Mercer International Reports Second Quarter 2019 Results
""Overall, I am pleased with our mills strong production this quarter and the acquisition of MPR continues to materially increase our production, revenues and scope of operations." – David M. Gandossi, CEO, Mercer International Inc.
Aug. 2, 2019 - Mercer International Inc. (Nasdaq: MERC) [on Aug. 1] reported second quarter 2019 Operating EBITDA increased to $70.0 million from $60.5 million in the second quarter of 2018 and decreased from $123.8 million in the first quarter of 2019.
For the second quarter of 2019, net income decreased to $10.3 million, or $0.16 per share, from $16.8 million, or $0.26 per share, in the second quarter of 2018 and $51.6 million, or $0.79 per basic share and $0.78 per diluted share, in the first quarter of 2019.
Mr. David M. Gandossi, the Chief Executive Officer, stated: "Our second quarter results reflect an overall weakening of pulp markets resulting from weak demand for certain paper grades in China and high producer inventories. As a result of the decline in pulp prices in China during the current quarter of 2019, we recorded a non-cash write down of inventories at our Canadian mills of $6.9 million.
“Overall, I am pleased with our mills strong production this quarter and the acquisition of MPR continues to materially increase our production, revenues and scope of operations."
In the second quarter of 2019 our operating income decreased to $37.8 million from $93.6 million in the first quarter of 2019, and was generally flat from $37.5 million in the same quarter of 2018. The decrease in the current quarter over the prior quarter is primarily due to lower pulp sales realizations and higher maintenance costs arising from scheduled maintenance downtime at our 50% joint venture Cariboo mill. Compared to the same quarter of 2018 lower maintenance costs, higher energy and pulp sales volumes and lower per unit fiber costs were mostly offset by lower pulp and lumber sales realizations.
Pulp: Strong production offset by lower pulp sales realizations
In the second quarter of 2019 pulp segment operating income increased by approximately 14% to $42.3 million from $37.0 million in the same quarter of 2018. Maintenance costs were significantly lower in the current quarter as our 50% joint venture Cariboo mill had 15 days of scheduled maintenance downtime (approximately 7,500 ADMTs) compared to our mills having 37 days (approximately 55,400 ADMTs) in the same period of the prior year. Excluding the impact of the shuts, production increased in the current quarter due to the inclusion of MPR and overall strong operating performance from all our mills. The higher production contributed to a higher sales volume in the current quarter. The NBSK pulp realized sales price decreased by approximately 15% to $699 per ADMT in the second quarter of 2019 from $821 per ADMT in the same quarter of the prior year due to high producer inventory levels.
Energy and chemical revenues increased by approximately 119% to $25.6 million in the second quarter of 2019 from $11.7 million in the same quarter of 2018 when one turbine at each of our Stendal and Celgar mills was taken offline for scheduled maintenance.
Per unit fiber costs decreased in the current quarter by approximately 10% from the same quarter of 2018 due to the positive impact of a stronger dollar on our euro and Canadian dollar denominated fiber costs and lower per unit fiber costs for our German mills. In Germany, the fiber market was stable due to the continued availability of storm and beetle damaged wood while the market in Celgar's fiber procurement basket remained tight due to strong demand.
Wood Products: Lower per unit fiber costs more than offset by lower lumber sales realizations
In the second quarter of 2019 our wood products segment had an operating loss of $0.1 million compared to operating income of $4.3 million in the same quarter of 2018. Average lumber sales realizations decreased by approximately 20% to $348 per Mfbm in the second quarter of 2019 from approximately $433 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 the supply of lumber processed from beetle and storm damaged wood which generally obtains lower prices. In the current quarter, per unit fiber costs decreased by approximately 24% from the same quarter of 2018 primarily as a result of the availability of storm and beetle damaged wood and the positive impact of a stronger dollar on our euro denominated fiber costs.
We currently expect pulp markets to moderately strengthen with improved pricing in the later part of the year. We currently believe that pulp producer inventories will decline in the third quarter of 2019 as a result of customary summer producer downtime along with steady demand in Europe and North America and moderately higher demand from paper producers in China.
We currently expect lumber pricing in the later part of the year to modestly increase due to seasonal increased demand from the U.S. lumber market.
In the third quarter of 2019, our pulp mills have 10 days of scheduled maintenance downtime, or approximately 12,300 ADMTs. The Peace River mill had previously been scheduled for 58 days of maintenance downtime commencing in the third quarter of 2019 to undertake certain boiler replacements and upgrade work. Such work has now been rescheduled to 2020 primarily due to a delay in the delivery of parts.
In the third quarter we will also continue to be focused on realizing upon the identified synergies at MPR, and continue to expect to realize about $15 to $20 million of synergies this year.
Mercer International's complete Second Quarter and First Half 2019 results are available on the company's website: www.mercerint.com.
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.
SOURCE: Mercer International Inc.