Stella-Jones reports $120 million in EBITDA in Q2 2020
By Stella-Jones Inc.
By Stella-Jones Inc.
Stella-Jones Inc. has announced financial results for its second quarter ended June 30, 2020.
“We are pleased with our financial performance, as each of our three core product categories continued to deliver improved results. Bolstered by exceptional demand for residential lumber, we realized double-digit sales growth of 15 per cent and increased EBITDA by 28 per cent to $120 million this quarter, surpassing the $100 million mark for the first time in a single quarter. We generated $146 million of cash from operations and reduced our leverage, further improving our financial strength and flexibility. Based on our strong quarterly performance and resilient business model, we have increased our annual 2020 EBITDA guidance and announced our intention to repurchase up to 3,000,000 of the Company’s outstanding shares, under a Normal Course Issuer Bid,” stated Éric Vachon, president and CEO of Stella-Jones.
“Critical to the integrity of the supply chain for utilities, railroads and the construction industry, Stella-Jones has continued to operate all of its North American facilities and support its customers during the varying stages of restrictions and re-openings implemented by authorities to address the COVID-19 pandemic. The Company continues to reinforce measures implemented to mitigate health risks to its employees, business partners and communities where it operates. I wish to thank each and every one of our 2,300 employees across North America for doing their part to successfully operate our business during these challenging times and contribute to a record performance this quarter,” concluded Vachon.
Second Quarter Results
Sales for the second quarter reached $768 million, up $101 million, or 15 per cent, versus sales of $667 million for the corresponding period last year. Excluding the positive impact of the currency conversion of $15 million, pressure-treated wood sales rose $90 million, or 14 per cent, driven by an over 30 per cent increase in residential lumber demand, higher volumes for railway ties and improved sales prices for utility poles.
Pressure-Treated Wood Products:
- Utility poles (30 per cent of Q2-20 sales): Utility pole sales rose to $230 million, up nine per cent from sales of $211 million in the corresponding period last year. Excluding the currency conversion effect, utility pole sales increased by $13 million, primarily driven by upward price adjustments in response to raw material cost increases.
- Railway ties (29 per cent of Q2-20 sales): Railway tie sales were $225 million, an increase of 13 per cent compared to sales of $199 million in the same period last year. Excluding the currency conversion effect, railway tie sales increased $20 million, mainly due to the acceleration of the 2020 maintenance program for certain Class 1 customers and solid demand from non-Class 1 customers, which was supported by a healthy level of untreated ties inventory.
- Residential lumber (34 per cent of Q2-20 sales): Sales in the residential lumber category were greater than expected, rising to $257 million, up 32 per cent from sales of $195 million in the corresponding period last year. The significant increase in sales is due to higher volumes, largely stemming from strong home improvement activity in the context of the COVID-19 pandemic.
- Industrial products (four per cent of Q2-20 sales): Industrial product sales were $33 million, down six per cent compared to sales of $35 million in the second quarter last year, primarily as a result of lower piling project activities.
Logs and Lumber:
- Logs and lumber (three per cent of Q2-20 sales): Sales in the logs and lumber product category were $23 million, down 15 per cent compared to $27 million in the corresponding period last year. Sales declined given the limited market supply availability and resulting decrease in lumber trading activity.
Driven by the strong sales growth across the three core product categories, gross profit and operating income increased 21 per cent and 31 per cent to $131 million and $101 million, respectively, compared to the second quarter last year. EBITDA grew to $120 million, up 28 per cent, compared to $94 million reported in the prior year period, reflecting an EBITDA margin of 15.6 per cent. This increase is largely attributable to stronger pressure-treated wood demand and pricing improvements to offset higher costs.
Net income was $69 million, or $1.02 per diluted share, versus net income of $52 million, or $0.76 per share, last year.
Sales amounted to $1.28 billion, versus $1.11 billion for the corresponding period last year. Excluding the positive impact of the currency conversion of $18 million, pressure-treated wood sales increased by $146 million, or 14 per cent. The improvement in sales led to an increase in gross profit, which grew 20 per cent to $214 million, compared to the prior year period
Operating income was $146 million, or 11.4 per cent of sales, compared with $123 million, or 11.1 per cent of sales last year. EBITDA rose to $183 million, up 16 per cent, compared to $158 million reported in the prior year period, reflecting an EBITDA margin of 14.3 per cent. Net income totalled $97 million, or $1.43 per diluted share, versus $81 million, or $1.18 per diluted share last year.
On August 4, 2020, the Board of Directors declared a quarterly dividend of $0.15 per share on the outstanding common shares of the Company, payable on September 18, 2020 to shareholders of record at the close of business on September 1, 2020. This dividend is designated to be an eligible dividend.
Strong Liquidity and Capital Resources
The Company generated cash from operations of $146 million in the second quarter of 2020. The Company deployed its liquidity to reduce debt, pay dividends and invest in property, plant and equipment. As at June 30, 2020, the Company’s long-term debt stood at $636 million and the net debt to trailing 12-month EBITDA decreased to 1.9x.
As a result of the continued strength of the Company’s balance sheet and resiliency of its business model, the Board of Directors has authorized the repurchase of up to 2,500,000 of the Company’s Common Shares, representing approximately 3.7 per cent of its outstanding Common Shares, under a Normal Course Issuer Bid.