Mercer International Reports Strong 2019 First Quarter Results

"Our record first quarter results reflect overall strong operating performance and cost discipline at our mills, generally steady demand and the inclusion of a full quarter of results of Mercer Peace River Pulp Ltd. ("MPR") acquired in December 2018." – David M. Gandossi, CEO, Mercer International Inc.

May 6, 2019 - Mercer International Inc. (Nasdaq: MERC) on May 2 reported first quarter 2019 Operating EBITDA increased to a record $123.8 million from $99.4 million in the first quarter of 2018 and $118.1 million in the fourth quarter of 2018.

For the first quarter of 2019, net income increased to $51.6 million, or $0.79 per basic share and $0.78 per diluted share, from $25.6 million, or $0.39 per share, in the first quarter of 2018 and $45.0 million, or $0.69 per basic share and $0.68 per diluted share, in the fourth quarter of 2018.

David M. Gandossi, Mercer's CEO, stated, "Our record first quarter results reflect overall strong operating performance and cost discipline at our mills, generally steady demand and the inclusion of a full quarter of results of Mercer Peace River Pulp Ltd. ("MPR") acquired in December 2018.

“Pulp pricing was generally softer quarter over quarter, however, there was some modest price improvements late in the current quarter resulting from better paper producer demand.

“As I have mentioned previously, the acquisition of MPR has materially increased our production, revenues and scope of operations. Our recent acquisitions highlight the benefits of our value creation strategy of delivering sustainable profitable growth by leveraging our core competencies to complement our world class assets. Our integration of MPR is proceeding well and according to plan."

Consolidated Financial Highlights: Record Operating EBITDA

In the first quarter 2019 our operating income increased to $93.6 million, or by approximately 3% from $91.0 million in the fourth quarter of 2018, and approximately 23% from $76.0 million in the same quarter of the prior year. The increase in the current quarter over the prior quarter is primarily due to the inclusion of a full quarter of results of MPR, lower maintenance and per unit fiber costs and higher pulp and lumber sales volumes partially offset by lower pulp sales realizations. The increase in the current quarter over the same quarter of the prior year is primarily due to inclusion of the results of MPR, the net positive impact of a stronger dollar on our euro denominated costs and expenses and higher pulp sales volumes partially offset by lower product sales realizations.

SEGMENT RESULTS

Pulp: Record revenues and positive impact of a stronger dollar

In the first quarter of 2019 pulp segment operating income increased by approximately 26% to $93.5 million from $74.1 million in the same quarter of 2018. The increase was primarily due to the positive impact of a strong dollar relative to the euro on our euro denominated costs and expenses and the inclusion of the results of MPR in the current quarter. NBSK pulp sales volumes increased by approximately 27% to 466,893 ADMTs in the current quarter from 367,074 ADMTs in the same quarter of 2018.

The NBSK pulp realized sales price decreased by approximately 3% to $757 per ADMT in the first quarter of 2019 from $783 per ADMT in the same quarter of the prior year due to lower overall demand in China. In China, demand from tissue producers was steady but there was a decline in demand from paper and packaging producers. Per unit fiber costs were generally flat in the current quarter compared to the same quarter of 2018. In Germany, the fiber market was stable due to the availability of storm and beetle damaged wood and the market in Celgar's fiber procurement basket remained tight due to strong demand. MPR's fiber costs were largely in line with prior quarter costs.

Wood Products: Strong production offset by lower realized prices

In the first quarter of 2019 our wood products segment had operating income of $1.6 million compared to $3.0 million in the same quarter of 2018. Average lumber sales realizations decreased by approximately 14% to $359 per Mfbm in the first quarter of 2019 from approximately $418 per Mfbm in the same quarter of 2018 primarily due to weakening in the U.S. lumber markets which started in the second half of 2018 as a result of high customer inventory levels. European lumber pricing also declined due to an increase in beetle and storm damaged wood entering the market which generally obtains lower prices. In the current quarter we also had modestly lower sales volumes due to the timing of shipments. Production increased approximately 8% to 110.7 MMfbm of lumber in the current quarter from 102.7 MMfbm in the same quarter of 2018. In the current quarter, per unit fiber costs decreased by approximately 21% from the same quarter of 2018 primarily as a result of the availability of storm and beetle damaged wood in the market and the positive impact of a stronger dollar on our euro denominated fiber costs.

Outlook

We currently expect pulp markets to modestly strengthen with prices improving in the second half of the year. We believe that, in the second quarter of 2019, pulp producer inventories will decline due to continued steady demand in Europe and North America, modestly higher demand from paper producers in China and scheduled producer downtime. At the end of March 2019, world NBSK producer inventories were about 37 days' supply.

In Germany, we expect fiber costs for our pulp mills to decline in the second quarter as a result of the availability of storm damaged and beetle infested wood which is suitable for pulp production. In the second quarter, our 50% joint venture Cariboo mill has 12 days of scheduled maintenance downtime (which will reduce our production by approximately 5,800 ADMTs). In the second quarter we will also continue to be focused on executing against the identified synergies at MPR.

We currently expect lumber pricing in the second quarter to modestly increase due to seasonal increased demand from the U.S. lumber market.

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 learn more, please visit: www.mercerint.com.