Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today
announced financial results for its fourth quarter and year ended
December 31, 2021.
"Stella-Jones delivered a record performance on
many fronts in 2021, resulting in increased sales, strong EPS
growth and solid cashflows. We utilized our collective expertise
and longstanding industry relationships to successfully navigate
through complex procurement challenges and volatile lumber markets
to produce yet another successful year,” said Éric Vachon,
President and CEO of Stella-Jones. "We remained focused on building
on our strong fundamentals, completing two accretive acquisitions
and investing in our network to strengthen our capability to supply
the growing needs of our infrastructure customer base. The Company
also continued to return capital to its shareholders and announced
an 18th consecutive year of increased dividends."
"Looking to the next 3 years, we will focus on
pursuing acquisitions to complement our infrastructure-related
product offering and invest to increase capacity in utility poles
production to meet anticipated growth in demand. Acknowledging the
Company’s strong cash flow generation, we plan to return
approximately $500-$600 million to shareholders over the next 3
years, an increase of over 50% compared to cash returned over the
past 3 years. Our efforts will be devoted to leveraging our solid
business foundation to generate continued profitable growth,
further solidifying our leadership position in our core product
categories and enhancing shareholder value," concluded Mr.
Vachon.
Financial Highlights(in millions of Canadian
dollars, except per share data and margin) |
Q4-21 |
Q4-20 |
2021 |
2020 |
Sales |
545 |
533 |
2,750 |
2,551 |
Gross profit(1) |
65 |
85 |
456 |
446 |
Gross profit margin(1) |
11.9% |
15.9% |
16.6% |
17.5% |
EBITDA(1) |
52 |
70 |
400 |
385 |
EBITDA margin(1) |
9.5% |
13.1% |
14.5% |
15.1% |
Operating income |
32 |
50 |
326 |
309 |
Operating income margin(1) |
5.9% |
9.4% |
11.9% |
12.1% |
Net income for the period |
22 |
34 |
227 |
210 |
Earnings per share - basic and diluted |
0.34 |
0.52 |
3.49 |
3.12 |
Weighted average shares outstanding (basic, in ‘000s) |
64,292 |
66,654 |
65,002 |
67,260 |
(1) |
These are non-GAAP and other financial measures which are not
prescribed by IFRS and are not likely to be comparable to similar
measures presented by other issuers. Please refer to the section
"Non-GAAP and other financial measures" in this press release |
FOURTH QUARTER RESULTS
Sales for the fourth quarter of 2021 amounted to
$545 million, up from sales of $533 million for the same period in
2020. Excluding the contribution from the acquisitions of Cahaba
Pressure Treated Forest Products, Inc. ("Cahaba Pressure") and
Cahaba Timber, Inc. ("Cahaba Timber") of six million dollars and
the negative impact of the currency conversion of $14 million,
pressure-treated wood sales rose $26 million, or 5%, mainly driven
by higher volumes and pricing from utility poles as well as
improved pricing for railway ties. This growth was partially offset
by lower demand for residential lumber. The decrease in logs and
lumber sales mainly stemmed from the lower market price of
lumber.
On November 19, 2021, the Company acquired
Cahaba Pressure and Cahaba Timber and included its results of
operations as of the acquisition date. Cahaba Pressure
manufactures, distributes and sells treated and untreated wood
poles, crossties and posts and provides custom treating services.
Cahaba Timber is a producer of treated poles and pilings and
engages in raw material procurement.
Pressure-treated wood
products:
- Utility poles (42% of Q4-21
sales): Utility poles sales amounted to $227 million, up
from $201 million for the same period last year. Excluding the
contribution from acquisitions and the negative currency conversion
effect, sales increased 13%, primarily due to increased maintenance
and project-related demand and higher pricing.
- Railway ties (27% of Q4-21
sales): Sales of railway ties amounted to $147 million, in
line with last year. Excluding the negative currency conversion
effect, railway ties sales rose 3%, mainly driven by improved
pricing for both Class 1 and non-Class 1 business.
