Mercer Worldwide posts blended Q3 outcomes amid market shifts By Investing.com

Mercer Worldwide Inc. (NASDAQ: NASDAQ:) reported a mixture of optimistic and damaging monetary outcomes in its third-quarter earnings name for 2024. President and CEO Juan Carlos Bueno and CFO Richard Brief introduced an working EBITDA of $50 million, a notable improve from the earlier quarter’s $30 million. Regardless of lowered upkeep downtime bettering monetary efficiency, the corporate confronted a consolidated web lack of $18 million, albeit an enchancment from the $68 million loss in Q2. The pulp phase confirmed power with $55 million EBITDA, whereas the Strong Wooden phase recorded a damaging EBITDA of $2 million. The corporate stays optimistic about future demand for its merchandise, notably mass timber, regardless of present financial pressures.

Key Takeaways

• Working EBITDA rose to $50 million in Q3 from $30 million in Q2.
• Consolidated web loss improved to $18 million from a $68 million loss in Q2.
• Pulp phase EBITDA was sturdy at $55 million; Strong Wooden phase struggled with a damaging $2 million EBITDA.
• Softwood pulp gross sales elevated barely, hardwood costs dropped.
• Complete manufacturing barely decreased to 416,000 tons, with 449,000 tons offered.
• The corporate introduced a quarterly dividend of $0.075 per share.
• Mercer Worldwide anticipates increased lumber costs and powerful mass timber phase efficiency.
• Unplanned downtime resulted in a lack of roughly 71,000 tons of pulp manufacturing.
• The corporate holds 35% of North American mass timber manufacturing capability with a $33 million order file.
• Pallet costs are low however anticipated to get well because the financial system improves.
• Strategic capital expenditure tasks are underway to spice up manufacturing capability and effectivity.
• The corporate is concentrated on sustainable merchandise and carbon discount targets.
• Web debt to EBITDA ratio goal is roughly 2.5 occasions, with asset gross sales in progress for debt discount.
• Administration is monitoring potential impacts from U.S. import tariffs.
• Market dynamics present enhancements in Europe and development within the UK, lowering U.S. market dependency.
• Mercer Worldwide has managed to maintain fiber prices flat and secured long-term contracts with U.S. wooden suppliers.
• The vast majority of the corporate’s enterprise consists of contracted volumes with full-capacity mill operations.

Firm Outlook

• Expectation of modestly increased lumber costs resulting from improved demand and lowered provide.
• Focusing on capital expenditures of $95 to $120 million for 2024, with the same outlook for 2025.
• Anticipation of sturdy working leads to the pulp phase for This fall and into 2025.
• Cautious outlook for the stable wooden phase resulting from financial pressures.

Bearish Highlights

• Strong Wooden phase recorded a damaging $2 million EBITDA.
• Hardwood costs fell, leading to a CAD 4 million non-cash stock impairment.
• Unplanned downtime led to a major loss in pulp manufacturing.
• Weak lumber and pallet costs affected total efficiency.

Bullish Highlights

• Robust gross sales within the mass timber phase, with a $33 million order file.
• Optimism for long-term demand for mass timber.
• Pulp phase maintains a major worth hole over hardwood.
• Mass timber market development at over 20% yearly with a present order e book of $33 million.

Misses

• Consolidated web lack of $18 million, regardless of being an enchancment from the earlier quarter.
• Complete manufacturing down barely from the earlier quarter.

Q&A Highlights

• Administration addressed considerations about potential U.S. import tariffs and a strike at BC ports, expressing confidence of their contingency plans.
• The corporate’s enterprise primarily consists of contracted volumes, guaranteeing stability.
• Subsequent earnings name scheduled for February.

Mercer Worldwide’s Q3 2024 earnings name confirmed resilience within the face of market challenges. The corporate’s strategic give attention to mass timber and sustainable merchandise, coupled with prudent monetary administration, positions it to navigate present financial circumstances whereas wanting towards future development alternatives.

InvestingPro Insights

Mercer Worldwide’s Q3 2024 earnings report reveals an organization navigating by means of difficult market circumstances, as mirrored within the newest InvestingPro information and suggestions. The corporate’s market capitalization stands at $435.86 million, indicating its present valuation out there.

One of many key InvestingPro Ideas highlights that Mercer is “shortly burning by means of money,” which aligns with the reported consolidated web lack of $18 million in Q3. This money burn charge is a priority that buyers ought to monitor, particularly given the corporate’s vital debt burden, one other level famous within the InvestingPro Ideas.

The corporate’s income for the final twelve months as of Q3 2024 was $2,025.45 million, with a income development of 6.65% in Q3 2024 in comparison with the earlier quarter. This quarterly development is a optimistic signal, contrasting with the general income decline of -3.84% over the past twelve months. These figures present context to the corporate’s monetary efficiency mentioned within the earnings name.

