Sign in

    MERCER INTERNATIONAL (MERC)

    Q4 2024 Earnings Summary

    Reported on Mar 17, 2025 (After Market Close)
    Pre-Earnings Price$7.69Last close (Feb 21, 2025)
    Post-Earnings Price$7.69Last close (Feb 21, 2025)
    Price Change
    $0.00(0.00%)
    • Strong and improving lumber pricing in key markets, particularly in the U.K. and Japan, support revenue growth. Mercer is experiencing consistent upward pricing trends in the U.K., making it more attractive, and has increased lumber sales to Japan more than ever before.
    • Expectations of higher softwood pulp prices due to supply constraints enhance profitability in the pulp segment. Mercer anticipates both softwood and hardwood pulp prices to increase by about $50 in China, with positive dynamics for softwood pulp due to limited supply and the expectation that the price gap between softwood and hardwood will remain.
    • Mercer's European lumber operations are competitive and well-positioned to capitalize on market recovery and potential tariffs, enhancing margins and market share. The company's efficient sawmills in Europe, like Friesau, can navigate through difficult market conditions, and potential tariffs on Canadian lumber could benefit Mercer by making its European lumber more competitive in the U.S. market.
    • Increasing fiber costs in Germany: The company expects fiber costs in Germany to rise in 2025, with sawlog costs increasing by about 10% for the Solid Wood business and pulpwood costs increasing by about 5-6% for the Pulp business, due to reduced wood harvest levels. This could pressure margins in both segments.
    • Reduced profitability in Mass Timber business: In 2025, the mass timber business lacks large projects like those in 2024, such as the Walmart campus project that comprised a significant portion of 2024 sales. Reliance on smaller projects, which are less efficient and take more time to fill facilities, is expected to result in lower profitability compared to the previous year.
    • Continued weakness in Pallets segment with no signs of recovery: The pallets business remains weak due to subdued demand from key industries like automotive and chemicals. Production is running significantly below capacity, and there are no significant signs of market improvement, which may continue to negatively impact the Solid Wood segment's performance.
    MetricYoY ChangeReason

    Total Revenue

    +3.8% (from $470.44M to $488.45M)

    Modest revenue growth due to improved pulp and manufactured products sales realizations relative to Q4 2023, partially offset by lower sales volumes in some segments compared to the previous period.

    US Revenue

    +82% (from $61.86M to $112.7M)

    Substantial improvement in the US market driven by stronger demand and possibly enhanced pricing or product mix improvements that reversed the previously lower performance seen in Q4 2023.

    Germany Revenue

    -6.8% (from $125.22M to $116.77M)

    Decline in German revenue likely reflects softer market conditions and reduced demand for lumber and energy products, contrasting with growth in other segments, which contributed to revenue headwinds compared to the previous quarter.

    China Revenue

    -33.6% (from $150.04M to $99.6M)

    Sharp decline in China revenue resulted from significantly lower pulp price realizations and weakening demand, a continuation of deteriorating market conditions compared to high levels in Q4 2023.

    Other Countries Revenue

    +25.2% (from $127.82M to $160.13M)

    Revenue growth in Other Countries was driven by higher pulp and manufactured products sales realizations and growing market penetration, marking a notable improvement versus the lower prior period levels.

    Operating Income

    Reversal from a loss of $56.395M to a profit of $50.393M

    Dramatic turnaround primarily resulting from improved sales realizations in pulp and manufactured products, effective cost management, and reduced downtime, which mitigated the previous period’s challenges that had led to a loss.

    Net Income

    Turned from a loss of $87.216M to a profit of $16.707M

    Net income recovery reflects enhanced operational performance, improved pricing and cost control measures, and turnaround in segment contributions compared to the significant losses experienced in Q4 2023.

    Net Cash Provided by Operating Activities

    From -$8.719M to $71.158M

    Significant improvement in operating cash flow driven by better management of working capital items—such as a reversal in the trends of accounts receivable and inventories—that contrasted sharply with the negative adjustments of Q4 2023.