- Residential lumber (20% of
Q4-21 sales): Residential lumber sales totaled $107
million, down from $117 million of sales generated in the same
period in 2020. Despite the lower market price of lumber in the
fourth quarter of 2021, compared to the fourth quarter of 2020,
pricing for residential lumber remained unchanged. The decrease in
sales stems from lower sales volumes.
- Industrial products (5% of
Q4-21 sales): Industrial product sales amounted to $25
million, slightly up compared to the $23 million of sales generated
a year ago, primarily due to the mix of project-related bridge
work.
Logs and lumber:
- Logs and lumber (6% of
Q4-21 sales): Logs and lumber sales totaled $39 million,
down 13% compared to the same period last year, mainly due to the
lower market price of lumber.
Gross profit was $65 million in the fourth
quarter of 2021, versus $85 million, in the fourth quarter of 2020,
representing a margin of 11.9% and 15.9% respectively. The decrease
was primarily attributable to the higher inventory cost of
residential lumber at the end of the third quarter. Given the time
lag in contractual price adjustments, the rise in costs during the
quarter outpaced sales price increases across all product
categories. This further contributed to the lower gross profit in
the fourth quarter of 2021, compared to the same period last
year.
Similarly, operating income totaled $32 million
in the fourth quarter of 2021 versus operating income of $50
million in the corresponding period of 2020, while EBITDA decreased
to $52 million, down 26%, compared to $70 million reported in the
fourth quarter of 2020.
As a result, net income for the fourth quarter
of 2021 was $22 million, or $0.34 per share, compared to net income
of $34 million, or $0.52 per share, in the corresponding period of
2020.
2021 RESULTS
Sales for the year ended December 31, 2021 were
up 8% to $2,750 million, compared to sales of $2,551 million in
2020, despite a $127 million negative impact from currency
conversion. Excluding the impact of the currency conversion and the
contribution from acquisitions, pressure-treated wood sales rose
$232 million, or 10% and sales of logs and lumber increased by $88
million. The increase in sales was driven by organic growth across
all product categories.
Pressure-treated wood
products:
- Utility poles (34% of 2021 sales): Utility
poles sales increased to $925 million in 2021, compared to sales of
$888 million in 2020. Excluding the contribution from the
acquisition of Cahaba Pressure and Cahaba Timber in November 2021
and the currency conversion effect, utility poles sales increased
by $83 million, or 9%, driven by strong maintenance demand for
distribution poles, favourable price adjustments in response to raw
material cost increases and a better sales mix, including the
impact of incremental fire-resistant wrapped pole sales volumes.
This growth was partially attenuated by less project-related
volumes.
- Railway ties (25% of 2021 sales): Railway ties
sales were $700 million in 2021, compared to sales of $733 million
in 2020. Excluding the currency conversion effect, railway ties
sales increased $13 million, or 2%, largely attributable to higher
non-Class 1 sales compared to 2020, as continued strong demand
outweighed the pricing pressures in the first half of the year.
Sales for Class 1 customers remained relatively stable
year-over-year.
- Residential lumber (28% of 2021 sales): Sales
in the residential lumber category rose to $773 million in 2021,
compared to sales of $665 million in 2020. Excluding the currency
conversion effect, residential lumber sales increased $127 million,
or 19%, driven by the exceptional rise in the market price of
lumber during the first six months of the year. This increase was
partially offset by lower sales volumes attributable to softer
consumer demand compared to last year.
- Industrial products (5% of 2021 sales):
Industrial product sales were relatively unchanged at $121 million
in 2021 compared to sales of $119 million in 2020. Excluding the
currency conversion effect, industrial product sales increased $9
million or 8%, largely due to more timber and piling projects
compared to 2020, offset in part by lower project-related bridge
and crossing sales.
Logs and lumber:
- Logs and lumber (8% of 2021
sales): Sales in the logs and lumber product category were
$231 million in 2021, up 60% compared to $146 million in 2020. The
increase is due to the exceptional rise in the market price of
lumber in the first half of the year.
