Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today
announced financial results for its second quarter ended June 30,
2022.
“Stella-Jones recorded solid results in the
second quarter, above market performance, delivering sequentially
higher margins and generating significant cash,” said Éric Vachon,
President and CEO of Stella-Jones. “We are particularly pleased
with the performance of our infrastructure-related businesses,
which speaks highly to the wide reach of our expanded network and
to our procurement and logistics capabilities to continue to meet
strong demand. While inflationary pressures impacted costs of all
product categories, we continued to successfully implement
contractual price adjustments and generate healthy margins,
underscoring the strength of our business model."
“Based on the strong progress made in the first
half of the year, we are confident that our efforts will contribute
to the achievement of the objective we set for 2022. We are
leveraging the timely acquisitions of Cahaba and expanding our
capital investment program to support the continued growth in
utility poles demand. For railway ties, demand remains stable and
our leadership position places us at the forefront of new
opportunities that may arise, while the reduction of residential
lumber sales is in line with our expectations. Looking forward, the
fundamentals in our core product categories remain strong. Coupled
with our healthy balance sheet and resilient cashflows, we are well
positioned to continue to generate robust returns for our
shareholders,” concluded Mr. Vachon.
Financial Highlights(in millions of Canadian
dollars, except per share data and margins) |
Q2-22 |
Q2-21 |
YTDQ2-22 |
YTDQ2-21 |
Sales |
907 |
903 |
1,558 |
1,526 |
Gross profit(1) |
173 |
197 |
273 |
309 |
Gross profit margin(1) |
19.1% |
21.8% |
17.5% |
20.2% |
EBITDA(1) |
154 |
180 |
242 |
279 |
EBITDA margin(1) |
17.0% |
20.0% |
15.5% |
18.3% |
Operating income |
133 |
161 |
200 |
243 |
Operating income margin(1) |
14.7% |
17.8% |
12.8% |
15.9% |
Net income for the period |
94 |
115 |
140 |
171 |
Earnings per share - basic and diluted |
1.51 |
1.76 |
2.23 |
2.61 |
Weighted average shares outstanding (basic, in ‘000s) |
62,321 |
65,356 |
62,794 |
65,532 |
(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.
SECOND QUARTER RESULTS
Sales for the second quarter of 2022 amounted to
$907 million, up from $903 million for the same period in 2021.
Excluding the $22 million favourable impact of currency conversion
and the contribution from the acquisitions of Cahaba Pressure
Treated Forest Products, Inc. and Cahaba Timber, Inc. (collectively
"Cahaba") of $15 million, pressure-treated wood sales were
unchanged compared to last year, while sales of logs and lumber
decreased by $33 million. The pressure-treated wood sales
attributable to the Company’s infrastructure-related businesses,
namely utility poles, railway ties and industrial products,
increased 10% compared to the second quarter of 2021 but was
entirely offset by the lower residential lumber sales.
Pressure-treated wood
products:
- Utility poles (35% of Q2-22
sales): Utility poles sales amounted to $316 million in
the second quarter of 2022, up from $236 million for the same
period last year. Excluding the currency conversion effect and the
contribution from the Cahaba acquisitions, sales increased 23%,
driven by the upward price adjustments in response to cost
increases, the continued improvement in maintenance and
project-related demand.
- Railway ties (24% of Q2-22
sales): Sales of railway ties amounted to $215 million in
the second quarter of 2022, versus $216 million in the
corresponding period last year. Excluding the currency conversion
effect, sales of railway ties decreased by 4%, mainly attributable
to the reduced maintenance demand of certain Class 1 customers,
offset in part by favourable sales price adjustments, largely to
cover higher fibre costs.
- Residential lumber (32% of
Q2-22 sales): Residential lumber sales totaled $286
million in the second quarter of 2022, down from $330 million in
the second quarter of 2021. Excluding the currency conversion
effect, sales decreased 14% as a result of lower sales volume,
largely stemming from a slower start to the season due to
unfavourable weather conditions and lower pricing compared to the
record high market price of lumber in the second quarter of
2021.
- Industrial products (4% of
Q2-22 sales): Industrial product sales amounted to $38
million in the second quarter of 2022, slightly up compared to the
$36 million of sales generated a year ago, largely due to higher
pricing for projects related to railway bridges and crossings.
Logs and lumber:
- Logs and lumber (5% of
Q2-22 sales): Logs and lumber sales totaled $52 million in
the second quarter of 2022, down from $85 million compared to the
same period last year. The decrease in sales is largely due to less
lumber trading activity compared to same period last year.
Gross profit was $173 million in the second
quarter of 2022, versus $197 million, in the second quarter of
2021, representing a margin of 19.1% and 21.8% respectively. The
decrease in gross profit was primarily driven by the normalization
of residential lumber gross profit, which outweighed the pricing
gains and resulting gross profit margin expansion for utility poles
and railway ties.
