Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today
announced financial results for its second quarter ended June 30,
2023.
“Stella-Jones is executing on its three-year
growth plan with the achievement of another strong performance in
the second quarter, reflecting the upward momentum generated by
accelerating demand for our infrastructure-related products," said
Eric Vachon, President and Chief Executive Officer of Stella-Jones.
“Our second quarter results continued to benefit from higher
pricing dynamics for utility poles, railway ties and industrial
products, while residential lumber delivered sales in line with
expectations."
"In the second half of the year, we expect
replenished railway tie inventory levels and ongoing capital
projects for utility poles to facilitate anticipated volume gains,
while our recent acquisitions of Balfour Pole Co. and Baldwin Pole
and Pilings' assets will further broaden the Company's presence
across North America. Our performance so far this year aligns with
our plan to continue to grow our infrastructure-related businesses,
increase profitability, as evidenced by the strong EBITDA margin
generated in the second quarter, and to return capital and drive
value for our shareholders. Managing capital projects, acquisitions
and strong organic growth requires the resourcefulness and agility
of our team of experts, and I am proud to recognize their
invaluable contribution to our business."
Financial Highlights (in millions of Canadian
dollars, except per share data and margins) |
Q2-23 |
|
Q2-22 |
|
YTDQ2-23 |
|
YTDQ2-22 |
|
Sales |
972 |
|
907 |
|
1,682 |
|
1,558 |
|
Gross profit(1) |
200 |
|
173 |
|
336 |
|
273 |
|
Gross profit margin(1) |
20.6% |
|
19.1% |
|
20.0% |
|
17.5% |
|
EBITDA(1) |
175 |
|
154 |
|
295 |
|
242 |
|
EBITDA margin(1) |
18.0% |
|
17.0% |
|
17.5% |
|
15.5% |
|
Operating income |
149 |
|
133 |
|
244 |
|
200 |
|
Operating income margin(1) |
15.3% |
|
14.7% |
|
14.5% |
|
12.8% |
|
Net income for the period |
100 |
|
94 |
|
160 |
|
140 |
|
Earnings per share ("EPS") - basic and diluted |
1.72 |
|
1.51 |
|
2.73 |
|
2.23 |
|
Weighted average shares outstanding (basic, in ‘000s) |
58,292 |
|
62,321 |
|
58,543 |
|
62,794 |
|
(1) Refer to the section "Non-GAAP and other financial
measures" in this press release
SECOND QUARTER
RESULTS
Sales in the second quarter of 2023 increased by
7% to $972 million, compared to sales of $907 million last year.
Excluding the contribution from the 2022 acquisition of the utility
pole manufacturing business of Texas Electric Cooperatives, Inc.
(“TEC”) and the positive effect of currency conversion, sales were
up $17 million or 2%. The increase was driven by a 10% organic
sales growth of the Company’s infrastructure-related businesses,
namely utility poles, railway ties and industrial products, offset
in large part by lower residential lumber and logs and lumber sales
when compared to the same period last year. Led by the strong
organic sales growth, particularly for the Company’s largest
product category, utility poles, EBITDA(1) increased to $175
million in the second quarter of 2023 compared to $154 million in
the second quarter last year and EBITDA margin(1) expanded from
17.0% in 2022 to 18.0% in 2023.
Pressure-treated wood
products:
- Utility poles
(40% of
Q2-23 sales): Utility poles sales
amounted to $388 million, up from $316 million for the same period
last year. Excluding the contribution from the 2022 acquisition of
the TEC assets and the currency conversion effect, utility poles
sales increased by $40 million, or 13%, driven by higher pricing.
While demand for utility poles remained strong, delayed timing of
shipments and the deferred maintenance of utilities in California
due to the impact of extreme weather events, unfavourably impacted
sales volumes in the second quarter of 2023.
- Railway ties (24% of Q2-23
sales): Sales of railway ties amounted to $238 million,
versus $215 million in the corresponding period last year.
Excluding the currency conversion effect, sales of railway ties
increased by $13 million, or 6%, attributable to sales price
increases, largely to cover higher costs. This increase was offset
in part by lower non-Class 1 volumes, largely due to the reduced
level of treated ties inventory following the limited fibre supply
availability in 2022.
