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Mercer(MERC) - 2021 Q3 - Earnings Call Transcript
MERCMercer(MERC)2021-10-29 20:44
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Financial Performance - The company achieved record EBITDA of 148millioninQ3,upfromapproximately148 million in Q3, up from approximately 84 million in Q2, primarily due to solid production and sales, strong pricing, and reduced maintenance downtime [4][3] - Net income for the quarter was 69million,or69 million, or 1.05 per share, compared to 21million,or21 million, or 0.32 per share in Q2 [8] - Cash usage in Q3 totaled approximately 46million,mainlyduetotheacquisitionofMercerMassTimberandcapitalexpenditures[8][9]BusinessSegmentPerformance−ThepulpsegmentcontributedrecordEBITDAofalmost46 million, mainly due to the acquisition of Mercer Mass Timber and capital expenditures [8][9] Business Segment Performance - The pulp segment contributed record EBITDA of almost 130 million, while the wood products segment contributed 22millioninEBITDA[4]−Salesvolumesincreasedtoalmost448,000tonsinQ3,upabout87,000tonsfromQ2,despite44daysofcombineddowntimeformaintenance[6]−Thewoodproductssegmentsoldabout98millionboardfeetoflumber,slightlydownfromQ2duetoplanneddowntime[7]MarketDynamics−InChina,theaverageNBSKnetpricewas22 million in EBITDA [4] - Sales volumes increased to almost 448,000 tons in Q3, up about 87,000 tons from Q2, despite 44 days of combined downtime for maintenance [6] - The wood products segment sold about 98 million board feet of lumber, slightly down from Q2 due to planned downtime [7] Market Dynamics - In China, the average NBSK net price was 832 per ton, down 130fromQ2,whileEuropeanbestpricesaveraged130 from Q2, while European best prices averaged 1,345 per ton, up from 1,288[5]−TheU.S.lumbermarketexperiencedasignificantcorrection,withbenchmarkpricesaveraging1,288 [5] - The U.S. lumber market experienced a significant correction, with benchmark prices averaging 495 per 1,000 board feet, down 848fromthepreviousquarter[6]−TheEuropeanlumbermarketremainedstrong,withsteadypriceincreases,whiletheU.S.marketshowedsignsofrecoveryduetolimitedsupply[17][18]StrategicDirectionandIndustryCompetition−Thecompanyisfocusingongrowthinmarketpulp,buildingproducts,greenenergy,andchemicalextractors,leveragingitsexpertiseintimbersupplyandlogistics[21]−TherecentacquisitionofMercerMassTimberisseenasakeyelementofthecompany′sstrategicgrowthplan,enteringthemasstimberspacewithsignificantmarketpotential[24]−Thecompanyisalsoadvancingitssustainabilityinitiatives,withprojectsaimedatreducingcostsandgreenhousegasemissions[22]ManagementCommentaryonOperatingEnvironmentandFutureOutlook−ManagementexpressedoptimismaboutsteadydemandinEuropeandpotentialrecoveryinChina,despitecurrentlogisticalchallenges[16]−ThecompanyanticipatescontinuedpricingpressureinChinaduetoenergyrestrictionsandlogisticalissues,butexpectsareboundonceconditionsnormalize[15]−Theoutlookforthewoodproductssegmentremainspositive,withexpectationsofstablehousingdemandintheU.S.despitemodestlyhighermortgagerates[18]OtherImportantInformation−Thecompanyreportedaliquiditypositionofapproximately848 from the previous quarter [6] - The European lumber market remained strong, with steady price increases, while the U.S. market showed signs of recovery due to limited supply [17][18] Strategic Direction and Industry Competition - The company is focusing on growth in market pulp, building products, green energy, and chemical extractors, leveraging its expertise in timber supply and logistics [21] - The recent acquisition of Mercer Mass Timber is seen as a key element of the company's strategic growth plan, entering the mass timber space with significant market potential [24] - The company is also advancing its sustainability initiatives, with projects aimed at reducing costs and greenhouse gas emissions [22] Management Commentary on Operating Environment and Future Outlook - Management expressed optimism about steady demand in Europe and potential recovery in China, despite current logistical challenges [16] - The company anticipates continued pricing pressure in China due to energy restrictions and logistical issues, but expects a rebound once conditions normalize [15] - The outlook for the wood products segment remains positive, with expectations of stable housing demand in the U.S. despite modestly higher mortgage rates [18] Other Important Information - The company reported a liquidity position of approximately 647 million, which includes 339millionincashand339 million in cash and 308 million in undrawn revolvers [9] - The board approved a quarterly dividend of $0.605 per share for shareholders of record on December 22, 2021 [10] Q&A Session Summary Question: What level of sales is targeted for 2022 from the CLT plant? - Management indicated that it is too early to predict sales levels and profitability margins for the CLT plant, as it is an emerging business [29] Question: What is the expected pricing trend for lumber in Q4? - Management noted a slight downward trend in European lumber prices, but not as significant as in the U.S. market [30] Question: What are the timing and details of major maintenance outages in 2022? - Management stated that all four pulp mills will have typical two to three-week shutdowns next year, with specific mills likely scheduled for Q2 and Q3 [31][32] Question: What is the current status of the Chinese pulp market? - Management described significant production curtailments in coastal regions of China due to power usage caps, impacting overall demand [43] Question: What is the company's strategy regarding share buybacks? - Management emphasized a focus on growth and maintaining liquidity rather than share buybacks, despite recognizing the stock's undervaluation [50]