August 1, 2019 - 4:30 PM EDT
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Mercer International Inc. Reports Second Quarter and First Half 2019 Results and Announces Quarterly Cash Dividend of $0.1375

Selected Highlights

  • Second quarter net income of $10.3 million ($0.16 per share) and Operating EBITDA* of $70.0 million
  • First half 2019 net income of $61.9 million ($0.94 per share) and Operating EBITDA of $193.8 million

NEW YORK, Aug. 01, 2019 (GLOBE NEWSWIRE) -- Mercer International Inc. (Nasdaq: MERC) today 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. 

In the first half of 2019, Operating EBITDA increased by 21% to $193.8 million from $159.9 million in the same period of 2018. In the first half of 2019, net income increased to $61.9 million from $42.4 million in the same period of 2018.

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."

____________________

*Operating EBITDA is not a measure of financial performance under accounting principles generally accepted in the United States ("GAAP") and should not be considered in isolation or as a substitute for analysis of our results as reported under GAAP. See page 6 of the financial tables included in this press release for a reconciliation of net income to Operating EBITDA.

Consolidated Financial Results: Lower pulp and lumber sales realizations

 Q2  Q1  Q2  YTD  YTD  
 2019  2019  2018  2019  2018  
                
 (in thousands, except per share amounts) 
Revenues$425,753  $483,950  $346,532  $909,703  $714,435  
Operating income$37,810  $93,552  $37,476  $131,362  $113,524  
Operating EBITDA$69,958  $123,799  $60,490  $193,757  $159,857  
Loss on settlement of debt$  $  $  $  $(21,515)(1)
Legal cost award$  $  $  $  $(6,951) 
Net income$10,259  $51,616  $16,755  $61,875  $42,404  
Net income per common share                   
Basic$0.16  $0.79  $0.26  $0.94  $0.65  
Diluted$0.16  $0.78  $0.26  $0.94  $0.65  

______________

(1) Redemption of 7.75% senior notes due 2022.

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.

Segment Results

Pulp: Strong production offset by lower pulp sales realizations

 Three Months Ended June 30
 2019  2018
     
 (in thousands)
Pulp revenues$359,205  $279,939
Energy and chemical revenues$25,594  $11,693
Operating income$42,251  $36,976

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 

 Three Months Ended June 30,
 2019  2018
     
 (in thousands)
Lumber revenues$35,322  $48,991
Energy revenues$2,788  $3,255
Wood residual revenues$1,342  $2,654
Operating income (loss)$(89) $4,322

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.

Consolidated ‑ Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018
Total revenues for the first half of 2019 increased by approximately 27% to $909.7 million from $714.4 million in the first half of 2018 primarily due to the inclusion of the results of MPR and higher pulp and energy sales volumes partially offset by lower product sales realizations.

Costs and expenses in the first half of 2019 increased by approximately 30% to $778.3 million from $600.9 million in the first half of 2018 primarily due to the inclusion of MPR costs and higher pulp sales volumes partially offset by lower maintenance costs, the positive impact of a stronger dollar on our euro denominated costs and expenses and lower per unit fiber costs. 

For the first half of 2019, our net income increased to $61.9 million, or $0.94 per share, after giving effect to costs of $28.5 million, or $0.44 per basic and $0.43 per diluted share, for the redemption of senior notes and the NAFTA legal cost award from $42.4 million in the same period of 2018.

In the first half of 2019, Operating EBITDA increased by approximately 21% to $193.8 million from $159.9 million in the same period of 2018 primarily due to lower maintenance costs, higher energy and pulp sales volumes, lower per unit fiber costs and the inclusion of MPR partially offset by lower pulp and lumber sales realizations.

Outlook
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.

Quarterly Dividend
A quarterly dividend of $0.1375 per share will be paid on October 2, 2019 to all shareholders of record on September 25, 2019. Future dividends will be subject to Board approval and may be adjusted as business and industry conditions warrant.

Earnings Release Call
In conjunction with this release, Mercer International Inc. will host a conference call, which will be simultaneously broadcast live over the Internet. Management will host the call, which is scheduled for August 2, 2019 at 10:00 AM (Eastern Daylight Time). Listeners can access the conference call live and archived for 30 days over the Internet at https://edge.media-server.com/mmc/p/cobfhvk4 or through a link on the company's home page at https://www.mercerint.com. Please allow 15 minutes prior to the call to visit the site and download and install any necessary audio software.