- Residential lumber (28% of
Q2-23 sales): Sales in residential lumber decreased $15
million to $271 million in the second quarter of 2023, compared to
sales of $286 million in the corresponding period last year.
Excluding the currency conversion effect, residential lumber sales
decreased $18 million, or 6%. While sales volumes were higher in
the second quarter of 2023 compared to the same quarter last year,
the volume gains were not enough to offset lower pricing
attributable to the decrease in the market price of lumber.
- Industrial products (4% of
Q2-23 sales): Industrial product sales were $43 million in
the second quarter of 2023, compared to sales of $38 million in the
corresponding period last year. The increase was largely due to
higher pricing across most industrial products.
Logs and lumber:
- Logs and lumber
(4% of
Q2-23 sales): Sales in the logs
and lumber product category were $32 million in the second quarter
of 2023, as compared to $52 million in the corresponding period
last year. The decrease in sales was largely attributable to lower
logs and lumber pricing compared to the second quarter last
year.
Gross profit(1) was $200 million in the second
quarter of 2023, compared to $173 million in the corresponding
period last year, representing a margin(1) of 20.6% and 19.1%
respectively. The increase in gross profit in absolute dollars was
largely due to the margin expansion of the Company’s
infrastructure-related businesses, particularly stemming from the
price increases realized for utility poles. This improvement was
offset in part by a decrease in the gross profit of residential
lumber due to lower pricing. As a percentage of sales, the gross
profit margin also benefited from a better product mix, led by the
strong growth of utility poles sales. Similarly, operating income
totaled $149 million in the second quarter of 2023 versus operating
income of $133 million in the corresponding period of 2022.
Net income for the second quarter of 2023 was
$100 million, or $1.72 per share, compared to net income of $94
million, or $1.51 per share, in the corresponding period of
2022.
(1) Refer to the section "Non-GAAP and other financial
measures" in this press release
SIX-MONTH
RESULTS
For the first six months of 2023, sales amounted
to $1,682 million, versus $1,558 million for the corresponding
period last year, driven by the 13% organic sales growth of the
Company’s infrastructure-related businesses. Excluding the
contribution from the 2022 acquisition of the TEC assets of $31
million and the currency conversion of $66 million,
pressure-treated wood sales rose by $77 million, or 5%, while logs
and lumber sales dropped by $51 million or 47%. The year-over-year
organic growth in pressure-treated wood sales stemmed from
favourable pricing for utility poles and railway ties, as well as,
higher residential lumber volumes. These factors were partially
offset by lower residential lumber pricing, as well as lower
volumes for utility poles and railway ties. The decrease in logs
and lumber sales compared to the same period last year is largely
attributable to a decline in the market price of logs and
lumber.
Gross profit(1) increased to $336 million, or
20.0% of sales, from $273 million or 17.5% of sales, in the
corresponding period last year. Operating income amounted to $244
million, versus $200 million a year ago, while EBITDA(1) was $295
million, compared to $242 million in the prior year and EBITDA
margin(1) expanded from 15.5% in 2022 to 17.5% in 2023.
Net income in the first six months of 2023 was
$160 million, or $2.73 per share, versus net income of $140
million, or $2.23 per share, in the corresponding period last year.
Earnings per share was positively impacted by the increase in net
income and the Company’s repurchase of shares through its normal
course issuer bids.
(1) Refer to the section "Non-GAAP and
other financial measures" in this press release
LIQUIDITY AND CAPITAL
RESOURCES
During the second quarter ended June 30, 2023,
Stella-Jones used the cash generated from operations of $127
million to maintain the quality of its assets, and expand and
secure production capacity, including acquiring the utility pole
peeling and drying assets of Balfour Pole Co., as well as return
capital to shareholders.
During the first six months of 2023, the Company
has returned $87 million to its shareholders, through dividends of
$27 million and share repurchases of $60 million. Since the
beginning of the Normal Course Issuer Bid on November 14, 2022, the
Company has repurchased 1,528,317 common shares for cancellation in
consideration of $80 million.
