Mercer (MERC) Q2 Revenue Falls 9%

Mercer International (MERC -18.33%), one of the world's leading producers of market pulp and engineered wood products, reported its second quarter 2025 financial results on July 31, 2025. The most notable news from the release was a wider net loss (GAAP) and a year-over-year decline in both earnings and revenue. GAAP earnings per share (EPS) for Q2 2025 came in at $1.29. Revenue (GAAP) was reported at $453.5 million, below the estimated $476.7 million (GAAP) and showing a significant drop from the same period last year. These numbers reflect deepening challenges for the company, with worsening profitability and the announcement that its regular dividend has been suspended.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Mercer International: What the Company Does and Where It’s Focused

Mercer International is a major player in the pulp and solid wood markets, with a particular focus on producing Northern Bleached Softwood Kraft (NBSK) pulp -- a premium-grade pulp valued for its strength and use in tissue, paper, and specialty products. The company is also active in solid wood, manufacturing products like lumber, mass timber such as cross-laminated timber (CLT), glulam beams, pallets, and biofuels, and produces green energy from its operations.

The company’s strategy hinges on maintaining cost-efficient, modern manufacturing facilities, investing in sustainability, and expanding its reach in high-demand markets like China and Europe. Strategic strengths include its monopoly as Germany’s only NBSK producer, integrated energy generation capabilities, and recent investments in products linked to global carbon-reduction trends. Mercer’s long-term edge depends on staying efficient, controlling costs, and responding to shifting demand across its product lines.

Quarter in Review: Key Developments and Challenges

Performance lagged both analyst expectations and last year’s results. Revenue (GAAP) declined approximately 9% year-over-year. Operating earnings before interest, taxes, depreciation, and amortization (Operating EBITDA, a non-GAAP measure), a key profitability metric that excludes some non-cash accounting effects, swung from a gain to a loss. The reported negative EBITDA signals serious cost- and pricing pressures.

Pulp segment sales dropped sharply, with revenue falling approximately 10% year-over-year. Pulp prices continued to weaken, especially for hardwood pulp in China. NBSK (softwood) pulp sales prices declined 7% year over year to $758 per air-dry metric ton (ADMT). Northern Bleached Hardwood Kraft (NBHK) pricing fell by approximately 18% to $575 per ADMT. These price declines, especially in China (a major export market), were only partially offset by modestly better pricing in North America. Volume-wise, the company actually produced more pulp year over year -- output rose to 457,117 ADMTs due to fewer days lost to maintenance. However, sales volumes remained roughly flat, and lower realized selling prices drove the revenue decline. Energy and chemical sales from pulp operations also dropped, with revenues down approximately 10%.

In the Solid Wood segment, revenue fell 10.0% as weakness in European construction slowed project activity and high fiber costs eroded margins. The segment's manufacturing division, focused on mass timber products like CLT and glulam beams (engineered wood for low-carbon construction), saw revenue drop by approximately 65%, mainly due to reduced project activity tied to higher interest rates in the U.S. Biofuels revenue also plunged by approximately 37%. On a relative bright note, lumber revenue in this segment climbed 23%. with average sales realization per thousand board feet up 19%. Still, higher wood costs (up about 25% for lumber and 11% for pulp) squeezed segment profitability, leaving operating EBITDA negative.

Currency movements added further pressure. The dollar weakening against the euro and Canadian dollar reduced operating profits by about $26 million compared to Q1 2025. Non-cash factors also came into play, most notably an $11 million impairment on hardwood inventory at Peace River, which reflected low Chinese demand for hardwood pulp. Liquidity at the end of June 2025 stood at $146.5 million in cash, with a further $291.6 million in available lines, for total liquidity of $438.1 million as of June 30, 2025 -- a reduction from the prior quarter.

Management implemented a temporary suspension of the quarterly dividend, which had been $0.075 per share, to preserve cash while market recovery remains uncertain. This follows negative operating cash flow, a reversal from the positive cash generation seen last year, and signals a shift to conservative capital management until profitability stabilizes.

The company continued its “One Goal One Hundred” program, targeting $100 million in profitability improvements by 2026. However, as of mid-2025, only $5 million had been realized, with $25 million targeted for the remainder of the year. Slower-than-hoped progress here suggests much of the benefits are still to come, rather than easing current pressures. Maintenance shutdowns at pulp mills were less severe than last year, but extra unplanned downtime offset much of the potential gains. Mercer’s investments in new mass timber and lignin production facilities (a sustainable ingredient for adhesives and batteries) did not yet materially affect financials but remain strategic bets for future growth and sustainability leadership.

Look Ahead: Guidance and What to Watch

Management did not issue formal financial guidance for fiscal 2025 or the next quarter. It did provide color on trends, noting that softwood pulp prices are likely to decrease in key markets in the next quarter, while hardwood prices could remain steady. For lumber, prices are expected to rise in both the U.S. and Europe, though rising fiber costs and limited wood harvests could offset some of these gains.

The outlook remains cautious. While the company points to stability in contract pulp sales in Europe and North America, management flagged ongoing risks from currency volatility, weak Chinese demand, and the impact of European interest rates. Market volatility, high input costs, a slow pace of internal cost improvement, and the suspended dividend are all factors for investors to watch in coming quarters.

MERC does not currently pay a dividend.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.