts, hardwood inventory impairment, and higher fiber costs, partially offset by lower maintenance costs. Total pulp revenues decreased by 10%, driven by lower sales realizations and volumes, despite an 8% increase in total pulp production Pulp Segment Financials (Q2 2025 vs Q2 2024, in millions) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :----- | :------ | :------ | :--------- | | Segment Operating EBITDA | -$10.3 million | $31.7 million | N/A (negative swing) | | Pulp Revenues | $313.7 million | $346.8 million | -9.5% | | Energy and Chemical Revenues | $18.6 million | $20.6 million | -9.7% | | Total Pulp Segment Revenues | $332.3 million | $367.4 million | -9.6% | Pulp Average Sales Realization ($/ADMT) | Pulp Type | Q2 2025 Avg. Sales Realization ($/ADMT) | Q2 2024 Avg. Sales Realization ($/ADMT) | Change (%) | | :-------- | :------------------------------------- | :------------------------------------- | :--------- | | NBSK | $758 | $811 | -6.6% | | NBHK | $575 | $701 | -18.0% | - Total pulp sales volumes were relatively flat at 426,731 ADMTs in Q2 2025 compared to 433,320 ADMTs in Q2 2024[22] - Total pulp production increased by approximately 8% to 457,117 ADMTs in Q2 2025 (vs. 421,692 ADMTs in Q2 2024) primarily due to fewer days of planned annual maintenance downtime (29 days in Q2 2025 vs. 44 days in Q2 2024)[24] - Overall average per unit fiber costs in Q2 2025 increased by approximately 11% compared to Q2 2024, primarily due to higher per unit fiber costs at German mills from reduced supply[25] Solid Wood Segment The solid wood segment's Operating EBITDA also turned negative in Q2 2025, decreasing to -$4.9 million from $3.1 million in Q2 2024, mainly due to lower manufactured products sales realizations and higher fiber costs, partially offset by higher lumber sales realizations. Total solid wood revenues decreased by 10%, despite a 23% increase in lumber revenues driven by higher sales realizations. Manufactured products revenues saw a significant 65% decrease Solid Wood Segment Financials (Q2 2025 vs Q2 2024, in millions) | Metric | Q2 2025 | Q2 2024 | Change (%) | | :----- | :------ | :------ | :--------- | | Segment Operating EBITDA | -$4.9 million | $3.1 million | N/A (negative swing) | | Solid Wood Segment Revenues | $117.3 million | $130.2 million | -10.0% | | Lumber Revenues | $66.3 million | $53.9 million | +23.0% | | Manufactured Products Revenues | $12.4 million | $35.4 million | -65.0% | - Average lumber sales realizations increased by approximately 19% to $550 per Mfbm in Q2 2025 (vs. $463 per Mfbm in Q2 2024) due to lower supply and improved demand in both the U.S. and European markets[30] - Manufactured products sales realizations decreased to $1,318 per cubic meter in Q2 2025 from $2,942 per cubic meter in Q2 2024, impacted by the ongoing elevated interest rate environment in the U.S.[32] - Lumber production increased by approximately 8% to 120.2 MMfbm in Q2 2025 (vs. 111.4 MMfbm in Q2 2024) driven by the timing of planned maintenance downtime and higher production at the Torgau facility[33] - Per unit fiber costs for lumber production increased by approximately 25% in Q2 2025 compared to Q2 2024 due to strong demand, representing approximately 80% of lumber cash production costs[34] Financial Position & Liquidity Liquidity and Capital Structure As of June 30, 2025, Mercer International Inc. maintained $146.5 million in cash and cash equivalents, with total aggregate liquidity of $438.1 million. The balance sheet shows an increase in total assets and shareholders' equity compared to December 31, 2024 Financial Position and Liquidity (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $146,499 | $184,925 | | Working capital | $635,485 | $653,466 | | Total assets | $2,378,376 | $2,262,932 | | Long-term liabilities | $1,629,767 | $1,576,619 | | Total shareholders' equity | $446,491 | $429,775 | - As of June 30, 2025, the company had approximately $291.6 million available under its revolving credit facilities, resulting in aggregate liquidity of about $438.1 million[38] Additional Information Earnings Release Call & Company Profile Mercer International Inc. will host a conference call on August 1, 2025, to