TRADING SYMBOL: Toronto Stock Exchange - HDI
Cash flow from operations of $18.2 million, Profit per share of $0.38, Adjusted EBITDA of $21.2 million
Declares Quarterly Dividend of $0.08
per share
LANGLEY, BC, Aug. 12, 2019
/CNW/ - Hardwoods Distribution Inc. ("HDI" or the "Company") today
announced financial results for the three and six months ended
June 30, 2019. HDI is
North America's largest wholesale
distributor of architectural grade building products to the
residential and commercial construction markets, with a
comprehensive US and Canadian distribution network.
Highlights (For the three months ended June 30, 2019 unless otherwise noted)
- HDI generated $18.2 million of
cash flow from operations in the second quarter, a year-over-year
increase of $15.6 million.
- Sales increased 2.1% to $304.5
million on a combination of acquisition-based growth and the
positive foreign exchange translation impact of a stronger US
dollar.
- Gross profit margin increased to 18.1%, an improvement of
thirty basis points from 17.8% in the same period in 2018.
- Operating expense increased 8.5% primarily due to the
unfavorable foreign exchange translation impact of a stronger US
dollar, the addition of operating expenses from acquired
businesses, and a return to more typical levels of bad debt.
- Diluted earnings per share were $0.38 and Adjusted EBITDA was $21.2 million.
- At the end of Q2 2019, net bank debt-to-Adjusted EBITDA after
rent ratio was a conservative 1.9x, net bank debt-to-capital ratio
was just 26%, and HDI had $90.2
million of unused borrowing capacity.
- In the first half of 2019, HDI returned $5.8 million of cash to shareholders in the form
of dividends and share re-purchases.
- The Board of Directors approved a quarterly dividend of
$0.08 per share, payable on
October 25, 2019 to shareholders of
record as at October 14, 2019.
"We experienced softer operating conditions in the first half of
the year as US construction markets were affected by a delayed
start to the construction season, along with mixed economic data.
In addition sales in the hardwood lumber category, which represents
22% of our sales mix, were lower than in the previous year. This
was largely due to reduced pricing as a result of excess industry
supply and a shift in demand to lower value species. Despite these
challenges, we generated a very strong $18.2
million of cash flow from operations, achieved sales growth,
and exceeded our target range for gross margin in the second
quarter," said Rob Brown, President
and CEO of HDI.
"Our 18.1% gross margin result was achieved as our new import
lines began to gain traction. We have made excellent progress in
transitioning our import supply chain beyond China, while continuing to provide the
high-quality and customizable proprietary products our customers
expect. At the same time, consistently careful management of our
balance sheet and a reduction of inventory to normal levels helped
us increase cash flow from operations by $15.6 million in the second quarter and
$44.3 million in the first half of
2019, as compared to the same periods in 2018. This cash flow
financed our acquisition of Far West Plywood earlier this year,
while also enabling us to pay our dividend, repurchase shares and
reduce our bank indebtedness."
"Our business model is resilient and we continue to manage for
the long term, with a focus on balance sheet strength, strategy
execution, and profitable organic and acquisition-based growth,"
said Mr. Brown.
Outlook
As the only North American-wide distributor in the industry, HDI
remains well positioned for success going forward. The Company also
benefits from a comprehensive suite of diverse architectural
building products, including proprietary offerings from its global
supply chain, a robust pipeline of accretive acquisition targets,
and a strong balance sheet.
HDI's longer-term view on US construction demand remains
positive, supported by the current level of housing starts relative
to the long-term average, low levels of current housing inventory,
and the favorable demographic characteristics of US consumers.
Management continues to view the recent softness in US housing
markets as a temporary pause and not a directional change.
Moving forward, HDI will continue to pursue its strategy of
capturing market share in the US, including capitalizing on
opportunities in the fragmented US distribution market to grow
through acquisitions. The near-term focus will remain on
responsible management of the balance sheet and meeting capital
allocation priorities, including executing on the pipeline of
acquisition opportunities and continuing to return value to
shareholders in the form of dividends and share re-purchases.
Q2 2019 Investor Call
The Company will hold an investor call on Tuesday August 13, 2019 at 8:00 am Pacific (11:00
am Eastern). Participants should dial 1-888-390-0546 or
(416) 764-8688 (GTA) at least five minutes before the call begins.
A replay will be available through August
27, 2019 by calling toll free 1-888-390-0541 or (416)
764-8677 (GTA), followed by passcode 700058.
