Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today
announced financial results for its fourth quarter and fiscal year
ended December 31, 2019.
“We concluded 2019 on a positive note with
growth in both sales and profitability for the quarter and the full
year. Sales were up 1.6% in the fourth quarter and 2.1% for the
year to $2.2 billion, delivering the nineteenth consecutive year of
growth. Higher sales drove improvement in EBITDA, which grew 28.0%
to $312.9 million, yielding an EBITDA margin of 14.4% for 2019.
During the year, we continued to foster a balanced capital
allocation approach focused on growth and returns. We deployed our
solid liquidity to invest in our network, acquire a key residential
lumber facility and return capital to shareholders. In line with
this strategy, today we are pleased to announce a dividend increase
for the sixteenth consecutive year,” stated Éric Vachon, President
and CEO of Stella-Jones. “Our solid financial position provides us
the flexibility to continue to pursue our growth strategy and
deliver further value to shareholders.”
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Financial Highlights (in millions of Canadian
dollars, except per share data and margin) |
Q4-19 |
Q4-18(2) |
Fiscal2019 |
Fiscal2018(2) |
Sales |
439.9 |
432.8 |
2,169.0 |
2,123.9 |
EBITDA(1) |
58.8 |
41.8 |
312.9 |
244.4 |
EBITDA margin (%)(1) |
13.4% |
9.7% |
14.4% |
11.5% |
Operating income(1) |
41.4 |
31.8 |
242.3 |
206.3 |
Net income for the period |
27.7 |
20.6 |
163.1 |
137.6 |
Per share – basic and diluted ($) |
0.41 |
0.30 |
2.37 |
1.98 |
Weighted average shares outstanding (basic, in ‘000s) |
67,898 |
69,358 |
68,761 |
69,352 |
(1) |
This is a non-IFRS financial measure which does not have a
standardized meaning prescribed by IFRS and may therefore not be
comparable to similar measures presented by other issuers. |
(2) |
Results for 2018 were not restated as permitted by IFRS 16. |
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2019 RESULTSOn January 1, 2019,
the Company retrospectively adopted IFRS 16, Leases (“IFRS 16”),
but has not restated comparative periods, as permitted under the
specific transitional provisions in the standard. The application
of this new standard resulted in the addition of right-of-use
assets and lease liabilities to the consolidated statement of
financial position. Starting on January 1, 2019, instead of lease
expenses, right-of-use asset depreciation and financing costs
related to lease liabilities are recorded in the consolidated
statements of income. Please refer to the impact of new accounting
pronouncements and interpretation section of the Company’s
Management’s Discussion and Analysis for further details.
Sales rose to $2,169.0 million, up $45.1 million
compared to the previous year. Excluding the contribution from 2018
acquisitions of $11.6 million and the positive impact of the
currency conversion of $41.9 million, sales decreased by $8.4
million, or 0.4%, in 2019. Higher pricing for utility poles and
railway ties, and the increase in volumes for industrial products
were more than offset by the lower residential lumber and logs and
lumber sales, and the decrease in shipments for railway ties.
- Utility poles (35.9% of
2019 sales): Sales increased to $779.2 million in 2019, a
7.5% improvement over the prior year. Excluding the contribution
from 2018 acquisitions of $0.5 million and the currency conversion
effect of $17.3 million, utility pole sales rose by $36.4 million,
or 5.0%, primarily driven by increased sales price. Volume
increases in the U.S. Southeast and overall healthy replacement
demand, were largely offset by lower transmission pole volumes,
given more project-related demand in 2018.
- Railway ties (31.3% of 2019
sales): Sales improved by $15.8 million to $678.2 million,
compared to sales of $662.4 million in 2018. Excluding the currency
conversion effect of $16.2 million, railway tie sales remained
unchanged as higher selling prices for Class 1 and non-Class 1
customers compensated for the decrease in sales volumes.While
demand for railway ties remained strong, the tight supply market
for untreated ties required the Company to treat ties that were not
air seasoned. The resulting longer treating cycle times, as well as
the reduction in the maintenance program of a Class 1 customer
unfavourably impacted sales volumes in 2019.
