Declares Quarterly Dividend of $0.0725 per share
TRADING SYMBOL: Toronto Stock Exchange - HDI
LANGLEY, BC, May 10, 2018
/CNW/ - Hardwoods Distribution Inc. ("HDI" or the "Company") today
announced financial results for the three months ended March 31, 2018. HDI is North America's largest wholesale distributor
of architectural grade building products to the residential and
commercial construction markets, with a strong US and Canadian
distribution network.
Highlights (For the three months ended March 31, 2018)
- Consolidated sales increased 4.4% to $270.8 million. After taking into account the
difference in foreign exchange rate used to translate our US
operations for reporting purposes, consolidated sales increased
8.5%.
- Sales from US operations increased 9.6% as compared to the same
period in 2017. Organic growth accounted for 5.6% of the increase
in sales. Acquisitions-based growth contributed 3.9%.
- Sales from Canadian operations increased 2.6% year-over-year,
despite one fewer selling day as compared to the same period in
2017. On a sales-per-day basis, Canadian sales increased by
4.4%.
- Gross profit increased slightly to $48.7
million; gross profit margin was 18.0%.
- Operating expenses improved slightly to 13.8% of sales, as
compared to 13.9% in Q1 2017.
- Adjusted EBITDA was $13.2
million, compared to $14.0
million in Q1 2017, reflecting the impacts of the US trade
case against hardwood plywood imported from China (See US Trade Case section).
- First quarter Adjusted profit increased 5.0% to $8.3 million year-over-year, reflecting the
positive impact of a lower US corporate tax rate. Diluted profit
per share grew by $0.02 or 5.4%, to
$0.39 per share.
- Adjusted EBITDA and Adjusted profit were reduced this quarter
by $0.6 million and $0.4 million respectively related to the
difference in foreign exchange rate used to translate our US
operations for reporting purposes.
- The Board of Directors approved a quarterly dividend of
$0.0725 per share, payable on
July 27, 2018 to shareholders of
record as at July 16, 2018.
"We achieved solid revenue growth in the first quarter with a
combination of organic and acquisition-based growth more than
offsetting the negative impacts of a stronger Canadian dollar,"
said Rob Brown, President and CEO of
Hardwoods. "Our business is benefiting from a healthy level
of demand in our key markets, improving prices for some products,
and the continued successful implementation of our business
strategies."
"While the US trade case put downward pressure on our gross
profit margin in the first quarter, the reduction in the US
corporate tax rate offset the bottom-line impact and our profit
improved. We continue to anticipate that the trade case impacts
will lessen around mid-year as market supply and pricing become
better balanced."
"Going forward, we remain well positioned to pursue our growth
objectives with a clearly defined strategy, generally positive
economic conditions, and a leading market position," added Mr.
Brown.
US Trade Case
On December 1, 2017, the ITC voted
affirmatively that the final CVD and AD rates determined by
Commerce will be implemented (the "Final Determination"). See the
Company's annual report as filed on sedar.com for a summary of the
trade case proceedings.
The trade case reduced HDI's first quarter 2018 gross margin by
an estimated $1.2 million and profit
by an estimated $0.9 million,
primarily as a result of (i) an increase in the Company's cost for
certain product lines as it purchased from brokers or domestic
sources, rather than sourcing directly from mills in China; and (ii) a comparatively slower ramp up
in the Company's ability to pass along cost increases to customers,
reflecting a large supply of products in the market, most of which
was imported prior to the imposition of final duties.
Management believes the final combined duty rate of 206.34% will
make Chinese hardwood plywood non-competitive in the US market, and
has spent the last year planning for this potential outcome.
Through 2017 and the first quarter of 2018, HDI has been
successful in securing an appropriate supply of products for its
customers and has suffered no significant loss of market share as a
result. The Company is also making good progress as it works
with domestic and overseas vendor partners to develop reliable,
alternative product solutions for customers going forward. While
the trade case disruption is expected to continue to result in some
downward pressure on gross margin percentage through to
mid-2018, hardwood plywood prices are gradually strengthening, and
HDI expects its ability to pass along cost increases to customers
will improve as market supply tightens.
