Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today
announced financial results for its third quarter ended September
30, 2023.
“In Q3, Stella-Jones made notable progress in
its growth trajectory, delivering not only another quarter of
strong sales growth, but record increase in profitability,” said
Eric Vachon, President and Chief Executive Officer of Stella-Jones.
“These results were supported by the ongoing robust performance of
our infrastructure-related businesses, and by residential lumber
delivering in line with our expectations. While utility poles sales
continued to benefit from favourable pricing dynamics, we also saw
a progressive improvement in utility poles sales volumes in the
quarter, as well as significant production volume gains, stemming
from capital projects and the recent acquisition of Baldwin.
Combined with replenished railway tie inventory levels, we are
confident in the sustained growth of the Company as we move into
2024. Additionally, in the third quarter, we published our 2022
Environmental, Social and Governance Report, in which we introduced
our ESG strategy and targets to contribute to a more sustainable
future.”
“As we approach the end of the year, I am
pleased with the performance and milestones we have achieved so far
in 2023. They highlight our ability to capitalize on positive
industry trends by leveraging our expansive North American presence
and the invaluable collective expertise of our people to drive
long-term profitable growth for our shareholders,” concluded Mr.
Vachon.
Financial Highlights (in millions of Canadian
dollars, except per share data and margins) |
Q3-23 |
Q3-22 |
YTD Q3-23 |
YTD Q3-22 |
Sales |
949 |
|
842 |
|
2,631 |
|
2,400 |
|
Gross profit(1) |
215 |
|
139 |
|
551 |
|
412 |
|
Gross profit margin(1) |
22.7 |
% |
16.5 |
% |
20.9 |
% |
17.2 |
% |
EBITDA(1) |
193 |
|
119 |
|
488 |
|
361 |
|
EBITDA margin(1) |
20.3 |
% |
14.1 |
% |
18.5 |
% |
15.0 |
% |
Operating income |
166 |
|
98 |
|
410 |
|
298 |
|
Operating income margin(1) |
17.5 |
% |
11.6 |
% |
15.6 |
% |
12.4 |
% |
Net income for the period |
110 |
|
65 |
|
270 |
|
205 |
|
Earnings per share ("EPS") - basic and diluted |
1.91 |
|
1.07 |
|
4.63 |
|
3.30 |
|
Weighted average shares outstanding (basic, in ‘000s) |
57,690 |
|
60,682 |
|
58,258 |
|
62,078 |
|
(1) Refer to the section "Non-GAAP and other
financial measures" in this press release
THIRD QUARTER RESULTS
Sales in the third quarter of 2023 increased by
13% to $949 million, compared to sales of $842 million last year.
Excluding the contribution from the acquisition of the utility pole
manufacturing business of Texas Electric Cooperatives, Inc. (“TEC”)
in November 2022 and Baldwin in 2023, and the positive effect of
currency conversion, sales were up $61 million or 7%. The increase
was driven by a 17% organic sales growth in 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 continued strong organic sales
growth, particularly for the Company’s largest product category,
utility poles, EBITDA(1) increased to $193 million in the third
quarter of 2023 compared to $119 million in the third quarter last
year and EBITDA margin(1) expanded from 14.1% in 2022 to 20.3% in
2023.
Pressure-treated wood
products:
- Utility poles (46% of Q3-23 sales): Utility
poles sales amounted to $438 million, up from $331 million for the
same period last year. Excluding the contribution from acquisitions
and the currency conversion effect, utility poles sales increased
by $68 million, or 21%. The increase was driven by higher pricing
as sales volumes remained relatively unchanged when compared to the
same quarter last year but were higher versus the prior quarter. In
the third quarter of 2023, production volumes continued to
increase, benefiting from additional capacity stemming from capital
projects. This incremental production enabled the Company to
increase inventories to the level required to secure and deliver on
longer-term sales commitments.
- Railway ties (24% of Q3-23 sales): Sales of
railway ties amounted to $230 million, versus $199 million in the
corresponding period last year. Excluding the currency conversion
effect, sales of railway ties increased by $26 million, or 13%,
largely attributable to sales price increases, in response to
higher costs. Volumes were relatively stable compared to the same
period last year as lower non-Class 1 volumes, due to the reduced
level of treated ties inventory following the limited fibre supply
availability in 2022, were offset by higher sales volumes for Class
1 customers, largely attributable to timing of shipments.
