Mercer International (MERC) 4 Aug 232023 Q2 Earnings call transcript

Good morning and welcome to Mercer International's Second Quarter 2023 Earnings Conference Call.

On the call today is Juan Carlos Bueno, Mercer's President and Chief Executive Officer, and Richard Short, Mercer's Chief Financial Officer, and Secretary.

I will now hand the call over to Richard.

Thank you. Good morning everyone. today. us joining for Thanks markets, I will highlights call financial operating on on Juan strategic and initiatives. by the second touching the color of further the to the capital quarter, plan, Carlos our and provide begin our before to returning of join of section for presentation by is today's our telephone, Relations those Also, that the has Investor call there material been you who attached to website.

XXXX, the in will this I'd our to results, your I'd call. like and remind make turning forward-looking Securities in the Safe before press we which statements, statements risks attention Reform to Act in like the the to Exchange to Commission. our these related described to of call But more of release Private with morning's Litigation you According fully filings to are and provisions that Harbor the company's Securities

million $XX in million EBITDA This adjusting for quarter, QX to our positive $XX inventory EBITDA compared was million. negative $XX After million, was roughly $XX non-cash impairments of negative our QX EBITDA

EBITDA is to pulp economic QX weaker global significantly of created primarily in demand in decrease all weak the markets prices QX our uncertainty. due by caused The by from

compared had compared days downtime our also to in had XX at We QX. we QX. days of pulp scheduled QX, to mills In downtime more XX scheduled

$XX Our pulp inventory non-cash million impairment, the which segment million leaves for result. had negative negative adjusting quarterly million, EBITDA of after a $X $XX

$XX was segment wood solid was negative EBITDA and poor driven Our prices. million by lumber

website, which be segment find found additional XX-Q, on can our SEC. that the disclosures and can in Form our of You

EBITDA QX South average to in down and New to demand impact prices paper million the lower hardwood $XX continued was negatively prices QX. In to capacity. list uncertainty impact all $XX compounded million our of the in charge, by American as and compared to compared economic QX markets were pulp addition about resulted NBHK negative in a of impairment impact QX NBSK In non-cash

NBSK per The net NBSK per struggled $XXX capacity China ton average widened $X,XXX ton. market $XXX QX. quarter, QX the new per relative in NBHK per price slightly price a of eucalyptus $XXX to ton current down China, In averaged the ton European to the and to South prices was list $XX quarter digest NBSK this America. as hardwood between market about from in gap decrease

per In QX sorry, $XXX $XXX down China, QX. net XX% was the ton per was or price compared ton the price American North $XXX. NBHK average And QX to $X,XXX down,

mills. non-cash about in the mentioned, prices was pulp $XX remainder million impairment in mill and of fiber significant Peace the was hardwood River's fiber the new inventories having fiber inventories $XX woodroom. against As lower million of QX, large and hardwood River the component resulted Canadian for Mill, The startup of volume a at pulp inventory softwood of a result and Peace which preparation in mill at the our against the recording of front in the was pulp pulp of

XX days days of to scheduled curtailment. had XX increased QX, maintenance in of quarter, of days at roughly our strong compared had QX. more but market consisted QX. relative to sales in of well XXX,XXX pulp which QX. buyers in took of total QX for mills, the In volumes low pulp or significantly advantage quarter, QX volume we we resulting our Sales ran this XX planned Certain downtime in this and tons XX% prices mills a All downtime

first almost impact the $XX pulp shuts scheduled downtime. up maintenance a quarter. when XX curtailments The In negatively QX, compared was EBITDA about we planned days for tons After and market and production plan to the the of from increased by downtime impacted adjusting QX negative only $XX million was maintenance million. had curtailments in QX, XX,XXX

The fire mill in In damaged turbine XXXX its to subsequently claim. received to proceeds related final Woodyard downtime. in almost insurance QX, cash of QX. This be million to July. The scheduled repairs million insurance the the was mill recognized interruption are received claim business Rosenthal its for Stendal settle $XX $X insurance worth completed

And that GAAP to in I requires proceeds results. be these will insurance also recorded out point operating U.S.

