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Press release from CNW Group

Hardwoods Announces Strong Second Quarter Results - Declares Quarterly Dividend of $0.03 per Share

Tuesday, August 07, 2012

Hardwoods Announces Strong Second Quarter Results - Declares Quarterly Dividend of $0.03 per Share18:52 EDT Tuesday, August 07, 2012TRADING SYMBOL: Toronto Stock Exchange - HWDLANGLEY, BC, Aug. 7, 2012 /CNW/ - Hardwoods Distribution Inc. ("Hardwoods" or the "Company") today announced strong financial results for the three and six months ended June 30, 2012. Hardwoods is one of North America's largest wholesale distributors of hardwood lumber and related sheet good products, operating a network of 30 distribution centres in the US and Canada.Highlights(For the three months ended June 30, 2012)Second quarter consolidated sales increased $22.4 million, or 39.6%, year-over-year, reflecting acquisition-related growth of $14.4 million and organic growth of $8.0 million (14.1%).Gross profit increased by 37.8%Second quarter EBITDA increased to $4.1 million, up 59.9% compared to $2.5 million in the second quarter of 2011.Profit increased 57.3% to $2.4 million, from $1.5 million last year.In recognition of continuing strong financial performance, the Board of Directors approved a quarterly dividend of $0.03 per share, payable on October 31, 2012 to shareholders of record as at October 19, 2012."We achieved strong results in the second quarter of 2012, with our best quarterly sales and EBITDA in nearly five years," said Lance Blanco, President and CEO of Hardwoods. "Our gains reflect steady improvement in the US residential construction market, and the continued successful implementation of our market expansion strategy."During the second quarter, Hardwoods further diversified into the commercial and institutional construction markets, grew sales of its high-quality import product lines, and increased revenues in selected major metropolitan markets where the Company previously had no presence or limited representation relative to the size of the market. The addition of the Frank Paxton Lumber Company business, acquired in September 2011, played a significant role in the performance improvements with the five acquired branches in the US performing at or above expectations. Hardwoods also achieved solid organic growth from existing branches by adding experienced sales representatives and implementing other market strategies. In California, the success of these efforts now supports the re-opening the Sacramento branch in the third quarter of 2012."The re-opening of a branch in California is a very positive development in a region that was one of the hardest hit in the US housing market downturn," said Mr. Blanco.On the market front, the seasonally adjusted annual rate of US housing starts at the end of June 2012 were up 23.6% to 760,000 from the prior year according to the US Census Bureau, but remained well below the historical norm of 1.2 million starts. In Canada, housing starts were generally flat year-over-year. Non-residential construction activity continued to be steady and hardwood lumber prices were generally on par with 2011 prices, but remained below the 10-year average, according to the Hardwood Review. Sheet good prices increased slightly compared to last year."While market conditions have generally stabilized and in some cases, begun to strengthen, there is still a great deal of room for improvement before we're back to normal levels," said Mr. Blanco.  "Given that Hardwoods is performing well under the current conditions, we see significant upside potential should economic conditions achieve a more sustained turnaround. In the near term, we will continue to rely on our strategic initiatives to drive growth. As part of this, we are continuing to evaluate acquisition opportunities in search of an attractive target that provides a strong strategic fit. With a conservative debt to total capital ratio of 26.6% and over $18 million of unused borrowing capacity, we are well positioned to respond should such an opportunity arise.""Overall, we are encouraged by our second quarter and first half results and pleased to be sharing our gains with shareholders through another quarterly dividend of $0.03 per share."Summary of ResultsSelected Unaudited Consolidated Financial Information  (in thousands of Canadian dollars except where noted)                   3 months ended 3 months ended6 months ended6 months ended    June 30 June 30June 30June 30     2012  2011  2012  2011Total sales   $79,153 $56,718 $152,092 $108,748 Sales in the US (US$)    55,686  35,450  106,786  67,290 Sales in Canada    22,909  22,371  44,697  43,013Gross profit    13,894  10,085  27,004  19,184 Gross profit %    17.6%  17.8%  17.8%  17.6%Operating expenses    (10,141)  (7,762)  (20,991)  (16,534)Profit from operating activities    3,753  2,323  6,013  2,650Add:  Depreciation    312  219  614  450Earnings before interest, taxes, depreciation and               amortization and non-controlling interest ("EBITDA")   $4,065 $2,542 $6,627 $3,100 Add (deduct):                Depreciation    (312)  (219)  (614)  (450)  Net finance income (cost)    135  (47)  (205)  (782)  Income tax expense    (1,511)  (765)  (2,206)  (1,058)Profit for the period   $2,377 $1,511 $3,602 $810Basic and fully diluted profit per share/unit   $0.15 $0.10 $0.22 $0.06Average Canadian dollar exchange rate for one US dollar    1.010  0.9680  1.006  0.977 Results from Operations - Three Months Ended June 30, 2012For the three months ended June 30, 2012, total sales increased by 39.6% to $79.2 million, from $56.7 million in Q2 2011. Incremental contributions from the Paxton operations, acquired in September 2011, contributed approximately $14.4 million, or 64% of the increase, while organic growth from existing operations accounted for $8.0 million, or 36% of the sales increase.Sales in the