Similarly, operating income totaled $133 million
in the second quarter of 2022 versus operating income of $161
million in the corresponding period of 2021, and EBITDA decreased
to $154 million, compared to $180 million reported in the second
quarter of 2021.
As a result, net income for the second quarter
of 2022 was $94 million, or $1.51 per share, compared to net income
of $115 million, or $1.76 per share, in the corresponding period of
2021.
SIX-MONTH RESULTS
For the first six months of 2022, sales amounted
to $1,558 million, versus $1,526 million for the corresponding
period last year. Excluding the positive impact of the currency
conversion of $22 million and the contribution from the Cahaba
acquisitions of $30 million, pressure-treated wood sales rose by
$21 million, or 2%, and logs and lumber sales dropped by $41
million. The year-over-year sales growth in pressure-treated wood
stemmed from upward price adjustments and increased maintenance and
project-related demand for utility poles, as well as higher pricing
for railway ties. These factors were largely offset by a decrease
in residential lumber volumes and pricing, as well as lower railway
ties volumes, particularly for Class 1 business.
Gross profit decreased to $273 million, or 17.5%
of sales, from $309 million, or 20.2% of sales, in the
corresponding period last year. Operating income amounted to $200
million, versus $243 million a year ago, while EBITDA was $242
million, compared to $279 million in the prior year.
Net income in the first six months of 2022 was
$140 million, or $2.23 per share, versus net income of $171
million, or $2.61 per share, in the corresponding period last
year.
LIQUIDITY AND CAPITAL
RESOURCES
During the second quarter ended June 30, 2022,
Stella-Jones used the cash generated from operations of $228
million to reduce indebtedness related to the seasonal investment
in working capital in the first quarter by $130 million, invest in
capital expenditures of $20 million and return capital to
shareholders with dividends and share repurchases totaling $69
million.
The Company’s long-term debt, including the
current portion, stood at $820 million as at June 30, 2022 with a
net debt-to-EBITDA of 2.7x, primarily driven by the lower trailing
12-month EBITDA.
ACQUISITION OF TRANSPORTATION
ASSETS
Subsequent to quarter-end, Stella-Jones
completed the acquisition of substantially all of the operating
assets of the Dinsmore Trucking group (“Dinsmore”), a specialty
poles and logs carrier and transportation business. Dinsmore’s
operations are principally located in Ontario and Alberta and their
services extend across Canada and to parts of the United-States.
Total consideration associated with the acquisition was
approximately $9 million. As much of the Company's business relies
on sound logistics, securing trucking assets through this
acquisition will help the Company better serve its network and
customers through increased control and flexibility of transport
operations.
NORMAL COURSE ISSUER BID
In the three-month period ended June 30, 2022,
the Company repurchased 1,286,804 common shares for cancellation in
consideration of $45 million under the Normal Course Issuer Bid
commencing November 12, 2021 and ending November 11, 2022
("2021-2022 NCIB"). For the six-month period ended June 30, 2022,
the Company repurchased 2,286,186 common shares for cancellation in
consideration of $85 million. Since the beginning of the 2021-2022
NCIB, the Company has repurchased a total of 3,007,734 common
shares for cancellation in consideration of $115 million.
QUARTERLY DIVIDEND
On August 9, 2022 the Board of Directors
declared a quarterly dividend of $0.20 per common share payable on
September 23, 2022 to shareholders of record at the close of
business on September 6, 2022. This dividend is designated to
be an eligible dividend.
OUTLOOK
Stella-Jones’ sales are primarily to critical
infrastructure-related businesses. While all product categories can
be impacted by short-term fluctuations, the business is mostly
based on replacement and maintenance-driven requirements, which are
rooted in long-term planning. Corresponding to this longer-term
horizon and to better reflect the expected sales run-rate for
residential lumber and reduce the impact of commodity price
volatility, the Company shifted its guidance to a three-year
outlook in early 2022. Below are key highlights of the 2022-2024
outlook with a more comprehensive version, including management
assumptions, available in the Company's MD&A. Management
remains confident in the achievement of its three-year strategic
guidance.
Key Highlights:
- Compound annual sales growth rate
in the mid-single digit range from 2019 pre-pandemic levels to
2024;
- EBITDA margin of approximately 15%
for the 2022-2024 period;
- Capital investment of $90 to $100
million to support the growing demand of its infrastructure-related
customer base, in addition to the $50 to $60 million of annual
capital expenditures;
- Residential lumber sales expected
to stabilize between 20-25% of total sales while
infrastructure-related businesses expected to grow and represent
75-80% of total sales by 2024;
- Anticipated returns to shareholders
between $500 and $600 million during three-year outlook
period;
- Leverage ratio of 2.0x-2.5x between
2022-2024, but may temporarily exceed range to pursue
acquisitions.
