Stella-Jones reports EBITDA of $132M in Q3 2020, new record
By Stella-Jones Inc.
By Stella-Jones Inc.
Stella-Jones Inc. has announced financial results for its third quarter ended Sept. 30, 2020.
“I am extremely proud of the diligent work ethic and unwavering commitment that our employees have displayed during these rapidly changing and extremely challenging times. Supported by their contribution and the resiliency of our business, we delivered another record performance this quarter, with growth in sales, profitability and cash from operations. Benefiting from the continued strong demand across most of our product categories and the exceptional rise in market lumber prices, we realized sales growth of 18 per cent and increased EBITDA by 38 per cent to a quarterly best of $132 million. This significant increase in profitability translated into cash from operations of $148 million which was used to invest in our network, reduce our leverage and return cash to shareholders in the form of dividends and share repurchases. We ended the quarter in a very strong financial position with a net debt-to-EBITDA ratio of 1.4x and over $300 million in available liquidity,” stated Éric Vachon, president and CEO of Stella-Jones. “Following stronger than expected results this quarter, we have increased our annual 2020 EBITDA guidance. With ample financial flexibility and sustainable profitability, we are well positioned to continue to drive growth for our shareholders.”
Third quarter results
Sales for the third quarter of 2020 reached $742 million, up $111 million, or 18 per cent, versus sales of $631 million for the corresponding period last year. Excluding the positive impact of the currency conversion of $5 million, pressure-treated wood sales rose $85 million, or 14 per cent, primarily driven by higher pricing and demand for residential lumber and utility poles. Logs and lumber sales increased $21 million, driven by the significant rise in the market price of lumber.
Pressure-treated wood products:
- Utility poles (34 per cent of Q3-20 sales): Utility pole sales rose to $250 million, up 16 per cent from sales of $216 million in the corresponding period last year. Excluding the currency conversion effect, utility pole sales increased by $32 million driven by more project-related volumes, as well as higher pricing. The pricing improvement stems from upward price adjustments in response to raw material cost increases and better product mix, including the impact of greater fire-resistant wrapped pole sales volumes.
- Railway ties (25 per cent of Q3-20 sales): Railway ties sales were $189million, a decrease of two per cent compared to sales of $193 million in the same period last year. Excluding the currency conversion effect, railway ties sales decreased $6 million, largely due to lower volumes for Class 1 customers given the acceleration of the maintenance program for certain Class 1 customers in the second quarter. The decrease in Class 1 volumes was partially offset by continued strong non-Class 1 demand, supported by a solid level of untreated tie inventory. Overall, pricing remained relatively unchanged compared to the same period last year.
- Residential lumber (30 per cent of Q3-20 sales): Sales in the residential lumber category rose to $220 million, up 39 per cent from sales of $158 million in the corresponding period last year. The significant increase in sales was driven by the exceptional rise in the market price of lumber and higher volumes, which continued to be favourably impacted by strong home improvement demand during the Covid-19 pandemic.
- Industrial products (five per cent of Q3-20 sales): Industrial product sales were $34 million, down six per cent compared to sales of $36 million in the third quarter last year, primarily due to the timing of shipments of products for rail-related bridge projects.
Logs and lumber:
- Logs and lumber (six per cent of Q3-20 sales): Sales in the logs and lumber product category were $49 million, up 75 per cent compared to $28 million in the corresponding period last year, primarily attributable to the sharp increase in the market price of lumber during the quarter. Driven by the strong sales growth in residential lumber and utility poles, gross profit and operating income increased 34 per cent and 45 per cent to $147 million and $113 million, respectively, compared to the third quarter last year. Similarly, EBITDA increased 38 per cent to a record high of $132 million, or a margin of 17.8 per cent, up from $96 million, or a margin of 15.2 per cent last year. This increase was primarily driven by the sharp rise in the market prices of lumber throughout the quarter, stronger residential lumber demand, as well as improved pricing, product mix and volumes for utility poles.
Net income was $79million, or $1.17 per diluted share, versus net income of $54 million, or $0.78 per share, last year.
The financial outlook provided in the company’s Management’s Discussion and Analysis for the quarter ended June 30, 2020 with respect to annual EBITDA for 2020 is revised to reflect the stronger than expected third quarter sales growth in the residential lumber and utility poles product categories. The company forecasts EBITDA for 2020 to be in the range of $365 million to $375 million and EBITDA margin to be higher compared to 2019.
While the impact of the on-going COVID-19 pandemic on the demand for the company’s products remains uncertain, based on the company’s current expectations and assuming stable currencies, management is forecasting healthy sales for 2021. Utility poles sales are expected to increase in the mid to high-single digits, compared to 2020, while railway ties and industrial product sales are projected to be relatively comparable to those generated in 2020. The demand for new construction and outdoor renovation projects is expected to be strong in 2021, which should continue to benefit sales in the company’s residential lumber product category.