When a company adds going-concern language to its financial statements, the quarterly earnings figure becomes almost secondary. That is the situation facing Mercer International as it prepares to report third-quarter results after the close on October 29. The pulp and lumber producer used its last report to disclose doubts about its ability to continue as a going concern. It also moved both of its revolving credit facilities into current liabilities and confirmed it had hired advisors to evaluate strategic alternatives, including talks with holders of its 2028 and 2029 senior notes. The upcoming release is less about whether Mercer beats a number and more about whether there is still an equity story to tell.
There is no reliable consensus estimate to anchor expectations, and management did not offer formal guidance. The useful benchmarks are Mercer's own recent results. Last quarter it lost $1.13 a share on $460.3 million of revenue, which was worse than the $0.78 loss in the first quarter. A year ago, the third quarter produced a loss of $0.97 on revenue of $458.1 million. Revenue has been roughly flat, so the deterioration has come almost entirely through costs and pricing mix. Operating EBITDA swung from a positive $8 million to a negative $21 million in a single quarter.
The most important figure in the release may be liquidity. It fell to $192 million at the end of the second quarter, down from $229 million a quarter earlier and $430 million at the end of last year. Another drop of similar size would sharply shrink the runway. That matters because the Canadian revolver matures in January 2027, and management now expects to miss the German facility's leverage covenant in the fourth quarter. Only one quarter earlier, it had expected to be back in compliance by then. Any concrete progress with noteholders, whether a refinancing, an exchange or an asset sale, could matter more than the income statement. The terms will also matter, because a deal that protects creditors could still leave little value for common shareholders.
On operations, the bull case rests on a handful of bright spots that need to start showing up in the results. Hardwood pulp realizations climbed to $607 a ton, and the North American hardwood list price jumped $157. Western SPF lumber prices were also firming, and mass timber revenue grew more than 25%. The One Goal 100 cost program delivered $24 million in the first half and is supposed to reach $100 million by year-end, which implies a steep ramp in the second half. Evidence that savings are accelerating, and that EBITDA has moved back toward break-even, would support the idea that the business can stabilize. The risks are just as clear. The German mills were operating below cash break-even, and management warned that elevated German fiber costs, driven by the Ukraine war and competition from pellet makers, would persist into the third quarter. Softwood pricing in China was also slipping. Another round of curtailments, a further shrinking of the mass timber backlog from $151 million, or a larger inventory impairment than last quarter's $29 million would all point to continued deterioration.
The market has already delivered a harsh verdict. Shares have fallen about 70% since the last report while the S&P 500 was essentially flat. At $0.19, the stock sits near its post-earnings low of $0.16 and far below its 200-day moving average of $1.06. Sentiment remains bearish, though slightly less so than before the prior report. That shift looks more like exhaustion than optimism.
The central question is whether Mercer can show that its cash burn is slowing while it negotiates with creditors. Better hardwood and lumber pricing, combined with cost savings, would help. Without a credible liquidity solution, however, operational improvement alone may not decide what remains for shareholders.