Mercer International Inc. (MERC) Stock

Understand Mercer International Inc.: how it makes money

Mercer International makes softwood kraft pulp for tissue and paper makers, sells lumber and wood products, and earns a side stream from selling green energy generated by its biomass plants. Roughly seven tenths of revenue is pulp, down 9.5% year over year, while solid wood is the smaller, modestly growing remainder.

Mercer's swing from profit to loss is governed by a single spread: the gap between what softwood pulp fetches on commodity markets and what its wood-chip and log supply costs. The biomass electricity it sells to utilities, while a useful byproduct, cannot bridge that gap once it inverts.

Business quality (Weak): Operating margin sits at minus 13% for the quarter and EBITDA is negative at the segment level, so the business is currently losing money on its core product. Management's path to breakeven leans on a pulp price recovery it has not yet seen.

Bull case

• Mass Timber Turns the Corner: Management expects mass-timber revenue to more than double in 2026 as facility expansions come online, and says the business should generate positive profitability and cash contribution for the first time, adding a higher-margin product line on top of the cyclically soft pulp core.
• Softwood Shift Tightens Costs: The Peace River mill is shifting toward softwood sourcing, which management says generates better unit economics than the hardwood it previously used, narrowing the fiber-cost gap that has kept segment EBITDA negative.
• Supply Shocks Could Lift Prices: Recent disruptions in the softwood pulp supply chain could create faster-than-expected upward pressure on NBSK pulp prices, a direct tailwind for the segment that produced $340M, or 68%, of quarterly revenue.

Bear case

• Operating Losses Persist: Fourth-quarter EBITDA remained negative as low pulp prices, mill downtime, and elevated fiber costs hit at the same time, and management expects the weak price environment to carry into 2026 rather than rebounding quickly.
• Cash Drain of Up to $150M: Management projects a 2026 net cash outflow in the range of $100M to $150M, meaning the company will be burning liquidity even in a year when mass-timber volumes are expected to double.
• Fiber Inflation Squeezes Both Mills: Rising fiber costs and tightening supply are expected to pressure operations in both Canada and Germany simultaneously, making it harder for the softwood mix shift at Peace River to offset the regional deteriorations.

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