Stella-Jones Reports 2022 Year-End Results
Stella-Jones Inc. (“Stella-Jones” or the “Company”) announced financial results for its fourth quarter and year ended December 31, 2022.
“Stella-Jones concluded 2022 on a very strong note, and I am proud of the robust performance we delivered as a Company,” said Eric Vachon, President and CEO of Stella-Jones. “Our fourth quarter sales continued their upward trajectory, reflecting more than a 25% organic increase in utility poles sales, sustained growth in railway ties sales and better than anticipated residential lumber sales. Our exceptional results in 2022 can be credited to several contributors, from the efforts of our dedicated team to our expansive North American network. In a year of challenging market and macroeconomic conditions, our proven ability to procure the fibre required to meet customer demand and pass through cost increases were true keystones of our success, and a testament to the resilient character of our business model.”
“Our strong performance was further bolstered by the contributions of our most recent accretive acquisitions. The timely addition of Cahaba has allowed us to seize growth opportunities, while Texas Electric Cooperatives’ pole treating facility represents a strategic addition to our network, and I am very pleased with its contribution thus far,” added Mr. Vachon. “2022 marks a 22nd consecutive year of increased sales for Stella-Jones and the completion of the first year of our three-year plan, marked by exceptional utility poles sales growth, which we expect will continue in 2023. From where we stand, we are well on our way to meet or exceed our objectives, and remain favourably positioned for the future, with continued growth in sales, profitability and in turn, shareholder value,” he concluded.
| Financial Highlights (in millions of Canadian dollars, except per share data and margins) | Q4-22 | Q4-21 | 2022 | 2021 |
| Sales | 665 | 545 | 3,065 | 2,750 |
| Gross profit(1) | 112 | 65 | 524 | 456 |
| Gross profit margin(1) | 16.8% | 11.9% | 17.1% | 16.6% |
| EBITDA(1) | 87 | 52 | 448 | 400 |
| EBITDA margin(1) | 13.1% | 9.5% | 14.6% | 14.5% |
| Operating income | 61 | 32 | 359 | 326 |
| Operating income margin(1) | 9.2% | 5.9% | 11.7% | 11.9% |
| Net income for the period | 36 | 22 | 241 | 227 |
| Earnings per share – basic and diluted | 0.61 | 0.34 | 3.93 | 3.49 |
| Weighted average shares outstanding (basic, in ‘000s) | 59,449 | 64,292 | 61,421 | 65,002 |
Fourth Quarter Results
Sales for the fourth quarter of 2022 increased by 22% to $665 million, compared to sales of $545 million for the same period in 2021. Excluding the $34 million favourable impact of currency conversion and the contribution from the acquisitions of Cahaba Pressure Treated Forest Products, Inc. and Cahaba Timber, Inc. (together “Cahaba”) and Texas Electric Cooperatives, Inc. (“TEC”) of $19 million, pressure-treated wood sales rose $60 million, or 12%. The growth was driven by the sales of the Company’s infrastructure-related businesses, namely utility poles, railway ties and industrial products, which grew by 17% compared to the same period last year. Higher pricing across all product categories, particularly utility poles and railway ties, and increased demand for utility poles were partially offset by lower railway ties and residential lumber volumes.
Pressure-Treated Wood Products
- Utility poles (49% of Q4-22 sales): Utility poles sales amounted to $326 million, up from $227 million for the same period last year. Excluding the currency conversion effect and the contribution from the acquisitions, sales increased 27%, mainly driven by higher pricing and, to a lesser extent, increased volumes.
- Railway ties (24% of Q4-22 sales): Sales of railway ties amounted to $161 million, versus $147 million in the corresponding period last year. Excluding the currency conversion effect, sales of railway ties increased by 2%, attributable to improved pricing for both Class 1 and non-Class 1 business, largely offset by lower volumes, particularly from Class 1 customers.
- Residential lumber (15% of Q4-22 sales): Residential lumber sales totaled $100 million, down from $107 million in the fourth quarter of 2021. Excluding the currency conversion effect, sales decreased 8%, attributable to lower sales volumes as pricing was relatively unchanged compared to the fourth quarter of 2021.