- Residential lumber (21% of Q3-23 sales): Sales
in residential lumber decreased $24 million to $202 million in the
third quarter of 2023, compared to sales of $226 million in the
corresponding period last year. Excluding the currency conversion
effect, residential lumber sales decreased $25 million, or 11%.
While sales volumes were higher in the third quarter of 2023
compared to the same quarter last year, the volume gains were not
sufficient to offset lower pricing attributable to the decrease in
the market price of lumber.
- Industrial products (5% of Q3-23 sales):
Industrial product sales were $42 million in the third quarter of
2023, relatively unchanged compared to sales of $40 million in the
corresponding period last year.
- Logs and lumber (4% of Q3-23 sales): Sales in
the logs and lumber product category were $37 million in the third
quarter of 2023, compared to $46 million in the corresponding
period last year. The decrease in sales compared to the third
quarter last year was largely attributable to less lumber trading
activity. Logs sales remained stable as higher log sales activity
was largely offset by the lower market price of logs.
Gross profit(1) was $215 million in the third
quarter of 2023, compared to $139 million in the corresponding
period last year, representing a margin(1) of 22.7% and 16.5%,
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
utility poles, and the contribution of the wood utility pole
manufacturing businesses acquired in late 2022 and 2023. 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 $166 million in the
third quarter of 2023 versus operating income of $98 million in the
corresponding period of 2022.
Net income for the third quarter of 2023 was
$110 million, or $1.91 per share, compared to net income of $65
million, or $1.07 per share, in the corresponding period of
2022.
(1) Refer to the section "Non-GAAP and other
financial measures" in this press release
NINE-MONTH RESULTS
For the first nine months of 2023, sales
amounted to $2,631 million, versus $2,400 million for the
corresponding period last year, driven by a 15% organic sales
growth of the Company’s infrastructure-related businesses.
Excluding the contribution from the acquisition of the TEC and
Baldwin assets of $60 million and the currency conversion of $83
million, pressure-treated wood sales rose by $147 million, or 7%,
while logs and lumber sales dropped by $60 million or 39%. The
year-over-year organic growth in pressure-treated wood sales
stemmed from favourable pricing across all the
infrastructure-related product categories and higher residential
lumber volumes. These factors were partially offset by a decrease
in pricing for residential lumber and lower volumes for
infrastructure-related product categories. The lower logs and
lumber sales compared to the same period last year was largely
attributable to a decline in the market price of lumber and less
lumber trading activity.
Gross profit(1) increased to $551 million, or
20.9% of sales, from $412 million or 17.2% of sales, in the
corresponding period last year. Operating income amounted to $410
million, versus $298 million a year ago, while EBITDA(1) was $488
million, compared to $361 million in the prior year and EBITDA
margin(1) expanded from 15.0% in 2022 to 18.5% in 2023.
Net income in the first nine months of 2023 was
$270 million, or $4.63 per share, versus net income of $205
million, or $3.30 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 third quarter ended September 30,
2023, Stella-Jones used the cash generated from operations of $130
million to maintain and upgrade its assets, and expand and secure
production capacity, including acquiring the utility pole
manufacturing business of Baldwin, as well as return capital to
shareholders.
During the first nine months of 2023, the
Company has returned $145 million to its shareholders, through
dividends of $40 million and share repurchases of $105 million.
Since the beginning of the current Normal Course Issuer Bid
("NCIB") commencing on November 14, 2022, the Company has
repurchased 2,210,172 common shares for cancellation in
consideration of $125 million.
As at September 30, 2023, the Company had a
total of $271 million available under its credit facilities and
maintained a solid financial position with a net debt-to-EBITDA
ratio(1) of 2.4x.
(1) Refer to the section "Non-GAAP and other
financial measures" in this press release
ACQUISITION OF UTILITY POLE MANUFACTURING
BUSINESS
During the third quarter, the Company acquired
substantially all of the assets of the wood utility pole
manufacturing business of Baldwin for a total consideration of $64
million (US$49 million). Baldwin is a Southern Yellow Pine pole
treating business 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.
ANNOUNCEMENT OF NORMAL COURSE ISSUER
BID
On November 7, 2023, the Company announced that
the Toronto Stock Exchange has accepted its Notice of Intention to
Make a NCIB. Please refer to the press release issued by the
Company, a copy of which is located in the Investor relations
section of its website.
QUARTERLY DIVIDEND
On November 6, 2023, the Board of Directors
declared a quarterly dividend of $0.23 per common share payable on
December 21, 2023 to shareholders of record at the close of
business on December 4, 2023. This dividend is designated to be an
eligible dividend.
