Mercer International Inc. (NASDAQ:MERC) Q4 2019 Earnings Conference Call - Final Transcript

Feb 14, 2020 • 10:00 am ET


Mercer International Inc. (NASDAQ:MERC) Q4 2019 Earnings Conference Call - Final Transcript


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Good morning and welcome to Mercer International's Fourth Quarter 2019 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International and David Ure, Senior Vice President of Finance, Chief Financial Officer and Secretary.

I will now hand the call over to David Ure. You may begin Sir.

David K. Ure

Good morning, everyone. I'll begin by reviewing the fourth quarter's financial results. Following my remarks, I'll pass the call to David, who will comment on our key markets, operational performance, progress on our strategic initiatives, along with our outlook into the first quarter of 2020. Please note that in this morning's conference call, we will make forward-looking statements And according to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, I'd like to call your attention to the risks related to these statements, which are more fully described in our press release and in the Company's filings with the Securities and Exchange Commission.

Our fourth quarter results were noticeably impacted by our most ambitious planned annual maintenance period in recent history, along with weakness in the pulp markets, which combined to dampen our financial results considerably. Our heavy maintenance spending this quarter leaves us well positioned to operate without major maintenance until the third quarter, allowing us to take full advantage of improving market conditions when they occur.

We incurred an EBITDA loss in the fourth quarter of about $34 million, compared to positive EBITDA of about $51 million in Q3. The majority of the sequential drop was anticipated, and reflects the completion of the annual maintenance shuts at our three largest pulp mills in Q4. In total, our scheduled maintenance negatively impacted EBITDA by about $74 million. In addition to the planned impact of the shuts and modest reductions in pulp realizations, the U.S. dollar weakened significantly, also negatively impacting EBITDA.

The EBITDA loss is entirely attributed to the pulp segment, which incurred a $37 million EBITDA loss, while our wood products segment contributed positive EBITDA of about $7 million. Our strong wood products segment results reflect improved sales realizations and strong production despite the ongoing construction activities underway on site, along with the benefit of lower sawlog prices.

As usual, you can find additional segment disclosures in our Form 10-K, which can be found on the SEC website.

While NBSK market pricing was relatively flat sequentially in China, we experienced some deterioration in European list prices. Hardwood pricing in all markets also fell during the quarter. Compared to Q3, our average pulp realizations negatively impacted EBITDA by about $12 million. Our pulp sales volume totaled 482,000 tonnes, which was down about 60,000 tonnes from Q3, reflecting the planned Q4 maintenance shuts at Stendal, Celgar and Peace River.

On the wood product side of our business, sales were solid and we sold the equivalent of about 101 million board feet of lumber in the quarter, with about 32% of this volume being sold to the U.S. market. Electricity sales totaled 178