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Mercer International Inc. Reports Second Quarter and First Half 2020 Results and Announces Quarterly Cash Dividend of $0.065

/EIN News/ -- Selected Highlights

  • Second quarter net loss of $8.4 million

  • Quarterly Operating EBITDA* of $40.5 million

  • Cash on hand and available credit facilities provide liquidity of about $566.8 million at June 30, 2020

NEW YORK, July 30, 2020 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today reported second quarter 2020 Operating EBITDA decreased to $40.5 million from $70.0 million in the second quarter of 2019 and from $57.0 million in the first quarter of 2020.

In the second quarter of 2020, net loss was $8.4 million (or $0.13 per share) compared to net income of $10.3 million (or $0.16 per share) in the second quarter of 2019 and a net loss of $3.4 million (or $0.05 per share) in the first quarter of 2020. 

In the first half of 2020, Operating EBITDA decreased by 50% to $97.5 million from $193.8 million in the same period of 2019. In the first half of 2020, net loss was $11.8 million compared to net income of $61.9 million in the same period of 2019.   

Mr. David Gandossi, the Chief Executive Officer, stated: “While the world continues to be impacted by the COVID-19 pandemic, I am proud to say that our people have remained resilient and we implemented measures and procedures to meet the challenges of operating our business safely and efficiently. We are constantly monitoring our operations and guidance from governmental and health organizations to ensure that we continue to take appropriate and necessary actions to protect our people.

All of our mills ran well this quarter. Pulp production was down slightly in the quarter primarily due to a previously announced short-term planned curtailment.

Our Q2 results reflect strong cost control and steady production.  On average, pulp pricing was modestly up compared to Q1. However, late in the current quarter, overall pulp demand was modestly weaker as continued strong tissue demand was more than offset by weaker demand from printing and writing customers. Our wood products segment had another strong quarter. Our Friesau mill ran well with strong demand in our U.S. market creating upward pricing pressure late in the quarter. In the current quarter approximately 38% of our lumber sales volumes were to the U.S. which was our single largest market.

As we move into Q3 we will remain focused on controlling our costs, managing our working capital and conservatively managing our strong liquidity position.”

____________
*Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 6 of the financial tables included in this press release for a reconciliation of net income (loss) to Operating EBITDA.

Consolidated Financial Results

  Q2     Q1     Q2     YTD     YTD  
  2020     2020     2019     2020     2019  
                             
  (in thousands, except per share amounts)  
Revenues $ 341,195     $ 350,599     $ 425,753     $ 691,794     $ 909,703  
Operating income $ 10,315     $ 24,062     $ 37,810     $ 34,377     $ 131,362  
Operating EBITDA $ 40,516     $ 57,008     $ 69,958     $ 97,524     $ 193,757  
Net income (loss) $ (8,411 )   $ (3,392 )   $ 10,259     $ (11,803 )   $ 61,875  
Net income (loss) per common share                                      
Basic and diluted $ (0.13 )   $ (0.05 )   $ 0.16     $ (0.18 )   $ 0.94  
                                       

Consolidated – Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Total revenues for the three months ended June 30, 2020 decreased by approximately 20% to $341.2 million from $425.8 million in the same quarter of 2019 primarily due to lower pulp sales realizations and pulp sales volumes.

Costs and expenses in the current quarter decreased by approximately 15% to $330.9 million from $387.9 million in the second quarter of 2019 primarily due to lower per unit fiber costs and lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.

In the second quarter of 2020, Operating EBITDA decreased by approximately 42% to $40.5 million from $70.0 million in the same quarter of 2019 primarily due to lower pulp sales realizations partially offset by lower per unit fiber costs and the positive impact of a stronger dollar.

Segment Results

Pulp: Lower fiber costs more than offset by lower sales realizations

  Three Months Ended June 30,  
  2020     2019  
           
  (in thousands)  
Pulp revenues $ 276,919     $ 359,205  
Energy and chemical revenues $ 21,127     $ 25,594  
Operating income $ 8,110     $ 42,251  
               

In the second quarter of 2020, pulp segment operating income decreased to $8.1 million from $42.3 million in the same quarter of 2019. The decrease was primarily due to lower pulp sales realizations partially offset by the positive impact of lower per unit fiber costs and a stronger dollar. In the current quarter of 2020, NBSK pulp sales realizations decreased by approximately 18% to $573 per ADMT from $699 per ADMT in the same quarter of the prior year due to high producer inventory levels. NBSK sales volumes decreased by approximately 4% to 422,586 ADMTs in the current quarter from 438,520 ADMTs in the same quarter of 2019 due to lower production.  