2023-2025 FINANCIAL
OBJECTIVES
The Company provided updated three-year
financial objectives at its Investor Day on May 25, 2023. 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.
PUBLICATION OF ENVIRONMENTAL, SOCIAL AND
GOVERNANCE (“ESG”) REPORT
On September 12, 2023, the Company published its
2022 ESG report. It can be found on the Stella-Jones website at:
www.stella-jones.com/en-CA/investor-relations/environmental-social-governance.
CONFERENCE CALL
Stella-Jones will hold a conference call to
discuss these results on November 7, 2023, at 10:00 a.m. Eastern
Standard 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/495629396.
This recording will be available on Tuesday, November 7, 2023, as
of 1:00 PM until 11:59 PM on Tuesday, November 14, 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 third quarter ended September 30, 2023 as well
as management’s discussion and analysis are available on
Stella-Jones’ website at
www.stella-jones.com.
Head Office |
Exchange Listings |
Investor Relations |
3100 de la Côte-Vertu Blvd., Suite 300 |
The Toronto Stock Exchange |
Silvana Travaglini |
Saint-Laurent, Québec |
Stock Symbol: SJ |
Senior Vice-President and Chief Financial Officer |
H4R 2J8 |
|
Tel.: 514-934-8660 |
Tel.: 514-934-8666 |
Transfer Agent and Registrar |
Fax: 514-934-5327 |
Fax: 514-934-5327 |
Computershare Investor Services Inc. |
stravaglini@stella-jones.com |
Source: |
Stella-Jones Inc. |
Stella-Jones Inc. |
Contacts: |
Silvana Travaglini, CPASenior Vice-President and
Chief Financial Officer Stella-JonesTel.:
514-934-8660stravaglini@stella-jones.com |
Stephanie CorrenteDirector, Corporate
Communications Stella-Jonescommunications@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 the three-month periods ended September
30, |
For the nine-month periods ended September
30, |
|
2023 |
|
2022 |
2023 |
|
2022 |
Sales |
949 |
|
842 |
2,631 |
|
2,400 |
Expenses |
|
|
|
|
Cost of sales (including depreciation and amortization (3 months
- $23 (2022 - $18) and 9 months - $66 (2022 - $53)) |
734 |
|
703 |
2,080 |
|
1,988 |
Selling and administrative (including depreciation and amortization
(3 months - $4 (2022 - $3) and 9 months - $12 (2022 - $10)) |
48 |
|
41 |
137 |
|
113 |
Other losses, net |
1 |
|
— |
4 |
|
1 |
|
783 |
|
744 |
2,221 |
|
2,102 |
Operating income |
166 |
|
98 |
410 |
|
298 |
Financial expenses |
17 |
|
10 |
47 |
|
22 |
Income before income taxes |
149 |
|
88 |
363 |
|
276 |
Income tax expense |
|
|
|
|
Current |
40 |
|
22 |
95 |
|
64 |
Deferred |
(1 |
) |
1 |
(2 |
) |
7 |
|
39 |
|
23 |
93 |
|
71 |
Net income |
110 |
|
65 |
270 |
|
205 |
Basic and diluted earnings per common share |
1.91 |
|
1.07 |
4.63 |
|
3.30 |
Stella-Jones Inc. Condensed Interim Consolidated
Statements of Financial Position (Unaudited) |
|
(expressed in millions of Canadian dollars) |
|
|
|
As at |
As at |
|
September 30, 2023 |
December 31, 2022 |
Assets |
|
|
Current assets |
|
|
Accounts receivable |
400 |
287 |
Inventories |
1,413 |
1,238 |
Income taxes receivable |
4 |
— |
Other current assets |
67 |
58 |
|
1,884 |
1,583 |
Non-current assets |
|
|
Property, plant and equipment |
883 |
755 |
Right-of-use assets |
192 |
160 |
Intangible assets |
173 |
171 |
Goodwill |
383 |
369 |
Derivative financial instruments |
30 |
29 |
Other non-current assets |
5 |
6 |
|
3,550 |
3,073 |
Liabilities and Shareholders’ Equity |
|
|
Current liabilities |
|
|
Accounts payable and accrued liabilities |
