Mercer International, Inc. Q3 FY2025 earnings call

• The One Goal One Hundred program focuses on cost reduction and operational efficiencies, targeting a $100 million improvement in profitability by end-2026 using 2024 as a baseline, with expected $30 million in cost savings and reliability improvements by end-2025.
• Mill reliability progress, with 20 days of planned maintenance downtime in Q3. Impact of trade uncertainty on pulp and solid wood segments, including tariffs on lumber affecting fiber supply and costs.
• Mass timber operations had stable revenues in Q3 but a healthy order book, expecting improvement in 2026. Progress on transforming pulp mills into biorefineries with initiatives like lignin pilot plant, carbon capture pilot plant, and sustainable aviation fuel work.

In the third quarter, the pulp segment had negative quarterly EBITDA of $13 million. The solid wood segment had negative EBITDA of $9 million. Third quarter average published prices for NBSK and NBHK pulp decreased across all markets due to weakened demand from global economic and trade uncertainty. Pulp sales volumes increased by 26,000 tonnes to 453,000 tonnes in the third quarter, while pulp production was flat at 459,000 tonnes. Lumber production in the third quarter decreased by about 4% to 150 million board feet due to planned maintenance at the Friesau mill, and lumber sales volumes decreased to 110 million board feet. Electricity sales totaled 204 gigawatt hours, a 6% decrease from the second quarter. Fiber costs for both pulp and solid wood segments were flat in the third quarter.

• Expect some modest NBSK price improvements late in Q4 and into Q1 of 2026 due to announced European NBSK curtailments.
• 2026 CapEx expected to be meaningfully lower than 2025 spend as liquidity is prioritized.
• Mass timber revenue expected to pick up momentum with plans to ramp up one facility to 2 shifts in early 2026.

• Negative pressure on pulp pricing and demand from global economic and trade uncertainty, leading to lower sales realizations for softwood and hardwood pulp.
• Trade tariffs on lumber creating reduced supply of residual chips for pulp mills and pressure on fiber costs.
• Solid wood segment held back by weak European economy, high interest rates, and weak demand for pallets.

Q: Sean Steuart with TD Cowen asked about potential asset sales to expedite deleveraging and scale.

A: Juan Bueno said they've been looking at it but not at liberty to disclose, recognizing current market not ideal for divestitures.

Q: Sanford Burns with Stifel asked about substitution issues.

A: Juan Bueno said substitution has been ongoing, with a $200 gap causing about 2% change, and gap closing could lead to less extreme substitution.

Q: Hamir Patel with CIBC Capital Markets asked about 2026 CapEx range.

A: Richard Short said around $75 million, looking to reduce further.

Q: Matthew McKellar with RBC Capital Markets asked about North American mass timber supply-demand balance.

A: Juan Bueno said there's massive demand from AI data center investments, with Europe facing tariff and currency issues, and Mercer expecting sales to increase from $60 million this year to $130 million next year.

Q: Cole Hathorn with Jefferies asked about German energy rebates, wood chips, sawmill closures, and Canadian financing.

A: Richard Short said no rebates; Juan Bueno talked about wood chips being affected by biofuels, sawmill closures putting pressure on pulp mills, and limited access to Canadian government financing for non-sawmill business