Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today
announced financial results for its third quarter ended September
30, 2018.
“Third quarter results demonstrated strong sales
growth and continued improvement in operating margins on a
sequential basis. Sales increased in all product categories driven
by sales prices, market demand and acquisitions. While margins are
up when compared to previous 2018 quarters, the pace of improvement
was mitigated by the timing of customer price adjustments for
higher untreated railway tie costs.
Looking forward, we are encouraged by the
improving market conditions in the railway tie product category and
the rising demand for utility poles. Given current market
conditions and the recent decrease in residential lumber prices, we
are on track to improve our operating margins in 2019. 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) |
Q3-18 |
Q3-17 |
YTD Q3-18 |
YTD Q3-17 |
Sales |
630.0 |
|
517.6 |
|
1,691.1 |
|
1,508.8 |
|
EBITDA |
76.7 |
|
71.3 |
|
199.7 |
|
203.5 |
|
EBITDA margin (%) |
12.2 |
% |
13.8 |
% |
11.8 |
% |
13.5 |
% |
Operating income |
67.9 |
|
63.1 |
|
174.5 |
|
178.4 |
|
Net income for the period |
45.8 |
|
42.0 |
|
117.0 |
|
116.8 |
|
Per share – basic and diluted ($) |
0.66 |
|
0.61 |
|
1.69 |
|
1.68 |
|
Weighted average shares outstanding (basic,
in ‘000s) |
69,357 |
|
69,330 |
|
69,350 |
|
69,319 |
|
THIRD QUARTER RESULTSSales for the third
quarter of 2018 reached $630.0 million, versus sales of $517.6
million for the corresponding period last year. Acquisitions
contributed sales of approximately $19.9 million, while the
currency conversion effect had a positive impact of $12.9 million.
Excluding these factors, sales increased approximately $79.6
million, or 15.4%.
Railway tie sales for the third quarter of 2018
amounted to $187.7 million, representing an increase of 16.7%, from
sales of $160.8 million in the corresponding period last year.
Excluding the currency conversion effect, railway tie sales
increased approximately $21.8 million, or 13.5%, primarily as a
result of price increases.
Utility pole sales reached $200.6 million in the
third quarter of 2018, up 16.3% from sales of $172.5 million in the
corresponding period last year. Acquisitions contributed sales of
$0.1 million, while the currency conversion effect increased sales
by about $5.1 million when compared with the third quarter of last
year. Excluding the contribution from acquisitions and the currency
conversion effect, utility pole sales increased approximately $22.9
million, or 13.3%, primarily driven by increased sales in the U.S.
Southeast, increased projects related to transmission poles and a
healthy demand for replacement programs.
Sales in the residential lumber category
totalled $160.5 million in the third quarter of 2018, up 27.6% from
sales of $125.8 million for the corresponding period last year.
Acquisitions contributed sales of approximately $15.2 million,
while the currency conversion effect increased sales by about $1.5
million when compared with the same period last year. Excluding
these factors, residential lumber sales increased approximately
$18.0 million, or 14.3% as a percentage of sales. This is primarily
explained by higher selling prices as a result of lumber cost
escalations passed through to customers.
Industrial product sales reached $32.4 million
in the third quarter of 2018, compared with $25.6 million in the
corresponding period last year. Excluding the contribution from
acquisitions and the currency conversion effect, sales increased
7.0%, explained in most part by demand for rail-related
products.
Sales in the logs and lumber category totalled
$48.8 million in the third quarter of 2018, compared with $32.9
million in the corresponding period last year. Excluding the
contribution from acquisitions and the currency conversion effect,
logs and lumber sales increased 45.9%. This significant
variance reflects higher selling prices due to escalating lumber
costs coupled with increased harvesting activity related to
procurement activities to support strong pole sales. Since this
product category does not generate margin, sales growth of this
product category reduces overall margin as a percentage of
sales.
Operating income stood at $67.9 million, or
10.8% of sales, compared with $63.1 million, or 12.2% of sales in
the corresponding period last year. While operating income in
absolute dollars is higher than last year, it is lower on a
percentage of sales basis. This variation is primarily explained by
the increasing cost of untreated railway ties and certain untreated
species of poles. In addition, the higher lumber costs, which are
passed through in a timely manner 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 also exacerbated by the effect of
currency translation.
Net income for the third quarter of 2018 was
$45.8 million, or $0.66 per diluted share, versus $42.0 million, or
$0.61 per diluted share, in the third quarter of 2017.
NINE-MONTH RESULTSFor the first
nine months of 2018, sales amounted to $1.69 billion, versus $1.51
billion for the corresponding period last year. Acquisitions
contributed sales of $49.0 million, while the currency conversion
effect had a negative impact of $21.9 million on sales. Excluding
these factors, sales increased approximately $155.2 million, or
10.3%.Operating income reached $174.5 million, or 10.3% of sales,
compared with $178.4 million, or 11.8% of sales last year. Net
income totalled $117.0 million, or $1.69 per diluted share, versus
$116.8 million, or $1.68 per diluted share last year.
SOLID FINANCIAL POSITION As at
September 30, 2018, the Company’s long-term debt, including the
current portion, stood at $499.0 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 Wood Preservers
Incorporated, higher capital expenditures as well as the effect of
local currency translation on U.S. dollar denominated long-term
debt. As at September 30, 2018, Stella-Jones’ total debt to EBITDA
was 2.1x, up from 1.9x as at December 31, 2017.
QUARTERLY DIVIDEND OF
$0.12 PER SHAREOn November 1,
2018, the Board of Directors declared a quarterly dividend of $0.12
per common share, payable on December 20, 2018 to shareholders of
record at the close of business on December 3, 2018. This dividend
is designated to be an eligible dividend.
OUTLOOKFor 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 and the utility pole product categories. Operating margins
are improving thus far in the second half of 2018 when compared to
the first half of the year. However, the progression of operating
margins in the fourth quarter of 2018 will continue to be impacted
by higher untreated railway tie costs until sales prices can be
adjusted. The Company plans on spending up to $45.0 million on
property, plant and equipment in 2018, driven by capacity
enhancement projects and its overall effective tax rate is expected
to be approximately 27.0%.
For 2019, based on current market conditions and
assuming stable currencies, Management expects higher
year-over-year overall sales for Stella-Jones, driven by stronger
pricing in some product categories as well as increased market
reach for utility poles and residential lumber. Operating margins
are expected to improve over 2018, primarily driven by increased
pricing for railway ties and higher volume and improved product mix
for utility poles.
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 November 2,
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 5563718. This recording will be available
on Friday, November 2, 2018 as of 1:00 PM Eastern Time until 11:59
PM Eastern Time on Friday, November 9, 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 third quarter ended September 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. |
|
|
|
|
Contacts: |
Éric Vachon,
CPA, CA |
Pierre Boucher,
CPA, CMA |
|
Senior Vice-President
and |
Jennifer
McCaughey, CFA |
|
Chief Financial
Officer |
MaisonBrison
Communications |
|
Tel.: (514)
940-3903 |
Tel.: (514)
731-0000 |
|
evachon@stella-jones.com |
pierre@maisonbrison.com |
|
|
jennifer@maisonbrison.com |
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