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Stella-Jones Announces Fourth Quarter and Year-End Results

MONTREAL, Feb. 29, 2024 (GLOBE NEWSWIRE) — Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today announced financial results for its fourth quarter and year ended December 31, 2023.

“We concluded 2023 with a marked improvement in profitability and the successful execution of investments to support the continued growth momentum in our infrastructure product categories,” said Eric Vachon, President and Chief Executive Officer of Stella-Jones. “With the first year of our three-year strategic plan now completed, I am proud of our collective achievements. We reinforced our solid industry presence through strategic acquisitions and capital projects, we worked to secure additional long-term sales commitments to seize growing demand from existing and new customers, and we leveraged the forward-thinking and expert know-how of our team to deliver exceptional results.”

“Driven by the increased level of profitability, we announced a 22% growth in the Company’s quarterly dividend. This is the 20th year of continuous dividend increases, which truly speaks to our confidence in the long-term financial strength of our business. We are optimistic that the thoughtful planning and execution of our business strategy, combined with recently set sustainability targets and our disciplined capital management, will enable us to sustain profitable growth and deliver meaningful value for all our stakeholders. On the heels of such a banner year for our business, Stella-Jones’ growth prospects are promising, and we are ready for the future,” concluded Mr. Vachon.

Financial Highlights
(in millions of Canadian dollars, except per share data and margins)
Q4-23 Q4-22 2023 2022
Sales           688           665         3,319         3,065
Gross profit(1)           137           112           688           524
Gross profit margin(1) 19.9 % 16.8 % 20.7 % 17.1 %
EBITDA(1)           120             87           608           448
EBITDA margin(1) 17.4% 13.1% 18.3% 14.6%
Operating income             89             61           499           359
Operating income margin(1) 12.9 % 9.2 % 15.0 % 11.7 %
Net income for the period             56             36           326           241
Earnings per share (“EPS”) – basic and diluted          0.98          0.61          5.62          3.93
Weighted average shares outstanding (basic, in ‘000s)      57,076      59,449      57,963      61,421
(1) Refer to the section “Non-GAAP and other financial measures” in this press release.

FOURTH QUARTER RESULTS

Sales for the fourth quarter of 2023 amounted to $688 million, up 3% from sales of $665 million for the same period in 2022. Excluding the contribution from the acquisition of the utility pole manufacturing business of Texas Electric Cooperatives, Inc. (“TEC”) in November 2022 and Baldwin Pole and Piling (“Baldwin”) in July 2023 of $15 million and currency conversion of one million dollars, pressure-treated wood sales rose $22 million, or 4%, driven by the 8% organic sales growth of the Company’s infrastructure businesses, namely utility poles, railway ties and industrial products. Higher pricing for utility poles and railway ties was partially offset by lower volumes and a decrease in residential lumber sales.

Pressure-treated wood products:

Logs and lumber:

Gross profit(1) was $137 million in the fourth quarter of 2023, versus $112 million, in the fourth quarter of 2022, representing a margin(1) of 19.9% and 16.8% respectively. The increase in absolute dollars was largely attributable to the margin expansion for utility poles and railway ties, offset in part by lower sales volumes and a decrease in the gross profit of residential lumber. As a percentage of sales, the gross profit also benefited from a better product mix.

Similarly, operating income totaled $89 million in 2023 versus operating income of $61 million in the corresponding period of 2022, while EBITDA(1) increased to $120 million, or a margin of 17.4%, compared to $87 million, or a margin of 13.1% reported in the fourth quarter of 2022.

Net income for the fourth quarter of 2023 was $56 million, or $0.98 per share, compared to net income of $36 million, or $0.61 per share, in the corresponding period of 2022.

(1) Refer to the section “Non-GAAP and other financial measures” in this press release.

