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MERCER INTERNATIONAL INC. (MERC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was operationally mixed: revenue was $507.0M and Operating EBITDA $47.1M, but the company posted a net loss of $22.3M (-$0.33/sh), with results constrained by 22 days of planned maintenance at Celgar and FX headwinds versus Q4 2024 .
  • Versus S&P Global consensus, revenue slightly beat ($507.0M vs $505.5M*) while EPS missed (-$0.33 vs -$0.19*) and Operating EBITDA was modestly below (~$47.1M vs $49.3M*)—maintenance downtime ($30M EBITDA impact) and timing/lag in realized pricing were the key drivers .
  • Management reiterated a company‑wide profitability program targeting ~$100M savings by end‑2026 (with $40–$50M expected in 2025) and reduced 2025 capex to ~ $100M, plus a $20M 2025 inventory reduction target; dividend maintained at $0.075 .
  • Narrative catalysts: tariff/Section 232 uncertainty (no direct tariffs yet), widening softwood–hardwood spread supporting softwood pricing, and incremental mitigation opportunities into the U.S.; maintenance schedule remains front‑loaded in 1H25, but liquidity is solid at ~$470.7M .

What Went Well and What Went Wrong

  • What Went Well

    • Softwood pulp pricing held firm across key regions; management expects strength to continue in Europe/North America with widening softwood–hardwood spread through 2025, favoring MERC’s mix (~85% softwood volume) .
    • Lumber realizations improved (U.S. and Europe) on reduced supply and steady demand; lumber ASP rose to $499/Mfbm (+8% YoY) and volumes increased to 130.9 MMfbm (+8% YoY) .
    • Strategic execution: $100M savings program underway; 2025 capex cut to ~ $100M, inventory reduction target $20M; dividend maintained at $0.075 .

  • What Went Wrong

    • Maintenance impact: 22 days at Celgar (29.7k ADMT) plus slower post‑shut startup (5 days in April) materially reduced Q1 production and EBITDA (company estimates ~ $30M EBITDA impact for Celgar shut) .
    • FX headwind vs Q4: a weaker U.S. dollar negatively impacted Q1 vs Q4 results, though YoY the stronger dollar helped lower CAD/EUR‑denominated costs—creating mixed optics across comparisons .
    • Solid wood margins remain fragile: segment EBITDA was ~breakeven (‑$0.3M) as higher lumber prices were offset by increased fiber costs and weak pallets in Europe .

Financial Results

MetricQ1 2024Q4 2024Q1 2025
Revenue ($000s)$553,430 $488,405 $506,974
Operating income (loss) ($000s)$(448) $50,393 $6,733
Operating EBITDA ($000s)$63,601 $99,227 $47,088
Net income (loss) ($000s)$(16,703) $16,707 $(22,339)
Diluted EPS ($)$(0.25) $0.25 $(0.33)

Segment breakdown

MetricQ1 2024Q4 2024Q1 2025
Pulp revenues ($000s)$432,404 $375,513 $381,080
Solid wood revenues ($000s)$119,023 $111,637 $122,720
Corporate/other revenues ($000s)$2,003 $1,255 $3,174
Pulp Segment Operating EBITDA ($000s)$68,465 $106,130 $49,872
Solid wood Segment Operating EBITDA ($000s)$(895) $(4,686) $(292)
Corporate/other EBITDA ($000s)$(3,969) $(2,217) $(2,492)

Selected KPIs

KPIQ1 2024Q4 2024Q1 2025
NBSK sales (‘000 ADMTs)488.2 405.5 388.1
NBHK sales (‘000 ADMTs)77.5 46.5 89.8
Avg NBSK sales realization ($/ADMT)$732 $794 $783
Avg NBHK sales realization ($/ADMT)$631 $578 $570
Lumber sales (MMfbm)121.4 123.6 130.9
Lumber ASP ($/Mfbm)$460 $474 $499
Avg energy ASP ($/MWh)$88 $105 $108

Liquidity snapshot

Metric12/31/20243/31/2025
Cash & equivalents ($000s)$184,925 $181,473
Available revolvers ($000s)~$303,700 ~$289,200
Total liquidity ($000s)~$488,600 ~$470,700

Vs. S&P Global consensus (Q1 2025)

MetricActualConsensusResult
Revenue ($M)$507.0 $505.5*Slight beat (~$1.5M)
Operating EBITDA ($M)$47.1 $49.3*Miss (~$2.2M)
Diluted EPS ($)-$0.33 -$0.19*Miss

Values marked with * are from S&P Global consensus (GetEstimates). Values retrieved from S&P Global.