As at June 30, 2023, the Company had a total of
$292 million available under its credit facilities and maintained a
solid financial position with a net debt-to-EBITDA ratio(1) of
2.6x.
(1) Refer to the section "Non-GAAP and other financial
measures" in this press release
ACQUISITIONS
During the second quarter, the Company acquired
substantially all of the Southern Yellow Pine pole peeling and
drying assets of Balfour Pole Co., located in Baconton, Georgia for
a total consideration of $20 million (US$15 million).
Similarly to the acquisition of the peeling and drying assets of
IndusTREE Pole & Piling in the first quarter of 2023, this
acquisition will provide security of supply to support the growing
demand for utility poles, as well as drive cost efficiencies.
In addition, subsequent to the quarter-end, the
Company acquired substantially all of the assets of the wood
utility pole manufacturing business of Baldwin Pole and Piling
(“Baldwin”) for a total consideration of approximately $64 million
(US$48 million). Baldwin is a Southern Yellow Pine pole treating
company with facilities in Bay Minette, Alabama and Wiggins,
Mississippi. This acquisition will expand the Company’s capacity to
supply the growing needs of North America’s utility pole industry,
while optimizing the overall efficiency of its continental
network.
QUARTERLY DIVIDEND
On August 8, 2023, the Board of Directors
declared a quarterly dividend of $0.23 per common share payable on
September 25, 2023 to shareholders of record at the close of
business on September 5, 2023. This dividend is designated to
be an eligible dividend.
2023-2025 FINANCIAL
OBJECTIVES
The Company held its inaugural Investor Day on
May 25, 2023, during which it provided its updated three-year
financial objectives, which now extend to 2025. Excluding
acquisitions, the Company’s 2023-2025 financial objectives are set
forth in the following table:
(in millions of dollars, except percentages and ratios) |
Updated 2023-2025 Objectives
(2) |
Sales |
> $3,600 |
EBITDA margin (1) |
16% |
Return to
Shareholders: cumulative |
> $500 |
Net Debt-to-EBITDA (1)(3) |
2.0x-2.5x |
Key Highlights:
- Projected compound annual growth
rate ("CAGR") for sales of 6% for the 2023-2025 period, driven by a
9% CAGR for the Company's infrastructure-related businesses,
expected to account for 75%-80% of total sales:
- Utility poles: 15% sales CAGR,
supported by a growth capital expenditure program of $115
million;
- Railway ties: low single-digit
annual sales growth;
- Residential lumber: annual sales
target of $600-$650 million, representing less than 20% of total
sales;
- Expansion of EBITDA margin(1) to
16% through 2025 driven by improvement in product mix.
(1) Refer to the section "Non-GAAP and other financial
measures" in this press release.(2) Foreign Exchange: assumes
Canadian dollar will trade, on average, at approximately C$1.30 per
U.S. dollar, with sales in the U.S. representing approximately 70%
of total sales.(3) May temporarily exceed range to finance
strategic growth opportunities related to its
infrastructure-related businesses.
CONFERENCE CALL
Stella-Jones will hold a conference call to
discuss these results on August 9, 2023, at 10:00 a.m. Eastern
Daylight Time. Interested parties can join the call by dialing
1-866-518-4114. A live audio webcast of the conference call will be
available on the Company’s website, on the Investor relations
section’s home page or here: https://web.lumiagm.com/469860628.
This recording will be available on Wednesday, August 9, 2023, as
of 1:00 PM until 11:59 PM on Wednesday, August 16, 2023.
ABOUT STELLA-JONES
Stella-Jones Inc. (TSX: SJ) is North America’s
leading producer of pressure-treated wood products. It supplies the
continent’s major electrical utilities and telecommunication
companies with wood utility poles and North America’s Class 1,
short line and commercial railroad operators with railway ties and
timbers. Stella-Jones also provides industrial products, which
include wood for railway bridges and crossings, marine and
foundation pilings, construction timbers and coal tar-based
products. Additionally, the Company manufactures and distributes
premium treated residential lumber and accessories to Canadian and
American retailers for outdoor applications, with a significant
portion of the business devoted to servicing Canadian customers
through its national manufacturing and distribution network. The
Company’s common shares are listed on the Toronto Stock
Exchange.