One other essential InvestingPro Tip signifies that Mercer “suffers from weak gross revenue margins.” That is mirrored within the gross revenue margin of 11.67% for the final twelve months as of Q3 2024. This low margin might clarify the challenges confronted by the Strong Wooden phase, which recorded a damaging EBITDA of $2 million.

The dividend yield of 4.6% as of the newest information level is noteworthy, particularly contemplating the corporate’s announcement of a quarterly dividend of $0.075 per share. Nonetheless, buyers ought to weigh this in opposition to the corporate’s profitability challenges, as InvestingPro Ideas recommend that analysts don’t anticipate the corporate to be worthwhile this 12 months.

It is value noting that InvestingPro provides extra insights past these factors, with 7 extra suggestions obtainable for Mercer Worldwide, offering a extra complete evaluation for buyers.

The corporate’s P/B ratio of 0.83 means that the inventory may be undervalued relative to its e book worth, which may very well be of curiosity to worth buyers contemplating the corporate’s long-term potential within the mass timber market.

These InvestingPro insights complement the earnings name data, providing a broader perspective on Mercer Worldwide’s monetary well being and market place because it navigates by means of present business challenges and positions itself for future development alternatives.

Full transcript – Mercer Worldwide Inc (MERC) Q3 2024:

Operator: Good morning, and welcome to Mercer Worldwide’s third quarter 2024 earnings convention name. On the decision at the moment are Juan Carlos Bueno, Mercer’s President and Chief Government Officer, and Richard Brief, Mercer’s Chief Monetary Officer and Secretary. I’ll now hand the decision over to Richard.

Richard Brief: Thanks, Josh. Good morning, everybody. Thanks for becoming a member of us at the moment. We’ll start by concerning the monetary and working highlights of the third quarter earlier than turning the decision to Juan Carlos to supply additional coloration into the markets, our operations, and our strategic initiatives. Additionally, for these of you which have joined at the moment’s name by phone, there’s presentation materials that now we have connected to the Traders part of our web site. However earlier than turning to our outcomes, I want to remind you that we are going to be making forward-looking statements on this morning’s convention name based on the Protected Harbor provisions of the Non-public Securities Litigation Reform Act of 1995. I want to name your consideration to the dangers associated to those statements, that are extra absolutely described in our press launch and within the firm’s filings with the Securities and Trade Fee.

This quarter, our working EBITDA totaled $50 million in comparison with Q2’s EBITDA of $30 million. The improved quarter-over-quarter outcomes had been pushed by fewer days of deliberate main upkeep downtime, as we had 20 days in Q3 in comparison with 37 days in Q2. The advantage of fewer deliberate days of downtime in Q3 was partially offset by a number of unrelated and unplanned occasions that considerably lowered our pulp manufacturing in Q3, in addition to unfavorable international alternate actions and weaker hardwood costs. Juan Carlos can have extra to say about our unplanned downtime in a second.

The pulp phase contributed quarterly EBITDA of $55 million, and our Strong Wooden phase had quarterly EBITDA of damaging $2 million. Yow will discover extra phase disclosures in our Type 10-Q, which may be discovered each on our web site and the SEC’s. The third quarter is usually a interval of weaker seasonal demand, however softwood pulp markets stay regular, leading to steady costs. Our Q3 softwood pulp gross sales realizations had been $814 per ton in comparison with $811 per ton in Q2. The North American NBSK checklist worth averaged $1,762 per ton within the present quarter, a rise of $65 from Q2. The advantage of this improve was largely offset by lower cost realizations in China, the place the Q3 common MBSK web worth was $771 per ton, down $40 from Q2. In Europe, the MBSK checklist worth averaged $1,573 per ton within the present quarter, a lower of $29 per ton from Q2.

Hardwood costs in China decreased resulting from new capability coming on-line in 2024, which would require a while to be absorbed out there. Q3 hardwood gross sales realizations had been $632 per ton, a lower of $69 from Q2. The common worth hole in China between softwood and hardwood pulp elevated this quarter to about $140, with the common Q3 web eucalyptus hardwood worth at $635 per ton, down $100 from Q2. The North American MBHK common Q3 checklist worth was $1,067 per ton, up $30 from Q2. Total, the weaker hardwood pulp worth outlook resulted in us recording a CAD 4 million non-cash stock impairment in Q3 in opposition to hardwood fiber inventories on the Peace River Mill.

