Mercer (MERC) Q3 2026 Earnings Call Transcript

DATE

Friday, Nov. 6, 2026

CALL PARTICIPANTS

• President and Chief Executive Officer – Juan Carlos Bueno
• Chief Financial Officer and Secretary – Richard George Short

TAKEAWAYS

• Operating EBITDA — Negative $2.9 million, representing an improvement from negative $21.0 million in the previous quarter due to lower non-cash inventory impairments and government grants.
• Net Loss — $59.2 million or $0.88 per share, which includes an $8.0 million non-cash inventory impairment compared to a $76.0 million net loss in the second quarter.
• Senior Note Reduction — 88% decrease in existing senior note debt, achieved through the exchange of approximately $1.1 billion of senior notes for equity.
• Interest Expense Savings — $96.0 million in annual cash interest requirements to be eliminated following the balance sheet recapitalization.
• New Capital — $400.0 million from a fully backstopped new money rights offering of senior secured notes to support operations post-emergence.
• Liquidity — $143.5 million as of Sept. 30, 2026, comprising $71.0 million in cash and $72.5 million in undrawn revolving credit facilities.
• Maintenance Downtime Impact — $34.1 million negative impact on Operating EBITDA from 44 days of planned downtime in the third quarter.
• Inventory Impairment — $8.0 million, reflecting a reduction from $29.0 million in the second quarter driven by lower forecasted fiber costs at Canadian mills and German sawmills.
• Peace River Grants — $26.5 million in total government support, consisting of $13.0 million in non-repayable grants and $13.5 million in repayable contributions to modernize the mill.
• One Goal One Hundred Savings — $76.0 million achieved to date toward the company target of $100.0 million in annual profitability improvements by the end of 2026.
• Pulp Segment EBITDA — $5.9 million, improving from a negative position in the prior year due to cost reduction initiatives and higher energy sales realizations.
• Solid Wood Segment EBITDA — Negative $7.0 million, reflecting weak demand in Europe and higher per unit fiber and freight costs.
• Pulp Production — 406,519 air-dried metric tonnes, a decrease from 456,708 air-dried metric tonnes in the second quarter due to planned maintenance.
• NBSK Sales Realizations — $671 per air-dried metric tonne, compared to $682 per tonne in the second quarter as global economic headwinds persisted.
• Hardwood Sales Realizations — $601 per air-dried metric tonne, a slight decrease from $607 in the second quarter.
• Lumber Production — 108.6 million board feet, a 12% decrease from the second quarter due to planned maintenance at the Friesau mill.
• Mass Timber Backlog — $151.0 million at quarter end, with data center projects for hyperscalers accounting for 62% of the order book.
• Torgau Headcount Reduction — 400 positions targeted for reduction by the end of the second quarter of 2027, with 63% of the reduction already completed.
• Electricity Sales Price — $155 per megawatt hour, up from $117 in the second quarter primarily due to higher spot prices in Germany.
• Capital Expenditures — $13.3 million invested in the third quarter, with the majority dedicated to maintenance capital.
• Lumber Fiber Costs — 80% of cash production costs, with per unit fiber costs for lumber increasing 15% year over year due to reduced supply and high demand.
• Downtime Production Loss — 71,000 lost tonnes in the third quarter, resulting from planned maintenance and strategic reductions at German pulp mills.

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RISKS

• Short stated, “This disclosure stems from the classification of our Canadian and German revolving credit facilities as current liabilities,” in reference to the going concern disclosure necessitated by the restructuring process.
• Bueno stated, “Our German pulp mills are now in direct competition with pellet producers for pulp fiber,” indicating that government subsidies for wood burning have increased demand and price pressure for feedstock.
• Bueno noted, “Rosenthal mill experienced 24 days of unplanned downtime in October, to problems with the effluent treatment that occurred as they were restarting the mill,” which will negatively impact fourth-quarter production.

SUMMARY

Mercer International Inc. (MERC -5.78%) entered into a restructuring support agreement to equitize $1.1 billion in debt and secure $400 million in new capital through a prepackaged Chapter 11 process. Management reported that the restructuring involves only the parent company and one subsidiary, with all operating mills continuing business as usual. The company is focusing on the One Goal One Hundred program to achieve $100 million in cost savings by the end of 2026. Strategic initiatives include modernizing the Peace River mill with $26.5 million in government support and restructuring the Torgau mill to reach cash-positive operations by mid-2027.