Our Canadian pulp mills recorded a non-cash write down of our inventory carrying values of $12.3 million in the current quarter as a result of lower pulp sales realizations and high fiber costs.

Per unit fiber costs decreased in the current quarter by approximately 16% from the same quarter of 2019 due to lower per unit fiber costs for all of our mills. In Germany, per unit fiber costs benefitted from the continuing availability of beetle damaged wood. Per unit fiber costs in Canada declined but remained at historically high levels due to strong fiber demand in the mills' fiber procurement areas.

Wood Products: Continued strong production and lower fiber costs 

  Three Months Ended June 30,  
  2020     2019  
           
  (in thousands)  
Lumber revenues $ 37,611     $ 35,322  
Energy revenues $ 2,629     $ 2,788  
Wood residual revenues $ 1,487     $ 1,342  
Operating income (loss) $ 4,327     $ (89 )
               

In the second quarter of 2020 the wood products segment operating income increased to $4.3 million compared to an operating loss of $0.1 million in the same quarter of 2019. The increase was primarily due to strong production and lower per unit fiber costs. Production increased by approximately 13% to 113.5 MMfbm of lumber in the current quarter from 100.8 MMfbm in the same quarter of 2019 primarily due to capital improvements at the mill. In the current quarter per unit fiber costs decreased by approximately 26% from the same quarter of 2019 primarily as a result of the continuing availability of beetle damaged wood.

Average lumber sales realizations were generally flat at approximately $345 per Mfbm in the second quarter of 2020 compared to approximately $348 per Mfbm in the same quarter of 2019 as higher pricing in the U.S. market was offset by lower pricing in Europe. U.S. lumber pricing increased due to stronger demand in the current quarter. European lumber pricing declined due to an increase in the supply of lumber processed from beetle damaged wood which generally obtains lower prices.

Consolidated – Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Total revenues for the first half of 2020 decreased by approximately 24% to $691.8 million from $909.7 million in the first half of 2019 primarily due to lower pulp sales realizations and pulp sales volumes.

Costs and expenses in the first half of 2020 decreased by approximately 16% to $657.4 million from $778.3 million in the first half of 2019 primarily due to lower per unit fiber costs, lower pulp sales volumes and the positive impact of a stronger dollar on our Canadian dollar and euro denominated costs and expenses.

For the first half of 2020, our net loss was $11.8 million, or $0.18 per share compared to net income of $61.9 million, or $0.94 per share, in the same period of 2019.

In the first half of 2020, Operating EBITDA decreased by approximately 50% to $97.5 million from $193.8 million in the same period of 2019 primarily due to lower pulp sales realizations and pulp sales volumes partially offset by lower per unit fiber costs and the positive impact of a stronger dollar versus the Canadian dollar and euro.

Liquidity

The following table is a summary of selected financial information as of the dates indicated:

  June 30,     December 31,  
  2020     2019  
           
  (in thousands)  
Cash and cash equivalents $ 303,334     $ 351,085  
Working capital $ 586,682     $ 588,385  
Total assets $ 1,973,609     $ 2,065,720  
Long-term liabilities $ 1,282,395     $ 1,259,005  
Total equity $ 494,260     $ 550,403  
               

As of June 30, 2020, we had cash and cash equivalents of approximately $303.3 million, approximately $263.5 million available under our revolving credit facilities, providing aggregate liquidity of about $566.8 million.

In June 2020, we amended our revolving credit facility for our Celgar mill to increase the principal amount available to C$60 million from C$40 million with all other terms remaining substantially unchanged.

Current Market Environment

Commencing around the end of the second quarter, many countries have taken measures to ease restrictions on economic and social activities to, among other things, reopen their economies by allowing businesses to restart and encourage economic activity. The results of such economic measures and reopening have varied from country to country.

While such measures are encouraging, currently we are unable to predict the outcome or pace of such economic reopening, the strength or timing of any recovery or whether they will result in such a material resurgence of the virus that causes governments to re-impose restrictive measures.