    Cash and Cash Equivalents

    -41% (from $313.992M to $184.925M)

    Reduction in cash balances despite improved operational cash flows, likely due to higher capital expenditures, dividend payments, and changes in financing activities compared to the previous period, indicating a more aggressive investment or payout strategy.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Pulp Pricing

    Q1 2025

    no prior guidance

    Positive momentum in pulp prices expected to continue into 2025 with strong softwood pricing

    no prior guidance

    Hardwood Pricing

    Q1 2025

    no prior guidance

    Floor price of around $550 in China

    no prior guidance

    Lumber Pricing

    Q1 2025

    no prior guidance

    Modestly higher lumber prices expected in the U.S. and European markets

    no prior guidance

    Fiber Costs (Pulp Business)

    Q1 2025

    no prior guidance

    Fiber costs expected to remain stable

    no prior guidance

    Fiber Costs (Solid Wood Business)

    Q1 2025

    no prior guidance

    A 10% increase in fiber costs is anticipated

    no prior guidance

    Mass Timber Business

    Q1 2025

    no prior guidance

    Sales expected to remain roughly the same as in 2024, around $100 million

    no prior guidance

    Capital Spending

    Q1 2025

    no prior guidance

    Expected to be between $100 million and $120 million in 2025

    no prior guidance

    Interest Rates & Economic Conditions

    Q1 2025

    no prior guidance

    Construction market expected to remain challenging in 2025 due to high interest rates

    no prior guidance

    Tariffs

    Q1 2025

    no prior guidance

    Company prepared to mitigate potential tariff impacts

    no prior guidance

    TopicPrevious MentionsCurrent PeriodTrend

    Lumber Market Dynamics

    In Q1–Q3, earnings calls repeatedly noted weak U.S. pricing, regional differences (with European improvement only in select markets such as the U.K.), and cautious expectations for a market rebound ( in Q1; in Q2; in Q3).

    In Q4, the discussion focused on improved U.S. prices (e.g. rising from $366 to $435 per thousand board feet) and modestly better European pricing trends, with forecasts for modestly higher prices in early 2025 ( ).

    Sentiment has turned more optimistic as pricing improvements are evident, although caution remains regarding trade policies and supply/demand imbalances.

    Mass Timber Business

    Across Q1 to Q3, the calls emphasized strong long‐term growth potential with consistent bullish projections, despite operational challenges such as limited shift utilization and project delays ( in Q1; in Q2; in Q3).

    Q4 highlighted high confidence in mass timber growth driven by pent‐up demand, even as it flagged fewer large-scale projects planned for 2025 which could impact efficiency ( ).

    Bullish long-term outlook remains; operational challenges are still noted but the overall growth narrative is intact with slight caution regarding near-term project mix.

    Softwood Pulp Pricing and Supply Constraints

    Earlier periods (Q1–Q3) consistently discussed tight supply dynamics fostering stable or strong pricing – with Q1 being bullish, Q2 underscoring supply tightness ( , ) and Q3 noting consistent high pricing driven by closures and downtime ( ).

    In Q4, while pricing remains strong (with slight regional adjustments such as modest changes in U.S. and European list prices), the emphasis persists on supply constraints and the widening price gap between softwood and hardwood pulp ( ).

    Consistent bullish sentiment on softwood pulp pricing continues, sustained by tight supply; minor regional adjustments add nuance but the core fundamentals remain strong.

    Rising Fiber Costs and Supply Chain Challenges

    Q1 discussions noted modest declines in pulp fiber costs and some logistical challenges ( ), while Q2 mentioned stable fiber costs along with hints of external logistics risks ( , ). Q3 then introduced issues like unplanned downtime and port/transport challenges that began to raise concerns ( ).

    Q4 shows a sharper focus on rising fiber costs—with expected increases in Germany (6%–10% for pulp/lumber) and potential tariff fallout in Canada—and persistent supply chain issues ( ).

    Sentiment has shifted toward a more negative outlook as rising fiber costs and supply chain disruptions become more pronounced and are given greater emphasis.