United States, as measured in US dollars, increased by $20.2 million, or 57.1%, to $55.7 million. Included in this increase was approximately $14.2 million of revenue generated by the Paxton branches. The remaining $6.0 million of US sales growth was generated by Hardwoods' existing US branch network, representing organic growth in the US of 17.1%. Sales in Canada, a market which experienced more stable ongoing demand for hardwoods through the recent economic downturn and is not affected by the Paxton acquisition, increased by a more modest $0.5 million, or 2.4%, to $22.9 million.Second quarter gross profit increased to $13.9 million, up 37.8% from $10.1 million during the same period last year. This improvement reflects the higher sales revenue, partially offset by a slightly lower gross profit margin. As a percentage of sales, gross profit was 17.6%, compared to 17.8% in the second quarter of 2011. The change in gross margin reflects competitive market conditions, which impacted Hardwoods' ability to make price adjustments during the period, as well as changes in product mix.Operating expenses for the three-month period increased to $10.1 million, from $7.8 million in Q2 2011. This increase primarily reflects incremental expenses from the acquired Paxton operations, partially offset by the absence of $0.3 million in corporate conversion costs that were incurred in the second quarter of 2011, but were not repeated in the 2012 period. As a percentage of sales, second quarter 2012 operating expenses were 12.8% of sales, compared to 13.7% in 2011.Second quarter EBITDA increased 59.9% to $4.1 million, from $2.5 million during the same period in 2011. The EBITDA gain reflects the $3.8 million increase in gross profit, partially offset by increased expenses. Profit for the period also strengthened, increasing 57.3% to $2.4 million from $1.5 million in the second quarter of 2011. This improvement reflects higher EBITDA and a $0.2 million decrease in net finance cost, partially offset by a $0.1 million increase in depreciation and a $0.7 million increase in income tax expense.Results from Operations - Six Months Ended June 30, 2012For the six months ended June 30, 2012, total sales increased by 39.9% to $152.1 million, from $108.7 million in the first half of 2011. The growth in sales came predominantly from Hardwoods' US operations, where first-half activity increased by US$39.5 million.  Sales from the Paxton business contributed US$28.3 million of the sales growth with the remaining US$11.2 million generated by Hardwoods existing US branch network. The 16.6% organic growth in the US reflects improved market conditions as well as the benefits of strategy implementation.  Sales in Canada, in Canadian dollars, increased by a more modest $1.7 million, or 3.9%, to $44.7 million.First-half gross profit increased 40.8% to $27.0 million, from $19.2 million in the first six months of 2011. This gain reflects the higher sales revenue and a slightly higher gross margin percentage. As a percentage of sales, gross profit was 17.8% in the first half of 2012, compared to 17.6% during the same period in 2011. The addition of Paxton's in-house remanufacturing capability has added value to Hardwoods' product mix and been a positive influence on average gross profit margin.First-half operating expenses were $21.0 million, compared to $16.5 million during the same period in 2011. The $4.5 million increase reflects incremental expenses from the acquired Paxton operations, partially offset by the absence of $0.6 million in expenses incurred last year as part of Hardwood's conversion to a corporation, but not repeated in the current period. As a percentage of sales, first-half operating expenses were 13.8% of sales, compared to 15.2% in 2011.First-half EBITDA more than doubled to $6.6 million, from $3.1 million during the same period in 2011. The 113.8% gain reflects higher gross profit, partially offset by increased expenses. Profit for the period also strengthened significantly, increasing 344.7% to $3.6 million from a $0.8 million in the first half of 2011. The $2.8 million year-over-year improvement reflects higher EBITDA and a $0.6 million decrease in net finance expense, partially offset by a $0.2 million increase in depreciation expense and a $1.2 million increase in income tax expense.OutlookHardwoods anticipates continued gradual improvement in market conditions through the balance of 2012, with further gains in US housing starts, steady demand in Canadian housing starts and a reasonable level of activity in non-residential construction markets. Competition remains intense, however, and could continue to put pressure on product prices and margins.The Company expects that continued performance improvements will be driven primarily by its market expansion strategies. Specifically, Hardwoods will continue to:Further strengthen its presence in the commercial and institutional construction markets, including leveraging Paxton's products and capabilities to make a broader range of products available to customers in these sectors.Grow its successful import program by seeking out attractive new products and introducing the Company's branded lines of import products to Paxton's base of customers.Solidify and further expand its presence in new geographic markets the Company has entered as a result of the Paxton acquisition, while targeting additional growth in selected existing markets.Management believes the Paxton operations provide opportunities for continued near-term growth and has begun to invest in new machinery to take advantage of identified market needs and opportunities. The opening of the additional branch in Sacramento, California is also expected to contribute to sales growth in the second half of 2012.Key priorities for the balance of the year will be to continue executing the Company's growth and operating strategies, including seeking out acquisition opportunities that further increase shareholder value.A more detailed discussion of the Company's financial performance can be found in its Management's Discussion and Analysis (MD&A) for the three and six months ended June 30, 2012. The MD&A will be posted, along with the Company's condensed consolidated interim financial statements on SEDAR (www.sedar.com) and on the Company's website http://www.hardwoods-inc.com.Non-GAAP Measures - EBITDAReferences to "EBITDA" are to earnings before interest, income taxes, depreciation and amortization, where interest is defined as net finance income or costs as per the consolidated statement of comprehensive income.  