Driven by sales growth, gross profit grew to
$456 million, compared to $446 million in 2020, and EBITDA
increased to a record $400 million, from $385 million in 2020. The
increase in gross profit and EBITDA was primarily driven by the
rise in sales prices for residential lumber, which exceeded the
higher cost of lumber, as well as, improved pricing, sales mix and
volumes for utility poles. This increase was partially offset by a
decrease in residential lumber demand, lower railway ties pricing
and the unfavourable impact of the depreciation of the U.S. dollar.
Given, however, the time lag in contractual sales price
adjustments, the increase in costs outpaced price increases and
EBITDA margin decreased to 14.5% compared to a margin of 15.1% in
the prior year.
Net income in 2021 was $227 million, an increase
of 8% versus net income of $210 million in 2020. Earnings per share
in 2021 were $3.49, an increase of 12% compared to earnings per
share of $3.12 in 2020. Earnings per share was positively impacted
by the increase in net income and the Company’s repurchase of
shares through its normal course issuer bids.
STRONG LIQUIDITY AND CAPITAL
RESOURCES
During the year ended December 31, 2021,
Stella-Jones generated operating cash flows of $251 million. The
Company invested $129 million in strategic acquisitions, $64
million in its property, plant and equipment and intangible assets,
and returned $155 million of capital to shareholders through the
payment of dividends and the repurchase of shares. As at December
31, 2021, the Company maintained a healthy financial position with
a net debt-to-EBITDA ratio of 2.2x and available liquidity of $329
million.
NORMAL COURSE ISSUER BID
On November 8, 2021, the Toronto Stock Exchange
("TSX") accepted Stella-Jones’ Notice of Intention to Make a normal
course issuer bid ("NCIB') to purchase for cancellation, up to
4,000,000 common shares during the 12-month period commencing
November 12, 2021 and ending November 11, 2022, representing
approximately 8% of the public float of its common shares.
("2021-2022" NCIB)
In the three-month period ended December 31,
2021, the Company repurchased 721,548 common shares for
cancellation in consideration of $30 million, under its NCIB. In
2021, the Company repurchased in total 2,447,419 common shares for
cancellation in consideration of $108 million, under the NCIB’s
then in effect.
Subsequent to year-end, on March 8, 2022, the
Company received approval from the TSX to amend its NCIB in order
to increase the maximum number of common shares that may be
repurchased for cancellation by the Company during the 12-month
period ending November 11, 2022, from 4,000,000 to 5,000,000 common
shares, representing approximately 10% of the public float of its
common shares as at the October 31, 2021. The amendment to the NCIB
will be effective on March 14, 2022 and will continue until
November 11, 2022 or such earlier date as Stella-Jones has acquired
the maximum number of common shares permitted under the NCIB. All
other terms and conditions of the NCIB remained unchanged.
Purchases under the NCIB are made on behalf of Stella-Jones by a
registered broker through the facilities of the TSX.
QUARTERLY DIVIDEND INCREASED 11% TO
$0.20 PER SHARE
On March 8, 2022 the Board of Directors
declared a quarterly dividend of $0.20 per common share,
representing an increase of 11% over the previous quarterly
dividend, on the outstanding common shares of the Company, payable
on April 22, 2022 to shareholders of record at the close of
business on April 4, 2022. This dividend is designated to be
an eligible dividend.
OUTLOOK
To better reflect its business dynamics, the
Company is shifting its financial guidance to a three-year outlook.
Over the next 3 years, Stella-Jones anticipates continued sales and
EBITDA growth. It expects to generate an annual sales growth rate
in the mid-single digit range from the 2019 pre-pandemic levels and
continues to target EBITDA margin of approximately 15% for the
2022-2024 period.
By core product categories for 2022-2024:
- The Company will expand its capital
expenditure program and invest an additional $90 to $100 million to
support the anticipated high single-digit organic growth in the
utility poles category;
- The Company continues to project
growth in the railway ties category in the low single-digits;
and
- For residential lumber, the Company
anticipates stable long-term demand but believes the market price
of lumber will normalize. As a result, the Company expects its
residential lumber sales to decrease compared to 2021 and assumes
sales in the 2022-2024 period will be approximately 35% above the
2019 pre-pandemic levels.
