Mercer's Slight Q4 EBITDA Uptick Overshadowed by Heavy Impairments and Deep Losses

What happened

Mercer International reported a fourth-quarter 2025 Operating EBITDA of negative $20.1 million, a marginal improvement from negative $28.1 million in Q3, but full-year 2025 plunged to negative $22.0 million from positive $243.7 million in 2024. The quarter included $238.7 million in non-cash impairments, primarily on the Peace River mill and inventory, highlighting the severe downturn in hardwood pulp markets and high fiber costs. Management emphasized the 'One Goal One Hundred' program delivered $30 million in cost savings for 2025, with operational cash flow increasing by $76 million sequentially. While the mass timber order book grew, including data center contracts, this segment remains too small to counterbalance core pulp losses. Overall, these results reinforce Mercer's distressed cyclical position, with earnings still negative and asset values eroding in a prolonged down-cycle.

Implication

The marginal EBITDA gain in Q4 is negated by substantial asset write-downs, indicating underlying business deterioration and prolonged market weakness. Cost savings of $30 million in 2025 are below the $100 million annual target, raising doubts about execution pace and sufficiency. Improved operational cash flow is a positive signal, but it may not be sustainable if pulp prices stay depressed and fiber costs remain high. Growth in mass timber orders offers long-term diversification, yet near-term profitability is elusive, failing to alter the core reliance on pulp recovery. Consequently, Mercer's equity continues to function as a high-risk levered option on cyclical upturn, with investors advised to wait for definitive EBITDA positivity and liquidity stability before considering entry.

Thesis delta

The new data does not materially shift the investment thesis; Mercer remains a highly leveraged, loss-making entity stuck in a cyclical trough. Slight EBITDA improvement and cost savings progress are incremental but insufficient to reduce balance-sheet risk or accelerate recovery. However, the impairments signal deeper asset value erosion, potentially heightening downside exposure if market conditions fail to improve soon.