discuss the Q2 2025 results. The company is a global forest products company with operations in Germany, USA, and Canada, producing pulp, lumber, CLT, glulam, pallets, and biofuels - Conference call scheduled for August 1, 2025, at 10:00 AM ET to discuss Q2 2025 results, accessible via webcast[39] - Mercer International Inc. is a global forest products company with operations in Germany, USA, and Canada, with consolidated annual production capacity of 2.1 million tonnes of pulp, 960 million board feet of lumber, 210 thousand cubic meters of CLT, 45 thousand cubic meters of glulam, 17 million pallets, and 230 thousand tonnes of biofuels[40] Forward-Looking Statements The report contains forward-looking statements subject to known and unknown risks and uncertainties that could cause actual results to differ materially from forecasts. Key risk factors include the cyclical nature of the business, raw material costs, indebtedness, competition, foreign exchange and interest rate fluctuations, and environmental regulations - The report includes forward-looking statements, identified by words such as "expects," "anticipates," "projects," "intends," "will," "believes," and "estimates," which involve known and unknown risks and uncertainties[41] - Factors that could cause actual results to differ materially include the highly cyclical nature of the business, raw material costs, level of indebtedness, competition, foreign exchange and interest rate fluctuations, expenditures for capital projects, and environmental regulation and compliance[41] Non-GAAP Financial Measures (Operating EBITDA) Operating EBITDA is defined as operating income (loss) plus depreciation, amortization, and long-lived asset impairment charges. Management uses it as a benchmark for operating results and relative to competitors, considering it a meaningful supplement to GAAP measures because depreciation and impairment are non-cash costs. It is not a GAAP measure and may not be comparable to other companies - Operating EBITDA is a non-GAAP financial measure defined as operating income (loss) plus depreciation and amortization and long-lived asset impairment charges[54] - Management uses Operating EBITDA as a benchmark measurement of its own operating results and relative to its competitors, considering it a meaningful supplement to operating income (loss) as depreciation and impairment are not actual cash costs[54] - Operating EBITDA is not a measure of financial performance under GAAP and should not be considered as an alternative to net loss or operating income (loss) or net cash from operating activities[55] Operating EBITDA Reconciliation (in thousands) | Metric (in thousands) | Q2 2025 | Q1 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------- | :------ | :------ | :------ | :------- | :------- | | Net loss | ($86,071) | ($22,339) | ($67,586) | ($108,410) | ($84,289) | | Income tax provision (recovery) | ($1,864) | $732 | $1,263 | ($1,132) | ($5,102) | | Interest expense | $28,411 | $28,155 | $26,843 | $56,566 | $54,402 | | Other expenses (income) | $1,120 | $185 | ($4,299) | $1,305 | ($9,238) | | Operating income (loss) | ($58,404) | $6,733 | ($43,779) | ($51,671) | ($44,227) | | Add: Depreciation and amortization | $37,523 | $40,355 | $39,941 | $77,878 | $80,345 | | Add: Loss on disposal of investment in joint venture | — | — | — | — | $23,645 | | Add: Goodwill impairment | — | — | $34,277 | — | $34,277 | | Operating EBITDA | ($20,881) | $47,088 | $30,439 | $26,207 | $94,040 | Financial Statements Interim Consolidated Statements of Operations The Interim Consolidated Statements of Operations detail Mercer International Inc.'s financial performance, showing revenues, various costs and expenses, operating loss, other income/expenses, and ultimately net loss and net loss per common share for the three and six months ended June 30, 2025 and 2024 Interim Consolidated Statements of Operations (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------- | :------ | :------ | :------- | :------- | | Revenues | $453,524 | $499,384 | $960,498 | $1,052,814 | | Cost of sales, excluding depreciation and amortization | $444,047 | $439,220 | $874,294 | $897,402 | | Cost of