Guidance Changes

Metric/TopicPeriodPrevious GuidanceCurrent GuidanceChange
Pulp pricing outlookQ2 2025Q4’24: expected modestly higher softwood realizations into Q1’25 Expect pulp prices to remain strong in Europe/NA; China weaker for hardwood Regional nuance; strength maintained in EU/NA, softer China (HW)
Lumber pricing outlookQ2 2025Q4’24: expected modest U.S. & some EU improvements into Q1’25 Expect modest U.S. decrease; slight increase in Europe U.S. softened vs prior tone; EU firmer
Maintenance downtime (Celgar)Q1 2025Planned 21 days Actual 22 days; +5 days slower startup in April Higher than plan; additional startup impact
2025 CapexFY 2025Prior plan not disclosedAbout $100M; reduced by $20M vs prior plan Lower vs prior internal plan
2025 Inventory reductionFY 2025n/aTarget ~$20M reduction New target
Profitability programThrough 2026n/a~$100M savings by end‑2026; $40–$50M expected in 2025 New program
DividendOngoing$0.075 (Q4’24) $0.075 (Q1’25) Maintained

Earnings Call Themes & Trends

TopicQ3 2024Q4 2024Q1 2025Trend
Tariffs/trade policyNot a major focus in PRTrade policy could impact demand/pricing; diversified exposure No direct tariffs; Section 232 review by Nov’25; secondary FX and China demand effects; mitigation plans Rising risk focus; detailed mitigation
Softwood vs hardwood pulpSoftwood strong; China HW down in Q3 Softwood remained strong; HW near floor by Q1’25 Expect wider softwood‑hardwood gap in 2025; substitution limits largely reached Favorable softwood skew
Fiber costsQ3: fiber optics mixed; per‑unit yoy comps noisy Pulp fiber flat; solid wood fiber up Pulp fiber stable; sawlog costs up ~10% in Q2 for solid wood Stable in pulp; inflation in sawlogs
Mass timberTwo large U.S. projects completed Continued progress Order file ~$24M, expect 2H’25/2026 ramps; potential 2‑shift ramp early 2026 Building backlog; timing delayed
Capital allocationRefi to 2028; -$100M debt -$100M LT debt; liquidity strong Focus on debt reduction; capex cut De‑risking balance sheet
Decarbonizationn/an/aPeace River carbon capture review to FEL‑2 (pre‑FEED) with Svante Early‑stage growth option

Management Commentary

  • “Our EBITDA was $47 million… primarily attributed to 22 days of planned major maintenance downtime at our Celgar mill… adversely impacted our EBITDA by approximately $30 million…” — CFO Richard Short .
  • “As it stands today, our products are not being subject to tariffs… [but] subject to a Section 232 review due by November 2025… We’re watching trade policy developments closely and have contingency plans.” — CEO Juan Carlos Bueno .
  • “We have launched a company‑wide program that targets $100 million… by the end of 2026… targeting a reduction of inventories of $20 million and a reduction of our 2025 CapEx of another $20 million.” — CEO .
  • “We believe the price gap… between softwood and hardwood… will drive the difference… well beyond historical norms… softwood represents roughly 85% of our annual pulp sales volumes.” — CEO .
  • “Beginning a FEL‑2 engineering review on [a] carbon capture project at our Peace River mill.” — CEO ; see Svante/Mercer Pre‑FEED announcement .

Q&A Highlights

  • Tariffs and secondary effects: No direct tariffs yet; secondary effects include weaker USD and pause in China buying around holidays creating near‑term pricing pressure (more on hardwood than softwood) .
  • Realization lag and Q2 outlook: Management expects Q2 realizations to be “more positive than negative” for both pulp and lumber despite near‑term uncertainty .
  • Cost savings cadence: ~$100M program by 2026 with $40–$50M expected in 2025; focus on weaker cash assets (e.g., Torgau, Peace River) and company‑wide efficiencies/logistics/handling .
  • Downtime unit impact: Rule‑of‑thumb EBITDA impact ≈ $1.5M per day; 2024 cumulative ~ $80M impact over 57 days .
  • Mitigating China softness: Opportunity to shift Canadian pulp to the U.S. as European pulp into the U.S. faces tariffs; spot mix lever in North America .

Estimates Context

  • Q1 2025 vs S&P Global: Revenue beat ($507.0M vs $505.5M*), EPS miss (-$0.33 vs -$0.19*), Operating EBITDA miss (~$47.1M vs $49.3M*) . Primary drivers: Celgar maintenance ($30M EBITDA impact), FX headwind vs Q4, and mix/realization lags .
  • Implications for models: Expect estimate dispersion around Q2 given planned downtime at Peace River (18 days) and Stendal (3 days), anticipated modest sawlog inflation in Germany for solid wood, and regionally divergent price outlooks (EU/NA strong, China HW weaker) .

Values marked with * are from S&P Global consensus (GetEstimates). Values retrieved from S&P Global.

Key Takeaways for Investors

  • Setup into Q2: Operationally constrained by scheduled maintenance (similar EBITDA effect to Q1 at Peace River/Stendal), but underlying softwood pricing remains constructive; near‑term China weakness is more hardwood‑skewed .
  • Structural mix tailwind: A widening softwood–hardwood spread benefits MERC’s ~85% softwood sales mix; management sees substitution limits largely exhausted .
  • Self‑help levers: ~$100M savings program (with $40–$50M in 2025), ~$20M inventory reduction, capex trimmed to ~ $100M—providing earnings/cash support through macro uncertainty .
  • FX and fiber watch: Pulp fiber costs stable; sawlog inflation (~10%) expected for solid wood in Q2; FX remains a two‑way risk (negative vs Q4, positive YoY on CAD/EUR costs) .
  • Capital posture: Liquidity remains healthy (~$471M) and dividend maintained ($0.075), while management emphasizes debt reduction and prudent capex .
  • Policy risk path: No direct tariffs today; Section 232 review timeline (no later than Nov’25) and evolving countervailing duty dynamics could reshape trade flows—MERC is actively managing mix and geographies .