Mercer International Q1 Earnings Call Highlights

Key Points

• Mercer reported Q1 operating EBITDA of about $8 million but a consolidated net loss of $52 million (including a $22 million non‑cash inventory impairment); aggregate liquidity fell to about $229 million and the company obtained a waiver after missing the leverage covenant on its German revolver.
• The pulp segment generated roughly $7 million of quarterly EBITDA while solid wood was about $6 million negative, with rising fiber costs and weak pulp/lumber markets the main near‑term headwinds even as management expects fiber costs to stabilize in Q2.
• Mercer has realized about $41 million of savings under its One Goal One Hundred program (targeting $100 million by end‑2026) and is ramping its mass timber business—revenues rose >60% sequentially with a backlog of roughly $171 million—while pursuing a strategic review and maintaining 2026 CapEx guidance of $60–80 million.

Mercer International NASDAQ: MERC reported first-quarter 2026 operating EBITDA of about $8 million, an improvement of $28 million from the fourth quarter, as reduced planned maintenance downtime and savings tied to the company’s One Goal One Hundred program helped offset weak pulp and lumber markets and higher fiber costs, particularly in Germany and Canada.

Chief Financial Officer Richard Short said the quarter also included a $22 million non-cash inventory impairment charge, driven primarily by low pulp prices and high fiber costs. Mercer posted a consolidated net loss of $52 million, or $0.78 per share, including the impairment of $0.33 per share. In the prior quarter, the company reported a net loss of $309 million, or $4.61 per share, which included roughly $239 million of non-cash, long-lived asset and inventory impairments.

Credit facility waiver and liquidity changes

Short said Mercer did not meet the leverage ratio covenant under its German revolving credit facility at the end of the first quarter due to “the high costs and weak markets for our products.” The company obtained a waiver from lenders covering the current quarter and the subsequent two quarters and expects to return to compliance by the fourth quarter based on its forecast assumptions.

Short added that the outstanding balance on the German revolving credit facility remains classified as non-current as of March 31, 2026. Aggregate liquidity fell by $201 million to about $229 million, consisting of $85 million in cash and $144 million of undrawn revolvers. He attributed the decline primarily to a temporary EUR 70 million reduction in the availability of the German revolver tied to the waiver, as well as higher working capital from seasonal fiber inventory, scheduled senior note interest payments, and higher receivables related to sales timing. Management expects a “modest reduction” in working capital in the second quarter.

During the quarter, Mercer launched a consent solicitation with bondholders “to provide flexibility with regards to the types of financing transactions the company may be able to engage in,” and it received approval from more than 80% of bondholders. Short said the company did not have a specific amendment or transaction in mind and had not engaged any bondholder or ad hoc groups.

Segment performance: pulp positive, solid wood negative

Mercer’s pulp segment generated quarterly EBITDA of $7 million, while the solid wood segment posted negative quarterly EBITDA of approximately $6 million, according to Short.

In pulp, softwood sales realizations dipped slightly to $696 per ton from $702 per ton in the fourth quarter. Short said the European NBSK list price averaged $1,618 per ton, up $120 from the fourth quarter, though the benefit was “offset by a higher discount rate.” In China, the NBSK net price increased to $685 per ton, up $14, while North American NBSK list prices averaged $1,563 per ton, flat sequentially.

Hardwood markets improved in China and North America, Short said, supported by stronger demand and higher domestic fiber costs in China. Mercer’s hardwood sales realizations rose to $564 per ton from $528 per ton. The average net price for eucalyptus hardwood pulp in China was $595 per ton, up $55, and the North American average list price was $1,338 per ton, up $140.

The quarter’s $22 million inventory impairment was “primarily driven by low pulp prices and high fiber costs,” with approximately $17 million attributed to softwood inventories and the remainder to hardwood inventories.

Pulp sales volumes were flat sequentially at about 471,000 tons and production was about 466,000 tons. Short noted the company reduced production at its German mills due to fiber supply limitations, and Chief Executive Officer Juan Carlos Bueno later said Mercer “strategically curtailed roughly 20,000 tonnes at our German mills due to fiber constraints.” There were no planned maintenance days in the first quarter, compared with 21 days at the Stendal mill in the fourth quarter, and Mercer also does not expect planned maintenance downtime in the second quarter.

