Mercer International, Inc. Q1 FY2025 earnings call

• Financial highlights: Q1 EBITDA was $47 million, lower than Q4's $99 million due to planned maintenance downtime at Selgar mill. Pulp segment EBITDA was CAD50 million, Solid Wood segment essentially broke even.
• Market prices: MBSK published prices mostly increased in key markets, but sales realizations were flat due to lag. European MBSK list price averaged $1,550 per ton, up $50 from Q4; North American MBSK VUS price averaged $1,753 per ton, up $66 from Q4; China MBSK net price was $793 per ton, up $26 from Q4.
• Production volumes: Pulp sales volumes increased by 26,000 tons in Q1. Lumber production was near record in Q1.
• Maintenance downtime: Q1 had 22 days of planned downtime at Selgar mill, negatively impacting EBITDA. 2025 maintenance schedule includes planned shutdowns at various mills.
• Tariff impacts: Products not currently subject to tariffs, but under Section 232 review. Mitigation plans in place.
• Cost savings: Company-wide program targets $100 million cost savings by end of 2026 vs 2024, with $20 million inventory reduction and $20 million CapEx reduction in 2025.
• Market outlooks: Softwood pricing expected to remain strong; hardwood pricing varied by region. Lumber market had positive momentum but affected by economic uncertainty. Mass timber business had inbound project inquiries but delayed construction due to economy and trade war.

The Pulp segment contributed quarterly EBITDA of CAD50 million in Q1. The Solid Wood segment EBITDA essentially broke even. Pulp sales volumes in the first quarter increased by 26,000 tons to 478,000 tons. Lumber production in Q1 was a near record 128 million board feet, up 12% from Q4. Electricity sales totaled 235 gigawatt hours in the quarter, similar to Q4.

• Target $100 million cost savings by end of 2026 vs 2024.
• Target $20 million inventory reduction and $20 million CapEx reduction in 2025.
• 2025 maintenance schedule includes planned shutdowns at multiple mills.
• Expect Q2 to have modest fiber cost inflation and lower energy sales prices.
• Believes softwood pulp market outlook is positive with supply constraints supporting prices.

• Trade policy uncertainties, including Section 232 review and potential tariffs, impacting market dynamics and competitiveness.
• Global economic uncertainty affecting buying patterns and pricing in some markets.
• Fiber cost inflation, particularly in Germany for sawmills.
• Energy sales price declines in Q2.
• Maintenance shutdowns negatively impacting EBITDA in Q1 and affecting production schedules.

Q: Could you elaborate on secondary effects of tariffs mentioned?

A: Secondary effects include weakening of the U.S. dollar, impact on cost basis and cash balances, and slowdown in China buying leading to pressure on prices.

Q: Any perspective on first quarter price increases impacting second quarter realizations?

A: Q2 is expected to be positive on prices for both pulp and lumber compared to Q1 due to lag in market realization and ongoing price trends.

Q: Specific context on cost savings objectives of $100 million by end of 2026?

A: Company-wide program with emphasis on assets in weaker cash positions, looking at manning, logistic costs, etc. Expect $40-50 million in 2025 with balance in 2026.

Q: Impact of Section 232 tariffs on lumber markets and mitigation options?

A: Canadian lumber will be less competitive due to countervailing tariffs, favoring German lumber. Torgau is producing plain lumber for U.S. market as a mitigation.

Q: Perspective on softwood to hardwood substitution limitations?

A: Substitution is limited as most customers have already pushed their furnaces to the limit in end markets like specialties and tissue.

Q: EBITDA impact of 2024 pulp mill turnarounds and days of turnaround impact?

A: 2024 total EBITDA impact was about $80 million, rule of thumb is ~$1.5 million per day.

Q: Change in order patterns from pulp customers?

A: No significant impact seen in Europe or North America so far; only opportunity for Canadian pulp into U.S. due to tariff effects.