With the anticipated normalization of lumber
prices and expected growth in the Company's infrastructure-related
businesses, the sales of utility poles, railway ties and industrial
product categories are expected to represent 75-80% of total sales,
while the relative proportion of residential lumber sales is
projected to stabilize to 20-25% by 2024.
Based on its current business model, the Company
projects returning to shareholders approximately $500 to $600
million in the 2022-2024 period.
The Company plans to pursue acquisitions that
further support growth in its infrastructure-related products
categories. It also plans to evaluate growth opportunities in
adjacent businesses where it can leverage its core knowledge and
key attributes to generate continued strong cash flow. For
strategic acquisitions, the Company anticipates increasing its
leverage to finance such opportunities. As per its capital
allocation strategy, the Company targets a leverage ratio of
2.0x-2.5x and may temporarily deviate and exceed its target to
pursue acquisitions.
The Company’s financial guidance is based on its
current outlook and takes into account a number of economic and
market assumptions. Please refer to the Company's Management’s
Discussion and Analysis for a complete list of assumptions.
CONFERENCE CALL
Stella-Jones will hold a conference call to
discuss these results on March 9, 2022, at 10:00 a.m. Eastern
Standard Time. Interested parties can join the call by dialing
1-438-803-0545 (Toronto or overseas) or 1-888-440-2194 (elsewhere
in North America). Parties unable to call in at this time may
access a recording by calling 1-800-770-2030 and entering the
passcode 4899896. This recording will be available on Wednesday,
March 9, 2022 as of 1:30 p.m. until 11:59 p.m. on Wednesday,
March 16, 2022.
ABOUT STELLA-JONES
Stella-Jones Inc. (TSX: SJ) is North America’s
leading producer of pressure-treated wood products. It supplies all
the continent’s major electrical utilities and telecommunication
companies with wood utility poles and North America’s Class 1,
short line and commercial railroad operators with railway ties and
timbers. Stella-Jones also provides industrial products, which
include wood for railway bridges and crossings, marine and
foundation pilings, construction timbers and coal tar-based
products. Additionally, the Company manufactures and distributes
premium residential lumber and accessories to Canadian and American
retailers for outdoor applications, with a significant portion of
the business devoted to servicing the Canadian market through its
national manufacturing and distribution network. The Company’s
common shares are listed on the Toronto Stock Exchange.
CAUTION REGARDING FORWARD-LOOKING
INFORMATION
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, general economic and business conditions (including
the impact of the coronavirus pandemic), evolution in customer
demand for the Company's products and services, product selling
prices, availability and cost of raw materials, changes in foreign
currency rates, and the ability of the Company to raise capital. As
a result, readers are advised that actual results may differ from
expected results. Unless required to do so under applicable
securities legislation, the Company does not assume any obligation
to update or revise forward-looking statements to reflect new
information, future events or other changes after the date
hereof.