• Management expects softwood pulp prices to modestly increase in the fourth quarter due to global supply constraints and mill closures.
• The mass timber segment is being positioned as a growth engine, specifically targeting large-scale data center infrastructure projects for hyperscalers.
• CEO Bueno stated, “Industry wide downtime helped balance out pulp supply this quarter keeping our pulp sales realization stable despite soft market demand.”
• The company expects to complete the balance sheet recapitalization and emerge from the restructuring process by the end of 2026.
• Management indicated that German fiber costs remain at historically high levels because of competition from the energy sector and reduced sawmilling output limiting residuals.
• The Rosenthal mill restart in October was delayed by 24 days due to effluent treatment issues, requiring a slow ramp-up to ensure environmental compliance.

INDUSTRY GLOSSARY

• ADMT: Air-dried metric tonne, the standard unit of measurement for pulp.
• CLT: Cross-laminated timber, a structural wood product used in construction.
• Fiber Residuals: Wood chips, sawdust, and other wood waste products from sawmilling used as feedstock for pulp and energy production.
• Glulam: Glue-laminated timber, a type of structural engineered wood product.
• Mfbm: One thousand foot board measure, a unit of volume for lumber.
• NBHK: Northern bleached hardwood kraft pulp.
• NBSK: Northern bleached softwood kraft pulp.
• Sawlogs: Logs of sufficient size and quality to be sawn into lumber.

Full Conference Call Transcript

Operator: Good morning, and welcome to Mercer International Third Quarter 26 Earnings Conference Call. On the call today is Juan Carlos Bueno, Mercer’s president and chief executive officer, and Richard George Short, Mercer’s chief financial officer and secretary. I will now hand the call over to Richard.

Richard George Short: Thanks, Lisa. Good morning, everyone. Thanks for joining us today. I will begin by touching on the financial and operating highlights of the third quarter before turning the call to Juan Carlos, provide further color into the markets, our operations, and our strategic initiatives. Also, for those of you that have joined today’s call by telephone, there is presentation material that we attached to the Investors section of our website. Before turning to our results, I would like to remind you that we will make forward-looking statements in this morning’s conference call. According to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 2000.

I would like to call your attention to the risks related to these statements, which are more fully described in our press release and in the company’s filings with the Securities and Exchange Commission. As many of you have already seen, in response to persistent economic uncertainty and challenging market conditions, on November 2, we entered into restructuring support agreement with holders of more than 87% of our senior notes. with the majority of our common shareholders. This agreement will provide Mercer with a significantly stronger balance sheet as approximately $1.1 billion of our senior notes are exchanged for equity.

Reducing existing senior note debt by approximately 88% with minimal cash interest requirements over the next 2 years following this transaction. And no senior note maturities until 2031. In addition, we will have substantial liquidity support our operations post-emergence. As a result of a $400 million new money rights offering of new senior secured notes which will be 100% backstopped by certain members of the ad hoc group. The recapitalization is being implemented through a prepackaged joint Chapter 11 plan of reorganization. I want to be clear to all our stakeholders that only Mercer International, the parent company, and a Texas subsidiary are filing Chapter 11 under this prepackage plan. For all our operating subsidiaries, it is business as usual.

We will meet all customer, supplier, and employee obligations without interruption. In addition, we expect this plan to be confirmed by the court within about 45 days of filing. With the recapitalization completed, by the end of 2026. Additional information on the recapitalization can be found in our 8 k filed on the SEC website on November 2. With the recapitalization requiring court approval, we have kept the going concern disclosure in our third quarter financial statements. This disclosure stems from the classification of our Canadian and German revolving credit facilities as current liabilities. Turning to our third quarter financial results. Our operating EBITDA was negative $3 million, an improvement from negative $21 million in the second quarter.

Our third quarter results included 44 days of planned maintenance downtime, which had a negative EBITDA impact of approximately $34 million compared to no days of planned maintenance downtime in the second quarter. Our improved results were largely due to a lower noncash inventory impairment of $8 million in the third quarter. Down from $29 million in the second quarter. This reduction was driven by modestly lower forecasted fiber costs at our Canadian pulp mills and German sawmills. Along with forecasted improvements in pulp pricing.

