Can you provide an update on 2026 cash flow items like cash interest, capex, cash taxes, and working capital?

Richard Short stated that Q3 cash flow items are expected to be pretty similar to Q2. “I think our Q3 expectation is to be pretty similar to Q2.”

Regarding the $67 million maintenance cost, given no major maintenance in H1, is this for the whole year or what does it represent?

Richard Short clarified that the $67 million represents OpEx for day-to-day maintenance, not major shutdowns. Major maintenance involves taking mills down for extended periods, which did not occur in H1. “I think the way to think about that maintenance cost is that's kind of an OpEx, sort of an ongoing non-capital cost. What we were talking about is not having major maintenance shut, so we didn't take the mill down for an extended period of time to do what we call major maintenance. the number that you see in there is just day-to-day maintenance.”

Can we expect similar or more maintenance costs in the next six months?

Richard Short indicated that there will be about 40 days of major maintenance downtime in H2, with an incremental cost of approximately $1.5 million per day. “Yes, so we're going to have about 40 days of major maintenance downtime. So we're going to take three of the mills down this quarter and do all this maintenance. And I guess when you think about order of magnitude of incremental cost, think about $1.5 million per day of cost.”

MERC

Mercer International (MERC) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Materials· Aug 7, 2026

Source: earnings call transcript

Executive summary

Mercer International Q2 FY26 — German Fiber Costs and Liquidity Concerns Drive Negative Results

Mercer International faced a challenging Q2 FY26, reporting significant negative operating EBITDA and a net loss, primarily due to historically high German fiber costs and weak pulp prices, which led to a substantial inventory impairment. The company is actively evaluating strategic alternatives to enhance liquidity and strengthen its balance sheet, while implementing restructuring plans and cost-saving initiatives to navigate persistent macroeconomic headwinds and improve future profitability.

Highlights

The mass timber order book reached $151 million, expected to provide stable production through 2026 and into 2027.
The One Goal 100 program is on track to achieve its target of improving profitability by $100 million by the end of 2026, with $24 million achieved in H1 2026.
Lumber sales realizations increased in Q2 due to improved prices in the U.S., with the Western SPF benchmark price at $506 per thousand board feet, up $104 from the end of 2025.

Concerns

Operating EBITDA was negative $21 million in Q2, a decrease from positive $8 million in Q1.
A $29 million non-cash inventory impairment charge was recorded, primarily driven by high fiber costs in Germany and low pulp prices.
The company reported a consolidated net loss of $76 million, or $1.13 per share, in Q2, compared to a net loss of $52 million, or $0.78 per share, in Q1.
German mills are operating significantly below cash break-even, requiring an estimated $35-$40 million improvement to reach break-even.
Aggregate liquidity decreased by $37 million to $192 million, comprising $79 million cash and $113 million undrawn revolvers, due to weak operating results.

Guidance & targets

Category	Target	Timeline	Confidence
Profitability improvement target	$100 million high materiality	by end of 2026 · FY26	High
Torgau mill profitability	headed towards profitability medium materiality	Q2 · FY27	Medium
Torgau mill cash flow	almost break even in terms of cash flow medium materiality	next year · FY27	Medium
Torgau mill cash flow	positive cash flow medium materiality	the following year · FY28	Medium
German pulp mills fiber costs	remain elevated medium materiality	Q3 · FY26	High
German sawmills fiber costs	moderate medium materiality	Q3 · FY26	Medium
Canadian mills fiber costs	see lower costs medium materiality	Q3 · FY26	Medium
NBSK market conditions	tighten high materiality	latter part of the year and into 2027 · FY26-FY27	Medium
Mass timber production and sales	flattened in Q3 and increased meaningfully in Q4 medium materiality	Q3 and Q4 · FY26	High
US lumber market pricing	improved pricing environment medium materiality	Q3 · FY26	Medium
European lumber prices	stay flat medium materiality	Q3 · FY26	High
European shipping pallet markets pricing	generally stable pricing low materiality	second half of 2026 · FY26	Medium
Biofuel prices	modest downward pressure low materiality	Q3 · FY26	Medium

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Pulp Segment Negative EBITDA driven by higher fiber costs in Germany and low pulp prices. Production was stable overall but strategically reduced in German mills due to fiber supply limitations. Sales volumes decreased due to timing of sales. Pulp production: 456,000 tons (Q2 FY26), down from 466,000 tons (Q1 FY26)Pulp sales volumes: 450,000 tons (Q2 FY26), down from 471,000 tons (Q1 FY26)Softwood pulp realizations: $682 per ton (Q2 FY26), down from $696 per ton (Q1 FY26)Hardwood pulp realizations: $607 per ton (Q2 FY26), up from $564 per ton (Q1 FY26)German pulp mills production reduction: 26,000 tons (Q2 FY26)	—	—	—	negative $13 million EBITDA
Solid Wood Segment Negative EBITDA due to weak European economy, high fiber costs, unplanned downtime at Conway, and incremental fixed costs from transition to two shifts at Conway. Lumber sales realizations increased in the US, but European demand remained weak. Mass timber showed strong growth in revenue and production. Lumber production: 124 million board feet (Q2 FY26), up 7% compared to Q1 FY26Lumber sales volumes: 100 million board feet (Q2 FY26), down 11% from Q1 FY26Mass timber revenues: up over 25% compared to Q1 FY26Mass timber production: up about 40% compared to Q1 FY26	—	—	—	negative $8 million EBITDA

Orderbook & backlog

Mass timber backlog of projects $151 million Q2 FY26

70% from hyperscaler data center projects

Risks & headwinds

Persistent economic uncertainty and challenging market conditions ongoing, expected to persist during the rest of the year

Negative Q2 operating EBITDA of $21 million; consolidated net loss of $76 million.

