Mercer International reports third quarter

November 4, 2019

By: The Working Forest Staff

NEW YORK, GLOBE NEWSWIRE — Mercer International Inc. has reported third-quarter 2019 Operating EBITDA decreased to $50.8 million from $86.7 million in the third quarter of 2018 and from $70.0 million in the second quarter of 2019. In the third quarter of 2019, net income was $1.2 million, or $0.02 per share, compared to $41.2 million, or $0.63 per share, in the third quarter of 2018 and $10.3 million, or $0.16 per share in the second quarter of 2019. 

In the first nine months of 2019, Operating EBITDA modestly declined to $244.6 million from $246.5 million in the same period of 2018. In the first nine months of 2019, net income was $63.1 million compared to $83.6 million in the same period of 2018.

Mr. David M. Gandossi, the chief executive officer, stated: “Our third-quarter results reflect continuing weakness in the pulp markets. High producer inventories, particularly of hardwood pulp, resulted in pricing pressure through most of the third quarter. However, late in the quarter, we saw softwood producer inventories begin to fall and demand began to increase in China. We have announced an NBSK price increase of $10 per tonne for October in China.

Our mills ran well this quarter as we head into a heavy maintenance quarter in the fourth quarter, where three of our pulp mills will have annual maintenance shutdowns.”

In the third quarter of 2019, our operating EBITDA decreased to $50.8 million from $70.0 million in the second quarter of 2019, and from $86.7 million in the same quarter of 2018. The decrease in the current quarter compared to the prior quarter is primarily due to lower pulp sales realizations only partially being offset by lower per unit fiber costs and the positive impact of a stronger dollar compared to the euro on the dollar-denominated cash and receivables held at the German mills. Compared to the same quarter of 2018 lower pulp and lumber sales realizations were partially offset by lower per unit fiber costs and higher sales volumes. 

In the third quarter of 2019 pulp segment operating income decreased to $21.4 million from $68.8 million in the same quarter of 2018. The decrease was primarily due to lower pulp sales realizations partially offset by higher sales volumes and lower per-unit fiber costs. In the current quarter of 2019, the NBSK pulp realized sales price decreased by approximately 29% to $609 per ADMT from $852 per ADMT in the same quarter of the prior year due to high producer inventory levels. NBSK sales volumes increased by approximately 41% to 451,171 ADMTs in the current quarter from 319,850 ADMTs in the same quarter of 2018 due to the inclusion of Mercer Peace River Pulp Ltd. (“MPR”) and strong sales volumes to China.

As a result of a decline in pulp sales realizations in the current quarter of 2019, we recorded a write-down of our inventory carrying values at our Canadian mills of $6.9 million.

In the current quarter of 2019, we received German regulatory approval to reverse a wastewater fee accrual of $7.2 million as a result of certain capital projects.

Per unit fiber costs decreased in the current quarter by approximately 14% from the same quarter of 2018 due to lower per-unit fiber costs for our German mills and the positive impact of a stronger dollar on our euro and Canadian dollar-denominated fiber costs. In Germany, fiber costs benefitted from the continuing availability of beetle damaged wood.  Fiber costs in Canada remained at high levels due to strong fiber demand in Celgar’s fiber procurement basket.

In the third quarter of 2019, our operating EBITDA decreased to $50.8 million from $70.0 million in the second quarter of 2019, and from $86.7 million in the same quarter of 2018. The decrease in the current quarter compared to the prior quarter is primarily due to lower pulp sales realizations only partially being offset by lower per unit fiber costs and the positive impact of a stronger dollar compared to the euro on the dollar-denominated cash and receivables held at the German mills. Compared to the same quarter of 2018 lower pulp and lumber sales realizations were partially offset by lower per unit fiber costs and higher sales volumes.     