Additionally, during the third quarter, our Peace River mill received $13 million in nonrepayable government grants, These grants were designed to support our efforts to implement productivity improvements, in light of ongoing trade tensions and evolving tariff pressures. In the third quarter, our pulp segment reported positive quarterly EBITDA of $6 million and our solid wood segment reported negative quarterly EBITDA of $7 million. Additional segment disclosures are available in our Form 10 Q can be found on our website and that of the SEC. Fault markets continue to be impacted by the ongoing global economic headwinds through the third quarter. As a result, our pulp realizations were essentially flat, in the third quarter compared to the second quarter.

Our softwood pulp sales realizations were $671 per ton in the third quarter compared to $682 per ton in the second quarter. In the third quarter, the MBSK net price in China decreased to $645 per ton, a modest $13 decrease from the second quarter. In Europe, the average MBSK list price was $1.63 thousand per ton, A $30 decrease from the second quarter. And North America, the average price was $1.57 thousand per ton or a $7 decrease. Our hardwood pulp sales realizations were $601 per ton in the third quarter, Compared to $607 per ton in the second quarter.

In the third quarter, the average price gap in China between softwood and hardwood pulp increased to approximately $73 per ton. The average net price for eucalyptus hardwood pulp in China in the third quarter was $572 per ton down $30 from the second quarter. In North America, average hardwood list price was $1.53 thousand per ton, up $40 per ton from the second quarter. Third quarter production decreased to about 407 thousand tons from 456 thousand tons in the second quarter. After adjusting for planned maintenance downtime, third quarter pulp production was about the same as in the second quarter.

Pulp sales volumes in the third quarter decreased to about 421 thousand tons from 450 thousand tons in the second quarter. Reflecting the lower production. For our solid wood segment, lumber sales realizations modestly increased in the third quarter to improve prices in the US as improved prices in the US were driven by low customer inventory levels and reduced supply resulting from sawmill curtailments. In Europe, demand remained weak, but prices were stable due to reduced supply. The Random Lengths US benchmark price for Western SPF No. 2 and better averaged $487 per thousand board feet in the third quarter, which is about the same as the second quarter. Today, the benchmark price for Western SPF No.

2 and better is around $439 per thousand board feet. a $34.37 increase from the end of 25 In the third quarter, lumber production decreased to 109 million board feet to– decreased to 109 million board feet compared to 124 million in the second quarter due to planned maintenance. While production was down, sales volumes increased to 116 million board feet in the third quarter from 100 million board feet in the second quarter. Reflecting the timing of sales Electricity sales in the third quarter totaled 193 gigawatt hours, which is about 13 gigawatt hours less than the second quarter due to lower production at our pulp mills.

Pricing increased to about $155 per megawatt from $117 in the second quarter primarily due to higher spot prices in Germany. Fiber costs for both our pulp and solid wood segments modestly decreased in the third quarter compared to the second quarter. This was driven by improved fiber availability at our Celgar mill and lower cost at our German sawmills due to weak demand for sawlogs. As mentioned previously, the third quarter included an $8 million noncash inventory impairment primarily driven by historically high fiber costs and low pulp prices for our German pulp mills. Of this amount, approximately $7 million against inventory at our pulp mills, and the remainder was against inventory at our Friesau and Torgau mills.

Our mass timber operations with solid wood segment had lower revenues in the third quarter compared to the second quarter due to production issues at our Conway facility and project construction delays. Our order book remains strong and is expected to provide stable production for our facilities through 2027. We continue to make progress on our 1 goal 100 program and are on track to achieve our target of improving our profitability by $100 million by the end of 26, using 2024 as a baseline. In the third quarter, our aggregate liquidity decreased by about $48 million to about $144 million comprising $71 million of cash and $73 million of undrawn revolvers.

The decrease was caused by our weak operating results. Excluding the impact of the $8 million noncash inventory impairment, our change in working capital was flat when compared to the second quarter. In the third quarter, we invested a total of $13 million of capital across our facilities. The majority of which was maintenance capital. We reported a consolidated net loss of $59 million for the third quarter or $0.88 per share, which includes the noncash inventory impairment of $8 million or $0.12 per share. In the second quarter, we reported a net loss of $76 million or $1.13 per share, which includes the noncash inventory impairment of $29 million or $0.43 per share.

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

Juan Carlos Bueno: Thanks, Richard. As Rich noted, we are very pleased to have reached our restructuring support agreement with the majority of our bondholders and shareholders. As this agreement is a critical step in our comprehensive balance sheet restructuring that will equitize approximately $1.1 billion of debt and inject up to $400 million of new money. I want to emphasize that this is a balance sheet recapitalization. All our mills will continue to operate as usual with no interruptions in meeting our commitments to customers, suppliers, and employees. Completion of this transaction will create a much stronger balance sheet and improve liquidity. Which will be critical for us to navigate the market headwinds in this geopolitical convoluted environment.