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 obtain further information on the company, please visit its web site at https://www.mercerint.com.

The preceding includes forward looking statements which involve known and unknown risks and uncertainties which may cause our actual results in future periods to differ materially from forecasted results. Words such as "expects", "anticipates", "projects", "intends", "designed", "will", "believes", "estimates", "may", "could" and variations of such words and similar expressions are intended to identify such forward-looking statements. Among those factors which could cause actual results to differ materially are the following: the highly cyclical nature of our business, raw material costs, our level of indebtedness, competition, foreign exchange and interest rate fluctuations, our use of derivatives, expenditures for capital projects, environmental regulation and compliance, disruptions to our production, market conditions and other risk factors listed from time to time in our SEC reports.

APPROVED BY:

Jimmy S.H. Lee
Executive Chairman
(604) 684-1099

David M. Gandossi
Chief Executive Officer
(604) 684-1099

-FINANCIAL TABLES FOLLOW-


Summary Financial Highlights

 Q2  Q1  Q2  YTD  YTD  
 2019  2019  2018  2019  2018  
                
 (in thousands, except per share amounts) 
Pulp segment revenues$384,799  $436,474  $291,632  $821,273  $605,867  
Wood products segment revenues 39,452   44,439   54,900   83,891   108,568  
Corporate and other revenues 1,502   3,037       4,539     
Total revenues$425,753  $483,950  $346,532  $909,703  $714,435  
                    
Pulp segment operating income$42,251  $93,520  $36,976  $135,771  $111,030  
Wood products segment operating income (loss) (89)  1,620   4,322   1,531   7,304  
Corporate and other operating loss (4,352)  (1,588)  (3,822)  (5,940)  (4,810) 
Total operating income$37,810  $93,552  $37,476  $131,362  $113,524  
                    
Pulp segment depreciation and amortization$29,849  $28,023  $21,127  $57,872  $42,650  
Wood products segment depreciation and amortization  2,010   1,911   1,779   3,921   3,465  
Corporate and other depreciation and amortization 289   313   108   602   218  
Total depreciation and amortization$32,148  $30,247  $23,014  $62,395  $46,333  
                    
Operating EBITDA$69,958  $123,799  $60,490  $193,757  $159,857  
Loss on settlement of debt$  $  $  $  $(21,515)(1)
Legal cost award$  $  $  $  $(6,951) 
Provision for income taxes$(10,433) $(24,424) $(8,461) $(34,857) $(18,042) 
Net income$10,259  $51,616  $16,755  $61,875  $42,404  
Net income per common share                   
Basic$0.16  $0.79  $0.26  $0.94  $0.65  
Diluted$0.16  $0.78  $0.26  $0.94  $0.65  
Common shares outstanding at period end 65,629   65,651   65,202   65,629   65,202  

______________

(1) Redemption of 7.75% senior notes due 2022.

Summary Operating Highlights

 Q2 Q1 Q2 YTD YTD 
 2019 2019 2018 2019 2018 
Pulp Segment               
Pulp production ('000 ADMTs)               
NBSK 452.8  460.6  309.7  913.4  674.2 
NBHK 89.4  78.6     168.0    
Annual maintenance downtime ('000 ADMTs) 7.5    55.4  7.5  55.4 
Annual maintenance downtime (days) 15    37  15  37 
Pulp sales ('000 ADMTs)               
NBSK 438.5  466.9  338.3  905.4  705.4 
NBHK 81.5  87.8     169.4    
Average NBSK pulp list prices ($/ADMT)(1)               
Europe 997  1,105  1,200  1,051  1,148 
China 653  710  910  682  910 
North America 1,292  1,380  1,310  1,336  1,272 
Average NBHK pulp list prices ($/ADMT)(1)               
China 635  687  800  661  799 
North America 1,100  1,180  1,125  1,140  1,101 
Average pulp sales realizations ($/ADMT)(2)               
NBSK 699  757  821  729  801 
NBHK 618  656     638    
Energy production ('000 MWh) 575.4(3) 560.5(3) 294.7  1,135.8(3) 732.7 
Energy sales ('000 MWh) 231.9(3) 211.8(3) 84.6  443.7(3) 260.3 
Average energy sales realizations ($/MWh) 93  94  99  94  104 
                