For our markets steady the in pricing lumber solid and wood up segment, was European U.S. demand. to both modestly due

of was prices production, the Lengths The at the improved feet early in end in to $XXX and the two production noticeably first two $X end the due quarter, per board Better million Overall, in Today, US at number XXXX million Western compared the by Random QX. impacted benchmark from board prices is lumber increase $XXX S-P-F the of QX. of and quarter. the the Lumber XXX benchmark the the feet, of Lumber S-P-F upsets price $XXX production quarter. minor have number approximately first almost of quarter. to board record quarter end per U.S. for an feet QX, from XXXX end positively EBITDA to XxX for compared was our Better XX% $XX Western down since

Lumber fell due per board sales due which in in to feet, hour the sales $XXX up from gigawatt-hours to the prior volumes Europe. concerns in strong $XXX Electricity in were megawatt about XX quarter. QX XXX totaled also from to is reduced the energy in quarter. QX quarter, current from QX Pricing down supply approximately X% gigawatt-hours XXX million production

ramp over up million mass of million $X in to we timber resulting order business to in $XX book expect coming QX. This also to fill operations, has the a growing revenue in continues months. business compared that QX Our

impairment loss We used using removing the million of charge, $XX We the in share QX share, of $XX or million to a per have $XX in second million compared of in inventory $X.XX net net $X.XX a about about compared cash of for impact After per non-cash or per loss $XX share. loss $XX is net QX. million quarter QX. consolidated QX reported to

assets about $XX Mass for assets and QX our due million. cash usage primarily to Our in of glue-lam were acquisition Structurlam Timber

to at impact and cash our Canadian our our QX capital more the working working of than negative in inventory QX. We capital mills in of offset EBITDA mills reduced million was by activities. invested management pulp of sales strong balances $XX lower about capital due in form The

expected spend have ahead, about million to reduced be Looking in CapEx our $XXX we XXXX.

our record September At October noted a the a end have of which XXth, totaled made $XXX position has XXXX. X, $XXX quarter, quarterly our the $XXX of of our payment as dividend press for revolvers. on and comprised of And of million on share shareholders of be approved cash liquidity undrawn you million will for release, $X.XXX Board in million

the the turn to over of Carlos. overview my results. financial Juan ends now I'll That call

Thanks, a prices Rich. us, time. as QX short the the across and was in market a pulp sharply of period world very disappointing quarter for deteriorated

by As pulp China rapid in led prices with The inventories, mentioned, the with was China softwood. weaker decline pulp more of the pricing Rich mills. South expected, due by eucalyptus than fell ramp-up large large new $XXX prices and than compounded to economic and in hardwood in ton per both hardwood producer American for recovery and

their its QX. at mill various world. on pulp due supply are the similar annual in did gradually extending maintenance announcements Peace and we closure other tightening is what Softwood Several shots to around River to curtailments producers the the hand,

Canadian In supply. to British this are addition recent as the to tightening forest as fires contributing Columbia also this, port strike, well

date at capacity to being been side, as of economy European modest. still has demand be European the are the war. paper to effects the burdened On reduced rates stimulus economic the growth Ukraine running China, implemented, are in producers while by continues And measures

Looking forward, we to under expect continue prices to be pulp QX. in pressure

month stake appear summer pulp QX. while to bottomed a in prices hold, weak softwood and out As traditionally hardwood have in China

QX. floor lagging currently hit in is expect behind to and Software we Europe, its price

for impairment This the charge to us large quarter drove QX pricing this Rich inventory outlook described book earlier. pulp week that non-cash

August. we to we be inventory the the the decision As a pulp will backlog its by logistical at the end optimistic This temporary of created but were curtailment is not by we're issues Columbia result British forced clear made Celgar mill take XX-day curtailment. the and this our during recent lightly, a full month run able of Strike, to a of mill Port

Notwithstanding notably rates. pressure the seeing are container on freight port pricing strike, decreasing we costs, most

we around reduce planned expect we by of taken our land CapEx roughly as uncertain As conditions, $XXX now million to have at the year. for result a proactive to actions XX% market full

our the At have reducing focused quarter the the year and inventories on over cost-cutting discretionary aggressively the measures same to continue spending cuts enforce time, company. of second we will and across

maintenance quarter, Our very downtime negatively to in quarter. well mills relatively plant production impacted the some although first ran the

fiber In modest addition, a decline chemical and saw in we both costs.