Right this moment, pulp gross sales volumes within the third quarter, when in comparison with the second quarter, elevated barely to 449,000 tons, with roughly 85% of this complete being softwood pulp. Complete manufacturing quantity within the third quarter was 416,000 tons, down barely when in comparison with Q2, as a collection of unrelated manufacturing offsets within the present quarter negatively impacted manufacturing by roughly 71,000 tons, offsetting the optimistic influence of fewer days of deliberate downtime within the present quarter. In Q3, we had a complete of 20 days of deliberate annual upkeep downtime at our mills in comparison with 37 days in Q2. Within the present quarter, we estimate the deliberate downtime adversely impacted our EBITDA by roughly $18 million, a lower from the Q2 influence of about $60 million. In Q3, we had no deliberate downtime, however as beforehand introduced, now we have incurred 12 days of unplanned downtime in This fall at our Peace River Mill.

For our stable wooden phase, realized lumber costs decreased barely as decrease costs within the U.S. market had been principally offset by increased costs in Europe. Total, in Q3, lumber markets remained weak. The random lengths U.S. benchmark for Western SPF 2 and higher common worth was $366 per thousand board ft in Q3 in comparison with $386 in Q2. Right this moment, that benchmark worth for Western SPF quantity 2 and higher is round $405 per thousand board ft, which represents a few 21% improve from the start of Q3. For This fall, we predict modestly increased lumber costs within the U.S. and European markets resulting from stronger demand and lowered provide. Lumber manufacturing for Q3 was 122 million board ft, up 10% from Q2 resulting from fewer deliberate upkeep days in Q3. Lumber gross sales volumes had been 109 million board ft in Q3, down 7% from Q2 as a result of timing of gross sales.

Our consolidated electrical energy gross sales quantity totaled 205 gigawatt hours for the quarter, down about 14 gigawatt hours from Q2 resulting from plant upkeep work on the freeze on the freeze-out turbine. Pricing in Q3 was flat in comparison with Q2 at $91 per megawatt hour. In Q3, each our pulp and stable wooden phase fiber prices had been flat in comparison with Q2 as provide remained steady. Manufacturing for our Strong Wooden phase’s mass timber operations was sturdy in Q3 at 10,000 cubic meters as we accomplished two of the most important mass timber tasks ever undertaken within the U.S. Overseas alternate negatively impacted our working revenue when in comparison with Q2, primarily attributable to the influence of a weakening U.S. Greenback on our U.S. Greenback-denominated receivables at Canadian and German mills. We reported a consolidated web lack of $18 million for the third quarter, or $0.26 per share, in comparison with a web lack of $68 million or $1.01 per share in Q2. We consumed about $24 million of money in Q3 in comparison with about $11 million in Q2. Our web working capital, excluding non-cash changes, was increased in Q3 by roughly $36 million, and we borrowed a further $20 million on our revolving credit score amenities. On the finish of Q3, our liquidity place totaled $554 million, a $26 million lower from Q2, comprised of $239 million of money and about $315 million of undrawn revolvers.

After which you could have seen in our current press launch, however I wished to spotlight that this week now we have lowered the principal steadiness of our senior be aware debt by $100 million. We did this by issuing $200 million of extra 2028 senior notes utilizing the proceeds and money readily available to redeem $300 million value of 2026 senior notes. The brand new 2028 senior notes had been issued at a worth of 103% principal quantity for a yield to worst of roughly 11.6%. In finishing this transaction, now we have additionally prolonged our maturity on $200 million of our senior notes by two years. Lastly, our Board has accredited a quarterly dividend of $0.075 per share for shareholders of file on December 18, for which funds might be made on December 26, 2024. That ends my overview of the monetary outcomes. I’ll now flip the decision over to Juan Carlos.

Juan Carlos Bueno: Thanks, Wealthy. In Q3, our operations resulted in a $20 million EBITDA enchancment over Q2. Nonetheless, we had increased expectations. Unplanned and unrelated downtime at a few our mills considerably lowered our working outcomes. We estimate that the damaging EBITDA influence of this downtime was about $20 million. I’ll have extra to say about this in a second. I’m happy to notice that inside our stable wooden phase, our mass timber enterprise had one other sturdy quarter, producing income and margins in keeping with what we completed in Q2. On the subject of our Torgo operation, though our pallet enterprise remains to be struggling beneath the load of a weak European financial system, we’re starting to appreciate sure synergies that are benefiting our pulp enterprise. Once we bought Torgo, we estimated we might have the ability to obtain about $16 million yearly. On the finish of Q3, we had realized nearly $5 million of synergies associated to fiber optimization which are exhibiting up in our pulp mills outcomes, and we anticipate to attain about $8 million in synergies by the top of the 12 months. As soon as Torgo’s lumber capability is absolutely ramped up, we anticipate our synergies to extend, and we proceed to consider that $16 million of annual synergies is achievable.