Addition, it allows our management team to focus fully on running our business without the distraction of the balance sheet restructuring. Turning to our Q3 results. Industry wide downtime helped balance out pulp supply this quarter keeping our pulp sales realization stable despite soft market demand. However, our results were negatively impacted by the significant planned maintenance downtime. Overall, our fiber costs were down modestly due to lower costs for our pulp mills in Canada and for our sawmills in Germany. Which were partially offset by higher wood cost at our German pulp mills.

In Q3, we successfully secured $26 million in government support for Peace River Mill consisting of $13 million in non-payable grants as Richard already mentioned, plus an additional $13 million in repayable contributions. This funding is designed to support projects that improve product productivity and modernize the mill as we navigate current macroeconomic and geopolitical uncertainty. In Q2, we launched our restructuring plan for Torgau Mill, I am pleased to highlight that we are beginning to see the benefit of these changes. We have more work to do on this initiative, continue refining our product portfolio with market demand and further fixed cost reductions. We anticipate all changes will be fully implemented near the end of Q2 2027.

Expect to reduce headcount by almost 400 positions, when this is all said and done. Out of which 63% have already been completed. With the remainder scheduled to happen over the next 6 months. A difficult but necessary step to make the Torgau mill cash-positive. We also continue to make progress on the 1 goal 100 program. That we launched in Q2 25. This initiative delivered about $30 million of concrete savings in 2025 and an additional $46 million achieved through Q3 2026. We remain on track to achieve our $100 million target by the end of 2026.

And while achieving this milestone is significant, we continue to aggressively pursue additional operational improvements across the business to help offset the increasing macroeconomic pressures. Trade uncertainty combined with inflationary pressures brought on by high energy prices are expected to continue to negatively impact our pulp business. Furthermore, until these macroeconomic factors stabilize, the supply side will heavily influence the supply demand dynamic. As a reminder, the only direct tariff we are facing is the 10% tariff on our European lumber imports into the US. This positions us favorably against Canadian lumber imports into the US, which despite decent decreases in antidumping and countervailing duties, subject to a significantly higher average combined tariff and duty rate of about 35%.

Although the direct tariff impacts are very limited, we continue to monitor tariff related events as they have indirect impacts on our customers and our supply chain, creating significant headwinds for businesses. Relative to the second quarter, pulp and sawmill fiber costs were down slightly overall. With slight increases in German pulpwood costs and decreases in Canadian pulpwood and German sawlog prices. Our German fiber costs are at historically high levels driven by tight supply and strong demand. These market dynamics are a direct result of the war in Ukraine, which stopped the inflow of Russian wood into Europe and caused energy costs to reach record levels.

High energy prices coupled with legislation that allows wood burning for energy purposes and German government subsidies for home wood burning solutions have resulted in a high demand for wood pellets. As a result, our German pulp mills are now in direct competition with pellet producers for pulp fiber. The higher demand from pellet producers coupled with reduced sawmilling output across the country, limiting the amount of residuals available, thus creating increased price pressure for the fiber that we use to feed our pulp mills. In contrast, we are seeing pulp fiber cost coming down meaningfully in Canada as we renegotiated contracts with our suppliers taking advantage of the reduced chip demand resulting from pulp mill curtailments.

We expect German sawlog prices to be flat in Q4 due to weak European lumber demand offsetting ongoing supply constraints. Overall, NBSK pulp markets were mostly flat in the third quarter when compared to the second quarter. While demand was soft in China and Europe, compounded by high port inventory levels in China, supply constraints help balance the markets. North America list prices were stable. Today, the softwood-hardwood price differential in China has come down to about $30 per ton. Hardwood markets remained flat in Q3 when compared to Q2, And although hardwood prices in North America increased about 3% in the third quarter, this was offset by a decrease of roughly 5% in China.

Looking ahead, we expect low pulp demand to be more than offset by reduced supply levels pushing NBSK pricing modestly higher before the end of the year. NBSK supply is tightening as a consequence of the heavy maintenance in the Northern Hemisphere, coupled with announced mill closures. Similarly, we are seeing market supply constraints for NBHK and expect slight price improvements in Q4. Our pulp production was down 11% in Q3 compared to Q2, In total, we produced 407 thousand tons in Q3 compared to 456 thousand tons in Q2. We took 44 days of planned maintenance downtime in Q3 compared to no shut days in Q2.