CAUTION REGARDING FORWARD-LOOKING
INFORMATION
Except for historical information provided
herein, this press release may contain information and statements
of a forward-looking nature concerning the future performance of
the Company. These statements are based on suppositions and
uncertainties as well as on management's best possible evaluation
of future events. Such items include, among others: general
political, economic and business conditions, evolution in customer
demand for the Company's products and services, product selling
prices, availability and cost of raw materials, climate change,
failure to recruit and retain qualified workforce, information
security breaches or other cyber-security threats, changes in
foreign currency rates, the ability of the Company to raise capital
and factors and assumptions referenced herein and in the Company’s
continuous disclosure filings. As a result, readers are advised
that actual results may differ from expected results. Unless
required to do so under applicable securities legislation, the
Company does not assume any obligation to update or revise
forward-looking statements to reflect new information, future
events or other changes after the date hereof.
Note to readers:
Condensed interim unaudited consolidated financial
statements for the second quarter
ended June 30, 2023 as well as
management’s discussion and analysis are available on Stella-Jones’
website at
www.stella-jones.com.
Head Office3100 de la Côte-Vertu Blvd., Suite
300Saint-Laurent, QuébecH4R 2J8 Tel.: (514) 934-8666Fax: (514)
934-5327 |
Exchange ListingsThe Toronto Stock ExchangeStock
Symbol: SJTransfer Agent and
RegistrarComputershare Investor Services Inc. |
Investor RelationsSilvana TravagliniSenior
Vice-President and Chief Financial OfficerTel.: (514) 934-8660Fax:
(514) 934-5327stravaglini@stella-jones.com |
Stella-Jones Inc.Condensed Interim Consolidated
Statements of Income(Unaudited) |
(expressed in millions of Canadian dollars,
except earnings per common share)
|
For thethree-month
periodsended June 30, |
For thesix-month
periodsended June 30, |
|
2023 |
2022 |
2023 |
|
2022 |
|
|
|
|
|
Sales |
972 |
907 |
1,682 |
|
1,558 |
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
Cost of sales (including
depreciation and amortization (3 months - $22 (2022 - $18) and 6
months - $43 (2022 - $35)) |
772 |
734 |
1,346 |
|
1,285 |
Selling and administrative
(including depreciation and amortization (3 months - $4 (2022 - $3)
and 6 months - $8 (2022 - $7)) |
48 |
39 |
89 |
|
72 |
Other losses, net |
3 |
1 |
3 |
|
1 |
|
823 |
774 |
1,438 |
|
1,358 |
Operating
income |
149 |
133 |
244 |
|
200 |
|
|
|
|
|
Financial
expenses |
16 |
6 |
30 |
|
12 |
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
133 |
127 |
214 |
|
188 |
|
|
|
|
|
Income tax
expense |
|
|
|
|
Current |
31 |
29 |
55 |
|
42 |
Deferred |
2 |
4 |
(1 |
) |
6 |
|
|
|
|
|
|
33 |
33 |
54 |
|
48 |
|
|
|
|
|
Net
income |
100 |
94 |
160 |
|
140 |
|
|
|
|
|
Basic and diluted
earnings per common share |
1.72 |
1.51 |
2.73 |
|
2.23 |
Stella-Jones Inc.Condensed Interim Consolidated
Statements of Financial Position(Unaudited) |
(expressed in millions of Canadian dollars)
|
As at |
As at |
|
June 30, 2023 |
December 31, 2022 |
Assets |
|
|
|
|
|
Current
assets |
|
|
Accounts receivable |
403 |
287 |
Inventories |
1,335 |
1,238 |
Income taxes receivable |
4 |
— |
Other current assets |
66 |
58 |
|
1,808 |
1,583 |
Non-current
assets |
|
|
Property, plant and
