MERC · Mercer International Inc.

Mercer International’s Q1 2026 results reflect intensifying operational and financial pressures across its core pulp and solid wood businesses. Operating EBITDA declined sharply to $7.8 million from $47.1 million year-over-year, with the $22.0 million non-cash inventory impairment—driven by low pulp prices and high fiber costs—representing a material accounting consequence of deteriorating market conditions. Pulp revenues fell 11% year-over-year to $319.2 million, as NBSK pulp realizations dropped to $696 per ADMT amid price weakness in North America and China, despite modest gains in Europe due to supply constraints. Fiber costs rose ~22% year-over-year, reflecting constrained availability in Germany and Canada, and negatively impacted both pulp and solid wood segments. The solid wood segment posted an Operating EBITDA loss of $5.6 million—versus a $0.3 million loss in Q1 2025—amid persistent U.S. interest rate pressure and European economic headwinds. Critically, the Company breached the leverage ratio covenant under its German revolving credit facility at quarter-end, prompting an extended waiver to preserve liquidity and enable strategic flexibility. Management expects covenant compliance by Q4 2026 based on current pricing and demand forecasts, and is evaluating financing alternatives and liquidity management strategies under oversight by a newly appointed special committee of independent directors. While the 'One Goal One Hundred' cost savings initiative advanced with $11.0 million delivered in Q1 (cumulative $41.0 million), near-term profitability remains challenged by inflationary pressures—including energy-driven chemical and freight cost increases—and geopolitical uncertainty linked to Middle East conflicts. Management anticipates modest softwood pulp price improvements in Q2 but notes hardwood pricing will likely remain stable, with lumber pricing expected to hold steady in Europe and rise modestly in the U.S. due to low supply.