- Residential lumber (21.7%
of 2019 sales): Sales totalled $471.6 million, down by
0.6% compared to sales of $474.4 million last year. Excluding the
contribution from 2018 acquisitions of $7.3 million and the
currency conversion effect of $4.5 million, residential lumber
sales declined by $14.6 million. The decrease was primarily
attributable to a reduction in sales price, resulting from lower
cost of lumber. The decrease was partially offset by higher
volumes.
- Industrial products (5.9%
of 2019 sales): Sales rose to $128.2 million, compared to
$109.2 million in the prior year. Excluding the contribution from
2018 acquisitions of $3.8 million and the currency conversion
effect of $2.9 million, sales increased $12.3 million, or 11.3%,
primarily as a result of stronger rail-related and piling product
sales.
- Logs and lumber (5.2% of
2019 sales): Sales totalled $111.8 million, compared to
$152.9 million last year. Excluding the currency conversion effect
of $1.0 million, sales for this product category decreased by $42.1
million, or 27.5%, reflecting a decrease in selling prices driven
by a decline in lumber market costs as well as lower volumes due to
the timing of harvesting activities.
Operating income was $242.3 million, or 11.2% of
sales, compared to $206.3 million, or 9.7% of sales, last year. The
improvement was primarily attributable to higher selling prices for
utility poles and railway ties, which largely offset the lower
volumes in our two core product categories and the higher
production costs for railway ties. Operating income in 2019 also
benefitted from a reduction in the mark-to-market losses related to
diesel and petroleum derivative commodity contracts recorded in
“Other losses (gains), net”.
EBITDA grew to $312.9 million, up 28.0%,
compared to $244.4 million reported in 2018, reflecting an EBITDA
margin of 14.4%. The increase was mainly driven by stronger
pricing and the positive impact of the adoption of IFRS 16.
Excluding the effect of IFRS 16, EBITDA increased by $36.5 million
or 14.9%, representing a 12.9% margin, compared to 11.5% in
2018.
Led by the strong growth in operating income,
net income increased 18.5% to $163.1 million, or $2.37 per diluted
share, compared to net income of $137.6 million, or $1.98 per
share, last year. Earnings per share was positively impacted by the
repurchase of shares through the Company’s normal course issuer
bid.
FOURTH QUARTER RESULTSSales
generated in the fourth quarter of 2019 amounted to $439.9 million,
compared to sales of $432.8 million for the same period in 2018.
Excluding the $2.7 million conversion effect from the fluctuation
in the value of the U.S. dollar, sales increased by $4.4
million.
- Utility poles:
Sales were $190.9 million, down slightly from sales of $192.0
million recorded in the fourth quarter of 2018. Excluding the
currency conversion effect, sales decreased 1.5% as higher pricing
was more than offset by lower volumes, largely due to more
transmission pole projects in the prior year quarter.
- Railway ties:
Sales increased to $131.3 million, up 3.4% compared to $127.0
million last year. Excluding the currency conversion effect,
railway tie sales rose 3.1%, driven by price increases, partially
offset by lower non-Class 1 volumes.
- Residential
lumber: Sales totalled $61.1 million, relatively
unchanged from $60.3 million generated in the fourth quarter last
year. Higher sales volumes were largely offset by lower lumber
prices.
- Industrial
products: Sales amounted to $26.3 million, up $3.2 million
compared to the $23.1 million generated in the year-ago period.
Excluding the currency conversion effect, sales increased 13.0% as
a result of stronger volumes from rail-related products.
- Logs and lumber:
Sales of $30.3 million in the fourth quarter were relatively
unchanged when compared to the same period last year.
Operating income rose to $41.4 million, or 9.4%
of sales, compared to $31.8 million, or 7.4% of sales, in the same
period last year. In the fourth quarter of 2019, operating income
benefitted from improved pricing and a decrease in the mark-to
market losses related to diesel and petroleum derivative commodity
contracts. These factors were partially offset by lower utility
pole volumes and higher production costs, mainly for railway ties.