Note to readers: The
audited consolidated financial statements for the year ended
December 31, 2021 as well as management’s discussion and analysis
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: SJTransfer Agent and
RegistrarComputershare Investor Services Inc. |
Investor RelationsSilvana TravagliniSenior
Vice-President and Chief Financial OfficerTel.: (514) 940-8660Fax:
(514) 934-5327stravaglini@stella-jones.com |
Source: |
Stella-Jones Inc. |
|
|
|
|
Contacts: |
Silvana Travaglini, CPA,
CA |
Pierre Boucher, CPA,
CMA |
|
Senior Vice-President and Chief
Financial Officer Stella-Jones |
MaisonBrison Communications |
|
Tel.: (514) 940-8660 |
Tel.: (514) 731-0000 |
|
stravaglini@stella-jones.com |
pierre@maisonbrison.com |
Stella-Jones Inc. |
Consolidated
Statements of Income |
(expressed in millions of Canadian dollars, except earnings per
common share) |
|
For thethree-month
periodsended December 31, |
|
For theyearsended
December 31, |
|
2021 |
|
2020 |
|
2021 |
2020 |
|
$ |
|
$ |
|
$ |
$ |
Sales |
545 |
|
533 |
|
2,750 |
2,551 |
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (including depreciation and amortization (3 months -
$17 (2020 - $16) and 12 months - $63 (2020 - $62)) |
480 |
|
448 |
|
2,294 |
2,105 |
Selling and administrative (including depreciation and amortization
(3 months - $3 (2020 - $4) and 12 months - $11 (2020 - $14)) |
32 |
|
32 |
|
127 |
125 |
Other losses, net |
1 |
|
3 |
|
3 |
12 |
|
513 |
|
483 |
|
2,424 |
2,242 |
Operating
income |
32 |
|
50 |
|
326 |
309 |
|
|
|
|
|
|
Financial
expenses |
6 |
|
5 |
|
23 |
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
26 |
|
45 |
|
303 |
284 |
|
|
|
|
|
|
Provision for income
taxes |
|
|
|
|
|
Current |
(4 |
) |
8 |
|
64 |
66 |
Deferred |
8 |
|
3 |
|
12 |
8 |
|
|
|
|
|
|
|
4 |
|
11 |
|
76 |
74 |
|
|
|
|
|
|
Net income for the
year |
22 |
|
34 |
|
227 |
210 |
|
|
|
|
|
|
Basic and diluted
earnings per common share |
0.34 |
|
0.52 |
|
3.49 |
3.12 |
Stella-Jones Inc. |
Consolidated
Statements of Financial Position |
(expressed in millions of Canadian dollars) |
|
2021 |
2020 |
|
$ |
$ |
Assets |
|
|
|
|
|
Current
assets |
|
|
Accounts receivable |
230 |
208 |
Inventories |
1,106 |
1,075 |
Income taxes receivable |
9 |
— |
Other current assets |
43 |
36 |
|
1,388 |
1,319 |
Non-current
assets |
|
|
Property, plant and
equipment |
629 |
574 |
Right-of-use assets |
138 |
135 |
Intangible assets |
158 |
115 |
Goodwill |
341 |
280 |
Derivative financial
instruments |
3 |
— |
Other non-current assets |
8 |
3 |
|
2,665 |
2,426 |
Liabilities and
Shareholders’ Equity |
|
|
Current
liabilities |
|
|
Accounts payable and accrued
liabilities |
162 |
137 |
Income taxes payable |
1 |
19 |
Derivative financial
instruments |
— |
2 |
Current portion of long-term
debt |
33 |
11 |
Current portion of lease
liabilities |
35 |
33 |
Current portion of provisions
and other long-term liabilities |
11 |
16 |
|
242 |
218 |
Non-current
liabilities |
|
|
Long-term debt |
701 |
595 |
Lease liabilities |
109 |
106 |
Deferred income taxes |
137 |
104 |
Provisions and other long-term
liabilities |
15 |
15 |
Employee future benefits |
13 |
15 |
|
1,217 |
1,053 |
Shareholders’
equity |
|
|
Capital stock |
208 |
214 |
Retained earnings |
1,161 |
1,079 |
Accumulated other
comprehensive income |
79 |
80 |
|
|
|
|
1,448 |
1,373 |
|
2,665 |
2,426 |
Stella-Jones Inc. |
Consolidated
Statements of Cash Flows |
(expressed in millions of Canadian dollars) |
|
2021 |
|
2020 |
|
|
$ |
|
$ |
|
Cash flows provided by
(used in) |
|
|
Operating
activities |
|
|
Net income for the year |
227 |
|
210 |
|
Adjustments for |
|
|
Depreciation of property,
plant and equipment |
25 |
|
26 |
|
Depreciation of right-of-use
assets |
38 |
|
38 |
|
Amortization of intangible
assets |
11 |
|
12 |
|
Gain on derivative financial
instruments |
— |
|
(2 |
) |
Financial expenses |
23 |
|
25 |
|
Current income taxes
expense |
64 |
|
66 |
