Stella-Jones Reports 2019 First Quarter Results
-- EBITDA up 45% to $63.8 million, explained by increased margins as well as by the adoption of IFRS 16 and a non-cash mark-to-market gain of $4.4 million on derivative commodity contracts
-- Net income and diluted EPS increased to $29.5 million and $0.43 per share
-- Acquired Shelburne Wood Protection Ltd., located in Ontario, following the end of the quarter
On January 1, 2019, the Company retrospectively adopted IFRS 16, Leases, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. For the three-month period ended March 31, 2019, instead of lease expenses, $7.8 million in right-of-use asset depreciation and $1.0 million in financing expenses were recorded in the consolidated statement of income. Please refer to the impact of new accounting pronouncements and interpretation section of the quarterly Management's Discussion and Analysis for further details.
Stella-Jones Inc. (TSX:SJ.TO) ("Stella-Jones" or the "Company") today announced financial results for its first quarter ended March 31, 2019.
"First quarter results demonstrated strong sales and profitability growth, which were primarily driven by the sales price and market demand increases in the utility pole and railway tie product categories, as well as acquisitions completed last year combined with the currency conversion effect. These factors were partially offset by lower lumber costs which impacted sales in the residential lumber and logs and lumber product categories. We continued to follow our strategy of continental expansion, having completed a tuck-in acquisition in Ontario in April which further expands our network of residential lumber treating facilities in Canada. Stella-Jones continues to build on its healthy financial position. Looking forward, we expect to generate higher year-over-year sales and margin improvement over last year. As always, we will continue to remain focused on optimizing our operations across the organization while diligently seeking market opportunities in all product categories," said Brian McManus, President and Chief Executive Officer.
Financial Highlights Q1-19 Q1-18 (in millions of Canadian dollars, except per share data and margin) Sales 440.7 398.8 EBITDA 63.8 44.0 EBITDA margin (%) 14.5% 11.0% Operating income 45.7 35.5 Net income for the period 29.5 23.1 Per share - basic and diluted ($) 0.43 0.33 Weighted average shares outstanding (basic, in '000s) 69,136 69,343
FIRST QUARTER RESULTS
Sales for the first quarter of 2019 reached $440.7 million, up 10.5% versus sales of $398.8 million for the corresponding period last year. Acquisitions completed in 2018 contributed sales of approximately $11.6 million, while the currency conversion effect had a positive impact of $18.6 million. Excluding these factors, sales increased approximately $11.7 million, or 2.9%.
Utility pole sales reached $170.5 million in the first quarter of 2019, up 11.5% from sales of $153.0 million for the corresponding period last year. Acquisitions completed in 2018 contributed sales of $0.5 million, while the currency conversion effect increased sales by about $7.6 million. Excluding the contribution from acquisitions and the currency conversion effect, utility pole sales increased approximately $9.4 million, or 6.2%, primarily driven by increased sales prices coupled with a healthy demand in the South East United States.
Railway tie sales for the first quarter of 2019 amounted to $161.4 million, representing an increase of 10.2%, from sales of $146.4 million in the corresponding period last year. The currency conversion effect increased sales by about $8.4 million. Excluding the currency conversion effect, railway tie sales increased approximately $6.6 million, or 4.5%, primarily as a result of price increases.
Sales in the residential lumber category totalled $57.6 million in the first quarter of 2019, up 14.6% from sales of $50.3 million in the corresponding period last year. Acquisitions completed in 2018 contributed sales of approximately $7.3 million, while the currency conversion effect increased sales by about $1.4 million. Excluding these factors, residential lumber sales decreased approximately $1.4 million. This variance is primarily explained by lower demand due to unfavourable weather conditions in the Eastern Canada and Eastern United States regions as well as reduced selling prices due to lower lumber costs.
Industrial product sales reached $25.5 million in the first quarter of 2019, compared with $20.8 million last year. Acquisitions completed in 2018 contributed sales of approximately $3.8 million, while the currency conversion effect increased sales by about $0.9 million. Excluding the contribution from acquisitions and the currency conversion effect, sales were stable.
Sales in the logs and lumber product category totalled $25.7 million in the first quarter of 2019, compared with $28.3 million in the corresponding period last year. Excluding the contribution from acquisitions completed in 2018 and the currency conversion effect, sales for this product category decreased by $2.9 million. This variance is a result of reduced selling prices due to lower lumber costs, coupled with decreased lumber transaction volumes. These factors were partially offset by stronger log sales generated as part of the increased harvesting activities to procure raw material to support robust pole sales.