and Stendal roughly will maintenance days a XXXX of have for have Our in mill XX-day remaining XX,XXX three, a down being schedule tons in a QX tons. about day or QX, includes Rosenthal shut three shut, short total. XX,XXX production in maintenance Stendal XX reducing production by major will annual

results but markets, Our on reflected U.S. both compared second mixed lumber average, up European were QX. and markets to slightly quarter the

XX% interest June U.S. they high benchmark the the starts, with prices recovering weigh SPF of positive corrected housing rates value have to over While lost last two have witnessed early slightly lumber in although we weeks. on since of continued partial recovery prices through a about mid-July

market to the homeowners, pressure of believe put recent curtailments, mid-term. stock, sawmill channel homeowner that forest constructive of will continue low number demographics the fires, in on fundamentals large relatively We and lumber low housing this the Canadian inventories positive supply-demand

of lumber customers mix products conditions. to current and will to We match continue our market

our demand As the markets strong. QX, towards slightly progress U.S. heating The volumes and weighted relative shipping continues for well, the of pellets sales to to although European in weak. are markets. Prices pallet growing such, lumber remain Torgau were more integration

Once shows prices by production levels, return also increased asset only shareholder we normal pallets, but to business not to for this conditions strong backed value, expect significant by lumber recovery, deliver the signs pallet capabilities. European improved to allowing economy of

timber Structurlam. integration North We have this reported, to to on gives footprint assets access added larger to of is pleased we We're and ongoing. its geographic much closed As recently have roughly market. of the American competitive of capacity our mass mass which a XX% American North us very acquisition previously now portfolio. the production business entire have timber we The

say addition the coming average. interest month's inquiries to the the this Included assets, noticeable have over we Since escalation the months. previous Structurlam in we of mass inquiries customer a seen of some doubling will about are our and these in offerings more projects, timber have marquee with in

Moving our inventory decrease we while for strong on fiber we pulpwood, prices for mills. saw remains overall. In Canadian demand worked Germany, to in QX high-cost through

of ahead, chips. costs in Similarly, at Looking costs from expect we're QX. our impact negative signs we we though fiber at for the our could pulpwood modest in seeing demand Canadian early fiber which modestly decline increased mills energy the mills, market, are further declines expecting our German to

is advanced which We're fuel-based plant, During we the pilot commissioned commercialization begin new to to a product, as large being of quarter, the fuel. step excited lignin. in battery this such our adhesives future towards and a about sustainable to extraction fossil name elements only a lignin able of prospects products, alternative

perfectly a circular This with with which aligns that products carbon economy. into involves and compatible our expanding green are strategy, chemicals

Products products. demand be significant packaging. fuel As steel an increasingly to potential displacing very products wood important potential the we fossil the reducing and timber, are world becomes like plastic more lignin, sensitive for that Furthermore, for construction and products pulp concrete to for believe and industry. substitutes role that like has energy, in lumber, intensive the the emissions, transformative play all is mass products carbon or to green sustainable carbon will

carbon XXXX the our targets form our climate part to committed and We're solution. of change reduction products believe

believe on of the its mass will reduce bullish to our will in time. the time, dramatically grow quickly fullness world over more as low-carbon for business, We demand and for lumber, balance value products timber pulp, looks In of that remain carbon more the but bring fact, to emissions. long-term solutions we increase to

laser-focused to reduction be forward the CapEx, on while continuous of QX, closing, prices. low pulp cost, capital of looking and In this we working period we navigate will

will work continue and of our in to line prudently. we'll strategic cash We also on our manage plan, execution and assets liquidity rebalancing with the our

call the questions. back listening, for the Thank operator and for now to I turn Thanks will you.

Instructions]. [Operator

of first Our Sean from Stewart TD of the comes line question Securities.

