Mercer International Inc. has disclosed "substantial doubt" about its ability to continue as a going concern over the next 12 months, citing upcoming debt maturities, an expected covenant breach and weak operating results amid challenging pulp and wood-product markets.
The disclosure came as the company reported a second-quarter 2026 net loss of $76.0 million, or $1.13 per share, compared with a loss of $86.1 million, or $1.29 per share, in Q2 2025.
The Q2 loss nevertheless narrowed year over year, although it widened significantly from the $52.0 million loss recorded in Q1 2026. Revenue was $460.3 million, up from $453.5 million a year earlier but down from $489.3 million in Q1. Operating EBITDA was negative $21.0 million, broadly in line with the negative $20.9 million recorded in Q2 2025 and sharply below the positive $7.8 million generated in Q1 2026.
The quarter included a $29.0 million non-cash inventory impairment, primarily reflecting low pulp prices and high fiber costs. For the first half of 2026, Mercer reported revenue of $949.6 million, compared with $960.5 million in H1 2025, while Operating EBITDA fell to negative $13.1 million from positive $26.2 million. H1 net loss reached $128.0 million, compared with $108.4 million a year earlier.
Going-concern disclosure driven by debt maturities and covenant risk
In its Form 10-Q for the quarter ended June 30, 2026, Mercer said its interim financial statements were prepared assuming the company would continue as a going concern, but that substantial doubt exists regarding its ability to continue as a going concern for the one-year period following issuance of the financial statements.
The company identified the January 2027 maturity of its Canadian joint revolving credit facility as its primary liquidity requirement over the next 12 months. Mercer said it is not projected to generate sufficient cash flow to settle the obligation at maturity unless external refinancing or alternative funding is obtained.
The company has begun refinancing discussions and said it believes it will be able to renegotiate or replace the facility before maturity, but there can be no assurance that this will be completed on acceptable terms.
The situation is further complicated by Mercer's German joint revolving credit facility, for which the company has a waiver covering the leverage-ratio covenant through September 30, 2026. Based on current market conditions, Mercer expects it will likely fail to meet the required leverage ratio in the fourth quarter of 2026. As a result, the German facility has been classified as a current liability.
Mercer warned that if the German facility were accelerated, the company is not projected to generate sufficient cash flow to settle the obligation.
Management says disclosure does not signal an operational shutdown
On the August 7 earnings call, CEO Juan Carlos Bueno characterized the going-concern disclosure as an accounting consequence of the company's debt situation rather than an indication that Mercer expects to cease operations.
The company said it is working to renegotiate or replace the Canadian facility ahead of its January 2027 maturity and address the covenant profile of its German facilities.
CFO Richard Short said Mercer is working with advisors and actively evaluating strategic alternatives to enhance liquidity and strengthen its balance sheet. The company is also in discussions with holders of its 2028 and 2029 senior notes regarding potential financing and other liquidity-enhancing transactions.
Mercer cautioned, however, that there can be no assurance that it will successfully renegotiate or amend its facilities, or complete financing, refinancing or strategic transactions on acceptable terms, or at all.
Liquidity comes under pressure
Mercer's liquidity position deteriorated during the quarter. As of June 30, 2026, the company had:
- Cash and cash equivalents: $78.8 million
- Undrawn revolver capacity: $112.9 million
- Aggregate liquidity: $191.7 million
- Current assets: $783.4 million
- Current liabilities: $600.9 million
- Current debt: approximately $329.7 million
Current debt included approximately $85.5 million related to the Canadian facility and $230.2 million related to the German facility, which was classified as current because of the expected covenant breach.
Aggregate liquidity declined by approximately $37 million during Q2, primarily because of weak operating results. Mercer invested approximately $12 million in capital expenditures during the quarter, most of which was maintenance capital.
The balance sheet also weakened materially compared with year-end 2025. Working capital fell to $182.5 million from $582.2 million, while total shareholders' equity moved into a $98.0 million deficit, compared with positive equity of $68.1 million at December 31, 2025.
Fiber costs and pulp-market weakness weigh on results
Mercer's results continued to be pressured by elevated European fiber costs and delayed recovery in pulp prices.
In the pulp segment, Q2 Operating EBITDA was a $12.7 million loss, compared with a $10.3 million loss a year earlier. Pulp revenue declined modestly to $325.1 million, while pulp sales volumes increased approximately 6% to 450,329 ADMTs. The segment absorbed approximately $26 million of the $29 million inventory impairment.
Mercer said fiber costs were particularly challenging in Germany because of reduced supply and strong competition for sawmill residuals. Fiber costs represented approximately 85% of lumber cash production costs in Q2, while per-unit fiber costs for lumber production increased approximately 28% year over year.
Management also pointed to geopolitical conflicts in the Middle East and Ukraine, which are contributing to inflationary pressures on fiber, freight and other production costs. The company expects market weakness to persist through the remainder of 2026, although it anticipates more balanced markets toward year-end as supply responds to current conditions.
Torgau restructuring targets lower costs
Against this backdrop, Mercer is implementing an operational restructuring at its Torgau facility in Germany, aimed at aligning capacity and the product portfolio with current market conditions and securing the facility's long-term economic viability.
An initial reduction of approximately 100 contractor positions was completed in July 2026, with the overall restructuring expected to reduce the workforce by approximately 350 positions through Q2 2027. The company is also adjusting its product portfolio and has installed new scanning technology intended to increase production of higher-value, on-grade dimensional lumber and expand exports to the U.S.
Mercer has also slowed production rates at its Stendhal and Rosenthal mills by approximately 10% in response to a short-term shortage of economical fiber and extended Rosenthal's planned maintenance shutdown in Q3 by two weeks.
$100 million cost-savings program continues
Mercer's "One Goal One Hundred" program remains on track to deliver $100 million of annualized profitability improvements by the end of 2026, using 2024 as the baseline.
The company achieved an additional $13 million of savings in Q2, bringing total savings since the program was launched in April 2025 to approximately $54 million. Mercer said the program forms part of broader efforts to improve its balance sheet, preserve cash, reduce capital expenditure and optimize working capital.
Mass timber provides a bright spot
Mercer's mass timber business offered a notable counterpoint to the weakness elsewhere in the group.
Manufactured-products revenue more than doubled year over year to $25.8 million, while mass timber revenues increased more than 25% from Q1 and production rose approximately 40%. At the end of Q2, the business had an order book and commitments of approximately $151 million, supported by large-scale data-center infrastructure projects. Mercer expects these projects to begin contributing to results from late 2026 and into 2027.
Management said approximately 70% of the mass-timber backlog is linked to data-center projects sponsored by hyperscalers, highlighting the business as a potential growth engine for the company.
Outlook remains challenging
For Q3 2026, Mercer expects per-unit fiber costs to modestly decrease as sawlog availability improves. However, management expects generally stable pulp pricing during the second half of the year and continues to anticipate challenging market conditions.
The company is therefore prioritizing liquidity preservation, additional cost reductions, lower capital expenditure, working-capital management and improvements to its capital structure while pursuing refinancing and strategic alternatives.
Mercer's interim financial statements state that they do not include potentially material adjustments that could be required to the carrying amounts and classification of assets, liabilities and reported expenses if the company were unable to continue as a going concern.
The combination of near-term debt maturities, the expected German covenant breach, negative operating EBITDA and significant first-half cash losses places the company's balance sheet under considerable pressure. At the same time, management is pursuing refinancing, cost reductions and strategic alternatives while pointing to improving market balance and a substantial mass-timber order book as potential sources of future support.