Wood Products Segment               
Lumber production (MMfbm) 100.8 110.7  111.9  211.5 214.6 
Lumber sales (MMfbm) 101.5 109.2 113.1  210.7 228.2 
Average lumber sales realizations ($/Mfbm) 348 359 433  354 426 
Energy production and sales ('000 MWh) 24.1 22.4 25.6  46.4 46.2 
Average energy sales realizations ($/MWh)116 119 127 118 131 
                
Average Spot Currency Exchange Rates               
$ / €(4)1.1237 1.1354 1.1922 1.1293 1.2103 
$ / C$(4)0.7475 0.7521  0.7750 0.7497 0.7826 

_____________

(1) Source: RISI pricing report.
(2) Sales realizations after customer discounts, rebates and other selling concessions. Incorporates the effect of pulp price variations occurring between the order and shipment dates.
(3) Excludes energy production and sales relating to our 50% joint venture interest in the Cariboo mill which is accounted for as an equity investment.
(4) Average Federal Reserve Bank of New York Noon Buying Rates over the reporting period.

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

  Three Months Ended
June 30
  Six Months Ended
June 30
 
  2019  2018  2019  2018 
Revenues $425,753  $346,532  $909,703  $714,435 
Costs and expenses                
Cost of sales, excluding depreciation and amortization  336,433   271,134   679,466   525,419 
Cost of sales depreciation and amortization  32,038   22,906   62,174   46,115 
Selling, general and administrative expenses  19,472   15,016   36,701   29,377 
Operating income  37,810   37,476   131,362   113,524 
Other income (expenses)                
Interest expense  (18,369)  (12,128)  (36,920)  (24,243)
Loss on settlement of debt           (21,515)
Legal cost award           (6,951)
Other income (expenses)  1,251   (132)  2,290   (369)
Total other expenses, net  (17,118)  (12,260)  (34,630)  (53,078)
Income before provision for income taxes  20,692   25,216   96,732   60,446 
Provision for income taxes  (10,433)  (8,461)  (34,857)  (18,042)
Net income $10,259  $16,755  $61,875  $42,404 
Net income per common share                
Basic and diluted $0.16  $0.26  $0.94  $0.65 
Dividends declared per common share $0.1375  $0.1250  $0.2625  $0.2500 

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share and per share data)

  June 30,  December 31, 
  2019  2018 
ASSETS        
Current assets        
Cash and cash equivalents $257,322  $240,491 
Accounts receivable  273,502   252,692 
Inventories  286,839   303,813 
Prepaid expenses and other  20,229   13,703 
Total current assets  837,892   810,699 
Property, plant and equipment, net  1,031,696   1,029,257 
Investment in joint ventures  57,659   62,574 
Intangible assets, net  55,795   53,927 
Operating lease right-of-use assets  14,087    
Other long-term assets  31,183   17,904 
Deferred income tax  1,465   1,374 
Total assets $2,029,777  $1,975,735 
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and other $222,272  $194,484 
Pension and other post-retirement benefit obligations  831   904 
Total current liabilities  223,103   195,388 
Debt  983,644   1,041,389 
Pension and other post-retirement benefit obligations  26,291   25,829 
Finance lease liabilities  23,229   24,669 
Operating lease liabilities  11,610    
Other long-term liabilities  14,394   13,924 
Deferred income tax  100,981   93,107 
Total liabilities  1,383,252   1,394,306 
Shareholders’ equity        
Common shares $1 par value; 200,000,000 authorized; 65,629,000 issued and outstanding (2018 – 65,202,000)  65,598   65,171 
Additional paid-in capital  342,815   342,438 
Retained earnings  345,934   301,990 
Accumulated other comprehensive loss  (107,822)  (128,170)
Total shareholders’ equity  646,525   581,429 
Total liabilities and shareholders’ equity $2,029,777  $1,975,735 
         

MERCER INTERNATIONAL INC.

INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

  Three Months Ended
June 30
  Six Months Ended
June 30
 
  2019  2018  2019  2018 
Cash flows from (used in) operating activities                
Net income $10,259  $16,755  $61,875  $42,404 
Adjustments to reconcile net income to cash flows from operating activities                
Depreciation and amortization  32,148   23,014   62,395   46,333 
Deferred income tax provision  426   1,204   4,065   6,016 
Loss on settlement of debt           21,515 
Defined benefit pension plans and other post-retirement benefit plan expense  860   432   1,716   871 
Stock compensation expense  1,202   1,759   857   1,952 
Foreign exchange transaction losses  9,505   347   9,242   524 
Other  740   964   1,444   1,607 
Defined benefit pension plans and other post-retirement benefit plan contributions  (270)  (60)  (1,428)  (105)
Changes in working capital                
Accounts receivable  32,204   13,475   (24,149)  8,343 
Inventories  (869)  (12,221)  20,272   (19,043)
Accounts payable and accrued expenses  4,197   36,906   4,024   54,933 
Other  (1,681)  3,170   (9,406)  (3,228)
Net cash from (used in) operating activities  88,721   85,745   130,907   162,122 
Cash flows from (used in) investing activities                
Purchase of property, plant and equipment  (24,979)  (28,655)  (44,368)  (44,839)
Purchase of intangible assets  (179)  (153)  (495)  (320)
Other  (82)  67   (343)  67 
Net cash from (used in) investing activities  (25,240)  (28,741)  (45,206)  (45,092)
Cash flows from (used in) financing activities                
Redemption of senior notes           (317,439)
Proceeds from (repayment of) revolving credit facilities, net  (24,732)  17,665   (58,404)  37,736 
Dividend payments  (8,206)  (8,147)  (8,206)  (16,274)
Repurchase of common shares  (754)     (754)   
Payment of debt issuance costs  (248)     (757)  (1,390)
Proceeds from government grants        6,320    
Other  (6,067)  (771)  (6,929)  (1,619)
Net cash from (used in) financing activities  (40,007)  8,747   (68,730)  (298,986)
Effect of exchange rate changes on cash and cash equivalents  614   (9,835)  (140)  (9,300)
Net increase (decrease) in cash and cash equivalents  24,088   55,916   16,831   (191,256)
Cash and cash equivalents, beginning of period  233,234   213,566   240,491   460,738 
Cash and cash equivalents, end of period $257,322  $269,482  $257,322  $269,482 

MERCER INTERNATIONAL INC.

COMPUTATION OF OPERATING EBITDA
(Unaudited)
(In thousands)

Operating EBITDA is defined as operating income plus depreciation and amortization and non-recurring capital asset impairment charges. Management uses Operating EBITDA as a benchmark measurement of its own operating results, and as a benchmark relative to its competitors. Management considers it to be a meaningful supplement to operating income as a performance measure primarily because depreciation expense and non-recurring capital asset impairment charges are not an actual cash cost, and depreciation expense varies widely from company to company in a manner that management considers largely independent of the underlying cost efficiency of our operating facilities. In addition, we believe Operating EBITDA is commonly used by securities analysts, investors and other interested parties to evaluate our financial performance.

Operating EBITDA does not reflect the impact of a number of items that affect our net income, including financing costs and the effect of derivative instruments. Operating EBITDA is not a measure of financial performance under GAAP, and should not be considered as an alternative to net income or income from operations as a measure of performance, nor as an alternative to net cash from operating activities as a measure of liquidity. The following tables set forth the net income to Operating EBITDA:

 Q2  Q1  Q2  YTD  YTD 
 2019  2019  2018  2019  2018 
Net income$10,259  $51,616  $16,755  $61,875  $42,404 
Provision for income taxes 10,433   24,424   8,461   34,857   18,042 
Interest expense 18,369   18,551   12,128   36,920   24,243 
Loss on settlement of debt             21,515 
Legal cost award             6,951 
Other (income) expenses (1,251)  (1,039)  132   (2,290)  369 
Operating income 37,810   93,552   37,476   131,362   113,524 
Add: Depreciation and amortization 32,148   30,247   23,014   62,395   46,333 
Operating EBITDA$69,958  $123,799  $60,490  $193,757  $159,857 

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Source: GlobeNewswire (August 1, 2019 - 4:30 PM EDT)

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