Stella-Jones Announces Third Quarter Results

Record profitability driven by continued growth in infrastructure-related businesses

Stella-Jones Inc. (“Stella-Jones” or the “Company”) announced financial results for its third quarter ended September 30, 2023.

• Sales of $949 million, up 13%
• 17% organic sales growth in infrastructure-related businesses
• EBITDA of $193 million, or a margin of 20.3%, up from 14.1% in Q3 2022
• Net income of $110 million, or $1.91 per share, up 79% from EPS in Q3 2022
• Acquired utility pole manufacturing business of Baldwin Pole and Piling (“Baldwin”)
• Normal Course Issuer Bid announced for 2023-2024

“In Q3, Stella-Jones made notable progress in its growth trajectory, delivering not only another quarter of strong sales growth, but record increase in profitability,” said Eric Vachon, President and Chief Executive Officer of Stella-Jones. “These results were supported by the ongoing robust performance of our infrastructure-related businesses, and by residential lumber delivering in line with our expectations. While utility poles sales continued to benefit from favourable pricing dynamics, we also saw a progressive improvement in utility poles sales volumes in the quarter, as well as significant production volume gains, stemming from capital projects and the recent acquisition of Baldwin. Combined with replenished railway tie inventory levels, we are confident in the sustained growth of the Company as we move into 2024. Additionally, in the third quarter, we published our 2022 Environmental, Social and Governance Report, in which we introduced our ESG strategy and targets to contribute to a more sustainable future.”

“As we approach the end of the year, I am pleased with the performance and milestones we have achieved so far in 2023. They highlight our ability to capitalize on positive industry trends by leveraging our expansive North American presence and the invaluable collective expertise of our people to drive long-term profitable growth for our shareholders,” concluded Mr. Vachon.

Third Quarter Results

Sales in the third quarter of 2023 increased by 13% to $949 million, compared to sales of $842 million last year. Excluding the contribution from the acquisition of the utility pole manufacturing business of Texas Electric Cooperatives, Inc. (“TEC”) in November 2022 and Baldwin in 2023, and the positive effect of currency conversion, sales were up $61 million or 7%. The increase was driven by a 17% organic sales growth in the Company’s infrastructure-related businesses, namely utility poles, railway ties and industrial products, offset in large part by lower residential lumber and logs and lumber sales when compared to the same period last year. Led by the continued strong organic sales growth, particularly for the Company’s largest product category, utility poles, EBITDA increased to $193 million in the third quarter of 2023 compared to $119 million in the third quarter last year and EBITDA margin expanded from 14.1% in 2022 to 20.3% in 2023.

Pressure-treated wood products:

• Utility poles (46% of Q3-23 sales): Utility poles sales amounted to $438 million, up from $331 million for the same period last year. Excluding the contribution from acquisitions and the currency conversion effect, utility poles sales increased by $68 million, or 21%. The increase was driven by higher pricing as sales volumes remained relatively unchanged when compared to the same quarter last year but were higher versus the prior quarter. In the third quarter of 2023, production volumes continued to increase, benefiting from additional capacity stemming from capital projects. This incremental production enabled the Company to increase inventories to the level required to secure and deliver on longer-term sales commitments.
• Railway ties (24% of Q3-23 sales): Sales of railway ties amounted to $230 million, versus $199 million in the corresponding period last year. Excluding the currency conversion effect, sales of railway ties increased by $26 million, or 13%, largely attributable to sales price increases, in response to higher costs. Volumes were relatively stable compared to the same period last year as lower non-Class 1 volumes, due to the reduced level of treated ties inventory following the limited fibre supply availability in 2022, were offset by higher sales volumes for Class 1 customers, largely attributable to timing of shipments.
• Residential lumber (21% of Q3-23 sales): Sales in residential lumber decreased $24 million to $202 million in the third quarter of 2023, compared to sales of $226 million in the corresponding period last year. Excluding the currency conversion effect, residential lumber sales decreased $25 million, or 11%. While sales volumes were higher in the third quarter of 2023 compared to the same quarter last year, the volume gains were not sufficient to offset lower pricing attributable to the decrease in the market price of lumber.
• Industrial products (5% of Q3-23 sales): Industrial product sales were $42 million in the third quarter of 2023, relatively unchanged compared to sales of $40 million in the corresponding period last year.
• Logs and lumber (4% of Q3-23 sales): Sales in the logs and lumber product category were $37 million in the third quarter of 2023, compared to $46 million in the corresponding period last year. The decrease in sales compared to the third quarter last year was largely attributable to less lumber trading activity. Logs sales remained stable as higher log sales activity was largely offset by the lower market price of logs.