2023 RESULTS

Sales in 2023 were up 8% to $3,319 million, compared to $3,065 million last year. Excluding the contribution from acquisitions of $75 million and the positive effect of currency conversion of $84 million, pressure-treated wood sales rose $169 million, or 6%. Infrastructure sales grew organically by $274 million or 13%, while residential lumber sales dropped by $105 million. All the infrastructure product categories benefited from higher year-over-year sales prices, partially offset by lower volumes, while residential lumber sales were impacted by the decrease in the market price of lumber when compared to the prior year. This lower pricing more than offset the increase in residential lumber volumes.

Pressure-treated wood products:

Logs and lumber:

Gross profit(1) was $688 million in 2023 compared to $524 million in 2022, representing a margin(1) of 20.7% and 17.1%, respectively. The increase in gross profit in absolute dollars was largely due to the margin expansion of the Company’s infrastructure businesses, particularly stemming from utility poles, partially offset by lower sales volumes and a decrease in the gross profit of residential lumber. The acquisition of the wood utility pole manufacturing businesses in late 2022 and in 2023, and the positive impact of the currency conversion, further contributed to the higher gross profit for the year ended December 31, 2023. As a percentage of sales, the gross profit also benefited from a better product mix, led by the strong growth of utility poles sales and the lower relative proportion of residential lumber sales.

Operating income totaled $499 million in 2023 versus operating income of $359 million in 2022, while EBITDA(1) increased 36% to $608 million in 2023, compared to $448 million in 2022. Benefiting from the strong organic sales growth and a better product mix, EBITDA margin(1) expanded from 14.6% in 2022 to 18.3% in 2023.

Net income in 2023 was $326 million, versus net income of $241 million in 2022. Earnings per share in 2023 were $5.62, compared to earnings per share of $3.93 in 2022.

(1) Refer to the section “Non-GAAP and other financial measures” in this press release.

LIQUIDITY AND CAPITAL RESOURCES

During the year ended December 31, 2023, Stella-Jones used the cash generated from operations of $107 million and available credit to maintain and upgrade its assets, expand and secure production capacity, including acquiring three businesses, as well as return $195 million of capital to shareholders. In 2023, the dividend paid amounted to $0.92 per share, representing a 15% increase compared to 2022.

As at December 31, 2023, the net debt-to-EBITDA(1) ratio increased above the target range, at 2.6x, largely explained by the investment in strategic growth opportunities totaling $152 million in 2023.

Subsequent to year-end, the Company amended and restated the syndicated credit agreement in order to increase the amount available under the unsecured revolving credit facility to US$600 million and extend the term of the US$475 million tranche to February 27, 2028, and the US$125 million tranche to February 27, 2026.

(1) Refer to the section “Non-GAAP and other financial measures” in this press release.

NORMAL COURSE ISSUER BID

On November 6, 2023, the TSX accepted the Company’s Notice of Intention to Make a Normal Course Issuer Bid (“NCIB”) to purchase for cancellation up to 2,500,000 common shares during the 12-month period commencing November 14, 2023 and ending November 13, 2024, representing approximately 5% of the public float of its common shares.

In 2023, the Company repurchased 2,286,484 common shares for cancellation in consideration of $142 million, under its NCIBs then in effect.

QUARTERLY DIVIDEND INCREASED 22% TO $0.28 PER SHARE

On February 28, 2024, the Board of Directors declared a quarterly dividend of $0.28 per common share payable on April 19, 2024 to shareholders of record at the close of business on April 1, 2024. This dividend is designated to be an eligible dividend.

2023-2025 FINANCIAL OBJECTIVES: PROGRESS IN 2023

In the first year of its 2023-2025 financial plan, the Company delivered a strong performance and made significant progress towards the achievement of its financial objectives, as summarized in the table below. Based on 2023 financial metrics, the Company is on track to meet its 2025 objectives.