sales depreciation and amortization | $37,451 | $39,877 | $77,741 | $80,227 | | Selling, general and administrative expenses | $30,430 | $29,789 | $60,134 | $61,490 | | Loss on disposal of investment in joint venture | — | — | — | $23,645 | | Goodwill impairment | — | $34,277 | — | $34,277 | | Operating loss | ($58,404) | ($43,779) | ($51,671) | ($44,227) | | Interest expense | ($28,411) | ($26,843) | ($56,566) | ($54,402) | | Other income (expenses) | ($1,120) | $4,299 | ($1,305) | $9,238 | | Loss before income taxes | ($87,935) | ($66,323) | ($109,542) | ($89,391) | | Income tax recovery (provision) | $1,864 | ($1,263) | $1,132 | $5,102 | | Net loss | ($86,071) | ($67,586) | ($108,410) | ($84,289) | | Net loss per common share (Basic) | ($1.29) | ($1.01) | ($1.62) | ($1.26) | | Diluted | ($1.29) | ($1.01) | ($1.62) | ($1.26) | | Dividends declared per common share | $0.075 | $0.075 | $0.150 | $0.150 | Interim Consolidated Balance Sheets The Interim Consolidated Balance Sheets provide a snapshot of Mercer International Inc.'s financial position, detailing current and long-term assets, liabilities, and shareholders' equity as of June 30, 2025, compared to December 31, 2024 Interim Consolidated Balance Sheets (in thousands) | Metric (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | ASSETS | | | | Current assets | | | | Cash and cash equivalents | $146,499 | $184,925 | | Accounts receivable, net | $335,394 | $327,345 | | Inventories | $415,444 | $361,682 | | Prepaid expenses and other | $21,461 | $17,601 | | Assets classified as held for sale | $18,805 | $18,451 | | Total current assets | $937,603 | $910,004 | | Property, plant and equipment, net | $1,338,386 | $1,254,715 | | Amortizable intangible assets, net | $52,277 | $49,829 | | Operating lease right-of-use assets | $6,531 | $7,598 | | Pension asset | $8,707 | $9,378 | | Deferred income tax assets | $21,469 | $17,778 | | Other long-term assets | $13,403 | $13,630 | | Total assets | $2,378,376 | $2,262,932 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Current liabilities | | | | Accounts payable and other | $293,948 | $248,661 | | Pension and other post-retirement benefit obligations | $772 | $732 | | Liabilities associated with assets held for sale | $7,398 | $7,145 | | Total current liabilities | $302,118 | $256,538 | | Long-term debt | $1,526,743 | $1,473,986 | | Pension and other post-retirement benefit obligations | $12,645 | $11,134 | | Operating lease liabilities | $3,902 | $4,793 | | Deferred income tax liabilities | $74,027 | $74,772 | | Other long-term liabilities | $12,450 | $11,934 | | Total liabilities | $1,931,885 | $1,833,157 | | Shareholders' equity | | | | Common shares $1 par value; 200,000,000 authorized; 66,983,000 issued and outstanding (2024 – 66,871,000) | $66,871 | $66,850 | | Additional paid-in capital | $364,871 | $362,782 | | Retained earnings | $112,463 | $230,912 | | Accumulated other comprehensive loss | ($97,714) | ($230,769) | | Total shareholders' equity | $446,491 | $429,775 | | Total liabilities and shareholders' equity | $2,378,376 | $2,262,932 | Interim Consolidated Statements of Cash Flows The Interim Consolidated Statements of Cash Flows present the cash generated from or used in operating, investing, and financing activities for Mercer International Inc. for the three and six months ended June 30, 2025 and 2024, showing a net decrease in cash and cash equivalents Interim Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :-------------------- | :------ | :------ | :------- | :------- | | Net cash from (used in) operating activities | ($4,526) | $62,185 | ($7,515) | $32,991 | | Net cash from (used in) investing activities | ($22,773) | ($20,154) | ($42,633) | ($37,638) | | Net cash from (used in) financing activities | ($3,268) | ($53,280) | $15,978 | ($46,459) | | Effect of exchange rate changes on cash and cash equivalents | ($4,407) | $150 | ($4,256) | $287 | | Net decrease in cash and cash equivalents | ($34,974) | ($11,099) | ($38,426) | ($50,819) | | Cash and cash equivalents, beginning of period | $181,473 | $274,272 | $184,925 | $313,992 | | Cash and cash equivalents, end of period | $146,499 | $263,173 | $146,499 | $263,173 |