Mercer International Inc. (NASDAQ:MERC) Q2 2020 Earnings Conference Call - Final Transcript
Jul 31, 2020 • 10:00 am ET
Good morning, and welcome to Mercer's International Second Quarter 2020 Earnings Conference Call. On the call today is David Gandossi, President and Chief Executive Officer of Mercer International; and David Ure, Senior Vice President, Finance, Chief Financial Officer and Secretary.
I will now hand the conference over to David Ure.
David K. Ure
Thank you, and good morning, everyone. I'll begin by reviewing the second quarter's financial highlights. Following my remarks, I'll pass the call to David, who will comment on our ongoing response to the COVID-19 pandemic, market conditions, operational performance, progress on our strategic initiatives, along with our outlook into the third 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 second quarter results were down compared to Q1, primarily due to the impact of the sequential change in foreign exchange rates, combined with an increase in our inventory impairment provision. We also had a slightly higher annual maintenance impact in Q2, with 15 days of maintenance downtime compared to only two days last quarter. In addition, the COVID-19 pandemic impacted our results in the form of lower sales volumes and slightly higher freight costs. David will speak to our response to the pandemic in a moment. We generated EBITDA in the second quarter of about $40.5 million compared to EBITDA of about $57 million in Q1. This quarter, we benefited from lower fiber costs and modestly higher pulp prices. However, when compared to the previous quarter, these positive impacts were more than offset by the absence of the foreign exchange gain that we recorded in Q1 on our dollar-denominated cash and receivables. In addition, we increased our inventory impairment provision to $12.3 million from $5.1 million in Q1.
Our Pulp segment contributed EBITDA of $35.3 million, while our Wood Products segment contributed quarterly EBITDA of $7.1 million. Our wood costs segment results reflects strong sales volumes, near record production and the benefit of historically low sawlog prices. As usual, you can find additional segment disclosures in our Form 10-Q, which can be found on our website and that of the SEC. Average softwood and hardwood pulp prices were up marginally or flat in all of our markets. As a result, our average pulp sales realizations increased slightly during the quarter, impacting EBITDA by about $5 million compared to the prior quarter. Pulp demand was steady in Q2, our pulp sales volume totaled 492,000 tonnes, which was down about 12,000 tons from Q1 and in line with production. Sales in our Wood Products business were also strong as we sold the equivalent of about 109 million board feet of lumber in the quarter, which was down about nine million board feet from our record sales