Mercer Intl (NASDAQ:MERC)

First Quarter Results:

• During the quarter, we generated total revenues of €224.1 million ($306.6 million), compared to total revenues of €180.3 million ($249.5 million) in the comparative quarter of 2010.
• We reported net income of €29.1 million ($39.8 million), or €0.66 ($0.90) per basic share, for the first quarter of 2011, compared to a net loss of €7.5 million ($10.4 million), or €0.21 ($0.29) per basic share, in the first quarter of 2010 and a net income of €35.3 million ($48.0 million), or €0.84 ($1.14) per basic share in the fourth quarter of 2010
• Adjusted diluted EPS is $0.46.

Mr. Jimmy S.H. Lee, President and Chairman, stated: "We are pleased with the strong first quarter as, despite a weakening U.S. dollar, we achieved Operating EBITDA of €50.8 million and net income of €29.1 million. Operating EBITDA declined from the record level in the prior quarter, primarily as a result of lower sales volumes resulting from very high shipments in the prior quarter and delays in shipping in the current quarter, the 6% decline of the U.S. dollar versus the Euro during the current quarter and a non-cash stock compensation charge of €2.1 million."

Strong results for the fourth quarter and record results for the year ended December 31, 2010:

• Operating EBITDA in the fourth quarter of 2010 was €64.6 million ($87.8 million), compared to €23.5 million ($34.7 million) in the last quarter of 2009 and €65.5 million ($84.7 million) in the third quarter of 2010.
• In 2010, Operating EBITDA significantly increased fivefold to a record €224.0 million ($297.3 million) from €41.4 million ($57.7 million) in 2009.
• We reported net income of €35.3 million ($48.0 million), or €0.84 ($1.14) per basic share, for the fourth quarter of 2010, compared to €2.7 million ($4.0 million), or €0.08 ($0.12) per basic share, in the last quarter of 2009 and €46.1 million ($59.6 million), or €1.17 ($1.51) per basic share, in the third quarter of 2010.
• For 2010, we reported net income of €86.3 million ($114.5 million), or €2.24 ($2.97) per basic share, compared to a net loss of €62.2 million ($86.7 million), or €1.71 ($2.38) per basic share, in 2009.

Mr. Jimmy S.H. Lee, President and Chairman, stated: "We are very pleased with the strong fourth quarter and overall yearly performance in 2010 as we achieved record annual pulp production and Operating EBITDA of €224.0 million. Fourth quarter Operating EBITDA of €64.6 million was down marginally from the record third quarter as a result of a slightly weaker U.S. dollar versus the Euro, extreme winter weather conditions in Germany and temporary equipment outages which negatively affected production at our Overall, pulp prices in the fourth quarter of 2010 remained near historically high levels but were somewhat lower than the third quarter. At the end of 2010, list prices in Europe were approximately $950 per ADMT and in North America and China were approximately $960 and $840 per ADMT, respectivelyGerman mills. Both the quarterly and yearly results reflect strong performances by all of our mills, including our Celgar mill which started to achieve our projected performance targets." 

We may have received an early clue that MERC will report significant improvements in its 2010 fourth quarter financials.

• Raymond James ups MERC target to 15 from 10

We view this as a very positive development, since it comes well after the completion of 2010 year end. Recall that our price target has been initially set at $17.40.

On November 30, 2010 we coded MERC as a GeoSpecial @ $6.93

• The company has put together three strong financial quarters in a row
  
  
  • Revenues for 1st quarter 2010 vs 2009: $237.1 million vs. $183.6 million
  • Adjusted EPS for 1st quarter 2010 vs. 2009: $0.15 vs. ($0.71)
    
  • Revenues for 2nd quarter 2010 vs 2009: $316 million vs. $209 million
  • Adjusted EPS for 2nd quarter 2010 vs. 2009: $0.63 vs. ($0.85)
    
  • Revenues for 3rd quarter 2010 vs 2009: $308.4 million vs. $204.5 million
  • Adjusted EPS for 3rd quarter 2010 vs. 2009: $0.82 vs. ($0.52) 
    
• Was selling at a trailing nine month P/E of 4.34

• Sees stable pulp prices for the medium term

• High operating leverage, meaning than operating profits can grow much faster than sales.

• Diversification of its business into other areas, and has exposure to Asia 
  
  "All three mills are able to generate more electricity than they consume, allowing the excess green energy that is generated to be sold.  Additionally, we anticipate that the sales of surplus energy with the completion of the Cellar Energy Project should provide us with a new, stable revenue source unrelated to pulp pricing.

Caveats

• Lack of historical EPS consistency, exposure to currency fluctuations and a whopping debt to equity ratio of 142% could limit P/E expansion.

• Less clarity on the 2010 fourth quarter. (Clarity improves in 2011)

• Low P/E industry