Mercer Q2 2026 Earnings: Fiber Costs Keep Operating EBITDA Negative

Mercer International (NASDAQ: MERC) reported Q2 2026 revenue of $460.3 million, up about 1.5% from $453.5 million a year earlier, while diluted net loss per share narrowed to $1.13 from $1.29 for the quarter ended June 30, 2026. Operating EBITDA remained negative at $21.0 million, and operating activities used $15.1 million of cash as higher European fiber costs, lower pulp realizations, and a $29.0 million inventory impairment offset cost reductions and lower maintenance downtime.

Core Earnings Data

Revenue was nearly unchanged year over year. Higher solid wood product realizations and increased pulp sales volumes largely offset lower pulp realizations, particularly for northern bleached softwood kraft, or NBSK, pulp.

Operating performance remained under pressure. The operating loss was broadly flat, while the larger inventory impairment weighed on Operating EBITDA; net loss narrowed mainly as the income tax recovery increased to $13.4 million from $1.9 million.

Consolidated Operating EBITDA is a non-GAAP measure. It included the inventory impairment because Mercer’s definition adds back depreciation, amortization, and long-lived asset impairment, but not inventory impairment.

Business and Segment Performance

The pulp segment remained the larger source of revenue, but lower pulp pricing and higher fiber costs pushed its Segment Operating EBITDA loss wider. Total pulp sales volume rose approximately 6%, yet average NBSK realization fell 10% to $682 per ADMT. Average pulp fiber costs increased about 14%, primarily because of supply shortages and strong demand for wood as an energy source in Germany.

Solid wood revenue increased approximately 14%, supported by manufactured products, pallets, biofuels, and energy. That growth did not translate into improved segment earnings: fiber costs for lumber production rose approximately 28%, widening the segment loss. Lumber revenue declined as a 17% decrease in sales volume outweighed a modest improvement in pricing.

Manufactured products, primarily cross-laminated timber and glulam, were the clearest area of growth. Their average realization increased 67% to $2,206 per cubic meter as construction activity shifted toward higher-value mass timber projects. Mercer ended the quarter with approximately $151 million in mass timber orders and commitments, with contributions expected to begin in late 2026 and continue into 2027.

Profitability, Cash Flow, and Balance Sheet

Costs and expenses were $519.3 million, compared with $511.9 million a year earlier. Higher fiber costs and the larger inventory impairment were largely offset by the absence of planned pulp maintenance downtime and benefits from Mercer’s cost-reduction initiatives. Neither operating segment generated positive Segment Operating EBITDA.

Quarterly operating cash outflow increased to $15.1 million. Working-capital movements included a $46.6 million use of cash from inventories, partly offset by cash benefits from accounts receivable and prepaid expenses. Capital expenditures declined to $12.2 million from $24.3 million, reducing investing cash outflow to $6.5 million from $22.8 million.

At June 30, Mercer had $78.8 million in cash and $112.9 million available under revolving credit facilities after a previously announced €70 million reduction in German borrowing capacity. Aggregate liquidity was therefore approximately $191.7 million. Cash had declined from $186.8 million at the end of 2025, while working capital fell to $182.5 million from $582.2 million and current debt increased to $329.7 million from $13.7 million. Shareholders’ equity moved from $68.1 million to a deficit of $98.0 million.

Mercer has engaged advisers and entered discussions with holders of its 2028 and 2029 senior notes and other stakeholders about financing and liquidity-enhancing transactions. No agreement had been reached when the results were released.

Higher Fiber Costs and Inventory Charges Offset Cost Savings

Mercer’s cost program produced $13.0 million of savings and operational efficiencies during Q2, bringing cumulative benefits to approximately $54.0 million since its April 2025 launch. Lower maintenance downtime also reduced costs compared with the prior-year quarter.

Those benefits were insufficient to overcome the combination of lower NBSK realizations, higher fiber costs, and the $29.0 million inventory impairment. The pulp segment recorded $26.0 million of that impairment, compared with $11.0 million a year earlier. The solid wood segment also experienced margin pressure because fiber represented approximately 85% of lumber cash production costs during the quarter.

Outlook and Operating Targets

Mercer’s outlook focused on cost savings, maintenance, restructuring, and market conditions rather than revenue or earnings targets. Management expects German fiber costs to remain elevated in Q3, while softwood and hardwood pulp pricing is expected to decrease and overall lumber demand to remain weak.

The Torgau restructuring is intended to align the facility’s capacity and product mix with current market conditions. Actions include workforce reductions, additional scanning technology, increased production of higher-value dimensional lumber, and expanded exports to the United States.

Recent Insider Transactions

The supplied insider dataset reports zero purchases and zero sales in its six-month summary, with 30.01 million insider shares held. However, its detailed transaction list includes multiple purchases dated from February through June 2026, creating an inconsistency between the summary and transaction-level data that should be checked against the underlying filings.

These records describe the reported transactions only and do not establish the insiders’ views on Mercer’s future performance.

Risks Investors Need to Watch

• Fiber cost pressure: Pulp fiber costs rose about 14% and lumber fiber costs increased about 28%. German mill costs are expected to remain elevated in Q3 because of constrained supply and demand for wood from energy producers.
• Weak pricing and demand: NBSK realizations fell 10%, and management expects slightly lower softwood pulp prices and modestly lower hardwood pulp prices in Q3. Lumber demand is also expected to remain weak because of U.S. interest rates and European economic conditions.
• Liquidity and refinancing: Cash, working capital, and shareholders’ equity deteriorated during the first half. Mercer is discussing capital-structure and liquidity alternatives, but no transaction has been agreed.
• Maintenance and production curtailments: Forty days of planned pulp maintenance and continued reductions at German mills could constrain Q3 production.
• Torgau restructuring execution: The staged workforce and operational changes must reduce costs and align capacity without creating additional disruption at the facility.

Summary

Mercer’s Q2 revenue held nearly steady and its net loss narrowed, but underlying operating conditions remained difficult. Higher fiber costs, weaker softwood pulp realizations, and a larger inventory impairment kept Operating EBITDA negative despite cost savings and lower maintenance downtime. The next key indicators are German fiber costs, Q3 maintenance and curtailments, progress toward the $100 million cost target, Torgau’s restructuring, and the outcome of Mercer’s liquidity and capital-structure discussions.