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MERCER INTERNATIONAL INC. (MERC)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 was weak: revenue fell to $453.5M and Operating EBITDA turned to negative $20.9M, driven by FX headwinds (~$26M EBITDA impact vs Q1), weaker China pulp pricing, higher fiber costs, and an $11M hardwood inventory impairment; diluted EPS was a loss of $1.29 .
  • Versus S&P Global consensus, MERC missed on revenue ($453.5M vs $476.7M*), EPS (-$1.29 vs -$0.96*), and EBITDA (-$20.9M vs -$11.2M*); the dividend was suspended to preserve liquidity and focus on debt reduction, a key stock narrative catalyst .
  • Management reaffirmed its “One Goal One Hundred” program targeting $100M profit improvement actions by end-2026 (realized ~$5M to date; 2025 target ~$25M), and guided to near-term softness in softwood pulp prices, steady hardwood prices, and lower German pulp fiber costs in Q3 .
  • Liquidity remained solid: $146.5M cash, $291.6M undrawn revolvers, ~$438.1M aggregate liquidity; 18 days of planned pulp maintenance downtime expected in Q3 .
  • Medium-term positives include increased U.S. lumber pricing on anticipated duties, mass timber backlog of ~$68M, and potential Peace River carbon capture project economics (JV structure, >$100M/yr revenue potential with >60% grants) .

What Went Well and What Went Wrong

What Went Well

  • Cost and efficiency program momentum: “One Goal One Hundred” tracking to $100M by 2026; ~$5M achieved, ~$25M targeted in 2025 .
  • Lumber pricing improved: Q2 lumber average realizations rose ~19% to $550/Mfbm and revenue +23% YoY to $66.3M; U.S. demand and supply constraints helped .
  • Mass timber order book resilience: management cited healthy backlog and improved win rates, with an order book of ~$68M and plans to ramp to two shifts in early 2026 .

What Went Wrong

  • FX and China demand: a weaker USD vs EUR/CAD reduced Q2 EBITDA by ~$26M vs Q1, while China pulp prices fell; NBHK China net price decreased to $533/ADMT; NBSK China net price $734/ADMT .
  • Inventory impairment: $11M non-cash impairment on hardwood inventory at Peace River due to lower China hardwood prices .
  • Solid wood pressures: segment Operating EBITDA went to -$4.9M (vs +$3.1M YoY), with manufactured products (mass timber) realizations down sharply to $1,318/m3 amid elevated U.S. rates .

Financial Results

Metric ($USD Thousands)Q2 2024Q1 2025Q2 2025
Revenues$499,384 $506,974 $453,524
Operating income (loss)$(43,779) $6,733 $(58,404)
Operating EBITDA$30,439 $47,088 $(20,881)
Net income (loss)$(67,586) $(22,339) $(86,071)
Diluted EPS ($)$(1.01) $(0.33) $(1.29)

Actual vs S&P Global Consensus (Q2 2025):

MetricConsensus*ActualSurprise
Revenue ($USD)$476,678,900*$453,524,000 -$23,154,900 (-4.9%)
Primary EPS ($)-0.9566*-1.29 -0.33
EBITDA ($USD)-11,150,000*-20,881,000 -$9,731,000

Segment Breakdown ($USD Thousands):

SegmentQ2 2024Q1 2025Q2 2025
Pulp revenues$346,808 $381,080 $313,705
Energy & chemical revenues (pulp)$20,563 $24,116 $18,603
Pulp Segment Operating EBITDA$31,674 $49,872 $(10,262)
Solid wood revenues$130,238 $122,720 $117,268
Solid wood Segment Operating EBITDA$3,124 $(292) $(4,861)
Corporate & other revenues$1,775 $3,174 $3,948

Key KPIs

KPIQ2 2024Q1 2025Q2 2025
NBSK sales volumes (‘000 ADMTs)377.6 388.1 361.4
NBHK sales volumes (‘000 ADMTs)55.7 89.8 65.3
Avg NBSK sales realization ($/ADMT)811 783 758
Avg NBHK sales realization ($/ADMT)701 570 575
Pulp annual maintenance downtime (days)37 22 23
Lumber sales (MMfbm)116.6 130.9 120.6
Avg lumber realizations ($/Mfbm)463 499 550
Manufactured products sales (‘000 m3)11.2 5.9 8.1
Avg manufactured products realizations ($/m3)2,942 2,832 1,318
Energy sales (‘000 MWh)185.0 198.7 183.1
Avg energy realizations ($/MWh)84 108 83

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Softwood pulp pricesQ3 2025Stable to strong (Q1 commentary for EU/NA) Decrease expected across key markets amidst macro and seasonality Lowered
Hardwood pulp pricesQ3 2025Near floor levels trending up (early 2025) Relatively steady expected Maintained/steady
Lumber prices (U.S.)Q3 2025Modest increase in early 2025 Increase expected due to higher duties on Canadian imports, reduced supply Raised
Lumber prices (Europe)Q3 2025Slight increase in Q2 2025 Modest increase expected due to strong demand & higher fiber costs Raised
Pulp fiber costs (Germany)Q3 2025Higher expected in Q2 2025 Lower expected in Q3 due to reduced demand Lowered
Pulp fiber costs (Canada)Q3 2025Relatively stable expected Relatively stable expected Maintained
Solid wood fiber costs (Germany)Q3 2025Higher in Q2 2025 Modest increase expected (temporary logging reduction) Raised
Planned pulp maintenance downtimeQ3 202521 days planned for Q2 18 days planned in Q3 Lowered
2025 CapExFY 2025Reduced plan by $20M vs earlier (no base disclosed) ~$100M; weighted to maintenance, environmental, safety; includes Torgau expansion Lowered vs earlier plan
Quarterly dividendOngoing$0.075/share declared in Q1 and Q2 2025 Suspended given market uncertainty and capital allocation prudence Suspended
2025 interest expenseFY 2025N/A~$110M (CFO commentary) New disclosure
2025 cash taxesFY 2025N/A~$25M (CFO commentary) New disclosure