equipment |
804 |
755 |
Right-of-use assets |
169 |
160 |
Intangible assets |
165 |
171 |
Goodwill |
375 |
369 |
Derivative financial
instruments |
28 |
29 |
Other non-current assets |
6 |
6 |
|
3,355 |
3,073 |
Liabilities and
Shareholders’ Equity |
|
|
Current
liabilities |
|
|
Accounts payable and accrued
liabilities |
232 |
201 |
Income taxes payable |
4 |
7 |
Current portion of long-term
debt |
101 |
1 |
Current portion of lease
liabilities |
44 |
41 |
Current portion of provisions
and other long-term liabilities |
13 |
9 |
|
394 |
259 |
Non-current
liabilities |
|
|
Long-term debt |
1,038 |
940 |
Lease liabilities |
133 |
126 |
Deferred income taxes |
154 |
158 |
Provisions and other long-term
liabilities |
27 |
26 |
Employee future benefits |
9 |
7 |
|
1,755 |
1,516 |
Shareholders’
equity |
|
|
Capital stock |
191 |
194 |
Retained earnings |
1,268 |
1,192 |
Accumulated other
comprehensive income |
141 |
171 |
|
|
|
|
1,600 |
1,557 |
|
3,355 |
3,073 |
Stella-Jones Inc.Condensed Interim Consolidated
Statements of Cash Flows(Unaudited) |
(expressed in millions of Canadian dollars)
|
For thethree-month
periodsended June 30, |
|
For thesix-month
periodsended June 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Cash flows from (used
in) |
|
|
|
|
Operating
activities |
|
|
|
|
Net income |
100 |
|
94 |
|
160 |
|
140 |
|
Adjustments for |
|
|
|
|
Depreciation of property,
plant and equipment |
10 |
|
8 |
|
19 |
|
15 |
|
Depreciation of right-of-use
assets |
12 |
|
10 |
|
24 |
|
20 |
|
Amortization of intangible
assets |
4 |
|
3 |
|
8 |
|
7 |
|
Financial expenses |
16 |
|
6 |
|
30 |
|
12 |
|
Income tax expense |
33 |
|
33 |
|
54 |
|
48 |
|
Other |
3 |
|
— |
|
5 |
|
— |
|
|
178 |
|
154 |
|
300 |
|
242 |
|
|
|
|
|
|
Changes in non-cash working
capital components |
|
|
|
|
Accounts receivable |
(20 |
) |
8 |
|
(123 |
) |
(144 |
) |
Inventories |
23 |
|
65 |
|
(115 |
) |
5 |
|
Other current assets |
(8 |
) |
(9 |
) |
(10 |
) |
(16 |
) |
Accounts payable and accrued
liabilities |
22 |
|
34 |
|
33 |
|
46 |
|
|
17 |
|
98 |
|
(215 |
) |
(109 |
) |
Interest paid |
(14 |
) |
(5 |
) |
(29 |
) |
(13 |
) |
Income taxes paid |
(54 |
) |
(19 |
) |
(61 |
) |
(28 |
) |
|
127 |
|
228 |
|
(5 |
) |
92 |
|
Financing
activities |
|
|
|
|
Net change in revolving credit
facilities |
(2 |
) |
(192 |
) |
215 |
|
47 |
|
Proceeds from long-term
debt |
— |
|
63 |
|
— |
|
63 |
|
Repayment of long-term
debt |
(1 |
) |
(1 |
) |
(1 |
) |
(33 |
) |
Repayment of lease
liabilities |
(12 |
) |
(9 |
) |
(23 |
) |
(19 |
) |
Dividends on common
shares |
(27 |
) |
(25 |
) |
(27 |
) |
(25 |
) |
Repurchase of common
shares |
(30 |
) |
(44 |
) |
(60 |
) |
(83 |
) |
Other |
1 |
|
— |
|
— |
|
— |
|
|
(71 |
) |
(208 |
) |
104 |
|
(50 |
) |
Investing
activities |
|
|
|
|
Business combinations |
(20 |
) |
— |
|
(33 |
) |
— |
|
Purchase of property, plant
and equipment |
(33 |
) |
(17 |
) |
(61 |
) |
(37 |
) |
Additions of intangible
assets |
(3 |
) |
(3 |
) |
(5 |
) |
(5 |
) |
|
(56 |
) |
(20 |
) |
(99 |
) |
(42 |
) |
Net change in cash and
cash equivalents during the period |
— |
|
— |
|
— |
|
— |
|
Cash and cash
equivalents – Beginning of period |
— |
|
— |
|
— |
|
— |
|
Cash and cash
equivalents – End of period |
— |
|
— |
|
— |
|
— |
|
NON-GAAP AND OTHER FINANCIAL
MEASURES
This section includes information required by
National Instrument 52-112 – Non-GAAP and Other Financial Measures
Disclosure in respect of “specified financial measures” (as defined
therein).