In solid wood, Short said lumber sales realizations were flat in both the U.S. and Europe as weak demand was offset by reduced supply. The Random Lengths U.S. benchmark price for Western SPF No. 2 and better averaged $463 per thousand board feet in the first quarter, up $41 from the fourth quarter, and was around $483 per thousand board feet at the time of the call. Lumber production rose about 7% to 160 million board feet, while lumber sales volumes increased 9% to 112 million board feet.

Electricity sales totaled 217 GWh, up about 16 GWh from the fourth quarter due to the Stendal shutdown in the prior period, with pricing increasing to about $127 per MWh from $105 due to higher German spot prices.

Fiber costs, trade uncertainty, and near-term cost headwinds

Management repeatedly highlighted fiber costs as a major challenge. Short said fiber costs increased in both segments due primarily to higher costs in Germany tied to supply constraints and demand, including seasonal demand from the biofuel industry. For the second quarter, he expects stable fiber costs in Germany and Canada, with improved availability offsetting continued strong demand.

Bueno described European fiber supply as “frustrating,” saying some mills had to slow due to “insufficient or too expensive fiber supply.” He said Mercer expects fiber costs to stabilize in the second quarter, helped by “modestly improved availability of fiber in Germany, along with increased chip volumes from U.S. sources for our Celgar mill.”

Bueno also pointed to late-quarter increases in energy-related costs, including fuel surcharges and inflationary impacts on chemicals. While the effect was minimal in the first quarter, he expects the increases to be more meaningful in the second quarter, estimating $5 to $10 per ton of pulp in freight costs and about $5 per ton for chemicals.

On trade, Bueno said the only direct tariff the company is facing is a 10% tariff on European lumber imports into the U.S. He contrasted that with Canadian exports to the U.S., which he said would face an average combined tariff and duty rate of about 35%, contributing to curtailment announcements in Canada and pressuring fiber costs due to reduced residual chip supply. He said Mercer’s Celgar mill is “well-positioned” given access to U.S. fiber and the ability to harvest and process whole logs, while noting some inflation in fiber costs with “some relief” beginning in the second quarter. He added that Mercer’s imports of wood chips from the U.S. represent about 45% of Celgar’s fiber consumption, which he called a competitive advantage.

Cost-savings program and mass timber momentum

Short said Mercer has realized approximately $41 million in cost savings and reliability improvements under One Goal One Hundred and remains on track to achieve $100 million in improvements by the end of 2026 using 2024 as a baseline. Bueno said the program produced about $30 million of results in 2025 and another $11 million in the first quarter of 2026.

In mass timber, Short said revenues were “significantly higher” sequentially due to a growing order book, and he expects the order book to provide stable production through 2026 and into 2027. Bueno said mass timber revenues were up more than 60% versus the fourth quarter and production rose over 20% as the company begins ramping to a second shift, though both were below expectations due to roughly a week of unplanned downtime at the Spokane facility following a mechanical failure. He said the quarter also reflected ramp-up costs tied to hiring and training, and he expects production and sales to increase “significantly” in the second quarter.

Bueno said Mercer’s mass timber backlog stands at about $171 million, with large data center projects sponsored by hyperscalers representing roughly 60% of the backlog. He added that, structurally, the business benefits from down payments when contracts are signed, creating a more favorable cash cycle than Mercer’s other businesses.

Strategic review and spending outlook

Looking forward, Bueno said Mercer is evaluating strategic alternatives and financing options to improve liquidity and position the company for a market recovery, with the board appointing a special committee to oversee management’s efforts. In response to analyst questions, he said it was “too premature” to categorize assets as core or non-core and reiterated that asset sales are difficult in current conditions because valuations are “very impacted” by the market environment.

On capital spending, Bueno said the company plans 2026 CapEx of about $60 million to $80 million focused on maintenance, environmental, and safety projects, reflecting a priority on liquidity amid continued market weakness expected through 2026. He also reiterated Mercer’s longer-term strategy of transforming pulp mills into biorefineries to add revenue streams and increase resilience during pulp down cycles.

About Mercer International NASDAQ: MERC

Mercer International Inc is a publicly traded pulp producer headquartered in Vancouver, British Columbia. Listed on the NASDAQ under the symbol MERC, the company specializes in the manufacture of Northern Bleached Softwood Kraft (NBSK) pulp and dissolving pulp for use in tissue, specialty paper and textile applications.

Mercer's core business activities include the operation of integrated pulp mills in North America and Europe. Its production portfolio encompasses NBSK pulp, renowned for its strength and versatility, and dissolving pulp, which serves as a key raw material in the manufacture of viscose, cellulose acetate and other specialty products.

The company's facilities are located in British Columbia and the U.S.

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