242 |
201 |
Income taxes payable |
22 |
7 |
Current portion of long-term debt |
103 |
1 |
Current portion of lease liabilities |
48 |
41 |
Current portion of provisions and other long-term liabilities |
19 |
9 |
|
434 |
259 |
Non-current liabilities |
|
|
Long-term debt |
1,088 |
940 |
Lease liabilities |
152 |
126 |
Deferred income taxes |
157 |
158 |
Provisions and other long-term liabilities |
29 |
26 |
Employee future benefits |
6 |
7 |
|
1,866 |
1,516 |
Shareholders’ equity Capital stock |
189 |
194 |
Retained earnings |
1,324 |
1,192 |
Accumulated other comprehensive income |
171 |
171 |
|
1,684 |
1,557 |
|
3,550 |
3,073 |
Stella-Jones Inc.Condensed Interim Consolidated
Statements of Cash Flows (Unaudited) |
|
|
|
|
|
|
|
|
(expressed in millions of Canadian dollars) |
For the three-month periods ended September
30, |
For the nine-month periods ended September
30, |
Cash flows from (used in) Operating
activities |
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Net income |
110 |
|
65 |
|
270 |
|
205 |
|
Adjustments for Depreciation of property, plant and equipment |
9 |
|
7 |
|
28 |
|
22 |
|
Depreciation of right-of-use assets |
14 |
|
10 |
|
38 |
|
30 |
|
Amortization of intangible assets |
4 |
|
4 |
|
12 |
|
11 |
|
Financial expenses |
17 |
|
10 |
|
47 |
|
22 |
|
Income tax expense |
39 |
|
23 |
|
93 |
|
71 |
|
Other |
(1 |
) |
2 |
|
4 |
|
2 |
|
|
192 |
|
121 |
|
492 |
|
363 |
|
Changes in non-cash working capital components Accounts
receivable |
25 |
|
66 |
|
(98 |
) |
(78 |
) |
Inventories |
(48 |
) |
56 |
|
(163 |
) |
61 |
|
Other current assets |
(1 |
) |
(10 |
) |
(11 |
) |
(26 |
) |
Accounts payable and accrued liabilities |
5 |
|
(10 |
) |
38 |
|
36 |
|
|
(19 |
) |
102 |
|
(234 |
) |
(7 |
) |
Interest paid |
(21 |
) |
(10 |
) |
(50 |
) |
(23 |
) |
Income taxes paid |
(22 |
) |
(20 |
) |
(83 |
) |
(48 |
) |
|
130 |
|
193 |
|
125 |
|
285 |
|
Financing activities Net change in revolving
credit facilities |
36 |
|
(81 |
) |
251 |
|
(34 |
) |
Proceeds from long-term debt |
— |
|
— |
|
— |
|
63 |
|
Repayment of long-term debt |
— |
|
— |
|
(1 |
) |
(33 |
) |
Repayment of lease liabilities |
(13 |
) |
(11 |
) |
(36 |
) |
(30 |
) |
Dividends on common shares |
(13 |
) |
(12 |
) |
(40 |
) |
(37 |
) |
Repurchase of common shares |
(45 |
) |
(59 |
) |
(105 |
) |
(142 |
) |
Other |
1 |
|
1 |
|
1 |
|
1 |
|
|
(34 |
) |
(162 |
) |
70 |
|
(212 |
) |
Investing activities |
|
|
|
|
Business combinations |
(52 |
) |
(8 |
) |
(85 |
) |
(8 |
) |
Purchase of property, plant and equipment |
(42 |
) |
(20 |
) |
(103 |
) |
(57 |
) |
Additions of intangible assets |
(2 |
) |
(3 |
) |
(7 |
) |
(8 |
) |
|
(96 |
) |
(31 |
) |
(195 |
) |
(73 |
) |
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 September 30, |
Nine-month periods ended September 30, |
2023 |
2022 |
2023 |
2022 |
Operating income |
166 |
98 |
410 |
298 |
Depreciation and amortization |
27 |
21 |
78 |
63 |
EBITDA |
193 |
119 |
488 |
361 |
Reconciliation of Long-Term Debt to Net Debt (in
millions of dollars) |
As at September 30, 2023 |
As at December 31, 2022 |
Long-term debt, including current portion |
1,191 |
941 |
Add: |
|
|
Lease liabilities, including current portion |
200 |
167 |
Net Debt |
1,391 |
1,108 |
EBITDA (TTM) |
575 |
448 |
Net Debt-to-EBITDA |
2.4x |
2.5x |
Stella Jones (TSX:SJ)
Historical Stock Chart
From Aug 2024 to Sep 2024
Stella Jones (TSX:SJ)
Historical Stock Chart
From Sep 2023 to Sep 2024