The below-described non-GAAP measures have no
standardized meaning under GAAP and are not likely to be comparable
to similar measures presented by other issuers. The Company’s
method of calculating these measures may differ from the methods
used by others, and, accordingly, the definition of these non-GAAP
financial measures may not be comparable to similar measures
presented by other issuers. In addition, non-GAAP financial
measures should not be viewed as a substitute for the related
financial information prepared in accordance with GAAP.
Non-GAAP financial measures include:
- Gross profit:
Sales less cost of sales
- EBITDA: Operating
income before depreciation of property, plant and equipment,
depreciation of right-of-use assets and amortization of intangible
assets (also referred to as earnings before interest, taxes,
depreciation and amortization)
- Net debt: Sum of
long-term debt and lease liabilities (including the current
portion)
Non-GAAP ratios include:
- Gross profit
margin: Gross profit divided by sales for the
corresponding period
- EBITDA margin:
EBITDA divided by sales for the corresponding period
- Net debt-to-EBITDA: Net debt divided by
trailing 12-month (TTM) EBITDA
Other specified financial measures include:
- Operating income
margin: Operating income divided by sales for the
corresponding period
Management considers these non-GAAP and other
financial measures to be useful information to assist knowledgeable
investors to understand the Company’s operating results, financial
position and cash flows as they provide a supplemental measure of
its performance. Management uses non-GAAP and other financial
measures in order to facilitate operating and financial performance
comparisons from period to period, to prepare annual budgets, to
assess the Company’s ability to meet future debt service, capital
expenditure and working capital requirements, and to evaluate
senior management’s performance. More specifically:
- Gross profit and gross
profit margin: The Company uses these financial measures
to evaluate its ongoing operational performance.
- EBITDA and EBITDA
margin: The Company believes these measures provide
investors with useful information because they are common industry
measures, used by investors and analysts to measure a company’s
ability to service debt and to meet other payment obligations, or
as a common valuation measurement. These measures are also key
metrics of the Company's operational and financial
performance.
- Net debt and net debt-to
EBITDA: The Company believes these measures are indicators
of the financial leverage of the Company.
The following tables present the reconciliations
of non-GAAP financial measures to their most comparable GAAP
measures.
Reconciliation of operating income to EBITDA(in
millions of dollars) |
Three-month periods ended June 30, |
Six-month periods ended June 30, |
|
2023 |
2022 |
2023 |
2022 |
Operating income |
149 |
133 |
244 |
200 |
Depreciation and amortization |
26 |
21 |
51 |
42 |
EBITDA |
175 |
154 |
295 |
242 |
Reconciliation of Long-Term Debt to Net Debt(in
millions of dollars) |
As atJune 30, 2023 |
As atDecember 31, 2022 |
Long-term debt, including current portion |
1,139 |
941 |
Add: |
|
|
Lease liabilities, including current portion |
177 |
167 |
Net Debt |
1,316 |
1,108 |
EBITDA (TTM) |
501 |
448 |
Net Debt-to-EBITDA |
2.6x |
2.5x |
|
|
|
Source: |
Stella-Jones
Inc. |
Stella-Jones
Inc. |
|
|
|
Contacts: |
Silvana Travaglini,
CPA |
Stephanie
Corrente |
|
Senior Vice-President and
Chief Financial Officer Stella-Jones |
Director, Corporate
CommunicationsStella-Jones |
|
Tel.: (514) 934-8660 |
|
|
stravaglini@stella-jones.com |
communications@stella-jones.com |
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