Summary of Results
|
Selected Unaudited
Consolidated Financial Information (in thousands of Canadian
dollars)
|
|
|
Restated
|
|
Restated
|
|
Three
months
|
Three
months
|
Six
months
|
Six
months
|
|
ended June
30
|
ended June
30
|
ended June
30
|
ended June
30
|
|
2019
|
2018
|
2019
|
2018
|
Total
sales
|
$
|
304,545
|
298,172
|
$
|
591,632
|
$
|
568,927
|
Sales in the US
(US$)
|
200,748
|
202,397
|
391,111
|
388,282
|
Sales in
Canada
|
36,046
|
36,997
|
70,046
|
72,663
|
Gross
profit
|
55,019
|
53,181
|
106,051
|
102,042
|
Gross profit
%
|
18.1%
|
17.8%
|
17.9%
|
17.9%
|
Operating
expenses
|
(41,194)
|
(37,972)
|
(82,360)
|
(74,527)
|
Profit from operating
activities
|
13,825
|
15,209
|
23,691
|
27,515
|
Add: Depreciation and
amortization
|
6,801
|
6,344
|
13,631
|
12,393
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
amortization
("EBITDA")
|
$
|
20,626
|
21,553
|
$
|
37,322
|
$
|
39,908
|
EBITDA as a % of
revenue
|
6.8%
|
7.2%
|
6.3%
|
7.0%
|
Add
(deduct):
|
|
|
|
|
Depreciation and
amortization
|
(6,801)
|
(6,344)
|
(13,631)
|
(12,393)
|
Net finance income
(expense)
|
(2,208)
|
(2,020)
|
(4,505)
|
(3,692)
|
Income tax
expense
|
(3,452)
|
(3,354)
|
(5,041)
|
(5,871)
|
Profit for the
period
|
$
|
8,165
|
$
|
9,835
|
$
|
14,145
|
$
|
17,952
|
Basic profit per
share
|
$
|
0.38
|
$
|
0.45
|
$
|
0.66
|
$
|
0.84
|
Diluted profit per
share
|
$
|
0.38
|
$
|
0.45
|
$
|
0.65
|
$
|
0.83
|
Average Canadian
dollar exchange rate for one US dollar
|
$
|
1.338
|
$
|
1.291
|
$
|
1.334
|
$
|
1.278
|
|
|
Analysis of
Specific Items Affecting Comparability (in thousands of Canadian
dollars)
|
|
|
Restated
|
|
Restated
|
|
Three
months
|
Three
months
|
Six
months
|
Six
months
|
|
ended June
30
|
ended June
30
|
ended June
30
|
ended June
30
|
|
2019
|
2018
|
2019
|
2018
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
|
|
|
amortization
("EBITDA"), per table above
|
$
|
20,626
|
$
|
21,553
|
$
|
37,322
|
$
|
39,908
|
Non-cash LTIP
expense
|
559
|
678
|
1,144
|
1,242
|
Allowance related to
duty deposits receivable
|
$
|
—
|
$
|
880
|
$
|
—
|
$
|
880
|
Adjusted
EBITDA
|
$
|
21,185
|
$
|
23,111
|
$
|
38,466
|
$
|
42,030
|
Adjusted EBITDA as
a % of revenue
|
7.0%
|
7.8%
|
6.5%
|
7.4%
|
|
|
|
Profit for the
period, as reported
|
$
|
8,165
|
$
|
9,835
|
$
|
14,145
|
$
|
17,952
|
Adjustments, net of
tax
|
496
|
1,294
|
1,011
|
1,803
|
Adjusted profit for
the period
|
$
|
8,661
|
$
|
11,129
|
$
|
15,156
|
$
|
19,755
|
|
|
|
Basic profit per
share, as reported
|
$
|
0.38
|
$
|
0.45
|
$
|
0.66
|
$
|
0.84
|
Net impact of above
items per share
|
0.02
|
0.06
|
0.05
|
0.08
|
Adjusted basic profit
per share
|
$
|
0.40
|
$
|
0.51
|
$
|
0.71
|
$
|
0.92
|
|
|
|
Diluted profit per
share, as reported
|
$
|
0.38
|
$
|
0.45
|
$
|
0.65
|
$
|
0.83
|
Net impact of above
items per share
|
0.02
|
0.06
|
0.05
|
0.08
|
Adjusted diluted
profit per share
|
$
|
0.40
|
$
|
0.51
|
$
|
0.70
|
$
|
0.91
|
Results from Operations - Three Months Ended June 30,
2019
For the three months ended June 30, 2019, total sales
increased 2.1% to $304.5 million,
from $298.2 million during the same
period in 2018 - a year-over-year increase of $6.4 million. The increase is comprised of
$8.0 million, representing a 2.7%
increase in sales, attributed to the addition of Acquired
Businesses, and $9.1 million related
to a favorable foreign exchange impact from a stronger US dollar
when translating our US sales to Canadian dollars for reporting
purposes. These gains were partially offset by a
year-over-year decrease of $10.7
million, or 3.6%, in organic sales.
Sales from our US operations increased by US$1.6 million, or 0.8%, to US$200.7 million, from US$202.4 million in the same period in 2018. The
Acquired Businesses contributed sales of US$6.0 million, which was partially offset by a
US$7.6 million reduction in organic
sales. Organic sales were impacted by softer market conditions in
the first half of the year. Sales in Canada decreased by $1.0 million, or 2.6%, year-over-year.