Mitigation:Actively evaluating strategic alternatives to enhance liquidity and strengthen balance sheet; focus on cost reductions, reduced capital expenditure, and working capital measures.

High fiber costs in Germany Q2 FY26, expected to remain elevated in Q3 FY26

Fiber costs up roughly 7% QoQ; primary driver of $29 million inventory impairment.

Mitigation:Strategic reduction of production at German pulp mills (26,000 tons in Q2); Torgau restructuring to adjust product portfolio and reduce workforce.

Geopolitical conflicts and tariff-driven market volatility ongoing

Exacerbated high energy production and logistic costs; 10% tariff on European lumber imports into the US.

Mitigation:Monitoring events, adjusting product portfolio (e.g., Torgau focusing on US market dimensional lumber), and executing cost management programs.

Debt maturities and leverage ratio compliance by January 2027 (Canadian), Q4 2026 (German)

Canadian revolving credit facility matures January 2027; German revolving credit facility leverage ratio waiver through September 30, 2026, likely to be missed in Q4.

Mitigation:Special committee evaluating capital structure alternatives; engaged advisors; in discussions with 2028 and 2029 senior noteholders and other stakeholders regarding potential financing and liquidity-enhancing transactions.

Weak European economy and high US mortgage rates ongoing

Dampening pallet demand; volatile US lumber pricing in the short term.

Mitigation:Adjusting production to market conditions; focusing on operational efficiencies (e.g., full implementation of second shift at Conway); leveraging reduced Canadian lumber supply for improved US pricing.

Seasonally slow pulp demand and high mill inventory levels Q3 FY26

China net prices down roughly 4% QoQ; global NBHK supply constraints expected to ease in Q3, putting additional pressure on pricing.

Mitigation:Strategic production reductions; expectation of market tightening in late 2026/2027 due to maintenance season and mill closures.

What to watch in Q3 FY26

German mills cash flow break-even

next year (FY27)

Current Negative cash flow, needs $35-$40 million improvement

Target Approaching cash flow break-even

Why it matters

The German mills are a significant drag on overall company profitability, and their recovery is crucial for financial stability.

To get on top of the CapEx, it probably needs to be another 30, 40, 50, 60, 70, 80, 100, get it to 35 or 40 million in total in terms of an improvement?

Find out whether MERC delivers this. Inve re-checks your case every morning.

Q&A highlights

Are German mills below cash break-even, and what magnitude of improvement is needed to reach it?

Richard Short confirmed German mills are operating at negative cash flow and would require an improvement of $35-$40 million to reach break-even.

“So they are negative cash. Order of magnitude, I mean, overall the pulp segment was negative. 25 million, I believe. To get on top of the CapEx, it probably needs to be another 30, 40, 50, 60, 70, 80, 100, get it to 35 or 40 million in total in terms of an improvement?”

asked by Roger Spitz · answered by Richard Short

2 min read 6 chapters

Detailed narrative

German Operations Challenges and Strategic Response

Mercer's German mills faced historically high fiber costs in Q2, up approximately 7% QoQ, driven by low harvesting levels, strong demand for sawmill residuals as an energy source, and competition from subsidized wood pellet producers. Geopolitical conflicts in Ukraine and the Middle East exacerbated these issues, impacting wood fiber inflow and energy costs.

In response, the company strategically reduced production at its German pulp mills by 26,000 tons in Q2 and expects to continue operating at reduced rates in Q3.

Torgau Mill Restructuring for Profitability

The Torgau mill, heavily impacted by global economic uncertainty and elevated raw material and energy costs, is undergoing a comprehensive restructuring. This includes adjusting its product portfolio to higher-value dimensional lumber for the US market, rationalizing products, moving from a four-shift to a three-shift system, and reducing 100 positions in July with an additional 250 planned by Q2 2027.

Management anticipates this restructuring will lead to profitability by Q2 2027, with an expected uplift in excess of $20 million.

Liquidity Enhancement and Capital Structure Review

Due to ongoing weak operating results and market conditions, Mercer's aggregate liquidity decreased by $37 million to $192 million in Q2. The company faces debt maturities, including a Canadian revolving credit facility maturing in January 2027 and a German facility whose leverage ratio waiver expires in September 2026, likely to be missed in Q4.

A special committee of independent directors, supported by advisors, is actively evaluating strategic alternatives to improve the capital structure and is in discussions with senior noteholders and other stakeholders.

One Goal 100 Program Progress and Cost Management

The 'One Goal 100' program, launched in Q2 2025, continues to progress well, having achieved $30 million in concrete results for FY25 and an additional $24 million in H1 2026. The program remains on track to meet its target of $100 million in profitability improvements by the end of 2026.

Beyond this program, Mercer is aggressively pursuing additional operational improvements and cost reductions, alongside reduced capital expenditure, to offset macroeconomic pressures.

Mass Timber Business as a Growth Engine

The mass timber operations within the solid wood segment demonstrated strong growth, with revenues up over 25% and production up 40% QoQ in Q2. The current order book stands at $151 million, with approximately 70% attributed to hyperscaler data center projects, providing stable production through 2026 and into 2027.

Mercer views this business as a significant growth engine, leveraging its large production capacity and geographic footprint.

Pulp and Lumber Market Dynamics

Softwood pulp realizations slightly decreased to $682 per ton in Q2, with China net prices down 4%, though European and North American list prices saw modest increases. Hardwood markets improved, with realizations up to $607 per ton. In lumber, US prices increased, with the Western SPF benchmark up $25 QoQ, driven by reduced Canadian supply.

European demand remained weak, but prices were stable due to reduced supply. Mercer sold 43% of its lumber volume into the US in Q2.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.