Stella-Jones Reports Record First Quarter Results; Growth Plan is in Action

Stella-Jones Inc. (“Stella-Jones” or the “Company”) announced financial results for its first quarter ended March 31, 2023.

“The Company had an excellent start to the year, propelled by the momentum of our growth in 2022,” said Eric Vachon, President and Chief Executive Officer of Stella-Jones. “Our record results in Q1 featured strong sales, higher EBITDA and margin, and were marked by an out-performance of our utility poles product category, which saw a 29% organic sales increase. Our first quarter results also reflected steady sales growth in railway ties, aligned with our expectations for this product category, and an anticipated pullback in residential lumber sales compared to 2022.”

“Stella-Jones’ performance in the first quarter further evidenced our ongoing proactivity in securing fibre supply and increasing pole production capacity, and our financial strength to support growth. We are executing on our plan to grow our infrastructure-related businesses, and deliver on our commitment to return capital to shareholders. As we continue to invest in our business and seek expansion opportunities, we are fulfilling or exceeding the objectives laid out in our 3-year plan and I am proud of our business for continuously delivering such a high standard of service to our customers,” he concluded.

First Quarter Results

Sales in the first quarter of 2023 were up 9% to $710 million, compared to $651 million last year. Excluding the contribution from the acquisition of the utility pole manufacturing business of Texas Electric Cooperatives, Inc. (“TEC”) and the positive effect of currency conversion, sales were up nine million dollars or 1%. The increase was driven by an 18% 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 $120 million in the first quarter of 2023 compared to $88 million in the first quarter last year and EBITDA margin⁽¹⁾ expanded from 13.5% in 2022 to 16.9%.

Pressure-Treated Wood Products

• Utility poles (51% of Q1-23 sales): Utility poles sales amounted to $362 million, up from $254 million for the same period last year. Excluding the contribution from the acquisition of TEC assets and the currency conversion effect, utility poles sales increased by $73 million, or 29%, driven by higher pricing. While the market demand for utility poles remained strong, sales volume gains were limited by the Company’s current production capacity, which was impacted in part by ongoing capital projects.
  
• Railway ties (27% of Q1-23 sales): Sales of railway ties amounted to $195 million, versus $175 million in the corresponding period last year. Excluding the currency conversion effect, sales of railway ties increased by nine million dollars, or 5%, attributable to favourable sales price adjustments, largely to cover higher costs. This increase was offset in part by a decrease in volumes for non-Class 1 customers due to the reduced level of treated ties inventory following the limited fibre supply availability in 2022.
  
• Residential lumber (13% of Q1-23 sales): Sales in residential lumber decreased $42 million to $90 million in the first quarter of 2023, compared to sales of $132 million in the corresponding period last year. Excluding the currency conversion effect, residential lumber sales decreased $44 million, or 33%. This decrease was attributable to lower volumes and pricing compared to the stronger demand and the rise in the market price of lumber in the same quarter last year.
  
• Industrial products (5% of Q1-23 sales): Industrial product sales were $36 million in the first quarter of 2023, compared to sales of $33 million in the corresponding period last year. The increase was largely due to higher volumes related to bridge projects.

Logs and Lumber

• Logs and lumber (4% of Q1-23 sales): Sales in the logs and lumber product category were $27 million in the first quarter of 2023, as compared to $57 million in the corresponding period last year. The decrease in sales was attributable to lower lumber trading volumes and pricing compared to the first quarter last year.

Gross profit⁽¹⁾ was $136 million in the first quarter of 2023 compared to $100 million in the corresponding period last year, representing a margin⁽¹⁾ of 19.2% and 15.4%, respectively. The increase in gross profit in absolute dollars was largely due to the margin expansion of the Company’s infrastructure-related product categories, particularly stemming from the favourable price adjustments realized for utility poles and railway ties. This improvement was offset in part by a decrease in the gross profit of residential lumber, mainly 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 $95 million in the first quarter of 2023 versus operating income of $67 million in the corresponding period of 2022 while EBITDA⁽¹⁾ increased to $120 million, compared to $88 million reported in the first quarter of 2022.

Net income for the first quarter of 2023 was $60 million, or $1.03 per share, compared to net income of $46 million, or $0.73 per share, in the corresponding period of 2022.

Liquidity and Capital Resources

During the quarter ended March 31, 2023, Stella-Jones used its liquidity to support the seasonal increase in working capital requirements, invest to maintain the quality of its assets, and expand and secure its production capacity, including acquiring the pole peeling and drying assets of IndusTREE Pole & Piling, LLC (“IndusTREE”), as well as return capital to shareholders.

In the three-month period ended March 31, 2023, the Company repurchased 608,709 common shares for cancellation in consideration of $30 million, under its current Normal Course Issuer Bid (“NCIB”). Since the beginning of the NCIB on November 14, 2022, the Company has repurchased 1,026,569 common shares for cancellation in consideration of $50 million.

As at March 31, 2023, the Company had a total of $309 million available under its credit facilities and its net debt-to-EBITDA ratio⁽¹⁾ increased to 2.8x due to the Company’s typical working capital requirements in the first quarter of each year.

Quarterly Dividend

On May 9, 2023, the Board of Directors declared a quarterly dividend of $0.23 per common share payable on June 23, 2023 to shareholders of record at the close of business on June 5, 2023. This dividend is designated to be an eligible dividend.

2022-2024 Financial Objectives: Continued Progress

The Company continues to be favourably positioned to meet or exceed the financial objectives set for 2024, as summarized in the table below. Driven by the out-performance of utility poles, sales in 2024 are now expected to exceed the target range. By 2024, utility poles sales are projected to grow at a compound annual rate of 20% from 2022 and the Company’s EBITDA margin is expected to exceed the 15% target by approximately 100 basis points.

For the full first quarter results, click here.

⁽¹⁾ Refer to the section “Non-GAAP and other financial measures” in this press release.

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. Approximately 70%-75% of the Company’s sales are typically derived from these infrastructure-related product categories. 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.

Contact:

Silvana Travaglini, CPA – Senior Vice President & CFO – stravaglini@stella-jones.com – (514) 934-8660

Source: Stella-Jones Inc.