Stella-Jones Inc. (TSX:SJ) (“Stella-Jones” or the “Company”) today
announced financial results for its first quarter ended March 31,
2018.
“First quarter results were in line with our
expectations. Our railway ties category continued to face headwinds
from pricing pressures, while sales in our utility pole product
category increased on replacement programs and our residential
lumber category benefited from an increased pricing environment. We
continued to follow our strategy of continental expansion with two
tuck-in acquisitions, which further reinforced the reliability of
our production network and increased our distribution capabilities.
Looking forward, we continue to expect sales and operating margins
to improve progressively in 2018, when compared to last year, with
operating margins stronger in the second half,” said Brian McManus,
President and Chief Executive Officer.
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Financial Highlights (in millions of Canadian
dollars, except per share data) |
Q1-18 |
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Q1-17 |
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Sales |
398.8 |
|
396.9 |
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EBITDA |
43.4 |
|
49.1 |
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Operating income |
35.5 |
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40.8 |
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Net income for the period |
23.1 |
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25.9 |
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Per share – basic and diluted ($) |
0.33 |
|
0.37 |
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Weighted average shares outstanding (basic, in ‘000s) |
69,343 |
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69,306 |
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FIRST QUARTER RESULTSSales
reached $398.8 million, an increase of 0.5%, when compared to
$396.9 million for the same period last year. Acquisitions
contributed sales of approximately $3.1 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 $16.1 million. Excluding these factors,
sales increased approximately $14.9 million, or 3.8%.
Railway tie sales amounted to $146.4 million,
down 7.6%, as compared to sales of $158.5 million for the same
period last year. Excluding the conversion effect, railway tie
sales decreased approximately $4.9 million, or 3.1%, primarily as a
result of continued pricing pressures in certain regions and low
railcar availability which limited shipments. Additionally, railway
tie sales were impacted by lower sales from a Class 1 railroad
customer which commenced the depletion of its inventory in
preparation for a transition from a “treating service only” program
to a full service “black-tie” program.
Utility pole sales reached $153.0 million, up
1.3%, as compared to sales of 151.0 million for the same period
last year. Excluding the contribution from acquisitions and the
currency conversion effect, sales increased approximately $8.0
million, or 5.3%, driven by higher volume for replacement
programs.
Sales in the residential lumber category
totalled $50.3 million, up 30.3%, as compared to sales of $38.6
million for the same period last year. This significant increase is
primarily explained by higher selling prices, as a result of higher
lumber costs passed through to customers, and to a lesser extent,
to increased volume.
Industrial product sales reached $20.8 million,
down 5.2% as compared to sales of $21.9 million for the same period
last year. Excluding the contribution from acquisitions and the
currency conversion effect, sales decreased 2.6%, mainly due to the
timing of projects related to bridges and timber.
Logs and lumber sales amounted to $28.3 million,
up 5.4%, as compared to sales of $26.9 million for the same period
last year. This variation reflects higher selling prices due to
increased lumber costs.
Operating income stood at $35.5 million, or 8.9%
of sales, compared with $40.8 million, or 10.3% of sales in the
first quarter of the previous year. The decrease in absolute
dollars is explained in most part, by the Company supporting 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 customer which increased cost of sales once these ties
were treated and sold. Moreover, cost of sales was slightly
impacted by increasing utility pole fiber costs which will be
mitigated as selling prices will progressively be adjusted over the
coming months. These cost increases were partially offset by the
effect of currency translation.
Net income for the first quarter of 2018 was
$23.1 million, or $0.33 per diluted share, down from $25.9 million,
or $0.37 per diluted share, in the first quarter of 2017.
ACQUISITIONS On February 9,
2018, the Company completed the acquisition of substantially all
the operating assets employed in the business of Prairie Forest
Products (“PFP”), a division of Prendiville Industries Ltd. located
at its wood treating facility in Neepawa, Manitoba, as well as at
its peeling facility in Birch River, Manitoba. PFP manufactures
treated wood utility poles as well as treated residential lumber.
Total cash outlay associated with the acquisition was approximately
$26.5 million. The Company financed the acquisition through its
existing syndicated credit facilities.
SUBSEQUENT EVENT On April 9,
2018 the Company completed the acquisition of substantially all 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 piling 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
SOLID FINANCIAL POSITION As at
March 31, 2018, the Company’s long-term debt, including the current
portion, stood at $565.4 million compared with $455.6 million three
months earlier. The increase mainly reflects higher working capital
requirements, as per normal seasonal demand patterns, financing
required for the PFP acquisition as well as the effect of local
currency translation on U.S. dollar denominated long-term debt. As
at March 31, 2018, Stella-Jones’ total debt to EBITDA was 2.4x, up
from 1.9x three months earlier.
QUARTERLY DIVIDEND OF
$0.12 PER SHAREOn May 2, 2018,
the Board of Directors declared a quarterly dividend of $0.12 per
common share, payable on June 27, 2018 to shareholders of record at
the close of business on June 6, 2018.
OUTLOOKWhile operating margins
will remain softer in the first half of 2018, we anticipate sales
and operating margins to improve progressively in 2018. Railway tie
sales should be relatively stable and softer pricing may further
impact margins in the first half of the year, which should
gradually return to historical levels by the end of the year. In
the utility pole product category, while we anticipate a better
sales mix in 2018, we expect it will be offset by slight cost
increases for certain wood species and the timing of price
adjustments. As for residential lumber, we expect to further
benefit from continued demand for new construction and outdoor
renovation projects in North America, while sales should also rise
as pricing continues to reflect higher wood costs. Stella-Jones
will also benefit from an overall lower effective tax rate of about
26.0%. In keeping with our proven capital allocation strategy, cash
flow will be used to reduce debt, invest in working capital and our
existing network, while sustaining an optimal dividend policy and
exploring expansion opportunities that create lasting shareholder
value.
CONFERENCE CALLStella-Jones
will hold a conference call to discuss these results on May 3,
2018, at 1:30 PM 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 5768978. This recording will be available on Thursday,
May 3, 2018 as of 4:30 PM Eastern Time until 11:59 PM Eastern Time
on Thursday, May 10, 2018.
NON-IFRS FINANCIAL MEASURESEBITDA (operating
income before depreciation of property, plant and equipment and
amortization of intangible assets) and operating income 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.
ABOUT STELLA-JONES 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 first quarter ended March 31, 2018 are available on
Stella-Jones' website at
www.stella-jones.com.
Source: |
Stella-Jones
Inc. |
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Contacts: |
Éric Vachon,
CPA, CA |
Pierre Boucher,
CPA, CMA |
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Senior Vice-President
and Chief Financial Officer |
Jennifer
McCaughey, CFAMaisonBrison Communications |
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Tel.: (514)
940-3903 |
Tel.: (514)
731-0000 |
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evachon@stella-jones.com |
pierre@maisonbrison.comjennifer@maisonbrison.com |
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