- Industrial products (5% of Q4-22 sales): Industrial product sales amounted to $32 million, up compared to the $25 million of sales generated a year ago, primarily due to higher project-related bridge and crossing sales.
Logs and Lumber
- Logs and lumber (7% of Q4-22 sales): Logs and lumber sales totaled $46 million, up 13% compared to the same period last year, mainly attributable to higher log sales.
Gross profit(1) was $112 million in the fourth quarter of 2022, versus $65 million, in the fourth quarter of 2021, representing a margin(1) of 16.8% and 11.9% respectively. The increase was primarily attributable to pricing gains outpacing cost increases in the fourth quarter of 2022 for certain infrastructure-related product categories, as well as the improvement in the gross profit of residential lumber compared to the marginal gross profit generated in the fourth quarter of last year. The gross profit of residential lumber in the fourth quarter of 2021 was impacted by the drop in demand in the second half of the year and the resulting higher cost of inventory on hand. Acquisitions and the effect of the positive currency conversion further contributed to the higher gross profit in the fourth quarter of 2022, compared to the same period last year.
Operating income totaled $61 million in the fourth quarter of 2022 versus operating income of $32 million in the corresponding period of 2021 while EBITDA(1) increased to $87 million, compared to $52 million reported in the fourth quarter of 2021.
Net income for the fourth quarter of 2022 was $36 million, or $0.61 per share, compared to net income of $22 million, or $0.34 per share, in the corresponding period of 2021.
(1) Refer to the section “Non-GAAP and other financial measures” in this press release.
2022 Results
Sales in 2022 were up 11% to $3,065 million, compared to $2,750 million in 2021. Excluding the impact of the Cahaba and TEC acquisitions of $66 million and the currency conversion of $73 million, pressure-treated wood sales rose $206 million or 8%. Infrastructure-related sales grew by 14%, while residential lumber sales were lower compared to the record high sales in 2021. Pricing gains across all infrastructure-related product categories and increased maintenance and project-related demand for utility poles were partially offset by lower sales volumes for railway ties and residential lumber. The decrease in logs and lumber sales was largely driven by lower lumber sales activity compared to the prior year.
Pressure-Treated Wood Products
- Utility poles (40% of 2022 sales): Utility poles sales increased to $1,227 million in 2022, compared to sales of $925 million in 2021. Excluding the contribution from the acquisitions of Cahaba and TEC in 2022, and the currency conversion effect, utility poles sales increased by $197 million, or 21%, driven by upward sales price adjustments in response to higher costs and increased maintenance and project-related demand, particularly for Southern Yellow Pine poles in the U.S. south east.
- Railway ties (24% of 2022 sales): Railway ties sales were $750 million in 2022, compared to sales of $700 million in 2021. Excluding the currency conversion effect, railway ties sales increased $27 million, or 4%, due to favourable sales price adjustments, largely to cover higher fibre and preservative costs, offset in part by reduced maintenance demand of certain Class 1 customers.
- Residential lumber (24% of 2022 sales): Sales in the residential lumber category decreased to $744 million in 2022, compared to sales of $773 million in 2021. Excluding the currency conversion effect, residential lumber sales decreased $36 million, or 5%, driven by the slower start to the 2022 season and lower pricing compared to the market-driven record prices in the first half of 2021. While sales in 2022 were lower compared to 2021, they were up over 55% compared to sales of $471 million generated in the pre-pandemic period of 2019.
- Industrial products (5% of 2022 sales): Industrial product sales increased to $143 million in 2022 compared to sales of $121 million in 2021. Excluding the currency conversion effect, industrial product sales rose by $18 million, or 15%, largely stemming from increased sales for pilings, timbers and bridges.
Logs and Lumber
- Logs and lumber (7% of 2022 sales): Sales in the logs and lumber product category were $201 million in 2022, down from $231 million in 2021. The decrease in sales was largely due to lower lumber trading activity compared to last year.
