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Mercer International reports third-quarter EBITDA up over Q2 2020

Mercer International Inc. has reported its third quarter 2020 financial results with an operating EBITDA increase over the second quarter, but a decrease over the same period in the prior year.

Operating EBITDA for Q3 2020 was $45.6 million, up from $40.5 million in Q2 2020, but down from $50.8 million in the third quarter of 2019.

In the third quarter of 2020, net income was $7.5 million (or $0.11 per share) compared to $1.2 million (or $0.02 per share) in the third quarter of 2019 and a net loss of $8.4 million (or $0.13 per share) in the second quarter of 2020.

In the first nine months of 2020, operating EBITDA decreased by 41 per cent to $143.1 million from $244.6 million in the same period of 2019. In the first nine months of 2020, net loss was $4.3 million compared to net income of $63.1 million in the same period of 2019.

“As a resurgence or second wave of infections from COVID-19 is being felt in a number of countries, we remain committed to maintaining measures and procedures to operate our business safely and efficiently and protect our people,” says David Gandossi, chief executive officer.

“All of our mills ran well this quarter and our Friesau sawmill had record operating income of $12.0 million despite 10 days of downtime related to capital upgrades. Our pulp production was down in the quarter primarily due to the previously announced planned 30-day curtailment at our Celgar mill.

“Our Q3 results reflect strong cost control and steady production. On average, NBSK pulp pricing was flat compared to Q2. Globally the supply demand fundamentals are slowly improving based on China’s improving economy and expected higher levels of maintenance by pulp producers going into the fourth quarter.

“Our wood products segment had a record quarter and benefitted from strong demand and robust pricing in the U.S. market. In the current quarter approximately 59 per cent of lumber revenues and 39 per cent of our lumber sales volumes were to the U.S. which was our single largest market.

In Q4, our pulp mills have 17 days of planned annual maintenance downtime (approximately 19,600 ADMTs). We have no planned downtime at our Friesau sawmill. Going forward we will continue to ensure we control our costs, manage our working capital and conservatively manage our strong liquidity position.”

Consolidated results for Q3 2020

Total revenues for the three months ended September 30, 2020 decreased by approximately 13 per cent to $333.2 million from $383.5 million in the same quarter of 2019 primarily due to lower pulp sales volumes and pulp sales realizations partially offset by higher lumber sales realizations and volumes.

Costs and expenses in the current quarter decreased by approximately 12 per cent to $319.4 million from $364.8 million in the third quarter of 2019 primarily due to lower pulp sales volumes, per unit fibre costs and maintenance costs partially offset by the negative impact of a weaker dollar primarily on Mercer’s euro denominated costs and expenses.

In the current quarter of 2020, the company received approximately $3.5 million of wage assistance under a Canadian government wage subsidy program.

In the third quarter of 2020, other income increased to $11.9 million from $0.9 million in the same quarter of 2019 primarily as a result of $15.4 million of realized gains on the sale of investments in the current quarter.

In the third quarter of 2020, operating EBITDA decreased by approximately 10 per cent to $45.6 million from $50.8 million in the same quarter of 2019, primarily due to lower pulp sales realizations and the negative impact of a weaker dollar primarily on the company’s euro-denominated costs and expenses partially offset by lower per unit fibre costs and higher lumber sales realizations.

Pulp segment

In the third quarter of 2020, pulp segment operating income decreased to $3.8 million from $21.4 million in the same quarter of 2019 as lower pulp sales realizations and the negative impact of a weaker dollar were only partially offset by the positive impact of lower per unit fibre costs and lower maintenance costs.

In the current quarter of 2020, NBSK pulp sales realizations decreased by approximately eight per cent to $562 per ADMT from $609 per ADMT in the same quarter of the prior year. NBSK sales volumes decreased by approximately 18 per cent to 369,913 ADMTs in the current quarter from 451,171 ADMTs in the same quarter of 2019 primarily due to lower production.

In the current quarter Mercer’s Canadian pulp mills recorded a non-cash write down of our inventory carrying values of $8.0 million as a result of low pulp sales realizations and high per unit fibre costs. In the same quarter of the prior year, the company’s Canadian mills recorded a non-cash write down of inventory carrying values of $6.9 million.

In the current quarter per unit fibre costs decreased by approximately 12 per cent from the same quarter of 2019 due to lower per unit fibre costs for all of Mercer’s mills. In Germany, per unit fibre costs benefitted from the continuing availability of beetle-damaged wood. Per unit fibre costs in Canada declined due to increased sawmill activity but remained at historically high levels due to strong fibre demand in the mills’ fibre procurement areas.

Current market environment

In mid-2020, many countries eased restrictions on economic and social activities adopted in response to the COVID-19 pandemic to, among other things, reopen their economies by allowing businesses to restart and encourage economic activity. The results of such economic measures and reopening have varied from country to country.

Mercer is encouraged by improved economic activity globally. However, recently there has been a widespread increase or “second wave” in reported infections from COVID-19 including in Europe and the United States. In response, various countries including in Europe have announced the re-imposition of some restrictions on social, business and other activities.

Currently the company is unable to predict the impact of the recent resurgence in infections, the extent of measures governments may take in response thereto, including imposing some or all prior or new restrictive measures, including business closures, or the overall impact on global economic activity, including the pace of any economic recovery.

Although there is continued economic uncertainty created by the COVID-19 pandemic, the company is currently expecting generally stable pulp demand in the upcoming quarter with some modest price improvements due to improving global economic activity, particularly in China.

On the pulp supply side, to date various pulp mills globally have delayed their annual maintenance schedules as a result of the pandemic. As a result, Mercer currently expects mills to curtail production to implement such delayed maintenance in the later part of this year or the early part of next year.

The company currently expects strong lumber demand and lumber prices in the U.S. market and steady demand and modestly improving sales realizations in the European lumber market in the upcoming quarter.

Read the full Mercer International Q3 2020 financial report.