Mercer(US:MERC)2022-07-29 20:03Financial Data and Key Metrics Changes - The company achieved EBITDA of approximately $145 million in Q2 2022, down from roughly $155 million in Q1 2022, primarily due to planned maintenance downtime despite strong demand and higher prices for pulp and lumber [6][12] - Consolidated net income for the quarter was $71 million, or $1.08 per basic share, compared to net income of $89 million, or $1.35 per basic share in Q1 2022 [12] - Cash generated in Q2 totaled approximately $84 million, an increase from $65 million in Q1 2022, driven by lower accounts receivable balances [13][14] Business Line Data and Key Metrics Changes - The pulp segment contributed quarterly EBITDA of roughly $102 million, while the wood product segment achieved record quarterly EBITDA of $49 million [8] - Average pulp prices increased in all major markets, with the Q2 average NBSK net price in China at $1,008 per tonne, up $109 from Q1, and European list prices averaging $1,437 per tonne, up from $1,330 in Q1 [9] - Average lumber realizations increased in Q2, with the Random Lengths' benchmark for Western S-P-F 2 and Better averaging $866 per 1,000 board feet, down $408 from the previous quarter [10] Market Data and Key Metrics Changes - Demand for pulp remained stable in Q2, with supply constraints pushing prices higher [9] - In the U.S., lumber prices weakened significantly late in the quarter, with current benchmark prices at $670 per thousand board feet [11] - European electricity prices remained elevated, contributing to strong electricity sales, with prices around $200 per megawatt hour [12] Company Strategy and Development Direction - The company is focused on growth through the recent acquisition of Holzindustrie Torgau, which will diversify revenue streams and enhance production capacity [35] - An aggressive capital expenditure program is in place for 2022, targeting high-return projects that drive new product development and productivity improvements [26] - The company is investing in innovation, including a lignin development center and expansion projects at its Spokane mass timber plant [29][30] Management's Comments on Operating Environment and Future Outlook - Management noted inflationary pressures from rising costs of natural gas, chemicals, and fiber, but emphasized strong electricity revenues offsetting some of these costs [16] - The outlook for the lumber market remains positive despite recent volatility, with expectations of modest strengthening in U.S. prices [21][22] - Management expressed confidence in the company's ability to navigate challenges posed by natural gas shortages in Europe, highlighting operational flexibility [45][46] Other Important Information - The company has a strong liquidity position of approximately $771 million, supporting its acquisition and capital spending plans [14] - A quarterly dividend of $0.075 per share was approved for shareholders of record on September 28, 2022 [15] Q&A Session Summary Question: Capital spend planned for upgrades to the sawmill after Torgau acquisition? - The company will follow the existing CapEx plan set by Torgau and explore identified synergies [43] Question: Impact of natural gas shortages on industry-wide production? - Management acknowledged concerns over gas shortages but stated the company is well-equipped to handle them [45][46] Question: Production plan for HIT and expected focus on pallets versus commodity lumber? - The company aims to optimize production capabilities at HIT, balancing between pallets and higher-value lumber [48][49] Question: Timeline for Stendal mill recovery and business interruption insurance proceeds? - The Stendal mill is expected to reach 80% capacity by the end of the quarter, with insurance claims taking several months to settle [56][58] Question: Future business positioning and growth prospects? - Management sees a bright future with growth driven by the HIT acquisition and investments in Spokane [68][70] Question: Consideration of lower leverage for optimal cost of capital? - The company is targeting lower leverage levels and is aware of the importance of maintaining a balanced capital structure [89]