As Wealthy highlighted, we not too long ago accomplished the refinancing of our 2026 senior notes. I’m happy to have this behind us, and that we had been capable of cut back and by $100 million. Nonetheless, we acknowledge there’s extra work to do on this entrance, and consequently, debt discount might be an necessary focus of our capital allocation technique going ahead. In Q3, we invested roughly $27 million in our operations. As beforehand introduced, our deliberate 2024 capital spending is predicted to be between $95 and $120 million. You’ll recall that final quarter, we restarted each our Torgo lumber growth undertaking and the Spokane sorting line undertaking. Each of those tasks will present vital worth added and had been initially contemplated as a part of our funding technique for every of those mills. Waiting for 2025, we anticipate to focus on a CapEx spend much like the 2024 vary. We’ll proceed to prioritize upkeep of enterprise, environmental, and safety-related CapEx.

Turning to the pulp markets, softwood continues to carry sturdy. We consider that demand for softwood will stay regular within the midterm, which, when mixed with lowered provide, will create upward pricing stress in most markets late This fall or early Q1 2025. Conversely, hardwood pricing weakened within the quarter and seems to have landed at a flooring worth of round $550 in China. The everlasting closure of NBSK mills within the final two years, the short-term curtailments taking place at the moment resulting from lowered fiber in sure areas, together with unplanned downtime, are all creating tightness within the NBSK supply-demand dynamics. Wanting ahead, we consider that the numerous variations within the supply-demand fundamentals for each softwood and hardwood pulp will drive the value distinction between these two grades to ranges nicely past historic norms. Presently, the web worth distinction in China is about $230 per ton, whereas traditionally, this worth distinction is nearer to $100 per ton. We consider this larger-than-historical worth distinction might be with us nicely into 2025. As a reminder, softwood gross sales quantity represents roughly 85% of our annual gross sales.

Wealthy famous that we misplaced roughly 71,000 tons of pulp manufacturing in Q3 resulting from unplanned downtime. This was a misplaced alternative for us given the place pulp costs are at the moment, however I feel it is very important be aware that this unplanned downtime was unfold throughout our Peace River, Stendal, and Celgar Mills and was all unrelated. At Stendal, we misplaced a few week of manufacturing resulting from a provider’s error when putting in new pulp cutter tools. We have now not too long ago accomplished the foundation trigger evaluation for Peace River’s digester points, which concluded the unplanned downtime was associated to the mechanical failure of a hydraulic motor that in the end led to the digester being plugged. Our mills are largely sophisticated amenities, and upkeep downtime is a actuality, but it surely was unlucky that this all occurred in the identical quarter. As at all times, our group is making use of the learnings from these incidents as we transfer ahead to keep away from them from repeating themselves. We should not have any main upkeep deliberate within the fourth quarter, however now we have already incurred 12 days of unplanned downtime in This fall associated to Peace River’s digester repairs. We have now not finalized our full 2025 deliberate upkeep schedule, however we do anticipate Celgar to take a 17-day shut in Q1 2025 that may embody the ultimate tie-ins for his or her wooden room undertaking.

As beforehand talked about, our stable wooden phase outcomes benefited from sturdy mass timber gross sales in Q3 as we accomplished two very giant tasks Wealthy was referring to earlier. The sturdy margin realized in Q3 highlights the potential of this enterprise. Regardless of it working on only one shift, and regardless of mass timber’s good outcomes, our total stable wooden phase was held again as a result of influence of weak lumber and pallet costs. In Q3, we noticed some small pockets of lumber worth enchancment in Europe, whereas the U.S. market weakened barely. Excessive rates of interest globally proceed to weigh on housing begins and building typically. We anticipate This fall lumber pricing to reasonably enhance within the U.S., as we consider the not too long ago introduced lumber manufacturing curtailments are beginning to create some pricing stress. Equally, we anticipate modest upward pricing stress within the European market. Any significant long-term enchancment in both European or U.S. markets might be depending on improved financial circumstances, which we anticipate might be led by near-term rate of interest reductions that may find yourself fueling a restoration within the building business within the latter a part of 2025.

We proceed to consider that low lumber inventories, the massive variety of sawmill curtailments, comparatively low housing inventory, potential wooden shortages created by Canadian forest fires, and householders’ demographics are nonetheless very sturdy fundamentals for the development business, and this may put sustained optimistic stress on the supply-demand steadiness of this enterprise within the midterm. In Q3, 43% of our lumber gross sales quantity was offered within the U.S., as we proceed to optimize our mixture of merchandise in goal markets to present circumstances. Right this moment, our mass timber order file sits at about $33 million. We proceed to obtain many inbound undertaking inquiries and are discovering builders are taking their tasks to the purpose of being able to execute as soon as the rate of interest setting improves. Financial stability will meaningfully enhance the short-term demand for mass timber. As well as, we stay assured that the environmental, financial, and aesthetic advantages of mass timber will permit this constructing product to develop in recognition at the same tempo to what now we have seen in Europe. We’re well-positioned to benefit from that market development as now we have roughly 35% of North American mass timber manufacturing capability, a broad vary of product choices, and a big geographic footprint that offers us aggressive entry to the complete North American market.