As a result of the continuing global economic impact and uncertainty resulting from the COVID-19 pandemic and the seasonal third quarter pulp market slowdown, we are expecting an overall weakening in pulp demand in the upcoming quarter with some modest price improvements towards the end of the quarter.

On the pulp supply side, to date various pulp mills globally have delayed their annual maintenance schedules as a result of the current pandemic. As a result, we currently expect mills to curtail production to implement such delayed maintenance in the later part of this year or the early part of next year. As previously announced, in July our Celgar mill is taking a 30-day market related curtailment.

We currently expect strong lumber demand and higher lumber sales realizations in the U.S. market and steady demand and sales realizations in the European lumber market in the upcoming quarter.

Quarterly Dividend

A quarterly dividend of $0.065 per share will be paid on October 6, 2020 to all shareholders of record on September 29, 2020. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

Earnings Release Call

In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for July 31, 2020 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/cmgyreto or through a link on the company's home page at https://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

Mercer International Inc. is a global forest products company with operations in Germany and Canada with consolidated annual production capacity of 2.2 million tonnes of pulp and 550 million board feet of lumber. To obtain further information on the company, please visit its web site at https://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "designed", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

APPROVED BY:
Jimmy S.H. Lee
Executive Chairman
(604) 684-1099

David M. Gandossi, FCPA, FCA
Chief Executive Officer
(604) 684-1099

-FINANCIAL TABLES FOLLOW-

Summary Financial Highlights

  Q2     Q1     Q2     YTD     YTD  
  2020     2020     2019     2020     2019  
                             
  (in thousands, except per share amounts)  
Pulp segment revenues $ 298,046     $ 303,605     $ 384,799     $ 601,651     $ 821,273  
Wood products segment revenues   41,727       45,778       39,452       87,505       83,891  
Corporate and other revenues   1,422       1,216       1,502       2,638       4,539  
Total revenues $ 341,195     $ 350,599     $ 425,753     $ 691,794     $ 909,703  
                                       
Pulp segment operating income $ 8,110     $ 21,439     $ 42,251     $ 29,549     $ 135,771  
Wood products segment operating income (loss)   4,327       5,555       (89 )     9,882       1,531  
Corporate and other operating loss   (2,122 )     (2,932 )     (4,352 )     (5,054 )     (5,940 )
Total operating income $ 10,315     $ 24,062     $ 37,810     $ 34,377     $ 131,362  
                                       
Pulp segment depreciation and amortization $ 27,219     $ 30,371     $ 29,849     $ 57,590     $ 57,872  
Wood products segment depreciation and amortization   2,804       2,377       2,010       5,181       3,921  
Corporate and other depreciation and amortization   178       198       289       376       602  
Total depreciation and amortization $ 30,201     $ 32,946     $ 32,148     $ 63,147     $ 62,395  
                                       
Operating EBITDA $ 40,516     $ 57,008     $ 69,958     $ 97,524     $ 193,757  
Provision for income taxes $ (882 )   $ (5,344 )   $ (10,433 )   $ (6,226 )   $ (34,857 )
Net income (loss) $ (8,411 )   $ (3,392 )   $ 10,259     $ (11,803 )   $ 61,875  
Net income (loss) per common share                                      
Basic and diluted $ (0.13 )   $ (0.05 )   $ 0.16     $ (0.18 )   $ 0.94  
Common shares outstanding at period end   65,868       65,800       65,629       65,868       65,629  
                                       


Summary Operating Highlights

  Q2     Q1     Q2     YTD     YTD  
  2020     2020     2019     2020     2019  
Pulp Segment                                      
Pulp production ('000 ADMTs)                                      
NBSK   423.8       455.2       452.8       879.0       913.4  
NBHK   88.8       78.9       89.4       167.8       168.0  
Annual maintenance downtime ('000 ADMTs)   11.3       2.3       7.5       13.6       7.5  
Annual maintenance downtime (days)   15       2       15       17       15  
Pulp sales ('000 ADMTs)                                      
NBSK   422.6       438.3       438.5       860.9       905.4  
NBHK   69.3       66.0       81.5       135.4       169.4  
Average NBSK pulp prices ($/ADMT)(1)                                      
Europe   850       833       997       842       1,051  
China   572       573       630       573       665  
North America   1,158       1,127       1,292       1,143       1,336  
Average NBHK pulp prices ($/ADMT)(1)                                      
China   465       460       607       463       651  
North America   897       890       1,100       893       1,140  
Average pulp sales realizations ($/ADMT)(2)                                      
NBSK   573       561       699       567       729  
NBHK   475       468       618       472       638  
Energy production ('000 MWh)(3)   562.9       578.4       575.4       1,141.3       1,135.8  
Energy sales ('000 MWh)(3)   222.0       231.7       231.9       453.7       443.7  
Average energy sales realizations ($/MWh)(3)   85       95       93       90       94  
                                       