(in millions of dollars, except percentages and ratios) 2023-2025
 Objectives (1)
2023 Results
Sales > $3,600 $3,319 On Track
EBITDA margin (3) 16% 18.3% On Track
Return to Shareholders: cumulative > $500 $195 On Track
Net Debt-to-EBITDA (2) (3) 2.0x-2.5x 2.6x On Track
(1) Excludes acquisitions and assumes Canadian dollar will trade, on average, at approximately C$1.30 per U.S. dollar, with sales in the U.S. representing approximately 70% of total sales. 
(2) The Company may deviate from its leverage target to pursue acquisitions and other strategic opportunities, and/or fund its seasonal working capital requirements. In 2023, the Company financed $152 million of strategic growth opportunities.
(3) Refer to the section entitled “Non-GAAP and Other Financial Measures” of this press release.

Key Highlights:

  1. Projected compound annual growth rate (“CAGR”) for sales of 6% for the 2023-2025 period, driven by a 9% CAGR for the Company’s infrastructure businesses, expected to account for 75%-80% of total sales:
    • Utility poles: 15% sales CAGR, supported by a growth capital expenditure program of $115 million;
    • Railway ties: low single-digit annual sales growth;
  2. Residential lumber: annual sales target of $600-$650 million, representing less than 20% of total sales;
  3. EBITDA margin of 16% through 2025 driven by improvement in product mix.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on February 29, 2024, at 10:00 a.m. Eastern Standard Time. Interested parties can join the call by dialing 1-866-518-4114. A live audio webcast of the conference call will be available on the Company’s website, on the Investor relations section’s home page or here: https://web.lumiagm.com/440096911. This recording will be available on Thursday, February 29, 2024, as of 1:00 PM until 11:59 PM on Thursday, March 7, 2024.

ABOUT STELLA-JONES

Stella-Jones Inc. (TSX: SJ) is a leading North American 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.

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 items include, among others: general political, economic and business conditions, evolution in customer demand for the Company’s products and services, product selling prices, availability and cost of raw materials, operational disruption, climate change, failure to recruit and retain qualified workforce, information security breaches or other cyber-security threats, changes in foreign currency rates, the ability of the Company to raise capital and factors and assumptions referenced herein and in the Company’s continuous disclosure filings. 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, 2023 as well as management’s discussion and analysis are available on Stella-Jones’ website at www.stella-jones.com.

Head Office
3100 de la Côte-Vertu Blvd., Suite 300
Saint-Laurent, Québec
H4R 2J8
Tel.: 514-934-8666
Fax: 514-934-5327
Exchange Listings
The Toronto Stock Exchange
Stock Symbol: SJ

Transfer Agent and Registrar
Computershare Investor Services Inc.

Investor Relations
Silvana Travaglini
Senior Vice-President and Chief Financial Officer
Tel.: 514-934-8660
Fax: 514-934-5327
stravaglini@stella-jones.com
Stella-Jones Inc.
Consolidated Statements of Income

(expressed in millions of Canadian dollars, except earnings per common share)

  For the
three-month periods
ended December 31,
For the
years
ended December 31,
  2023   2022   2023 2022
         
Sales 688   665   3,319 3,065
         
Expenses        
         
Cost of sales (including depreciation and amortization (3 months – $28 (2022 – $21) and 12 months – $94 (2022 – $74)) 551   553   2,631 2,541
Selling and administrative (including depreciation and amortization (3 months – $3 (2022 – $5) and 12 months – $15 (2022 – $15)) 44   44   181 157
Other losses, net 4   7   8 8
  599   604   2,820 2,706
Operating income 89   61   499 359
         
Financial expenses 21   11   68 33
         
         
Income before income taxes 68   50   431 326
         
Income tax expense        
Current (12 ) 15   83 79
Deferred 24   (1 ) 22 6
         
  12   14   105 85
         
Net income 56   36   326 241
         
Basic and diluted earnings per common share 0.98   0.61   5.62 3.93
Stella-Jones Inc.
Consolidated Statements of Financial Position

(expressed in millions of Canadian dollars)

