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.
Financial Highlights (in millions of Canadian
dollars, except per share data and margin) |
Q2-18 |
Q2-17 |
YTD Q2-18 |
YTD Q2-17 |
Sales |
662.3 |
|
594.2 |
|
1,061.1 |
|
991.2 |
|
EBITDA |
79.6 |
|
83.1 |
|
123.0 |
|
132.1 |
|
EBITDA margin (%) |
12.0 |
% |
14.0 |
% |
11.6 |
% |
13.3 |
% |
Operating income |
71.0 |
|
74.5 |
|
106.5 |
|
115.3 |
|
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 RESULTSSales 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.
SIX-MONTH RESULTSFor 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.
ACQUISITIONOn 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 SHAREOn 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.
OUTLOOKBased 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.
CONFERENCE CALLStella-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 MEASURESEBITDA (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.
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 second quarter ended June
30, 2018 are available on Stella-Jones' website at
www.stella-jones.com
Head Office3100 de la Côte-Vertu Blvd., Suite
300Saint-Laurent, QuébecH4R 2J8 Tel.: (514)
934-8666Fax: (514) 934-5327 |
Exchange ListingsThe Toronto Stock ExchangeStock
Symbol: SJ Transfer Agent and
RegistrarComputershare Investor Services Inc. |
Investor RelationsÉric VachonSenior Vice-President
and Chief Financial OfficerTel.: (514) 940-3903Fax:
(514) 934-5327evachon@stella-jones.com |
Source: |
Stella-Jones Inc. |
|
|
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Contacts: |
Éric Vachon, CPA, CASenior Vice-President and
Chief Financial OfficerTel.: (514)
940-3903evachon@stella-jones.com |
Pierre Boucher, CPA, CMAJennifer
McCaughey, CFAMaisonBrison CommunicationsTel.: (514)
731-0000pierre@maisonbrison.comjennifer@maisonbrison.com |
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