Gross profit was $215 million in the third quarter of 2023, compared to $139 million in the corresponding period last year, representing a margin of 22.7% and 16.5%, respectively. The increase in gross profit in absolute dollars was largely due to the margin expansion of the Company’s infrastructure-related businesses, particularly stemming from utility poles, and the contribution of the wood utility pole manufacturing businesses acquired in late 2022 and 2023. As a percentage of sales, the gross profit margin also benefited from a better product mix, led by the strong growth of utility poles sales. Similarly, operating income totaled $166 million in the third quarter of 2023 versus operating income of $98 million in the corresponding period of 2022.

Net income for the third quarter of 2023 was $110 million, or $1.91 per share, compared to net income of $65 million, or $1.07 per share, in the corresponding period of 2022.

Nine-Month Results

For the first nine months of 2023, sales amounted to $2,631 million, versus $2,400 million for the corresponding period last year, driven by a 15% organic sales growth of the Company’s infrastructure-related businesses. Excluding the contribution from the acquisition of the TEC and Baldwin assets of $60 million and the currency conversion of $83 million, pressure-treated wood sales rose by $147 million, or 7%, while logs and lumber sales dropped by $60 million or 39%. The year-over-year organic growth in pressure-treated wood sales stemmed from favourable pricing across all the infrastructure-related product categories and higher residential lumber volumes. These factors were partially offset by a decrease in pricing for residential lumber and lower volumes for infrastructure-related product categories. The lower logs and lumber sales compared to the same period last year was largely attributable to a decline in the market price of lumber and less lumber trading activity.

Gross profit increased to $551 million, or 20.9% of sales, from $412 million or 17.2% of sales, in the corresponding period last year. Operating income amounted to $410 million, versus $298 million a year ago, while EBITDA was $488 million, compared to $361 million in the prior year and EBITDA margin expanded from 15.0% in 2022 to 18.5% in 2023.

Net income in the first nine months of 2023 was $270 million, or $4.63 per share, versus net income of $205 million, or $3.30 per share, in the corresponding period last year. 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.

Liquidity and Capital Resources

During the third quarter ended September 30, 2023, Stella-Jones used the cash generated from operations of $130 million to maintain and upgrade its assets, and expand and secure production capacity, including acquiring the utility pole manufacturing business of Baldwin, as well as return capital to shareholders.

During the first nine months of 2023, the Company has returned $145 million to its shareholders, through dividends of $40 million and share repurchases of $105 million. Since the beginning of the current Normal Course Issuer Bid (“NCIB”) commencing on November 14, 2022, the Company has repurchased 2,210,172 common shares for cancellation in consideration of $125 million.

As at September 30, 2023, the Company had a total of $271 million available under its credit facilities and maintained a solid financial position with a net debt-to-EBITDA ratio of 2.4x.

Acquisition of Utility Pole Manufacturing Business

During the third quarter, the Company acquired substantially all of the assets of the wood utility pole manufacturing business of Baldwin for a total consideration of $64 million (US$49 million). Baldwin is a Southern Yellow Pine pole treating business with facilities in Bay Minette, Alabama and Wiggins, Mississippi. This acquisition will expand the Company’s capacity to supply the growing needs of North America’s utility pole industry, while optimizing the overall efficiency of its continental network.

Announcement of Normal Course Issuer Bid

On November 7, 2023, the Company announced that the Toronto Stock Exchange has accepted its Notice of Intention to Make a NCIB. Please refer to the press release issued by the Company, a copy of which is located in the Investor relations section of its website.

Quarterly Dividend

On November 6, 2023, the Board of Directors declared a quarterly dividend of $0.23 per common share payable on December 21, 2023 to shareholders of record at the close of business on December 4, 2023. This dividend is designated to be an eligible dividend.

For the full Third Quarter results click here.

About Stella-Jones

Stella-Jones Inc. is North America’s leading producer of pressure-treated wood products. It supplies 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 Canadian customers through its national manufacturing and distribution network. The Company’s common shares are listed on the Toronto Stock Exchange.

Contact:

Stephanie Corrente – Director, Corporate Communications – communications@stella-jones.com

Silvana Travaglini, CPA – Senior VP and CFO – stravaglini@stella-jones.com – (514) 934-8660

Source: Stella-Jones Inc.