Thank Couple morning. questions. you. Good of

Is start specific taking this Let's And in little to right us the CapEx. assumption? driver detail of you a to or with decision. as, are flexibility delaying? on the think give What the that's we more forgoing right Can main the the are budget? measures preserve sheet, reduction projects about liquidity, balance you this to that

So, that's second correct. to question, answer your

MOB taking guess sort are to trying level. of be thinking with We our our to are And are we we sort just conservative about cash. is, the back I an CapEx of way

some XXXX. deferred later being of had scheduled strategic So, the initiatives that hopefully, a are we now year, to

of specific taking And are you out that projects budget? any

to of Our were last year. initiatives a do going there we timber, this we had couple

feed So, we at the defer around are plant. the the get that is going wooden of -- those, at changed the to start the beginning

out woodyard going hurt to work the and are to were projects, for are with excited of another as are installation but ones that Some a the year. Those going those work about we well to those most defer the we where planer. actually

Sean, thing, the to only and coming that, still obviously of push a we those, that Structurlam fact in The about to it in, relates continue that the us strong considerations had one delay with as Spokane the the was, of one obviously that growing. gives

growth such. of delays it just So, continuing further necessarily. growth, it doesn't hinder doesn't from us path but the hurt as It

when at we the So those that had considerations looked we things. kind are those of

then that. us expect relative on EBITDA in is region? previous have can indication other want products, that, this for gap you following looks to pallet And this The pricing more some European Can expectation. the to And segment, still year. losses these are of you CLT positive Wood business give to how lost that at Torgau? any confirm then which Products concentrated issue, broadly the was you sense ground that's is Thanks a the take competitors a with it the And you And speaking like volume, just I bridge with your measures really comps. saw encouraging. Okay. contribute I that to

first the it your by we business. comes the question, in When to will mass of understanding we the still be end that, by yes, positive year stand Absolutely. timber

pretty that business So is growing well.

up. interest since order And just an rally have amount Structurlam We the book acquired of has incredibly has we to that continued increased.

something what here. working have I'm pretty we pretty, saying It's, it's I well. So, -- guess,

down, Yes, prices significant even significantly come were right. the improving pallets all. not But, lumber basically the Now probably is largest weak, down look a as see dragging far are we're of producer Nothing pallets is And Torgau, you where business, were to in Europe. from QX. have the The were lumber year. versus results going yes, single as what's that you they in factor We And at whole the dragging is dramatic pallet that QX. still prices yes, it's last though prices strong, they be this most when down.

price creates still are volumes a being hit. it Our holding, but with down, obviously

to Sean, that. maybe just add I

the that's we acquired we haven't been as low, able have the So, the well. achieve equation been of synergies were so we to targeting when first Torgau, markets part just so because

million So, there's XX synergies at we're still targeting. that least of

very helpful. that’s Okay,

back be the will queue. in Now

Our Matthew RBC. next question of line the from of McKellar comes

guys. morning. Hi, Good

production the at market find just wondering, reduce to whether percentage And Europe, wonder normal question, need what last plan pricing, talk more pallets to you what you're about kind for that on all building pallet I Just to improvement largest in balance? would a maybe you then pricing. to if in of if in you the return of you see terms producer levels consider could help

just one, XX% or Well, pricing maybe Matthew terms XX%. of the probably about in

today. talking they're $XX that's we're to second breakeven So, about of be go your need level. or unit, missed about to I'm where And I They up then, a sorry, $XX question. to sort probably $XX trading a

Yes.

a we pallets around yes, roughly maybe we're volume, we've the shorter million. volume, and from producing that, curtailed XX of produce because bit normally a could little On million XX

more prices amount the we supply hold yes, as at So, way market level. to try in measures reduce to taking are a the reasonable a to of

part strategy. consistent and of with our so plan there, lumber production our to is that increase And that's pallet reduce production

for are over you that for term? year and contribution what two? business short you about the probably that bit and the more or your feed, have for think might about, maybe or strategically just Thanks, helpful. the know then to kind I and does medium of can Great. Structurlam plans business in what over around business for acquisition Spokane, that I you expectations wood extent talked you can, talk trajectory the And the next a that’s was what in then that capital revenue and you over

Absolutely. we us American Well, important foremost market, us, the participate offering. opportunity to of growth what Structurlam able opportunity us. which market it And know obviously is add for be the gives first Southeast and to also very a is to it the glulam our to gives

So, we had and Spokane, plus more already glulam. cross-laminated cross in we're laminated timber now adding timber

view. from So, coverage what our geographic a that portfolio point in the is play of is essence and

Now, are Yellow on we also able Spokane. top only we as were working not out now Pine that, to SPF being of before of but work Southern

of have also Southeast used, different commonly the the mix a in types we or materials it's Northwest. are of raw whether So, that

So, to and needs customers serve that desires on very played are. our depending we're out And well. able their has what

we One around Spokane of that up was had in capacity. investment glulam adding the exactly lined projects

