Mercer(MERC) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Operating EBITDA for Q3 2024 totaled $50 million, an increase from$30 million in Q2 2024, driven by fewer planned maintenance days [5][11] - Consolidated net loss for Q3 was $18 million or$0.26 per share, compared to a net loss of $68 million or$1.01 per share in Q2 [16] - Cash consumption in Q3 was approximately $24 million, up from$11 million in Q2, with liquidity position totaling $554 million, a decrease of$26 million from Q2 [17] Business Segment Data and Key Metrics Changes - Pulp segment contributed EBITDA of $55 million, while Solid Wood segment had a negative EBITDA of$2 million [6] - Lumber production for Q3 was 122 million board feet, a 10% increase from Q2, while lumber sales volumes were 109 million board feet, down 7% from Q2 [13] - Total production volume in Q3 was 416,000 tonnes, slightly down from Q2 due to unrelated production issues [10] Market Data and Key Metrics Changes - North American NBSK list price averaged $1,762 per tonne in Q3, an increase of$65 from Q2, while the average NBSK net price in China was $771 per tonne, down$40 from Q2 [7][8] - Hardwood prices in China decreased, with Q3 hardwood sales realizations at $632 per tonne, a decrease of$69 from Q2 [8] - The average price gap in China between softwood and hardwood pulp increased to about $140 in Q3 [8] Company Strategy and Development Direction - The company is focused on debt reduction as a key part of its capital allocation strategy, with a target of reaching a net debt to EBITDA ratio of about 2.5 times [47][49] - Investment in operations was approximately$27 million in Q3, with planned capital spending for 2024 expected to be between $95 million and$120 million [24] - The company aims to expand into green chemicals and products compatible with the circular economy, emphasizing sustainable alternatives to fossil fuel-based products [41][43] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding lumber demand and pricing in Q4 and into 2025, anticipating improvements due to reduced supply and stronger demand [32][44] - The company expects strong operating results from the Pulp segment in Q4 and into 2025, despite challenges in the Solid Wood segment due to weak economic conditions [44] - Management noted that unplanned downtime in Q3 negatively impacted production but emphasized that operational challenges were unrelated [20][28] Other Important Information - The company has reduced the principal balance of its senior note debt by $100 million through refinancing [18] - A quarterly dividend of$0.075 per share has been approved for shareholders of record on December 18, 2024 [19] - The company is well-prepared for potential disruptions from strikes at BC ports, having arranged alternative logistics [73][74] Q&A Session Summary Question: Deleveraging targets and asset sales - Management emphasized a focus on debt reduction and mentioned progress in the sale process of Santanol as a potential source of cash [46][48] Question: Long-term debt targets - The company aims for a net debt to EBITDA ratio of about 2.5 times in the long term [49] Question: Impact of potential U.S. tariffs on lumber imports - Management is monitoring the situation closely and believes they can adapt to changes in market conditions [50][52] Question: Competitive environment for mass timber projects - Management noted that mass timber is gaining traction and expects continued growth, despite current interest rate challenges [56][58] Question: Regional differences in lumber demand - The U.K. market has shown recovery, while overall demand in Europe is improving [64] Question: Fiber costs and sourcing strategies - Fiber costs have remained flat, with strategic sourcing from the U.S. helping to mitigate higher costs in Canada [66][68]