|
Deferred income taxes |
12 |
|
8 |
|
Provisions and other long-term
liabilities |
(7 |
) |
14 |
|
Other |
(5 |
) |
5 |
|
|
388 |
|
402 |
|
|
|
|
Changes in non-cash working
capital components |
|
|
Accounts receivable |
(19 |
) |
(32 |
) |
Inventories |
(21 |
) |
(123 |
) |
Other current assets |
(7 |
) |
(2 |
) |
Accounts payable and accrued
liabilities |
24 |
|
1 |
|
|
(23 |
) |
(156 |
) |
Interest paid |
(23 |
) |
(26 |
) |
Income taxes paid |
(91 |
) |
(42 |
) |
|
251 |
|
178 |
|
Financing
activities |
|
|
Proceeds from short-term
debt |
125 |
|
— |
|
Repayment of short-term
debt |
(123 |
) |
— |
|
Net change in revolving credit
facilities |
(13 |
) |
20 |
|
Proceeds from long-term
debt |
247 |
|
— |
|
Repayment of long-term
debt |
(105 |
) |
(8 |
) |
Repayment of lease
liabilities |
(35 |
) |
(35 |
) |
Dividends on common
shares |
(47 |
) |
(40 |
) |
Repurchase of common
shares |
(108 |
) |
(60 |
) |
Other |
1 |
|
(1 |
) |
|
(58 |
) |
(124 |
) |
Investing
activities |
|
|
Business acquisitions |
(129 |
) |
— |
|
Purchase of property, plant
and equipment |
(48 |
) |
(42 |
) |
Additions of intangible
assets |
(16 |
) |
(13 |
) |
Other |
— |
|
1 |
|
|
(193 |
) |
(54 |
) |
Net change in cash and
cash equivalents during the year |
— |
|
— |
|
Cash and cash
equivalents – Beginning of year |
— |
|
— |
|
Cash and cash
equivalents – End of year |
— |
|
— |
|
NON-GAAP AND OTHER FINANCIAL
MEASURES
This section includes information required by
National Instrument 52-112 – Non-GAAP and Other Financial Measures
Disclosure in respect of “specified financial measures” (as defined
therein).
Non-GAAP financial measures include:
- Gross profit:
Sales less cost of sales
- EBITDA: Operating
income before depreciation of property, plant and equipment,
depreciation of right-of-use assets and amortization of intangible
assets (also referred to as earnings before interest, taxes,
depreciation and amortization)
- Net debt: Sum of
long-term debt and lease liabilities (including the current
portion)
Non-GAAP ratios include:
- Gross profit
margin: Gross profit divided by sales for the
corresponding period
- EBITDA margin:
EBITDA divided by sales for the corresponding period
- Net
debt-to-EBITDA: Net debt divided by EBITDA
Other specified financial measures include:
- Operating income
margin: Operating income divided by sales for the
corresponding period
Management considers these non-GAAP and other
financial measures to be useful information to assist knowledgeable
investors to understand the Company’s operating results, financial
position and cash flows as they provide a supplemental measure of
its performance. Management uses these non-GAAP and other financial
measures in order to facilitate operating and financial performance
comparisons from period to period, to prepare annual budgets and to
assess the Company’s ability to meet future debt service, capital
expenditure and working capital requirements. Management uses net
debt to calculate the Company’s indebtedness level, future cash
needs and financial leverage ratios.
The following tables present the reconciliations
of non-GAAP financial measures to their most comparable GAAP
measures.
Reconciliation of operating income to EBITDA(in
millions of dollars) |
Three-month periods endedDecember
31, |
Years endedDecember 31, |
|
2021 |
2020 |
2021 |
2020 |
Operating income |
32 |
50 |
326 |
309 |
Depreciation and amortization |
20 |
20 |
74 |
76 |
EBITDA |
52 |
70 |
400 |
385 |
Reconciliation of Long-Term Debt to Net Debt(in
millions of dollars) |
Years ended December 31, |
|
2021 |
2020 |
Long-term debt, including current portion |
734 |
606 |
Add: |
|
|
Lease liabilities, including current portion |
144 |
139 |
Net Debt |
878 |
745 |
EBITDA |
400 |
385 |
Net Debt-to-EBITDA |
2.2 |
1.9 |
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Stella Jones (TSX:SJ)
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