Wood Products Segment                                      
Lumber production (MMfbm)   113.5       116.4       100.8       229.8       211.5  
Lumber sales (MMfbm)   109.0       117.7       101.5       226.7       210.7  
Average lumber sales realizations ($/Mfbm)   345     348     348       347     354  
Energy production and sales ('000 MWh)   22.7       22.8       24.1       45.4       46.4  
Average energy sales realizations ($/MWh)   116     116     116       116     118  
                                       
Average Spot Currency Exchange Rates                                      
$ / €(4)   1.1016       1.1022     1.1237       1.1019     1.1293  
$ / C$(4)   0.7221     0.7438       0.7475       0.7328     0.7497  

______________

(1)   Source: RISI pricing report. Europe and North America are list prices. China are net prices which include discounts, allowances and rebates. Effective January 2020, the RISI pricing report does not provide list prices for China. 
(2)   Sales realizations after customer discounts, rebates and other selling concessions. Incorporates the effect of pulp price variations occurring between the order and shipment dates.
(3)   Does not include our 50% joint venture interest in the Cariboo mill, which is accounted for using the equity method.
(4)   Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.



MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

    Three Months Ended
June 30
    Six Months Ended
June 30
 
    2020     2019     2020     2019  
Revenues   $ 341,195     $ 425,753     $ 691,794     $ 909,703  
Costs and expenses                                
Cost of sales, excluding depreciation and amortization     284,333       336,433       560,389       679,466  
Cost of sales depreciation and amortization     30,179       32,038       63,090       62,174  
Selling, general and administrative expenses     16,368       19,472       33,938       36,701  
Operating income     10,315       37,810       34,377       131,362  
Other income (expenses)                                
Interest expense     (20,108 )     (18,369 )     (40,192 )     (36,920 )
Other income     2,264       1,251       238       2,290  
Total other expenses, net     (17,844 )     (17,118 )     (39,954 )     (34,630 )
Income (loss) before provision for income taxes     (7,529 )     20,692       (5,577 )     96,732  
Provision for income taxes     (882 )     (10,433 )     (6,226 )     (34,857 )
Net income (loss)   $ (8,411 )   $ 10,259     $ (11,803 )   $ 61,875  
Net income (loss) per common share                                
Basic and diluted   $ (0.13 )   $ 0.16     $ (0.18 )   $ 0.94  
Dividends declared per common share   $ 0.0650     $ 0.1375     $ 0.2025     $ 0.2625  
                                 


MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)

    June 30,     December 31,  
    2020     2019  
ASSETS                
Current assets                
Cash and cash equivalents   $ 303,334     $ 351,085  
Accounts receivable, net     209,184       208,740  
Inventories     261,453       272,599  
Prepaid expenses and other     9,665       12,273  
Total current assets     783,636       844,697  
Property, plant and equipment, net     1,040,171       1,074,242  
Investment in joint ventures     48,413       53,122  
Amortizable intangible assets, net     49,893       53,371  
Operating lease right-of-use assets     12,866       13,004  
Other long-term assets     37,414       26,038  
Deferred income tax     1,216       1,246  
Total assets   $ 1,973,609     $ 2,065,720  
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current liabilities                
Accounts payable and other   $ 196,238     $ 255,544  
Pension and other post-retirement benefit obligations     716       768  
Total current liabilities     196,954       256,312  
Debt     1,114,069       1,087,932  
Pension and other post-retirement benefit obligations     24,044       25,489  
Finance lease liabilities     38,628       31,103  
Operating lease liabilities     10,052       10,520  
Other long-term liabilities     13,733       14,114  
Deferred income tax     81,869       89,847  
Total liabilities     1,479,349       1,515,317  
Shareholders’ equity                
Common shares $1 par value; 200,000,000 authorized; 65,868,000 issued and outstanding (2019 – 65,629,000)     65,800       65,598  
Additional paid-in capital     344,688       344,994  
Retained earnings     231,101       256,371  
Accumulated other comprehensive loss     (147,329 )     (116,560 )
Total shareholders’ equity     494,260       550,403  
Total liabilities and shareholders’ equity   $ 1,973,609     $ 2,065,720  
 