In the third quarter of 2019 pulp segment operating income decreased to $21.4 million from $68.8 million in the same quarter of 2018. The decrease was primarily due to lower pulp sales realizations partially offset by higher sales volumes and lower per-unit fiber costs. In the current quarter of 2019, the NBSK pulp realized sales price decreased by approximately 29% to $609 per ADMT from $852 per ADMT in the same quarter of the prior year due to high producer inventory levels. NBSK sales volumes increased by approximately 41% to 451,171 ADMTs in the current quarter from 319,850 ADMTs in the same quarter of 2018 due to the inclusion of Mercer Peace River Pulp Ltd. (“MPR”) and strong sales volumes to China.

As a result of a decline in pulp sales realizations in the current quarter of 2019, we recorded a write-down of our inventory carrying values at our Canadian mills of $6.9 million.

In the current quarter of 2019, we received German regulatory approval to reverse a wastewater fee accrual of $7.2 million as a result of certain capital projects.

Per unit fiber costs decreased in the current quarter by approximately 14% from the same quarter of 2018 due to lower per-unit fiber costs for our German mills and the positive impact of a stronger dollar on our euro and Canadian dollar-denominated fiber costs. In Germany, fiber costs benefitted from the continuing availability of beetle damaged wood.  Fiber costs in Canada remained at high levels due to strong fiber demand in Celgar’s fiber procurement basket.

In the third quarter of 2019 wood products segment operating income increased to $0.5 million compared to an operating loss of $1.8 million in the same quarter of 2018. The increase was primarily due to lower per unit fiber costs partially offset by lower lumber sales realizations. In the current quarter per unit fiber costs decreased by approximately 34% from the same quarter of 2018 primarily as a result of the availability of beetle damaged wood. Average lumber sales realizations decreased by approximately 18% to $337 per Mfbm in the third quarter of 2019 from approximately $409 per Mfbm in the same quarter of 2018 primarily due to lower pricing in both the U.S. and Europe. U.S lumber pricing declined as a result of high producer inventory levels. European lumber pricing declined due to an increase in the supply of lumber processed from beetle damaged wood which generally obtains lower prices.

Consolidated –Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018

Total revenues for the nine months ended September 30, 2019, increased by approximately 24% to $1,293.2 million from $1,045.5 million in the nine months ended September 30, 2018, primarily due to the inclusion of the results of MPR and higher pulp and energy sales volumes partially offset by lower sales realizations.

Costs and expenses in the nine months ended September 30, 2019 increased by approximately 32% to $1,143.1 million from $868.6 million in the nine months ended September 30, 2018 primarily due to the inclusion of MPR and higher pulp sales volumes partially offset by lower per unit fiber and maintenance costs and the positive impact of a stronger dollar on our euro-denominated costs and expenses.

For the nine months ended September 30, 2019, our net income decreased to $63.1 million, or $0.96 per share from $83.6 million, or $1.28 per basic and $1.27 per diluted share in the same period of 2018, after giving effect to costs of $28.5 million, or $0.44 per basic and $0.43 per diluted share, for the redemption of our 2022 senior notes in January, 2019 and a legal cost award.

In the nine months ended September 30, 2019, Operating EBITDA modestly declined to $244.6 million from $246.5 million in the same period of 2018 primarily due to lower pulp and lumber sales realizations partially offset by higher pulp and energy sales volumes, lower per unit fiber and maintenance costs, the inclusion of MPR and the positive impact of a stronger dollar on our euro-denominated costs and expenses.

Outlook
We currently expect NBSK pulp markets to stabilize in the later part of the year due to lower producer inventories as a result of producer downtime along with steady demand. We currently expect lumber pricing to also stabilize in the later part of the year due to sawmill curtailments in Canada and steady U.S. and European demand.

In the fourth quarter of 2019, we have three of our pulp mills down for scheduled maintenance downtime totaling 53 days or approximately 83,000 ADMTs.

Quarterly Dividend
A quarterly dividend of $0.1375 per share will be paid on December 19, 2019, to all shareholders of record on December 12, 2019. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

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