In addition to profit or loss, the Company considers EBITDA to be a useful supplemental measure of a company's ability to meet debt service and capital expenditure requirements, and the Company interprets trends in EBITDA as an indicator of relative operating performance.EBITDA is not an earnings measure recognized by IFRS and does not have a standardized meaning prescribed by IFRS.  Investors are cautioned that EBITDA should not replace profit or loss or cash flows (as determined in accordance with IFRS) as an indicator of our performance.  The Company's method of calculating EBITDA may differ from the methods used by other issuers. Therefore, the Company's EBITDA may not be comparable to similar measures presented by other issuers. For a reconciliation between EBITDA and profit or loss as determined in accordance with IFRS, please refer to the discussion of Results of Operations described in section 3.0 of Management's Discussion and Analysis (MD&A) for the three and six months ended June 30, 2012.   Forward-Looking Statements CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATIONThis news release includes forward-looking statements. These involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are identified by the use of terms and phrases such as "anticipate", "believe", "estimate", "expect", "may", "plan", "will", and similar terms and phrases, including references to assumptions. Such statements may involve, but are not limited to: our belief that improvement in the Company's financial performance reflect steady improvement in the US residential construction market, and the continued successful implementation of our market expansion strategy;  our intent to re-open a branch in Sacramento in the third quarter of 2012; , that we see significant upside potential should economic conditions achieve a more sustained turnaround; that in the near term  we will continue to rely on our strategic initiatives to drive growth;  that we intend to continue to evaluate acquisition opportunities in search of an attractive target that provides a strong strategic fit; that with a conservative debt to total capital ratio of 26.6% and over $18 million of unused borrowing capacity, we are well positioned to respond should such an opportunity arise;  that Hardwoods anticipates continued gradual improvement in market conditions through the balance of 2012, with further gains in US housing starts, steady demand in Canadian housing starts and a reasonable level of activity in non-residential construction markets; that competition remains intense and could continue to put pressure on product prices and margins;  that the Company expects that continued performance improvements will be driven primarily by its market expansion strategies; that Hardwoods will continue to further strengthen its presence in the commercial and institutional construction markets, including leveraging Paxton's products and capabilities to make a broader range of products available to customers in these sectors; to grow its successful import program by seeking out attractive new products and introducing the Company's branded lines of import products to Paxton's base of customers; and to solidify and further expand its presence in new geographic markets the Company has entered as a result of the Paxton acquisition, while targeting additional growth in selected existing markets; that management believes the Paxton operations provide opportunities for continued near-term growth; that the opening of the additional branch in Sacramento, California is also expected to contribute to sales growth in the second half of 2012; that key priorities for the balance of the year will be to continue executing the Company's growth and operating strategies, including seeking out acquisition opportunities that further increase shareholder value.These forward-looking statements reflect current expectations of management regarding future events and operating performance as of the date of this news release. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements, including, but not limited to: national and local business conditions; political or economic instability in local markets; competition; consumer preferences; spending patterns and demographic trends; legislation or governmental regulation; acquisition and integration risks.Although the forward-looking statements contained in this news release are based upon what management believes to be reasonable assumptions, management cannot assure investors that actual results will be consistent with these forward-looking statements. The forward-looking statements reflect management's current beliefs and are based on information currently available.All forward-looking information in this news release is qualified in its entirety by this cautionary statement and, except as may be required by law, the Company undertakes no obligation to revise or update any forward looking information as a result of new information, future events or otherwise after the date hereof.  SOURCE: Hardwoods Distribution Inc.For further information: Rob Brown Chief Financial Officer Phone: (604) 881-1990Fax: (604) 881-1995Email: robbrown@hardwoods-inc.com Website: http://www.hardwoods-inc.com