Outlook
On December 21, 2017, the United States enacted H.R.1 (the
"Legislation"), also known as the Tax Cuts and Jobs Act. The
Legislation includes substantial changes to the US taxation for
individuals, corporations, and unincorporated businesses in all
industries. For HDI, the significant features and impacts of this
Legislation include the change in corporate tax rate from 35% to
21%, the immediate expensing of certain qualified capital
investments, and limitations on the deductibility of certain
interest expense. While there is still some uncertainty about
how various states will implement the interest deductibility
provisions, as a whole, HDI views the new rules as a positive
development. The lower tax rate had a positive impact on first
quarter profitability, increasing Adjusted EPS by $0.04 or 10.8%. This represents a decrease in
income tax expense of $0.8
million for the period.
As noted in the US Trade Case section, HDI expects gross margin
percentage will continue to experience some downward pressure
through mid-2018 as a result of the new duties imposed on Chinese
hardwood plywood entering the US. Potentially countering this
impact, however, is the expectation that sales will benefit from
rising hardwood plywood prices in North
America. By the second half of 2018, the existing surplus of
imported product in the North American market is expected to have
worked its way through the supply chain, and pricing and margins on
hardwood plywood should begin to more accurately reflect the new
supply dynamics. HDI continues to work with domestic manufacturers
and vendor partners overseas to develop reliable, alternative
product solutions going forward.
In terms of market outlook, HDI expects low-to-mid single digit
organic market growth for its end-markets and products.
Strategically, the Company will seek to outperform organic market
growth through its strategic initiatives, which include building
market share with a focus on core wood products and the decorative
surfaces and composites product categories; supporting HDI's brands
in the marketplace by creating a sustainable competitive advantage
with size and scale, and pursuing accretive acquisitions.
The Board will continue to review HDI's financial performance
and assess dividend levels on a regular basis. Management will
maintain its focus on keeping the balance sheet strong, reducing
debt and supporting future strategic acquisitions.
Q1 2018 Investor Call
The Company will hold an investor call on Friday, May 11, 2018 at 8:00 am Pacific (11:00
am Eastern). Participants should dial 1-888-231-8191 or
(647) 427-7450 (GTA) at least five minutes before the call to
register. A replay will be available until May 25, 2018 by calling toll free 1-855-859-2056
or (416) 849-0833 (GTA), followed by passcode 6854489.
Summary of Results
|
Selected Unaudited
Consolidated Financial Information (in thousands of Canadian
dollars)
|
|
|
|
|
|
Three
months
|
|
Three
months
|
|
ended March
31
|
|
ended March
31
|
|
2018
|
|
2017
|
Total
sales
|
$
|
270,755
|
|
$
|
259,276
|
|
Sales in the US
(US$)
|
185,885
|
|
169,606
|
|
Sales in
Canada
|
35,666
|
|
34,752
|
Gross
profit
|
48,700
|
|
48,276
|
|
Gross profit
%
|
18.0%
|
|
18.6%
|
Operating
expenses
|
(37,350)
|
|
(35,956)
|
Profit from operating
activities
|
11,350
|
|
12,320
|
Add: Depreciation and
amortization
|
1,624
|
|
1,683
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
amortization
("EBITDA")
|
$
|
12,974
|
|
$
|
14,003
|
|
EBITDA as a % of
revenue
|
4.8%
|
|
5.4%
|
|
Add
(deduct):
|
|
|
|
|
|
Depreciation and
amortization
|
(1,624)
|
|
(1,683)
|
|
|
Net finance income
(expense)
|
(633)
|
|
(539)
|
|
|
Income tax
expense
|
(2,537)
|
|
(3,845)
|
Profit for the
period
|
$
|
8,180
|
|
$
|
7,936
|
Basic profit per
share
|
$
|
0.38
|
|
$
|
0.37
|
Diluted profit per
share
|
$
|
0.38
|
|
$
|
0.37
|
Average Canadian
dollar exchange rate for one US dollar
|
1.26
|
|
1.32
|
|
Analysis of
Specific Items Affecting Comparability (in thousands of Canadian
dollars)
|
|
|
|
|
|
|
|
|
Three
months
|
|
|
Three
months
|
|
|
ended March
31
|
|
|
ended March
31
|
|
|