Operating income was $45.7 million, or 10.4% of sales, compared with $35.5 million, or 8.9% of sales, in the first quarter of the previous year. The increase versus last year is explained by greater sales volumes, improving margins and a non-cash mark-to-market gain on derivative commodity contracts.
Net income for the first quarter of 2019 reached $29.5 million, or $0.43 per diluted share, versus net income of $23.1 million, or $0.33 per diluted share, in the corresponding period last year.
On April 1, 2019, the Company completed the acquisition of substantially all of the assets of Shelburne Wood Protection Ltd. ("SWP"), located in Shelburne, Ontario. The SWP plant is specialized in the treatment of residential lumber. The total consideration for the acquisition was approximately $9.2 million of which $8.5 million was financed through the Company's syndicated credit facilities and $0.7 million was recorded as a balance of purchase price. The balance of purchase price bears no interest, will be paid to the seller in two equal amounts on the first and second anniversary of the transaction and was recorded at fair value using an effective interest rate of 3.31%. The SWP acquisition will be accounted as an acquisition of a group of assets.
SOLID FINANCIAL POSITION
As at March 31, 2019, the Company's long-term debt, including the current portion, stood at $601.7 million compared with $513.5 million as at December 31, 2018. The increase mainly reflects higher working capital requirements, as per normal seasonal demand patterns, partially offset by the effect of local currency translation on U.S. dollar denominated long-term debt.
On May 1, 2019, the Board of Directors declared a quarterly dividend of $0.14 per common share, payable on June 27, 2019 to shareholders of record at the close of business on June 6, 2019. This dividend is designated to be an eligible dividend.
NORMAL COURSE ISSUER BID
In the three-month period ended March 31, 2019, as part of its Normal Course Issuer Bid, the Company repurchased 146,000 common shares for cancellation in consideration of $5.8 million. Since the launch of the Normal Course Issuer Bid on December 20, 2018, the Company repurchased 251,000 common shares for cancellation in consideration of $9.8 million.
The outlook remains unchanged. Management expects higher year-over-year sales, based on current market conditions, assuming stable currencies and the current level of lumber prices. This increase is driven by stronger pricing for railway ties and utility poles as well as increased market reach for the residential lumber and utility pole product categories. Management also expects improved year-over-year margins across all product categories. Higher margins will be primarily driven by increased pricing and volume for railway ties coupled with improved product mix for utility poles. Furthermore, it is important to note that the 2019 EBITDA will be positively impacted by the adoption of IFRS 16.
For additional details per product category, please refer to the Management's Discussion and Analysis for the quarter.
Stella-Jones will hold a conference call to discuss these results on May 2, 2019, at 1:30 PM Eastern Time. Interested parties can join the call by dialing 1-647-788-4922 (Toronto or overseas) or 1-877-223-4471 (elsewhere in North America). Parties unable to call in at this time may access a recording by calling 1â?'800-585-8367 and entering the passcode 3329309. This recording will be available on Thursday, May 2, 2019 as of 4:30 PM Eastern Time until 11:59 PM Eastern Time on Thursday, May 9, 2019.
NON-IFRS FINANCIAL MEASURES
EBITDA (operating income before depreciation of property, plant and equipment and amortization of intangible assets), operating income and operating margins are financial measures not prescribed by IFRS and are not likely to be comparable to similar measures presented by other issuers. Management considers these non-IFRS measures to be useful information to assist knowledgeable investors regarding the Company's financial condition and results of operations as it provides an additional measure of its performance. Please refer to the non-IFRS financial measures section in the Management's Discussion and Analysis.
Stella-Jones Inc. (TSX:SJ.TO) is a leading producer and marketer of pressure treated wood products. The Company supplies North America's railroad operators with railway ties and timbers, and the continent's electrical utilities and telecommunication companies with utility poles. Stella-Jones also manufactures and distributes residential lumber and accessories to retailers for outdoor applications, as well as industrial products for construction and marine applications. The Company's common shares are listed on the Toronto Stock Exchange.
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, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, the ability of the Company to raise the capital required for acquisitions, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.
Note to readers: Condensed interim unaudited consolidated financial statements for the first quarter ended March 31, 2019 are available on Stella-Jones' website at www.stella-jones.com
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