This planned downtime and the impact of strategic reductions due to fiber constraints at our German pulp mills, resulted in approximately 71 thousand lost tons in the quarter. Our German pulp mills will continue to operate at a reduced rate in the fourth quarter. As well, our Rosenthal mill experienced 24 days of unplanned downtime in October, to problems with the effluent treatment that occurred as they were restarting the mill after the maintenance shutdown. This issue resulted in an emission exceedance that took time to investigate and correct and required a slower than normal start up to ensure all emissions stayed within proper levels. The only remaining plant maintenance shutdown we have scheduled in Q4 is at Celgar.

This 18-day shut was successfully and safely completed in October, and resulted in about 23 thousand tons of lost production. Lumber production was down 12% relative to Q2, primarily due to planned maintenance at our free saw mill. We continue to be pleased with the performance of the new advanced scanning technology installed at Torgau, As expected in Q3, we achieved higher sales realizations on the mills dimensional lumber sales. The stagnation of the European economy and high US mortgage rates continued to dampen demand for wood products. This unfavorable business environment combined with high fiber costs were the primary drivers of the $7 million EBITDA loss of our solid wood segment in Q3.

This segment’s earnings were also held back this quarter by unplanned downtime at our Conway facility incremental fixed costs associated with the transition to 2 shifts at that facility as well as construction project schedule delays. Looking ahead, we expect the full implementation of a second shift which will create meaningful operating efficiencies. With regards to our mass timber business, we expect our production and sales to increase significantly in Q4 due to the timing of projects. Today, our mass timber backlog of projects sits at about $151 million, and we continue to see a steady volume of incoming project inquiries. Including large data center projects sponsored by hyperscalers which make up right now about 62% of our backlog.

We feel our large production capacity and geographic footprint positions us well for these types of projects. And we remain bullish on this business as a growth engine for Mercer. Our lumber sales realizations improved in Q3 compared to Q2 as lumber prices in the U.S. were pushed upwards due to the reduced supply of Canadian lumber. Given the many headwinds affecting US construction activity, US lumber pricing will likely continue to be volatile in the short term. Similar forces are expected to keep European prices flat in Q4. Any meaningful long term improvement in either the European or US markets remains dependent on improved economic conditions and lower long term interest rates.

None of which we are expecting in the very short term. In Q3, 50% of our lumber volume was sold in the US. And looking forward, we believe the U.S. lumber market will be driven by favorable homeowner demographics which combined with reduced North American lumber capacity will create supportive supply demand dynamics in the midterm. Now switching to other products in our portfolio, the European shipping pallet market remains weak with pallet prices staying generally flat due to the overhang of the European economy, particularly in Germany. We do not expect this to change in Q4.

Biofuel prices were flat in Q3 relative to Q2, but we do expect biofuel prices to increase in Q4 due to seasonably cooler weather. Thinking about Mercer overall, the headwinds facing our industry have proven to be both longer and more severe than many anticipated. Most recent war in The Middle East has only exacerbated global economic challenges and volatility. it is in this context of continuous business turbulence that we pursued a balance sheet restructuring transaction with the expectation to emerge as a financially stronger company by the end of 2026.

In the meantime, we expect persistent market weakness in Q4 And as a result, we continue to focus on cost reductions, minimal capital expenditures, improving working capital, and improved operational efficiency at our mills. I continue to believe that the current market conditions validate our long term strategy that focuses on transforming our pulp mills into biorefineries, with additional revenue streams that will balance our product mix and make Mercer more resilient during market downturns. As we begin to look forward to 2027 with an improved balance sheet supporting the business, we will refocus on our long term strategy. Thanks for listening, and I will now return the call back to the operator for questions.

Operator: Thank you. If you would like to ask a question, please hit 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. If you would like to remove yourself from the queue, hit 1-1 again. 1 moment while we compile the Q&A roster. There are no questions in the queue. I would like to turn the call back to Juan Carlos. Please go ahead.

Juan Carlos Bueno: Hey. Thank you, Lisa, and thanks to all of you for joining our call today. Richard and I are obviously available to talk more at any time, so do not hesitate to call either 1 of us. Otherwise, we look forward to speaking to you again in our next earning call in February. Bye for now.

Operator: Thank you for joining today’s programming. You may now disconnect.