CONFERENCE CALL
Stella-Jones will hold a conference call to
discuss these results on August 10, 2022, at 10:00 a.m.
Eastern Daylight Time. Interested parties can join the call by
dialing 1-416-764-8646 (Toronto or overseas) or 1-888-396-8049
(elsewhere in North America). Parties unable to call in at this
time may access a recording by calling 1-877-674-7070 and entering
the passcode 969499. This recording will be available on Wednesday,
August 10, 2022 as of 1:00 p.m. until 11:59 p.m. on Wednesday,
August 17, 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 treated 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 political, 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:
Condensed interim unaudited consolidated financial
statements for the second quarter ended June 30, 2022 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) 934-8660Fax:
(514) 934-5327stravaglini@stella-jones.com |
Stella-Jones Inc. |
Condensed Interim
Consolidated Statements of Income |
(Unaudited) |
|
(expressed in
millions of Canadian dollars, except earnings per common
share) |
|
For thethree-month
periodsended June 30, |
For thesix-month
periodsended June 30, |
|
2022 |
2021 |
2022 |
2021 |
|
$ |
$ |
$ |
$ |
Sales |
907 |
903 |
1,558 |
1,526 |
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
Cost of sales (including
depreciation and amortization (3 months - $18 (2021 - $16) and 6
months - $35 (2021 - $30)) |
734 |
706 |
1,285 |
1,217 |
Selling and administrative
(including depreciation and amortization (3 months - $3 (2021 - $3)
and 6 months - $7 (2021 - $6)) |
39 |
35 |
72 |
65 |
Other losses, net |
1 |
1 |
1 |
1 |
|
774 |
742 |
1,358 |
1,283 |
Operating
income |
133 |
161 |
200 |
243 |
|
|
|
|
|
Financial
expenses |
6 |
6 |
12 |
12 |
|
|
|
|
|
|
|
|
|
|
Income before income
taxes |
127 |
155 |
188 |
231 |
|
|
|
|
|
Provision for income
taxes |
|
|
|
|
Current |
29 |
37 |
42 |
59 |
Deferred |
4 |
3 |
6 |
1 |
|
|
|
|
|
|
33 |
40 |
48 |
60 |
|
|
|
|
|
Net income for the
period |
94 |
115 |
140 |
171 |
|
|
|
|
|
Basic and diluted
earnings per common share |
1.51 |
1.76 |
2.23 |
2.61 |
Stella-Jones Inc. |
Condensed Interim Consolidated Statements of Financial
Position |
(Unaudited) |
|
(expressed in millions of Canadian dollars) |
|
As at |
As at |
|
June 30, 2022 |
December 31, 2021 |
|
$ |
$ |
Assets |
|
|
|
|
|
Current
assets |
|
|
Accounts receivable |
378 |
230 |
Inventories |
1,113 |
1,106 |
Income taxes receivable |
— |
9 |
Other current assets |
60 |
43 |
|
1,551 |
1,388 |
Non-current
assets |
|
|
Property, plant and
equipment |
659 |
629 |
Right-of-use assets |
142 |
138 |
Intangible assets |
157 |
158 |
Goodwill |
346 |
341 |
Derivative financial
instruments |
21 |
3 |
Other non-current assets |
8 |
8 |
|
2,884 |
2,665 |
Liabilities and
Shareholders’ Equity |
|
|
Current
liabilities |
|
|
Accounts payable and accrued
liabilities |
211 |
162 |
Income taxes payable |
6 |
1 |
Current portion of long-term
debt |
1 |
33 |
Current portion of lease
liabilities |
37 |
35 |
Current portion of provisions
and other long-term liabilities |
10 |
11 |
|
265 |
242 |
Non-current
liabilities |
|
|
Long-term debt |
819 |
701 |
Lease liabilities |
112 |
109 |
Deferred income taxes |
152 |
137 |
Provisions and other long-term
liabilities |
17 |
15 |
Employee future benefits |
4 |
13 |
|
1,369 |
1,217 |
Shareholders’
equity |
|
|
Capital stock |
201 |
208 |
Retained earnings |
1,206 |
1,161 |
Accumulated other
comprehensive income |
108 |
79 |
|
|
|
|
1,515 |
1,448 |
|
2,884 |
2,665 |
Stella-Jones Inc. |
Condensed Interim
Consolidated Statements of Cash Flows |