MERCER INTERNATIONAL INC.
INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

    Three Months Ended
June 30
    Six Months Ended
June 30
 
    2020     2019     2020     2019  
Cash flows from (used in) operating activities                                
Net income (loss)   $ (8,411 )   $ 10,259     $ (11,803 )   $ 61,875  
Adjustments to reconcile net income (loss) to cash flows from operating activities                                
Depreciation and amortization     30,201       32,148       63,147       62,395  
Deferred income tax provision (benefit)     (4,744 )     426       (6,075 )     4,065  
Inventory impairment     6,530       6,900       12,264       6,900  
Defined benefit pension plans and other post-retirement benefit plan expense     739       860       1,501       1,716  
Stock compensation expense (recovery)     (34 )     1,202       (80 )     857  
Foreign exchange transaction losses     6,880       9,505       736       9,242  
Other     (695 )     740       (1,192 )     1,444  
Defined benefit pension plans and other post-retirement benefit plan contributions     (797 )     (270 )     (1,712 )     (1,428 )
Changes in working capital                                
Accounts receivable     14,938       32,204       (5,988 )     (24,149 )
Inventories     11,442       (7,769 )     (6,678 )     13,372  
Accounts payable and accrued expenses     7,879       4,197       (49,781 )     4,024  
Other     177       (1,681 )     (76 )     (9,406 )
Net cash from (used in) operating activities     64,105       88,721       (5,737 )     130,907  
Cash flows from (used in) investing activities                                
Purchase of property, plant and equipment     (21,544 )     (24,979 )     (44,562 )     (44,368 )
Purchase of amortizable intangible assets     (89 )     (179 )     (527 )     (495 )
Other     796       (82 )     847       (343 )
Net cash from (used in) investing activities     (20,837 )     (25,240 )     (44,242 )     (45,206 )
Cash flows from (used in) financing activities                                
Proceeds from (repayment of) revolving credit facilities, net     (25,651 )     (24,732 )     25,609       (58,404 )
Dividend payments           (8,206 )     (9,047 )     (8,206 )
Repurchase of common shares           (754 )     (162 )     (754 )
Payment of debt issuance costs           (248 )           (757 )
Proceeds from government grants     299             299       6,320  
Other     (1,996 )     (6,067 )     (11,797 )     (6,929 )
Net cash from (used in) financing activities     (27,348 )     (40,007 )     4,902       (68,730 )
Effect of exchange rate changes on cash and cash equivalents     888       614       (2,674 )     (140 )
Net increase (decrease) in cash and cash equivalents     16,808       24,088       (47,751 )     16,831  
Cash and cash equivalents, beginning of period     286,526       233,234       351,085       240,491  
Cash and cash equivalents, end of period   $ 303,334     $ 257,322     $ 303,334     $ 257,322  
 


MERCER INTERNATIONAL INC.
COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands)

Operating EBITDA is defined as operating income plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income (loss), including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income (loss) or operating income as a measure of performance, nor as an alternative to net cash from (used in) operating activities as a measure of liquidity. The following tables set forth the net income (loss) to Operating EBITDA:

  Q2     Q1     Q2     YTD     YTD  
  2020     2020     2019     2020     2019  
Net income (loss) $ (8,411 )   $ (3,392 )   $ 10,259     $ (11,803 )   $ 61,875  
Provision for income taxes   882       5,344       10,433       6,226       34,857  
Interest expense   20,108       20,084       18,369       40,192       36,920  
Other (income) expenses   (2,264 )     2,026       (1,251 )     (238 )     (2,290 )
Operating income   10,315       24,062       37,810       34,377       131,362  
Add: Depreciation and amortization   30,201       32,946       32,148       63,147       62,395  
Operating EBITDA $ 40,516     $ 57,008     $ 69,958     $ 97,524     $ 193,757  
 


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