2018
|
|
|
2017
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
|
|
amortization
("EBITDA"), per the table above
|
|
$
|
12,974
|
|
|
$
|
14,003
|
Transaction
expenses
|
|
$
|
—
|
|
|
$
|
—
|
Mark-to-market
adjustment on cash settled LTIPs
|
|
179
|
|
|
—
|
Adjusted
EBITDA
|
|
13,153
|
|
|
14,003
|
Adjusted EBITDA as
a % of revenue
|
|
4.9%
|
|
|
5.4%
|
|
|
|
|
|
|
Profit for the
period, as reported
|
|
8,180
|
|
|
7,936
|
Other adjustments,
net of tax
|
|
$
|
154
|
|
|
$
|
—
|
Adjusted
Profit
|
|
8,334
|
|
|
7,936
|
|
|
|
|
|
|
Basic profit per
share, as reported
|
|
$
|
0.38
|
|
|
$
|
0.37
|
Net impact of above
items per share
|
|
0.01
|
|
|
—
|
Adjusted basic profit
per share
|
|
$
|
0.39
|
|
|
$
|
0.37
|
|
|
|
|
|
|
Diluted profit per
share, as reported
|
|
$
|
0.38
|
|
|
$
|
0.37
|
Net impact of above
items per share
|
|
$
|
0.01
|
|
|
$
|
—
|
Adjusted diluted
profit per share
|
|
$
|
0.39
|
|
|
$
|
0.37
|
Results from Operations - Three Months Ended March 31,
2018
For the three months ended March 31, 2018, total sales
increased 4.4% to $270.8 million,
from $259.3 million during the same
period in 2017. Included in the $11.5
million year-over-year increase is $13.6 million, representing a 5.2% increase in
sales, related to organic growth and $8.5
million, representing a 3.3% increase in sales, related to
the addition of Acquired Businesses. These gains were partially
offset by a $10.6 million negative
foreign exchange impact resulting from a stronger Canadian dollar
when translating US sales to Canadian dollars for reporting
purposes.
Sales from US operations increased by US$16.3 million, or 9.6%, to US$185.9 million, from US$169.6 million in the same period in
2017. Organic growth accounted for US$9.6 million of this increase, representing a
5.6% increase in sales. Acquired businesses contributed sales of
US$6.7 million.
Sales in Canada increased by
$0.9 million, or 2.6%,
year-over-year, despite one fewer selling day in the first quarter
of 2018 as compared to the same quarter in 2017. On a
sales-per-day basis, sales in Canada increased by 4.4%
year-over-year.
Gross profit for the three months ended March 31, 2018
increased 0.9% to $48.7 million, from
$48.3 million during the same period
in 2017. The $0.4 million
improvement reflects higher sales, partially offset by a lower
gross profit margin.
Operating expenses increased to $37.4
million in the first quarter of 2018, from $36.0 million during the same period in 2017. The
$1.4 million increase includes
$1.6 million of operating expenses
from the Acquired Businesses, $1.0
million of added costs to support organic growth, and
$0.2 million related to the
mark-to-market adjustment on LTIPs. These impacts were
partially offset by a $1.4 million
decrease in expenses due to the impact of a stronger Canadian
dollar on translation of US operating expenses.
For the three months ended March 31,
2018, HDI reported Adjusted EBITDA of $13.2 million, as compared to $14.0 million during the same period in
2017. The $0.8 million
reduction reflects the $1.2 million
increase in operating expenses (before an increase in
mark-to-market adjustments relating to LTIPs, and an increase in
depreciation and amortization), partially offset by the
$0.4 million increase in gross
profit. The Trade Case had an estimated $1.2
million negative impact on first quarter Adjusted
EBITDA.
Income tax expense decreased to $2.5
million in the first quarter of 2018, from $3.8 million in the same period in 2017.
The decrease was primarily driven by a lower effective tax rate in
the US and lower taxable income in the Q1 2018 period as compared
to the same quarter in the previous year.
Profit for the three months ended March 31, 2018 increased
3.1% to $8.2 million, from
$7.9 million in the same period in
2017.
A more detailed discussion of the Company's financial
performance can be found in HDI's Q1 2018 Management's Discussion
and Analysis (MD&A). The MD&A will be posted, along with
the Company's audited financial statements, on SEDAR
(www.sedar.com) and on the Company's website
(www.hardwoods-inc.com) on or before May 10,
2018.