(Unaudited) |
|
(expressed in
millions of Canadian dollars) |
|
For thethree-month
periodsended June 30, |
|
For thesix-month
periodsended June 30, |
|
|
2022 |
|
2021 |
|
2022 |
|
2021 |
|
|
$ |
|
$ |
|
$ |
|
$ |
|
Cash flows from (used
in) |
|
|
|
|
Operating
activities |
|
|
|
|
Net income for the period |
94 |
|
115 |
|
140 |
|
171 |
|
Adjustments for |
|
|
|
|
Depreciation of property,
plant and equipment |
8 |
|
6 |
|
15 |
|
12 |
|
Depreciation of right-of-use
assets |
10 |
|
9 |
|
20 |
|
18 |
|
Amortization of intangible
assets |
3 |
|
4 |
|
7 |
|
6 |
|
Financial expenses |
6 |
|
6 |
|
12 |
|
12 |
|
Current income taxes
expense |
29 |
|
37 |
|
42 |
|
59 |
|
Deferred income taxes |
4 |
|
3 |
|
6 |
|
1 |
|
Provisions and other long-term
liabilities |
— |
|
(6 |
) |
— |
|
(5 |
) |
Other |
— |
|
(3 |
) |
— |
|
(3 |
) |
|
154 |
|
171 |
|
242 |
|
271 |
|
|
|
|
|
|
Changes in non-cash working
capital components |
|
|
|
|
Accounts receivable |
8 |
|
27 |
|
(144 |
) |
(144 |
) |
Inventories |
65 |
|
36 |
|
5 |
|
(63 |
) |
Other current assets |
(9 |
) |
(1 |
) |
(16 |
) |
1 |
|
Accounts payable and accrued
liabilities |
34 |
|
(25 |
) |
46 |
|
30 |
|
|
98 |
|
37 |
|
(109 |
) |
(176 |
) |
Interest paid |
(5 |
) |
(3 |
) |
(13 |
) |
(11 |
) |
Income taxes paid |
(19 |
) |
(32 |
) |
(28 |
) |
(52 |
) |
|
228 |
|
173 |
|
92 |
|
32 |
|
Financing
activities |
|
|
|
|
Proceeds from short-term
debt |
— |
|
62 |
|
— |
|
125 |
|
Repayment of short-term
debt |
— |
|
(123 |
) |
— |
|
(123 |
) |
Net change in revolving
short-term facility |
— |
|
(74 |
) |
— |
|
— |
|
Net change in revolving credit
facilities |
(192 |
) |
(84 |
) |
47 |
|
42 |
|
Proceeds from long-term
debt |
63 |
|
121 |
|
63 |
|
121 |
|
Repayment of long-term
debt |
(1 |
) |
(11 |
) |
(33 |
) |
(74 |
) |
Repayment of lease
liabilities |
(9 |
) |
(9 |
) |
(19 |
) |
(17 |
) |
Dividends on common
shares |
(25 |
) |
(24 |
) |
(25 |
) |
(24 |
) |
Repurchase of common
shares |
(44 |
) |
(14 |
) |
(83 |
) |
(51 |
) |
|
(208 |
) |
(156 |
) |
(50 |
) |
(1 |
) |
Investing
activities |
|
|
|
|
Purchase of property, plant
and equipment |
(17 |
) |
(10 |
) |
(37 |
) |
(20 |
) |
Additions of intangible
assets |
(3 |
) |
(6 |
) |
(5 |
) |
(10 |
) |
Other |
— |
|
(1 |
) |
— |
|
(1 |
) |
|
(20 |
) |
(17 |
) |
(42 |
) |
(31 |
) |
Net change in cash and
cash equivalents during the period |
— |
|
— |
|
— |
|
— |
|
Cash and cash
equivalents – Beginning of period |
— |
|
— |
|
— |
|
— |
|
Cash and cash
equivalents – End of period |
— |
|
— |
|
— |
|
— |
|
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 trailing 12-month
(TTM) 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 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 endedJune
30, |
Six-month periods endedJune
30, |
|
2022 |
2021 |
2022 |
2021 |
Operating income |
133 |
161 |
200 |
243 |
Depreciation and amortization |
21 |
19 |
42 |
36 |
EBITDA |
154 |
180 |
242 |
279 |
Reconciliation of Long-Term Debt to Net Debt(in
millions of dollars) |
As at June 30, 2022 |
As at December 31, 2021 |
Long-term debt, including current portion |
820 |
734 |
Add: |
|
|
Lease liabilities, including current portion |
149 |
144 |
Net Debt |
969 |
878 |
EBITDA (TTM) |
363 |
400 |
Net Debt-to-EBITDA |
2.7 |
2.2 |
Source: |
Stella-Jones Inc. |
|
|
|
|
Contacts: |
Silvana Travaglini,
CPA |
Martin Goulet, M.Sc.,
CFA |
|
Senior Vice-President and Chief
Financial Officer Stella-Jones |
MBC Capital Markets Advisors |
|
Tel.: (514) 934-8660 |
Tel.: (514) 731-0000 |
|
stravaglini@stella-jones.com |
mgoulet@maisonbrison.com |
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