We have acquired now we and deferred are able run glulam very obviously efficiently. some because in Conway to of Arkansas of those out investments we have

of a things little and good how that out, play a we such is much the was one why, so of it thought that's we this play. wanted and reasons bit So,

what because to to Glulam cases, we because buying offer high participating inquiries. but able receive would were it the immediately being in out on because when most that us at to the both and start our a we market, only obviously a discount, of customers, Not market CLT bankruptcy, very, already he allow demands that's at obviously of

of beyond $XXX in this in we business growth, quickly Now very see million terms revenue. growing

obviously mass then time. timber. profitability as positive bigger point right a that If way. small very now, are view. a in in period into profitability now very increases a short That's So, very already the getting about of numbers, aiming significant we being And for of from we're that's obviously

to over your me. last term mill, Do And one impacts from near-term or the the River Alberta? any Peace either then wildfires in you longer from expect

a of terms our losses of In we FMA, own major suffer didn't consequence as that.

impact the the is So, direct negligible. impact,

say was obviously tremendous there region amount and impacts a and other is softwood, I of what can businesses region. Now though in the that sawmills in losses around the

at We the in are River. increasing Peace capabilities time, softwood our same

we're So, than we running do. more normally softwood

Obviously, these drive do. that are able softwood hinders more more to like benefit to crunch ability run. softwood adding softwood campaigns of affected the which do of as to been campaigns or two region, the a and when fires softwood, situations our we in combined that, us long create would that despite bit higher a we But there's being we're longer

a River, make with shy of which still struggle softwood though most. at We is profit hardwood. we're at from decent the breakeven hardwood, we in in we already Peace and the obviously prices away Even where current hardwood

So, going to hardwood on up Peace the will and believe it's, hardwood get back we forward River. with slowly picking in China, we that prices in plaque

to much. will very helpful me. thanks, Okay it turn That’s I back.

[Operator Instructions].

Our comes Jefferies. Hathorn Cole question line next of the from of

just put I'd costs happening pulpwood Morning. could reference a for on German pulpwood I just my seeing been have in mills. Nordic question. in in higher of Thanks, like with that mean, the particularly for kind the of they're what's you bit Europe, longer. Nordics? your in up And around little color to probably going the to taking higher what cost of and you're and be fiber

you're the color Thank Nordic some some of seeing have to, just relate and that then what you. of kind tier a, there? in advantage an you versus cost around improved do Germany, So,

suffering and obviously, have listening the very And Absolutely, in out impact are important, by they that, the has closures those of the you we whatnot. with the in equation, obviously of Thank of seen from fact to news costs Yes, fiber Cole. Russia the up, point being mill Nordics, that significantly. of escalated Finland their you. the bring

is different. our Now, when situation the mills, German quite to it comes

this. is wood that We harvest on coming developing made carry There of that a the increased is infestations. additional We already have will see these quarters. significant very currently as for beetle in an is And being increased this of a beetle a in increase available actually most likely consequence as infestation of Germany. result

think, of in it's the So, next some of sustained start year. that. seeing for thing. going already And to will the be rest we QX, same we QX

pulp a same come for thing year. level, prices we to of So, in at this log Germany, XXXX, part later expect and the in significant already down beginning

puts for us other So, beetle favorable the infestation back which Germany, very favorable, is versus of geographies. prognosis the us at in advantage the an on

point. reducing And of wood helpful, materials processing then from I a needs cost. that there following any the maybe raw that of the From sawmill or pulp imagine perspective, not really? kind it's about side, just be up your for But is wood to beetle-infected kind cost thought on further

it's same the of as No. positive, it's if direct. even fact, And equally not or No. matter more, a because so, a

sawmill to one -- first follow. is be the The blogs benefit will

be the benefit it would [Indiscernible] first So, Torgau directly. and

timber XXXX. lower excuse for So, much both saw in logs, saw already QX meals will enjoy, for prices me, and and in

here? And has significant I of then and scale on from timber so, timber you store understand to business. mass allow ability your your out, better I called to one in right advantage your quite the across if in, competitors going bigger laminated Could I projects. sites Am commerciality forward? gives me supply you always multiple the assuming reliability a that, mean,

a do see commercial from interest your from customers? greater expect to So, you perspective,