Transport pallets stay weak as a result of overhang on the European financial system and notably in Germany. As soon as the financial system begins to indicate indicators of restoration, we anticipate pallet costs to return to regular ranges, permitting this asset to ship vital shareholder worth. Right this moment, pallets are promoting for about $11 per pallet, on common. The historic common worth for a pallet is round $13 to $14, which might make Torgo extremely worthwhile even with out lumber capability. Heating pallet costs had been up barely in Q3 resulting from anticipated seasonality on this market. We anticipate demand and costs to extend modestly in This fall as clients construct winter shares. As a reminder, now we have restarted strategic and high-return CapEx tasks at each Torgo and Spokane Mills. Torgo’s undertaking will improve the amount of dimensional lumber obtainable for the U.S. market by about 240,000 cubic meters yearly with upgrades to the log in-feed system and the addition of extra planning capability. This was envisioned as a part of our unique funding thesis to extend the mill’s value-added product combine and maximize potential synergies. I additionally wished to remind you our Spokane undertaking was initially envisioned as a part of our funding technique for this mill. This undertaking is concentrated on the mill’s in-feed and sorting processes. As soon as this undertaking is full in mid-2025, the mill will have the ability to supply lower-cost feedstock and course of it into higher-quality lamb inventory. In the end, this may considerably cut back the mill’s fiber prices.

In Q3, our total pulp fiber prices had been flat from Q2. In Germany, a gradual provide of sawmill chips stored fiber prices fixed. In Canada, Peace River’s wooden and our Celgar wooden technique additionally stored our fiber prices in test. Wanting forward, we anticipate our fiber prices to stay steady for our pulp enterprise with a slight improve in our stable wooden enterprise in This fall. I’m happy with our new lignin extraction pilot plant ramp-up. Our growth and anticipated commercialization of this product goes based on plan, and I anticipate to share our imaginative and prescient for this product within the close to future. We’re excited in regards to the future prospects of this product as a sustainable various to fossil fuel-based merchandise corresponding to adhesives and battery parts, amongst many others. We consider this product would be the basis for a worthwhile enterprise phase with sturdy development potential. The basics of this enterprise align completely with our technique, which includes increasing into inexperienced chemical compounds and merchandise which are suitable with the round financial system whereas including shareholder worth. Because the world turns into extra demanding about lowering carbon emissions, we consider that merchandise like lignin, mass timber, inexperienced power, lumber, and pulp will play more and more necessary roles in displacing carbon-intensive merchandise like concrete and metal for building or plastic for packaging. Moreover, the potential demand for sustainable fossil gas substitutes may be very vital and has the potential to be transformative to the wooden merchandise business. We stay dedicated to our 2030 carbon discount goal and consider our merchandise type a part of the local weather change answer. In actual fact, we consider that within the fullness of time, demand for our low-carbon merchandise will dramatically improve because the world appears to be like for options to scale back its carbon emissions. We stay bullish on the long-term worth of pulp and are dedicated to raised balancing our firm by means of quicker development in our lumber and mass timber companies.

In closing, I’m happy that the softwood pulp market stays sturdy. Our current operational challenges had been unrelated, and in consequence, these operational challenges are behind us. We predict sturdy working outcomes from the pulp phase in This fall and into 2025, which is able to depart us well-positioned to benefit from regular pulp pricing. Concerning our stable wooden phase, we anticipate weak financial circumstances to proceed to maintain stress on demand for pallets in Europe. Nonetheless, we’re seeing indicators that trigger us to be cautiously optimistic about lumber demand and pricing in This fall and into 2025. Lastly, we’ll stay centered on our cost-saving initiatives and can proceed to handle our money and liquidity prudently whereas on the lookout for debt discount alternatives. Thanks for listening. I’ll now flip the decision again to the operator for questions.

Operator: Thanks. As a reminder, to ask a query, please press Our first query comes from Sean Stewart with TD Cowen. It’s possible you’ll proceed.

Sean Stewart: Thanks. Good morning.

Richard Brief: First query is in your deleveraging targets. Even when now we have a greater pulp working setting subsequent 12 months versus the challenges you had in 2024, it nonetheless appears to be like like your free money circulation prospects are pretty modest. I suppose the query is round broader deleveraging targets, and if free money circulation just isn’t a robust contributor, any ideas on non-core asset gross sales that may be superior to speed up that steadiness sheet transition? Any broader feedback on deleveraging targets?