Compared to the prior year quarter, EBITDA improved by $17.0
million.
Net income was up 26.0% to $27.7 million, or
$0.41 per diluted share, compared to $20.6 million, or $0.30 per
share, in the prior year.
STRONG LIQUIDITY AND CAPITAL
RESOURCES The Company generated $89.9 million of cash from
operations in 2019, despite the significant increase in untreated
wood inventory given the improved availability of untreated ties
and the anticipated sales growth in 2020. Together with additional
borrowings under the syndicated credit facilities of $126.0
million, the Company deployed its liquidity to invest $65.8 million
in capital expenditures, including the acquisition of the assets of
Shelburne Wood Protection Ltd, as well as to repurchase shares
totaling $70.6 million and pay dividends of $38.5 million. As at
December 31, 2019, the Company’s long-term debt stood at $604.9
million and the long-term debt to EBITDA remained low at 1.9x.
NORMAL COURSE ISSUER BID
(“NCIB”)In 2019, the total number of common shares
repurchased for cancellation under the 2018-2019 NCIB, which
expired on December 20, 2019, amounted to 1,836,250 shares, at an
average price of $38.47 per share, for total consideration of $70.6
million.
QUARTERLY DIVIDEND INCREASED 7.1% TO
$0.15 PER SHAREOn March 10, 2020, the Board of Directors
declared a quarterly dividend of $0.15 per share, representing an
increase of 7.1% over the previous quarterly dividend, on the
outstanding common shares of the Company, payable on April 24, 2020
to shareholders of record at the close of business on April 3,
2020. This dividend is designated to be an eligible dividend.
PENTACHLOROPHENOL UPDATEThe
Company confirmed that it has ceased taking active steps to produce
Pentachlorophenol and intends to continue working with its
customers to offer a variety of preservative solutions for utility
pole wood treatment.
OUTLOOKBased on the assumptions
that current market and economic conditions stabilize and foreign
exchange rates and raw material prices remain comparable to those
of the prior year, the Company expects higher year-over-year
overall sales, driven by increased market reach in the utility
pole, railway tie and residential lumber product categories. Sales
growth is expected to support an improvement in operating margins.
As a result, notwithstanding any additional acquisitions, EBITDA in
2020 is forecasted to be in the range of $320.0 million to $345.0
million, compared to $312.9 million in 2019. For additional details
per product category, please refer to the Company’s Management’s
Discussion and Analysis.
CONFERENCE CALLStella-Jones
will hold a conference call to discuss these results on March 11,
2020, 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 6270426. This recording will be available
on Wednesday, March 11, 2020 as of 1:30 PM Eastern Time until 11:59
PM Eastern Time on Wednesday, March 18, 2020.
NON-IFRS FINANCIAL
MEASURESEBITDA (operating income before depreciation of
property, plant and equipment, depreciation of right-of-use assets
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 understand the
Company’s operating results, financial condition and cash flows as
they provide an additional measure about its performance. Please
refer to the non-IFRS financial measures described in the
Management’s Discussion and Analysis.
ABOUT STELLA-JONESStella-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.
CAUTION REGARDING FORWARD-LOOKING
INFORMATIONExcept 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: The audited
consolidated financial statements for the year ended December 31,
2019 and the condensed interim unaudited consolidated financial
statements for the fourth quarter ended December 31, 2019 as well
as management’s discussion and analysis are available on
Stella-Jones’ website at www.stella-jones.com.
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Source: |
Stella-Jones Inc. |
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Contacts: |
Silvana Travaglini, CPA,
CA |
Pierre Boucher, CPA,
CMA |
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Senior Vice-President and Chief
Financial OfficerStella-Jones |
Jennifer McCaughey,
CFAMaisonBrison Communications |
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Tel.: (514) 940-8660 |
Tel.: (514) 731-0000 |
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stravaglini@stella-jones.com |
pierre@maisonbrison.com
jennifer@maisonbrison.com |
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