About Hardwoods Distribution Inc.
HDI is North America's largest
wholesale distributor of architectural grade building products to
the residential and commercial construction sectors. The Company
operates a North American network of 62 distribution centres, as
well as one sawmill and kiln drying operation.
Non-GAAP Measures - EBITDA
References to "EBITDA" are to earnings before interest, income
taxes, depreciation and amortization, where interest is defined as
net finance costs as per the consolidated statement of
comprehensive income. Furthermore, this press release
references certain EBITDA Ratios, such as EBITDA margin (being
EBITDA as a percentage of revenues). In addition to profit,
HDI considers EBITDA and EBITDA Ratios to be useful supplemental
measures of the Company's ability to meet debt service and capital
expenditure requirements, and interprets trends in EBITDA and
EBITDA Ratios as an indicator of relative operating
performance.
References to "Adjusted EBITDA" are EBITDA as defined above,
before certain items related to business acquisition activities.
"Adjusted EBITDA margin" is as defined above, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. References to
"Adjusted profit", "Adjusted basic profit per share", and "Adjusted
diluted profit per share" are profit for the period, basic profit
per share, and diluted profit per share, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. The
aforementioned adjusted measures are collectively referenced as
"the Adjusted Measures". HDI considers the Adjusted Measures to be
useful supplemental measures of the Company's profitability, its
ability to meet debt service and capital expenditure requirements,
and as an indicator of relative operating performance, before
considering the impact of business acquisition activities.
EBITDA, EBITDA Ratios, and the Adjusted Measures (collectively
"the Non-GAAP Measures") are not measures recognized by
International Financial Reporting Standards ("IFRS") and do not
have a standardized meaning prescribed by IFRS. Investors are
cautioned that the Non-GAAP Measures should not replace profit,
earnings per share or cash flows (as determined in accordance with
IFRS) as an indicator of our performance. HDI's method of
calculating the Non-GAAP Measures may differ from the methods used
by other issuers. Therefore, Non-GAAP Measures may not be
comparable to similar measures presented by other issuers.
Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This news release includes forward-looking statements. These
involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements or
industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements are
identified by the use of terms and phrases such as "anticipate",
"believe", "estimate", "expect", "may", "plan", "will", and similar
terms and phrases, including references to assumptions. Such
statements may involve, but are not limited to: We continue
to anticipate that the trade case impacts will lessen around
mid-year as market supply and pricing become better balanced;
management believes the final combined duty rate of 206.34% will
make Chinese hardwood plywood non-competitive in the US market;
while the trade case disruption is expected to continue to result
in some downward pressure on gross margin percentage through
to mid-2018, hardwood plywood prices are gradually strengthening,
and HDI expects its ability to pass along cost increases to
customers will improve as market supply tightens; HDI expects gross
margin percentage will continue to experience some downward
pressure through mid-2018 as a result of the new duties imposed on
Chinese hardwood plywood entering the US, potentially countering
this impact, however, is the expectation that sales will benefit
from rising hardwood plywood prices in North America; by the second half of 2018, the
existing surplus of imported product in the North American market
should have worked its way through the supply chain, and pricing
and margins on hardwood plywood should begin to more accurately
reflect the new supply dynamics; HDI continues to work with
domestic manufacturers and vendor partners overseas to develop
reliable, alternative product solutions going forward; in terms of
market outlook, HDI expects low-to-mid single digit organic market
growth for our end-markets and products.
These forward-looking statements reflect current expectations of
management regarding future events and operating performance as of
the date of this news release. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not such results
will be achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward-looking
statements, including, but not limited to: national and local
business conditions; political or economic instability in local
markets; competition; consumer preferences; spending patterns and
demographic trends; legislation or governmental regulation;
acquisition and integration risks.
Although the forward-looking statements contained in this news
release are based upon what management believes to be reasonable
assumptions, management cannot assure investors that actual results
will be consistent with these forward-looking statements. The
forward-looking statements reflect management's current beliefs and
are based on information currently available.
All forward-looking information in this news release is
qualified in its entirety by this cautionary statement and, except
as may be required by law, Hardwoods undertakes no obligation to
revise or update any forward-looking information as a result of new
information, future events or otherwise after the date hereof.
SOURCE Hardwoods Distribution Inc.