Juan Carlos Bueno: Thanks, Sean. Sure, as you’ll level out, the main target that now we have is of course on debt discount within the medium time period. We consider that now we have a robust basis for improved EBITDA subsequent 12 months in addition to the next 12 months. Once more, that is on the again of what we consider is a stable basis, particularly for softwood. As we talked about, 85% of our gross sales are in softwood. So whereas hardwood may be beneath stress, we consider that the foundations for softwood are sturdy, and due to this fact, our expectations for an improved efficiency on softwood are there for subsequent 12 months and following then. So far as asset gross sales, we’re continuing as we introduced earlier. We’re continuing with the sale means of Sentinel, and we’re making good progress on that finish. So, clearly, that might be a further supply of money after we are capable of conclude that transaction. However we’re making good progress on that finish. And, clearly, we at all times maintain a glance on ensuring that we maintain the best steadiness of our portfolio of belongings total. I have no idea, Wealthy, if you wish to complement something that I missed.

Richard Brief: No. I feel that summarizes it fairly nicely, Carlos.

Sean Stewart: Okay. Wealthy, possibly only a follow-up. I imply, is there a goal, whether or not it’s web debt to cap or web debt to EBITDA in a normalized setting that you just guys are wanting in the direction of as a long-term goal?

Richard Brief: Yeah, Sean, I feel within the fullness of time, clearly, this isn’t going to occur in a single day, however we wish to get to about two and a half occasions web debt. And as Juan Carlos stated, now we have expectations for EBITDA development and assume there might be alternatives for debt discount as we go ahead as nicely.

Sean Stewart: Okay. Thanks for that. Second query, Juan Carlos, across the U.S. election. If Trump had been to win, do you’ve gotten any ideas on the blanket import tariff that administration could be proposing and the way that may have an effect on your technique for European lumber shipments to the U.S. and doubtlessly, I suppose, Canadian pulp shipments into the U.S. as nicely?

Juan Carlos Bueno: Sure, Sean. That’s clearly a scenario that we are going to be monitoring intently. We have no idea, clearly, no one is aware of but how dramatic these tariffs might be and if they’ll truly be put in place if Trump wins. So a number of ifs in that sentence. However, clearly, if there have been tariffs exerted on lumber, we all know that a part of what we do is destined to the U.S. Now now we have had the potential for supplying totally different markets, and we differ the quantity of lumber that goes into the U.S. relying on how our worth circumstances circulation. I feel this quarter, we stated about 43% went to it. In a special quarter, it had been about 60%. So it fluctuates quarter by quarter, and that is all relying on the circumstances that we see in different markets. Now it is very important say that we’re seeing enhancements in Europe. We’re seeing vital enhancements within the UK market. We’re shifting volumes in the direction of that market extra not too long ago than what now we have executed earlier than, with common shipments far exceeding what now we have executed beforehand. So there are specific markets which are posing very attention-grabbing for us, and that offers us the chance then to not be so depending on the U.S. However, clearly, again to your level, if there have been tariffs, clearly, this may put a bit extra of a pressure into that. However, once more, given a few of the different markets that now we have developed, we consider that there are methods to go round it with out that being a major influence on our outcomes. On one finish, and on the opposite finish, I feel it is extremely necessary to remind ourselves that we do consider, and I suppose all people is beneath the identical line of thought, that as rates of interest proceed to come back down, and I feel all people’s expectations, no matter Trump or Harris being in energy, and clearly the Fed dictates this by their very own accord, however the expectations that rates of interest will proceed to go down, we consider, are an necessary factor that may favor total. Lumber demand ought to rise if building rebounds, which all people is anticipating that to rebound. I feel the dearth of housing, the getting older of the housing supply are important parts that give us confidence that with building rebounding, we can have much better lumber costs than what now we have had to this point this 12 months or final 12 months. So even with tariffs, I feel there are expectations that lumber costs might be increased as we transfer on. So we’re assured that there are good days forward of us. And on the tariffs, once more, we’ll see a number of ifs in that equation.

Sean Stewart: That is nice context. A lot appreciated. That is all I’ve.

Operator: Thanks. Our subsequent query comes from Matthew McKellar with RBC Capital Markets. It’s possible you’ll proceed.

Matthew McKellar: Good morning. Thanks for taking my questions. With elevated rates of interest weighing on building exercise, are you seeing a extra aggressive setting for mass timber tasks? And extra broadly, what’s your sense of how the North American supply-demand steadiness in that area evolves over the following couple of years?

