- Sales increased 11.5% to $662.3 million, primarily driven by increased sales prices and market demand
- Operating margins improved sequentially from the first quarter, in line with Management’s expectations
- Net income and diluted EPS decreased slightly to $48.1 million and $0.69 per share
- Maintained a solid financial position with a total debt to EBITDA ratio of 2.5x
- Acquired Wood Preservers Incorporated, located in Virginia
MONTREAL, Aug. 08, 2018 (GLOBE NEWSWIRE) — Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today announced financial results for its second quarter ended June 30, 2018.
“Second quarter results demonstrated strong sales growth and quarter-over-quarter improvement in operating margins. Sales increased in the utility pole, residential lumber and logs and lumber product categories driven by increased sales prices and market demand. This performance was partially offset by temporary headwinds that have continued in our railway tie product category, primarily related to the transitioning of a Class 1 railroad customer to a full-service program. We are also pleased to see our EBITDA margins improve sequentially by 1.1% over the first quarter, in-line with our expectations.
Looking forward, we are on track to improve our operating margins in the second half of the year, when compared to the first half, but the pace of improvement will be mitigated by increasing untreated railway tie costs in the short term. As always, we will continue to remain focused on optimizing our operations across the organization while diligently seeking market opportunities in all product categories,” said Brian McManus, President and Chief Executive Officer.
(in millions of Canadian dollars, except per share data and margin)
|Q2-18||Q2-17||YTD Q2-18||YTD Q2-17|
|EBITDA margin (%)||12.0||%||14.0||%||11.6||%||13.3||%|
|Net income for the period||48.1||48.9||71.2||74.8|
|Per share – basic and diluted ($)||0.69||0.71||1.03||1.08|
|Weighted average shares outstanding (basic, in ‘000s)||69,347||69,322||69,352||69,314|
SECOND QUARTER RESULTS
Sales for the second quarter of 2018 reached $662.3 million, versus sales of $594.2 million for the corresponding period last year. Acquisitions contributed sales of approximately $26.0 million, while the conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones’ reporting currency, versus the U.S. dollar, had a negative impact of $18.6 million. Excluding these factors, sales increased approximately $60.7 million, or 10.2%.
Railway tie sales for the second quarter of 2018 amounted to $201.3 million, representing a decrease of $12.9 million from sales of $214.2 million in the corresponding period last year. Excluding the currency conversion effect, railway tie sales declined approximately $4.7 million, or 2.2%, primarily as a result of the Company supporting the transition of a Class 1 railroad customer from a “treating services only” program to a full service “black-tie” program.
Utility pole sales reached $179.3 million in the second quarter of 2018, up 7.1% from sales of $167.5 million in the corresponding period last year. The currency conversion effect reduced the value of U.S. dollar denominated sales by about $6.4 million when compared with the second quarter of last year. Excluding the contribution from acquisitions and the currency conversion effect, utility pole sales increased approximately $17.6 million, or 10.5%, driven by higher volume for replacement programs coupled with increased sales prices.
Sales in the residential lumber category totalled $203.6 million in the second quarter of 2018, versus $153.2 million for the corresponding period last year. Acquisitions contributed sales of approximately $19.0 million, while the currency conversion effect decreased the value of U.S. dollar denominated sales by about $2.5 million when compared with the same period last year. Excluding these factors, residential sales increased approximately $33.8 million, or 22.1% as a percentage of sales, primarily from higher selling prices, as a result of lumber cost escalations passed through to customers, and to increased volume due to the Company’s expanding market presence.
Industrial product sales reached $32.8 million in the second quarter of 2018, compared with $27.1 million in the corresponding period last year. Excluding the contribution from acquisitions and the currency conversion effect, sales increased 3.3%, primarily related to projects requiring treated laminated products.
Sales in the logs and lumber category totalled $45.3 million in the second quarter of 2018, compared with $32.2 million in the corresponding period last year. This significant increase reflects higher selling prices due to increased lumber costs coupled with increased harvesting activity related to procurement activities to support strong pole sales. Since this product category does not generate any margin, the sales growth reduced overall margins as a percentage of sales.
Operating income stood at $71.0 million, or 10.7% of sales, compared with $74.5 million, or 12.5% of sales in the corresponding period last year. The decrease in absolute dollars is partially explained by the sharp increase in untreated railway tie costs in the second quarter and the Company’s support of the transition of a Class 1 railroad customer from a “treating services only” program to a full service “black-tie” program. To accelerate this transition, the Company acquired untreated railway ties from the Class 1 railroad customer which increased cost of sales once these ties were treated and sold. The decrease is also attributable to higher operational costs in the U.S. Southeast, where Stella-Jones continues to focus on reducing its cost base and improving logistical flow. In addition, the higher lumber costs, which are passed through to customers via higher selling prices, have contributed to increased cost of sales but have also put downward pressure on margins as a percentage of sales. These cost increases were partially offset by the effect of currency translation.