    European Operations and Market Demand Weaknesses

    In Q1, the European market was described as weak—particularly in Germany—with limited recovery and stagnant pallet demand ( ). Q2 further stressed economic sluggishness, including a noncash impairment at Torgau and ongoing pallet/lumber challenges ( , ). Q3 showed mixed signals with the U.K. recovering but overall weak European demand ( ).

    Q4 reiterates the continuing weakness in Europe, with the weak German economy impacting solid wood and pallet segments, despite some relative improvement in the U.K. and Japan; overall, demand uncertainty remains high ( , , , ).

    Persistent bearish sentiment remains, with ongoing market demand weaknesses in Europe, reinforcing challenges despite isolated regional improvements.

    Strategic Capital Investments and Capacity Expansion

    Q1 discussed restarting projects at Torgau and improvements at Spokane ( ). Q2 detailed the restart of Torgau and Spokane initiatives, along with early progress on a lignin extraction plant ( , ). Q3 continued to stress capex investments, including the lignin pilot and additional sorting improvements ( , ).

    Q4 provides a detailed update on multiple projects—including Torgau expansions, a 21‐day maintenance shutdown at Celgar for woodroom optimization, the Spokane project, and the lignin extraction pilot—reflecting continued commitment to capacity expansion and sustainability ( , ).

    Consistently optimistic and proactive; the company remains focused on strategic investments, with an even broader and more detailed capex agenda in Q4 that underscores its long-term capacity and sustainability plans.

    Tariff Impacts on Lumber Competitiveness

    Not mentioned in Q1 or Q2; Q3 briefly touched on tariffs with a diversification strategy toward the U.K. market to mitigate U.S. dependency ( ).

    In Q4, the topic is discussed in detail with specific scenarios comparing Canadian and European lumber competitiveness, including the potential increase in antidumping duties on Canadian lumber (from 15% to 30%) and its impact on trade dynamics ( , , , ).

    An emerging topic with increased focus; while relatively absent earlier, tariff impacts now command detailed discussion and are considered influential on future competitiveness.

    Interest Rate Effects and Financial Leverage

    Q1 mentioned high interest rates impacting construction and delaying mass timber projects ( , ). Q2 reiterated global high rates weighing on housing starts and detailed early deleveraging actions ( , , , ). Q3 expanded on the pressure from high rates on construction and outlined refinancing and debt reduction steps ( , , , , ).

    Q4 continues to highlight the challenges posed by high interest rates on construction (impacting mass timber and lumber demand) while emphasizing active measures for reducing leverage, including refinancing and spending adjustments ( , , ).

    Stable concern persists; high interest rates continue to impact market demand while strategic leverage reduction efforts remain a priority, reflecting ongoing financial management challenges.

    Emerging Competition in the Pulp Market from Hardwood Innovations

    Q1 did not mention this issue; Q2 featured a cautious discussion by Juan Bueno on Suzano’s new hybrid product posing limited threat to NBSK, viewing it as more applicable in less demanding markets such as China ( ). Q3 did not elaborate further.

    Q4 revisits the competitive landscape by comparing the widened price gap between softwood and hardwood pulp and noting that most substitution has already occurred, indicating that while there is innovative competition, its potential impact is limited ( , ).

    Intermittent focus evolving into an emerging concern; initially noted only in Q2, the subject has now gained a more defined profile in Q4 although it remains a relatively limited competitive threat overall.

    Global Economic Conditions and Demand Uncertainty

    Q1 described a weak European market (especially Germany) and subdued lumber demand ( , ). Q2 further underscored the negative impact of high global interest rates on construction and housing, along with ongoing economic challenges in Germany and other parts of Europe ( , , ). Q3 continued to note global high rates and cautious demand, with expectations that improvements hinge on interest rate reductions ( ).

    Q4 reaffirms persistent global economic uncertainty—weak European conditions, subdued construction, and potential tariff-related complications—while also noting pent-up demand in segments such as mass timber that could be unlocked when rates improve ( , , ).

    Pervasive uncertainty remains; while there is cautious optimism in some areas, global economic headwinds (particularly in Europe) and high interest rates continue to weigh on overall demand outlook.