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Pulp marketsStrong softwood prices; FX tailwinds; no planned downtime in Q4 Softwood remained strong; Europe/NA strong; China hardwood weaker; maintenance at Celgar Softwood expected to decrease in Q3; China demand weak; manage through uncertainty Softer near term, cautious
FX impactsQ4 stronger USD benefited results Positive FX vs EUR/CAD Weaker USD vs EUR/CAD reduced EBITDA by ~$26M vs Q1 Negative in Q2
Fiber costsQ4 pulp fiber flat; solid wood increased Q2 sawmill fiber higher; pulp stable Q3: pulp fiber lower in Germany; solid wood fiber modestly higher Mixed; pulp easing
China demand/pricingLate Q4 stabilization Q2 guide: China pulp price declines, especially hardwood NBHK China $533/ADMT; NBSK China $734/ADMT; demand weak Weak
Trade/tariffsDebt reduction focus; refinancing done Monitoring tariffs, countermeasures Active monitoring; U.S. lumber duties expected to lift U.S. prices; Section 232 review ongoing Increased focus
Mass timberLarge projects completed in 2024 Progress on projects despite high rates Backlog ~$68M; win rate up; ramp to two shifts planned in early 2026 Building backlog
Capex disciplineRefinanced, debt reduced Capex cut by $20M; inventory reduction target $20M 2025 Capex ~$100M; strong liquidity Tight

Management Commentary

  • CEO on Q2 drivers: “Ongoing uncertainties in the global trade environment coupled with the resulting weaker dollar… contributed to weaker demand for pulp in China… [and] had a negative impact of approximately $26 million on our Operating EBITDA… The second quarter also included an $11 million non-cash impairment on hardwood inventory at our Peace River mill” .
  • CEO on capital allocation: “We are taking the added step of suspending our quarterly dividend… prudent as we navigate the uncertain global trade environment. We reiterate our long-term commitment to a competitive dividend” .
  • CFO on segment results: “Our pulp segment had negative quarterly EBITDA of $10,000,000 in Q2 and our solid wood segment had negative EBITDA of $5,000,000” .
  • CEO on mass timber outlook: “Order book is growing… backlog… about $68,000,000… planning on ramping up one of our facilities to two shifts in the early part of next year [2026]” .
  • CEO on Peace River carbon capture: “Tied to about 500,000 tons of CO2… close or north of $100,000,000 per year of revenue… >60% covered by grants; our share likely < $100,000,000” .

Q&A Highlights

  • Liquidity and revolvers: No maintenance covenants on German revolver; significant headroom (~$150–$200M-ish). Canadian revolver has a springing covenant at high utilization, not close to tripping .
  • Cash taxes and interest: 2025 cash taxes ~$25M; interest around ~$110M; working capital slightly negative to flat .
  • Inventory/impairment risk: Softwood inventories slightly elevated (Canada) but no impairment risk close; hardwood impairment already taken .
  • Pulp price catalysts: Expect restocking post summer, supply tightness (curtailments/closures) to support softwood into late Q3/Q4; modest hardwood recovery .
  • Lumber duties impact: Higher U.S. duties likely strain Canadian sawmills, reduce fiber availability; Mercer sees competitive advantage exporting German lumber to the U.S. .

Estimates Context

  • Q2 2025 vs consensus: revenue missed ($453.5M vs $476.7M*), EPS missed (-$1.29 vs -$0.96*), EBITDA missed (-$20.9M vs -$11.2M*). FX (~$26M EBITDA headwind vs Q1), China price weakness, and $11M impairment drove the miss .
  • Near-term estimates may move lower for Q3 given management’s expectation of softwood price decreases, modest solid wood fiber cost increases, and 18 days of planned maintenance; however, German pulp fiber costs are guided lower, offering some offset .
  • Forward context: Consensus shows Q3 revenue ~$459.7M* and EPS -$0.92*, improving into Q4 on revenue ~$464.1M* and EPS -$0.82*; Operating execution and FX path are key sensitivities.*

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • The quarter’s broad miss was driven by exogenous FX and China pulp price pressures plus a non-cash inventory impairment; watch FX trajectory and China restocking signals heading into late Q3/Q4 .
  • Dividend suspension underscores a debt reduction and liquidity-first stance; with ~$438M in liquidity, the balance sheet is positioned to navigate near-term volatility .
  • Near-term guidance points to softer softwood pricing and modest solid wood fiber cost increases; German pulp fiber costs are expected to ease, partially mitigating margin pressure .
  • Structural positives: mass timber backlog (~$68M) and U.S. lumber pricing tailwinds from higher duties could support solid wood into 2026; Torgau capacity additions enhance U.S. market reach .
  • Optionality: Peace River carbon capture project offers potential >$100M/yr revenue with heavy grant support—strategic upside if executed .
  • Trading implications: Expect estimate cuts short-term; stock narrative hinges on FX stabilization, China demand recovery, and confirmation of Q4 restocking; dividend pause may pressure income holders but supports deleveraging .
  • Medium-term thesis: Diversification (EU/NA), bio-refinery initiatives (lignin/CO2), and cost program ($100M by 2026) can re-rate the equity as macro and rates normalize .