  2023 2022
Assets    
     
Current assets    
Accounts receivable 308 287
Inventories 1,580 1,238
Income taxes receivable 11
Other current assets 48 58
  1,947 1,583
Non-current assets    
Property, plant and equipment 906 755
Right-of-use assets 285 160
Intangible assets 169 171
Goodwill 375 369
Derivative financial instruments 21 29
Other non-current assets 5 6
  3,708 3,073
Liabilities and Shareholders’ Equity    
Current liabilities    
Accounts payable and accrued liabilities 204 201
Income taxes payable 7
Current portion of long-term debt 100 1
Current portion of lease liabilities 54 41
Current portion of provisions and other long-term liabilities 26 9
  384 259
Non-current liabilities    
Long-term debt 1,216 940
Lease liabilities 240 126
Deferred income taxes 175 158
Provisions and other long-term liabilities 31 26
Employee future benefits 10 7
  2,056 1,516
Shareholders’ equity    
Capital stock 189 194
Retained earnings 1,329 1,192
Accumulated other comprehensive income 134 171
     
  1,652 1,557
  3,708 3,073
Stella-Jones Inc.
Consolidated Statements of Cash Flows

(expressed in millions of Canadian dollars)

  2023   2022  
Cash flows from (used in)    
Operating activities    
Net income 326   241  
Adjustments for    
Depreciation of property, plant and equipment 40   31  
Depreciation of right-of-use assets 53   42  
Amortization of intangible assets 16   16  
Financial expenses 68   33  
Income tax expense 105   85  
Other 11   9  
  619   457  
     
Changes in non-cash working capital components    
Accounts receivable (7 ) (43 )
Inventories (353 ) (75 )
Income taxes receivable (2 )  
Other current assets 8   (9 )
Accounts payable and accrued liabilities 9   22  
  (345 ) (105 )
Interest paid (68 ) (32 )
Income taxes paid (99 ) (65 )
  107   255  
Financing activities    
Net change in revolving credit facilities 362   139  
Proceeds from long-term debt 33   63  
Repayment of long-term debt (1 ) (33 )
Repayment of lease liabilities (50 ) (41 )
Dividends on common shares (53 ) (49 )
Repurchase of common shares (142 ) (180 )
Other 2    
  151   (101 )
Investing activities    
Business combinations (93 ) (46 )
Purchase of property, plant and equipment (155 ) (97 )
Additions of intangible assets (10 ) (11 )
  (258 ) (154 )
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).

The below-described non-GAAP measures have no standardized meaning under GAAP and are not likely to be comparable to similar measures presented by other issuers. The Company’s method of calculating these measures may differ from the methods used by others, and, accordingly, the definition of these non-GAAP financial measures may not be comparable to similar measures presented by other issuers. In addition, non-GAAP financial measures should not be viewed as a substitute for the related financial information prepared in accordance with GAAP.

Non-GAAP financial measures include:

Non-GAAP ratios include:

Other specified financial measures include:

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, to assess the Company’s ability to meet future debt service, capital expenditure and working capital requirements, and to evaluate senior management’s performance. More specifically:

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 ended December 31, Years ended December 31,
  2023 2022 2023 2022
Operating income 89 61 499 359
Depreciation and amortization 31 26 109 89
EBITDA 120 87 608 448
Reconciliation of Long-Term Debt to Net Debt
(in millions of dollars)
Years ended December 31,
  2023 2022
Long-term debt, including current portion 1,316 941
Add:    
Lease liabilities, including current portion 294 167
Net Debt 1,610 1,108
EBITDA (TTM) 608 448
Net Debt-to-EBITDA 2.6x 2.5x
Source: Stella-Jones Inc. Stella-Jones Inc.
     
Contacts: Silvana Travaglini, CPA Stephanie Corrente
  Senior Vice-President and Chief Financial Officer
Stella-Jones
Director, Corporate Communications
Stella-Jones
  Tel.: 514-934-8660  
  stravaglini@stella-jones.com communications@stella-jones.com


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