    1. Tariff Impact and Opportunities
      Q: Could tariffs have positive impacts and opportunities for the company?
      A: Yes, tariffs could create positive scenarios for us. For pulp, since the U.S. imports 80% of its softwood from Canada and 20% from Europe and doesn't produce softwood itself, tariffs may lead U.S. customers to bear the additional costs. We can shift hardwood pulp sales from the U.S. to Asia with minimal cost impact, as shipping costs are comparable. For lumber, if only Canadian producers face tariffs, we could gain competitiveness in the U.S. market. Even if tariffs are applied to both Europe and Canada, upcoming increases in Canadian antidumping duties to 30% could still give us an advantage.

    2. Fiber Cost Inflation in Germany
      Q: What's the outlook for fiber costs in Germany in the next few years?
      A: We expect fiber costs in Germany to rise in 2025, with about a 6% increase for pulp logs and 10% for sawlogs, due to reduced harvesting ,. Over the next 10 years, there should be sufficient fiber to supply our mills, though we anticipate a shift in species availability, with less spruce and more resilient other species.

    3. Mass Timber Business Outlook
      Q: Should we expect flat revenue growth in mass timber due to muted outlook?
      A: For 2025, we anticipate mass timber sales to be roughly the same at around $100 million, similar to 2024. However, profitability may decline because we're filling our facilities with many smaller projects instead of large ones like the Walmart campus, which comprised about 65-70% of 2024 sales. Our three facilities in different regions allow us to navigate tariffs effectively by sourcing locally and serving respective markets without impact.

    4. Lumber Sales Returns: Europe vs North America
      Q: How do lumber sales returns in Europe compare to North America now?
      A: European pricing is up by 2% to 5%, driven by consistent improvements in the U.K. market. In North America, U.S. prices have increased close to 20% in the last month. We're adjusting our sales mix accordingly, with only 38% of lumber sold to the U.S. this quarter, down from higher levels previously, and increasing sales to markets like Japan where we've seen good growth.

    5. Softwood vs. Hardwood Pulp Price Dynamics
      Q: How might softwood pulp prices play out if hardwood prices rise?
      A: Between Q4 and Q1, both softwood (NBSK) and hardwood (NBHK) pulp prices in China have risen by about $50. We expect both fibers to continue increasing in price, maintaining the gap between them. Softwood supply constraints, potentially worsened by tariffs, support higher softwood prices.

    6. Celgar Mill Fiber Sourcing Amid Tariffs
      Q: Can Celgar source fiber if tariffs impact U.S. chip imports?
      A: Yes, Celgar can continue operations without reducing rates. We've secured two long-term contracts and spot suppliers from the U.S., sourcing about 40% of our chips from the U.S. in 2024. If tariffs are imposed, we'd balance costs and sourcing between Canada and the U.S., but chips are a small trade code unlikely to be targeted.

    7. Pallet Business Demand Outlook
      Q: Are there any improvements in the pallet side of your business?
      A: We haven't seen significant demand shifts in the pallet business yet. Our Torgau mill is operating below capacity, producing 10 million pallets annually out of a 17 million capacity. The subdued German economy, particularly the automotive sector, continues to impact pallet demand. Other sectors like the chemical industry could drive demand, but they are still struggling.

    8. Impact of Downtime Schedule on Sales Volumes
      Q: Will the planned downtime affect NBSK sales volumes in Q1?
      A: Sales volumes are expected to stay flat or modestly down despite the 3-week outage, as we built up inventories in anticipation and planned to meet customer needs during the maintenance shutdown.

    9. Pulp Costs and Input Trends in Europe vs. Canada
      Q: Can you detail input cost trends between Europe and Canada?
      A: From 2023 to 2024, pulp costs decreased by about 5% in both our Canadian and German mills. We anticipate Canadian pulp mills to have a slight tailwind into 2025, unless tariffs impact the sawmilling industry and increase fiber prices. In Germany, we expect fiber prices to rise due to reduced harvesting, with about a 6% increase for pulp and 10% for lumber over the year.

    Research analysts covering MERCER INTERNATIONAL.