volume or and we kind kind that and pricing And pricing traditional as number related you. that from perspective? business stable commerciality, profitability timber assumption of a mass can't more about Thank should of really being make versus to think a we

at Cole. you this not business. When timber, mass Absolutely, Absolutely. is look a commodity

basis we in very being dynamic than on where pulp of see construction So, or These tailor-made the dynamics lumber. concrete are very this products for placing at a The has very margins the are what different. part industry, different. customers. we them obviously, steel. same a from in are look we And project-on-project different Despite

we under different. business very again, evaluate at this it it's parameters and the look So, are which

to of bid American may cost us XX% North projects a edge. competitive more since gives not we across allows us able install Europe gives It and products to advantage compete that North us that developing. that fact ocean. North for America have the just an is capacity The to have that with work have America that situation We're taken of capacity already is also bringing to from the support Europeans that and the fact with in the

So, modern that Spokane is far very The facility North Conway facility that the an with in facilities from at away us advantage probably America where was. yes, not Spokane, puts modern we very have. most and

having So, good and highly to in just geographic yes, facilities, the a competitive, tool dispersed have. tremendous a is properly fashion

Thank you.

you. Thank

Our next the from question Baldoni comes CJ Principal. of line of

thanks for question. Hi, taking my

last on Could up your timeframe? talk about the what you and of answer. profile kind Following margin the what you question of and the over and business expect might

can One disclose forth? say on the full, don't specific so say running the up things can already and for look We can products. the it that months. been I CJ ramp is have running full we plan. How we last that margin one already was it's that couple fill up a plant can working of the our of when though we for thing is, Spokane, how I precisely at been you

order full the that that we're what significant. the we and projects have, have which sign of year going with hand, contracts easily end to the already book for, ramp with is we quite about And is the with to through that off sign plant in

through And Conway we in be the year. will our Conway as That next least we process. have order of go advantage half twice full running, of because probably much at book. It's through be already plant ramping up obviously takes it as at as what will

in now and the good ramping drive us running cost line. Conway right obviously situation a and Spokane in we that puts full, running up, having that full on results perspective, shift in sure from one bottom make to good So, a

By cash-positive And the obviously, for it's That's a EBITDA. say why still that small we to today. of be profitable going already prospects good very the end year. very, its despite year, coming business of the are or being the

on business? to Are concessions kind use of scale Okay. of it and price you you your to price? up do Or without can grow kind having making

Structurlam we went matter No, cost projects subject. they fact, quite picked or particular When those working be our the bid and of opposite. to what position to little as We that and for. able obviously we altogether. the looked just projects bit should at, been a up they at at illustrate things And on up for end a on that we those of and it's for had canceled bid were because looking to rebid we some

what all came than our of bid And for initially. bids and had structural much higher them

them their initially. fact the from scratch, not going bankrupt, conversations the what had through that the by those for started a was with bankruptcy land for a were, had secured things to the project some So, and coming because to went that is new that been surprise had of obviously obviously their everything projects much already of fact Sif thought been that only they higher a had we they the those supply been before structural since on that picked when had out and owner but anything put that than halted price ran up had, we money they stop

make strict contrary. pretty at just the apply anything, are So, in expect if to what to not give for willing we demands we the not and much ourselves of profitability, into business, for very all, through products terms concessions

those, no despite or worse a that position better? was even rebid you cost And having

to contracts And for signing in of vast all we're majority the process and of Correct. those. executing Yes.

businesses lastly, could the talk moving the given And and you little then different a back CLT? the of working your in the ramp-up year about parts capital of half bit over all

to continue or working further fiber of all year. exercise aiming at efforts bring pulp. inventories Yes, bring down least we continue capital reductions for absolutely. remainder $XX We're million sure the capital, significantly of On measures austerity the through those and that to either make to working we in

across a businesses. it's focus that's yes, big area all us So, of and for

question. my clearing for you thank Great

CJ. Thanks,

conference for Thank closing you. remarks. I would to Juan now like to Bueno the back Carlos Sir? turn

call at so, look for our Okay. and call in Bye of next Latif. speaking time, I any to again for we Thank now. don't are earnings you any to thanks available one to on talk Otherwise, our you all more you, November. hesitate to call. And us. joining Rich forward to

for conference today's you call. concludes This participating. Thank

disconnect. You may now