Juan Carlos Bueno: Yeah, Matt, you elevate a vital query. Mass timber is a product that has confirmed to be aggressive to concrete and metal, and clearly, it’s gaining traction. I’d not say little by little as a result of the expansion 12 months over 12 months is in extra of 20% as an total market. And we do consider that that development will proceed to hold ahead at that tempo within the subsequent 5 years. So having a enterprise that grows 20% on common yearly is, for us, a really sturdy basis for development given the capability that now we have been capable of purchase. Now a number of this development clearly comes from the information that little by little, mass timber has been capable of entice from totally different folks which have been having the chance to work with us. As it’s a expertise that’s not broadly used throughout the complete states of North America, across the U.S. or Canada, there are specific areas which are extra liable to it. There are particular areas, for instance, within the U.S., though the japanese border and the western border of the U.S. have rather more penetration on tasks. And little by little, we see that within the states, not one of the coastal states, there are rising rounds of tasks. Now what’s holding again nonetheless a few of these tasks are the rates of interest. We talked about within the name earlier that the order e book is at $33 million, and now we have an rising quantity of curiosity in tasks. And after we say that, it is as a result of that is increased than the curiosity that now we have seen in earlier months. In order the quarters advance, we find yourself taking part in additional quotations for an increasing number of tasks. So we all know that it is a market that’s rising. And the one factor that’s stopping it from actually booming, regardless that it is rising considerably, is the truth that builders are ready for rates of interest to come back additional down in order that they’ll safe higher financing for his or her tasks. In order that’s why we do consider that 2025 goes to be sort of nearly a repeat of 2024. However 2026, as soon as building actually, actually comes by means of, finish of 2025, we consider that 2026 goes to be a particularly busy 12 months for mass timber tasks. The demand capability is nicely served within the U.S., as we stated, now we have 35% capability, and we’re simply utilizing one shift of our capability. So now we have much more that we are able to ship of mass timber tasks than what we do at the moment. Final 12 months, we invoiced $60 million. This 12 months, we’ll bill about $100 million in mass timber tasks. And these three belongings working at three shifts can nicely ship above $500 million. So by way of capability, there’s a lot that we all know that we are able to present. Within the case of different corporations within the area which have been on this marketplace for longer, clearly, their area for development is rather more restricted than ours. However, once more, with the market rising at 20% per 12 months, that is a major alternative for development for us.

Matthew McKellar: Thanks. That is nice commentary. If I might simply observe up on that. What do you assume the tipping level is by way of charge aid? What do we actually must see till a few of these tasks which have been developed and are prepared for higher financing circumstances to begin transferring ahead?

Juan Carlos Bueno: I feel if mortgage charges are actually, what, between 6% and seven% or round these strains, I feel as soon as they arrive right down to the four-ish or when folks see that there is actually a transparent discount and possibly not again to the very low historic ranges, however sure, very enticing reductions, I feel that is when issues will begin transferring. In order that’s why we consider, and there is at all times a lag. Even when rates of interest come down, building will at all times have a lag by the point that you just truly see the influence. And that is why we consider that we’re anticipating to see that extra within the second half of 2025 than earlier.

Matthew McKellar: Okay. Thanks very a lot. I will flip it again.

Operator: Thanks. Our subsequent query comes from Cole Hathorn with Jefferies. It’s possible you’ll proceed.

Cole Hathorn: Good morning. Thanks for taking my query. Identical to to observe up in your commentary round seeing a little bit of an uptick within the European lumber markets as a result of there is a little bit of a divergence between a few of the Nordic gamers which are calling for a little bit of stability after which Stora Enso (OTC:)’s as nicely, much like you, that is obtained most likely a extra related footprint in, you understand, Germany calling about an uptick in demand and pricing. So simply desirous to know, are you seeing some regional variations there, and what’s driving the power as the primary one? After which the second is on the fiber prices that you just’re seeing. Are you able to give just a little bit extra coloration on, you understand, regionally, what are you seeing in your feedstock to your pulp mills in addition to your sawmills from a value perspective, in Europe reasonably than Canada, please? Thanks.

Juan Carlos Bueno: Completely, Cole. So far as the primary query, the uptick that we see in demand is principally coming from the UK. So that’s the market the place now we have seen a fairly good restoration and good indicators that point out that this may be sustained for an extended time period. So that’s exactly to your level. That’s the market the place we serve and the place now we have merchandise that match very properly into their high quality calls for. So far as the fiber prices in our totally different mills, we see clearly there’s variations after we have a look at how the market is behaving in Canada versus Germany. On common, our fiber prices in each areas have been comparatively flat this quarter versus final quarter. There’s totally different dynamics behind them, however total, common costs. Within the case of Canada, one factor that we’re benefiting from is within the case of Peace River, the truth that now we have our wooden room working. And within the case of Celgar, the truth that we’re just a little bit escaping from the scenario in BC as a result of technique that we applied a few 12 months in the past. On sourcing ourselves from the U.S., we have been capable of shut long-term contracts with U.S. suppliers of wooden for us. We’re with the ability to convey throughout the border due to the truth that Celgar is so near the U.S. border, and by doing so, now we have been capable of cut back the quantity of the highest-cost wooden chips that we had been buying from BC. In order that’s the best way that we balanced out the truth that regardless that in BC, the wooden prices are increased, and so they’re increased as a result of there are extra sawmills being closed, and we hear this within the information very regularly, sadly. Properly, in our case, this chance that now we have within the U.S. to counterbalance these will increase in fiber are paying off very properly. Within the case of Europe, it is a totally different dynamic. In there, I feel the power that now we have in Mercer Holz, the corporate that now we have established as the client, and it is truly the largest purchaser of wooden in Germany total, and the way now we have structured Mercer Holz to ensure that now we have very, very aggressive logistics to convey wooden into our mills from not solely from Germany however from neighboring nations or additional out from different nations round Europe, I feel that is been the important thing think about us with the ability to maintain costs for our fiber simply very flat when in comparison with what we noticed final quarter. And that is on the again of, clearly, total elevated fiber costs in Europe as a result of with out Russian fiber being current, clearly, there’s been some inflationary facets which have impacted particularly the Scandinavians greater than the rest. However, clearly, there is a ripple impact on the remainder of Europe. I feel that, once more, the best way that we’re structured in Germany, the best way that Mercer Holz has been arrange has been the important thing manner of us not being impacted by what others are struggling rather more dearly.