Gross profit for the three months ended June 30, 2019
increased 3.5% to $55.0 million, from
$53.2 million during the same period
in 2018. This $1.8 million
improvement reflects higher sales and a higher gross profit margin.
As a percentage of sales, second quarter gross profit margin
increased to 18.1%, from 17.8% as our new import supply lines began
to gain traction.
For the three months ended June 30, 2019, operating
expenses were $41.2 million as
compared to $38.0 million during the
same period in 2018. This increase includes expenses related
to the impact of a stronger US dollar on translation of US
operating expenses, the addition of operating expenses from
acquired businesses, and an increase in bad debt expense.
For the three months ended June 30, 2019, HDI generated
Adjusted EBITDA of $21.2 million, as
compared to $23.1 million during the
same period in 2018. The $1.9 million
reduction primarily reflects the $3.5
million increase in operating expenses (before changes in
depreciation and amortization, and an allowance related to duty
deposit in the prior year of $0.8
million), partially offset by the $1.8 million increase in gross profit.
Profit for the three months ended June 30, 2019 was
$8.2 million, as compared to
$9.8 million in the same period in
2018. The $1.7 million decrease
primarily reflects the $3.2 million
increase in operating expenses and $0.2
million increase in net finance expense, partially offset by
the $1.8 million increase in gross
profit. Second quarter diluted profit per share was $0.38 as compared to $0.45 in Q2 2018.
Adjusted profit for the three months ended June 30, 2019
was $8.7 million, as compared
to $11.1 million in the same period in 2018. Second quarter
Adjusted diluted profit per share was $0.40 as compared to $0.51 in Q2 2018.
Results from Operations - Six Months Ended June 30,
2019
For the six months ended June 30, 2019, total sales
increased 4.0% to $591.6 million,
from $568.9 million during the first
half of 2018 - a year-over-year increase of $22.7 million. The increase is comprised of
$15.3 million, representing a 2.7%
increase in sales, attributed to the addition of Acquired
Businesses, and $21.1 million related
to a favorable foreign exchange impact from a stronger Canadian
dollar when translating our US sales to Canadian dollars for
reporting purposes. These gains were partially offset by a
year-over-year decrease of $13.7
million, or 2.4%, in organic sales.
Sales from our US operations increased by US$2.8 million, or 0.7%, to US$391.1 million, from US$388.3 million in the same period in 2018. The
Acquired Businesses contributed sales of US$11.5 million, which was partially offset by a
US$8.7 million reduction in organic
sales. Organic sales were impacted by softer market conditions in
the first half of the year. First half sales in Canada decreased by $2.6 million, or 3.6%, year-over-year.
Gross profit for the six months ended June 30, 2019
increased 3.9% to $106.1 million,
from $102.0 million during the same
period in 2018. This $4.0
million improvement reflects the higher sales. Gross
profit margin remained stable year-over-year at 17.9%.
For the six months ended June 30, 2019, operating expenses
were $82.4 million as compared to
$74.5 million during the same period
in 2018. The $7.8 million
increase includes expenses related to the impact of a stronger US
dollar on translation of US operating expenses, added costs to
support HDI's growth strategy, operating expenses from the acquired
businesses, and an increase in bad debt expense.
For the six months ended June 30, 2019, we reported
Adjusted EBITDA of $38.5 million, as
compared to $42.0 million during the
same period in 2018. The $3.5 million
reduction primarily reflects the $7.4
million increase in operating expenses (before changes in
depreciation and amortization, and an allowance related to duty
deposit in the prior year of $0.8
million), partially offset by the $4.0 million increase in gross profit.
For the six months ended June 30, 2019, net finance expense
was $4.5 million compared to
$3.7 million in the same period in
2018. The year-over-year increase primarily relates to higher
interest expense on bank indebtedness.
Income tax expense decreased to $5.0
million for the six months ended June 30, 2019, from
$5.9 million during the same period
in 2018. The decrease was primarily driven by a lower taxable
income in the first half of 2019 as compared to the same period in
2018.
Profit for the six months ended June 30, 2019 was
$14.1 million, as compared to
$18.0 million in the same period in
2018. The $3.9 million decrease
primarily reflects the $7.8 million
increase in operating expenses and $0.8
million increase in net finance expense, partially offset by
the $4.0 million increase in gross
profit and the $0.8 million decrease
in income tax expense. First half diluted profit per share was
$0.65 as compared to $0.83 in the same period in 2018.
Adjusted profit for the six months ended June 30, 2019 was
$15.2 million, as compared to
$19.8 million in 2018. First half
Adjusted diluted profit per share was $0.70 as compared to $0.91 in the first half of 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: HDI's
longer-term view on US construction demand remains positive,
supported by the current level of housing starts relative to the
long-term average, low levels of current housing inventory, and the
favorable demographic characteristics of US consumers;
management continues to view the recent softness in US housing
markets as a temporary pause and not a directional change.
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, HDI 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.