Gross profit(1) was $524 million in 2022 compared to $456 million in 2021, representing a margin(1) of 17.1% and 16.6%, respectively. The increase in gross profit, in absolute dollars and as a percentage of sales, was largely attributable to favourable price adjustments realized for infrastructure-related product categories, which outpaced higher costs. The increase in absolute dollars was partially offset by lower demand for railway ties, residential lumber and logs and lumber. The full year contribution of the Cahaba acquisition and the positive impact of the currency conversion also benefited gross profit for the year ended December 31, 2022.
Operating income totaled $359 million in 2022 versus operating income of $326 million in 2021 while EBITDA(1) increased 12% to $448 million in 2022, compared to $400 million in 2021. Despite the higher EBITDA, the EBITDA margin(1) in 2022 remained relatively unchanged at 14.6% versus 14.5% in 2021 as it was impacted by other losses recognized in the year. Excluding other losses of eight million dollars, primarily related to the retirement of idled equipment, the Company’s EBITDA margin was closer to its target of 15% in 2022.
(1) Refer to the section “Non-GAAP and other financial measures” in this press release.
Liquidity and Capital Resources
During the year ended December 31, 2022, Stella-Jones generated cash from operations of $255 million. It used its operating cashflows and available credit to invest in capital expenditures, acquire two businesses, Dinsmore Trucking group and TEC, and return $230 million of capital to shareholders through share buybacks and the payment of dividends. In 2022, the dividend paid amounted to $0.80 per share, representing an 11% increase compared to 2021. As at December 31, 2022, the net debt-to-EBITDA ratio(1) was 2.5x and the Company had available liquidity of $259 million (US$191 million).
Subsequent to year-end, the Company amended and restated the U.S. Farm Credit Agreement to increase the amount available under the credit facilities to US$550 million and to extend the term of U.S. Farm Revolving Credit Facility to March 3, 2028.
Normal Course Issuer Bid
On November 8, 2022, the TSX accepted Stella-Jones’ Notice of Intention to Make a Normal Course Issuer Bid (“NCIB”) to purchase for cancellation up to 5,000,000 common shares during the 12-month period commencing November 14, 2022 and ending November 13, 2023, representing approximately 9.6% of the public float of its common shares.
In the three-month period ended December 31, 2022, the Company repurchased 828,257 common shares for cancellation in consideration of $36 million, under its NCIB then in effect. In 2022, the Company repurchased 4,696,312 common shares for cancellation in consideration of $181 million, under its NCIBs then in effect.
Quarterly Dividend Increased 15% to $0.23 Per Share
On March 7, 2023, the Board of Directors declared a quarterly dividend of $0.23 per common share payable on April 21, 2023 to shareholders of record at the close of business on April 3, 2023. This dividend is designated to be an eligible dividend.
(1) Refer to the section “Non-GAAP and other financial measures” in this press release.
2022-2024 Financial Objectives: Progress in 2022
In 2022, the Company made important strides in the achievement of the Company’s 2022-2024 financial objectives, as summarized in the table below. Its strong 2022 performance places the Company on a solid footing for 2023 and positions it favourably to meet or exceed the financial objectives set for 2022 to 2024. The Company will provide more insights on the above at its upcoming Investor Day on May 25, 2023 in Toronto, Ontario.
| (in millions of dollars, except percentages) | 2022-2024 Financial Objectives published March 9, 2022 (2) | 2022 | Result |
| Sales | $2,700-$3,000 | $3,065 | Target met |
| Infrastructure-Related Businesses | 75-80% of sales | 69% | In Progress |
| Residential Lumber | 20-25% of sales | 24% | Target met |
| EBITDA margin (1) | > 15% | 14.6% | In Progress |
| Utility Poles Growth Capex | $90-$100 | $33 | In Progress |
| Return to Shareholders | $500-$600 | $230 | In Progress |
| Net Debt-to-EBITDA (1) | 2.0x-2.5x | 2.5x | Target met |
(2) Refer to the 2021 Annual MD&A for further details and assumptions used in preparing the 2022-2024 financial objectives.
For the full fourth quarter results, click here.
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 the Canadian market through its national manufacturing and distribution network. The Company’s common shares are listed on the Toronto Stock Exchange.
Contact:
Silvana Travaglini, CPA – Senior Vice-President and Chief Financial Officer – stravaglini@stella-jones.com – (514) 934-8660
Source: Stella-Jones Inc.
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