Net income for the second quarter of 2018 was $48.1 million, or $0.69 per diluted share, versus $48.9 million, or $0.71 per diluted share, in the second quarter of 2017.
For the first six months of 2018, sales amounted to $1.1 billion, versus $991.1 million for the corresponding period last year. Acquisitions contributed sales of $29.1 million, while the currency conversion effect had a negative impact of $34.8 million on the value of U.S. dollar dominated sales. Excluding these factors, sales increased approximately $75.7 million, or 7.6%.
Operating income reached $106.5 million, or 10.0% of sales, compared with $115.3 million, or 11.6% of sales last year. Net income totalled $71.2 million, or $1.03 per diluted share, versus $74.8 million, or $1.08 per diluted share last year.
On April 9, 2018, the Company completed the acquisition of substantially all of the operating assets employed in the business of Wood Preservers Incorporated (“WP”), located at its wood treating facility in Warsaw, Virginia. WP manufactures, sells and distributes marine and foundation pilings and treated wood utility poles. Sales for the twelve-month period ended December 31, 2016 were approximately US$34.6 million. Total cash outlay associated with the acquisition was approximately $27.5 million. The Company financed the acquisition through its existing syndicated credit facilities and has recorded a balance of purchase price at a fair value of $3.3 million.
SOLID FINANCIAL POSITION
As at June 30, 2018, the Company’s long-term debt, including the current portion, stood at $581.2 million compared with $455.6 million as at December 31, 2017. The increase mainly reflects higher working capital requirements, financing required for the acquisitions of Prairie Forest Products and WP, higher capital expenditures as well as the effect of local currency translation on U.S. dollar denominated long-term debt. As at June 30, 2018, Stella-Jones’ total debt to EBITDA was 2.5x, up from 1.9x as at December 31, 2017.
QUARTERLY DIVIDEND OF $0.12 PER SHARE
On August 7, 2018, the Board of Directors declared a quarterly dividend of $0.12 per common share, payable on September 21, 2018 to shareholders of record at the close of business on September 3, 2018.
Based on current market conditions and assuming stable currencies, Management expects higher year-over-year overall sales for Stella-Jones, driven by pricing as well as increased market reach for the residential lumber, utility pole and logs and lumber product categories. Operating margins are expected to improve in the second half of 2018, when compared to the first half of the year. However, the progression of operating margins in the second half of 2018 will be slowed down by increasing untreated railway tie costs until sales prices can be adjusted. The Company plans on spending between $30.0 million and $40.0 million on property, plant and equipment in 2018 and its overall effective tax rate is expected to be approximately 26.5%. For details per product category please refer to the Management’s Discussion and Analysis for the quarter.
Stella-Jones will hold a conference call to discuss these results on August 8, 2018, at 10:00 AM Eastern Time. Interested parties can join the call by dialing 1-647-788-4922 (Toronto or overseas) or 1-877-223-4471 (elsewhere in North America). Parties unable to call in at this time may access a recording by calling 1‑800-585-8367 and entering the passcode 4795949. This recording will be available on Wednesday, August 8, 2018 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Wednesday, August 15, 2018.
NON-IFRS FINANCIAL MEASURES
EBITDA (operating income before depreciation of property, plant and equipment and amortization of intangible assets), operating income and operating margins are financial measures not prescribed by IFRS and are not likely to be comparable to similar measures presented by other issuers. Management considers these non-IFRS measures to be useful information to assist knowledgeable investors regarding the Company’s financial condition and results of operations as it provides an additional measure of its performance. Please refer to the non-IFRS financial measures section in the Management’s Discussion and Analysis.
Stella-Jones Inc. (TSX: SJ) is a leading producer and marketer of pressure treated wood products. The Company supplies North America’s railroad operators with railway ties and timbers, and the continent’s electrical utilities and telecommunication companies with utility poles. Stella-Jones also manufactures and distributes residential lumber and accessories to retailers for outdoor applications, as well as industrial products for construction and marine applications. The Company’s common shares are listed on the Toronto Stock Exchange.
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 factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company’s products and services, the impact of price pressures exerted by competitors, the ability of the Company to raise the capital required for acquisitions, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.
Note to readers: Condensed interim unaudited consolidated financial statements for the second quarter ended June 30, 2018 are available on Stella-Jones’ website at www.stella-jones.com
3100 de la Côte-Vertu Blvd., Suite 300
Tel.: (514) 934-8666
Fax: (514) 934-5327
The Toronto Stock Exchange
Stock Symbol: SJ
Transfer Agent and Registrar
Senior Vice-President and Chief Financial Officer
Tel.: (514) 940-3903
Fax: (514) 934-5327
|Contacts:||Éric Vachon, CPA, CA
Senior Vice-President and
Chief Financial Officer
Tel.: (514) 940-3903
|Pierre Boucher, CPA, CMA
Jennifer McCaughey, CFA
Tel.: (514) 731-0000