Cole Hathorn: Thanks. And possibly I will simply observe up on that time as a result of, you understand, the steeper value curve that we’re seeing in Europe with, you understand, UPM, made to fiber taking downtime resulting from these fiber prices and your, like, comparatively higher value place mills in softwood. Are you actually seeing that profit? And, you understand, with the industrial downtime that these rivals have taken not too long ago, are you seeing sort of elevated incomings, you understand, higher order books, due to your relative value place and other people a bit nervous or not prepared at that stage of the, am I studying in an excessive amount of to that?

Juan Carlos Bueno: We have now, for the overwhelming majority of our enterprise, is all beneath contracted volumes. And most of these contracted volumes could be with fairly giant corporations, and whether or not it is in tissue, about 50% of what we do is in tissue, about 30% goes to specialties, and I’d say in regards to the different 20% to printing and writing. So most of that quantity is already contracted. And our mills are working flat out. So all the things that we produce is being offered. The stock ranges that we’re managing are very, very small. We consider that in each German mills, we’ll find yourself the 12 months with no more than 15 days of stock, which may be very, very low. So once more, the demand is there. And what we profit from just isn’t that we profit from these points that you just relate to as others have taken curtailments or downtime or have had points, it is not essentially that we see that impacting our volumes per se. What we see that is impacting pulp costs. Softwood pulp costs total, the quantity of curtailments, the quantity of everlasting closures that we have seen each in Canada and in Finland in current occasions, in current occasions, I am not going greater than a 12 months away. Within the final 12 months, these are very vital closures of capability that’s not there anymore. And that is what’s retaining softwood costs at bay. That is what’s retaining softwood costs from happening, and that is why we see this hole of greater than $200 between hardwood and softwood. So it is exactly these points that you just relate to which are serving to softwood keep a really wholesome worth total. And that is the place we see the profit within the worth that we see as a result of, once more, our mills are working flat out.

Cole Hathorn: Yep.

Operator: Thanks. And as a reminder, to ask a query, please press Our subsequent query comes from CJ Baldoni with Principal. It’s possible you’ll proceed.

CJ Baldoni: Hi there. Thanks for taking my query. I am simply questioning what the implications may be to the extent that there is a strike within the, you understand, BC port. It appears to be like like a 72-hour strike discover was given by a few of the longshoremen there.

Juan Carlos Bueno: Sure, CJ. We have been following since yesterday the announcement that got here out from the BC ports. And, clearly, any strike is a disruption. The best way that we have tackled this, and this we ready already since July when there was a threat of a strike, I feel it was within the month of August. We took measures to ensure that if there was any strike, we might not essentially endure any penalties from it. So by way of arranging various logistics for our inbounds by way of uncooked supplies, these had been correctly assessed. The identical factor round outbound logistics and having plan B’s already lined up in case now we have points round those self same points. These had been put in movement. So I feel we’re very nicely ready. And after we did that, we did that pondering that the strike again then in August, we had been planning for possibly a three-week sort of extension. So once more, we’re conservatively planning or retaining contingency plans for these occasions. Let’s examine what this one entails. Hopefully, since these disruptions are so massive for the financial system as a complete, I’d assume they are going to be short-lived, and the federal government will find yourself intervening. However, anyway, the necessary factor is, at the very least from our finish, we had been ready as wanted.

CJ Baldoni: Nice. Okay. Thanks. That is all that I’ve.

Operator: Thanks. I’d now like to show the decision again over to Juan Carlos for any closing remarks.

Juan Carlos Bueno: Okay. Thanks, Josh. And thanks all for becoming a member of our name. Wealthy and I can be found to speak extra at any time, so don’t hesitate to name considered one of us. In any other case, we sit up for talking to you once more on our subsequent earnings name in February. Bye for now.

Operator: This concludes the convention. Thanks to your participation. It’s possible you’ll now disconnect.

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