Mercer(MERC) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The first quarter EBITDA improved significantly to approximately $82 million compared to about$49.5 million in Q4, driven by higher pulp and lumber pricing [7][6] - Net income for the quarter was nearly $6 million or$0.09 per share, a recovery from a net loss of $13 million or$0.20 per share in Q4 [13] - Cash generated in the quarter totaled almost $34 million, up from$16 million in Q4, reflecting a strong liquidity position of about $672 million at the end of the quarter [14][15] Business Segment Data and Key Metrics Changes - The pulp segment contributed EBITDA of$52.3 million, while the wood products segment achieved record quarterly EBITDA of $31.7 million [7] - Average quarterly softwood and hardwood pulp prices increased significantly, with the Q1 average NBSK net price in China at$883 per ton, up $246 from Q4 [8] - Lumber sales realization increased to$622 per thousand board feet, up $155 compared to Q4, with sales volumes rising to about 108 million board feet [11] Market Data and Key Metrics Changes - Pulp demand remained strong, although sales volume decreased to about 488,000 tonnes, down 75,000 tonnes from Q4 due to maintenance shutdowns [9] - US lumber prices rose steadily, with benchmark prices exceeding$1300 per thousand board feet, driven by strong housing market demand [10][28] - The European lumber market experienced modest upward pricing pressure, while the US market remains at historically high levels [28] Company Strategy and Development Direction - The company is focused on optimizing its capital expenditures and has ramped up its strategic initiatives to grow in areas of core competencies [38] - Significant projects include the Stendal pulp mill expansion and modernization of wood rooms at Peace River and Celgar, aimed at increasing capacity and reducing costs [39][40] - The company plans to balance growth with deleveraging and is cautious about capital allocation in light of market volatility [76][78] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about steady economic growth and strong market fundamentals supporting pulp prices, despite ongoing challenges from the COVID-19 pandemic [25][26] - The company anticipates that supply constraints in the pulp market may persist for several quarters due to unplanned downtime and transportation limitations [26] - Management emphasized the importance of safety protocols during maintenance activities to mitigate risks associated with the pandemic [35] Other Important Information - The company announced a quarterly dividend of $0.065 per share for shareholders of record on June 30, 2021 [19] - The refinancing of senior notes is expected to lower annual interest costs by about$12 million [18] Q&A Session Summary Question: How do lumber prices in European markets compare to the US? - Management noted that European margins are improving but still lag behind US margins, with significant price movements observed [47][48] Question: What is the long-term fiber availability in Germany? - Management indicated that approximately 50% of forests are state or federally owned, and the beetle infestation is regionally dependent, but they remain confident in timber supply for their operations [49] Question: What impact do potential changes in British Columbia's tenure ownership have on the company? - Management expressed confidence that the situation would remain stable, with a good supply of raw materials available for their operations [50][51] Question: How does the company prioritize cash flow uses? - Management stated a balanced capital allocation strategy focusing on growth projects while also considering deleveraging and shareholder returns [75][78] Question: Can you provide insights on the grants related to GHG reductions? - Management detailed several projects with significant cost savings and potential EBITDA impacts, supported by government grants for carbon reduction initiatives [81][84]