Stella-Jones reports record EBITDA in Q2 2021
By Stella-Jones Inc.
By Stella-Jones Inc.
Stella-Jones Inc. today announced financial results for its second quarter ended June 30, 2021.
“We are very pleased with our second quarter performance, which included strong sales growth in each of our product categories. Volume gains in utility poles and railway ties, combined with unprecedented high market prices of lumber, drove sales to over $900 million and EBITDA to a record quarter,” stated Éric Vachon, president and CEO of Stella-Jones. “These results allowed us to generate operating cash flows of $173 million, reduce the indebtedness related to the seasonal investment in working capital in the first quarter and return $38 million to shareholders during the quarter. While we have revised the full-year EBITDA forecast to reflect the normalization of lumber market conditions, we foresee solid EBITDA growth in 2021 and are confident that our leading utility poles and railway ties core product categories will continue to deliver sustained growth. With our financial strength, scale and focus on execution and innovation, we are uniquely positioned to capitalize on growth opportunities and generate solid returns for our shareholders.”
Second quarter results
Sales for the second quarter of 2021 reached $903 million, up $13 5million, versus sales of $768 million for the corresponding period last year. Excluding the negative impact of the currency conversion of $63 million, pressure-treated wood sales rose $136 million, or 18 per cent, driven by growth in the company’s three core product categories: residential lumber benefited from the unprecedented high market prices of lumber, utility poles benefited from increased volumes, upward price adjustments and an improved sales mix while railway ties sales growth stemmed from volume gains. The rise in market lumber prices during the quarter also explains the increase in sales of the logs and lumber product category.
Pressure-treated wood products:
- Utility poles (26 per cent of Q2-21 sales): Utility poles sales increased to $236 million, compared to sales of $230 million in the corresponding period last year. Excluding the currency conversion effect, utility poles sales increased by $30 million, or 13 per cent, driven by improved maintenance demand for distribution poles, upward price adjustments and a better sales mix, including the impact of additional fire-resistant wrapped pole sales volumes. This growth was partially offset by less project-related volumes.
- Railway ties (24 per cent of Q2-21 sales): Railway ties sales were $216 million, compared to sales of $225 million in the same period last year. Excluding the currency conversion effect, railway ties sales increased $15 million, or seven per cent, largely attributable to higher volumes for Class 1 customers due to the timing of shipments. The higher sales volumes were offset in part by pricing pressures for non-Class 1 customers, which eased somewhat during the quarter.
- Residential lumber (37 per cent of Q2-21 sales): Sales in the residential lumber category rose to $330 million, compared to sales of $257 million in the corresponding period last year. Excluding the currency conversion effect, residential lumber sales increased $84 million, or 33 per cent, driven by the exceptional rise in the market price of lumber. This increase was partially offset by lower sales volumes attributable to softening consumer demand.Industrial products (four per cent of Q2-21 sales): Industrial product sales were $36 million, compared to sales of $33 million in the second quarter last year, largely due to more timber and piling projects, offset inpart by lower project-related bridge and crossing sales.
Logs and lumber:
- Logs and lumber (nine per cent of Q2-21 sales): Sales in the logs and lumber product category were $85 million, up over three-fold compared to $23 million in the corresponding period last year. The exceptional increase is due to the rise in the market price of lumber during the quarter.
The strong sales growth led to an increase in gross profit, which grew 50 per cent to $197 million, compared to the prior year period, while operating income was $161 million, or 17.8 per cent of sales, compared with $101 million, or 13.2 per cent of sales last year. EBITDA rose to $180 million, up 50 per cent, compared to $120 million reported in the second quarter of 2020. The increase was primarily driven by the rise in sales prices for residential lumber, which exceeded the higher cost of lumber, improved pricing and volume gains for utility poles, partially offset by lower residential lumber demand.
Net income for the second quarter of 2021 was $115 million, or $1.76 per share, compared to net income of $69 million, or $1.02 per share, in the corresponding period of 2020.
Six month results
For the first six months of 2021, sales amounted to $1.53 billion, versus $1.28 billion for the corresponding period last year. Excluding the negative impact of the currency conversion of $86 million, pressure-treated wood sales rose by $238 million, or 19 per cent, and logs and lumber sales grew by $100 million. The year-over-year sales growth in pressure-treated wood stems from the significant rise in the market prices of lumber offset in part by a decrease in residential lumber volumes. Sales also grew due to the increased demand, upward pricing adjustments and an improved sales mix for utility poles, as well as higher volumes for railway ties which outweighed the pricing pressures for the non-Class 1 business. The exceptional increase in logs and lumber sales stems from the unprecedented increase in market prices of lumber.
The improvement in sales led to an increase in gross profit, which grew 44 per cent to $309 million, compared to the prior year period. Operating income was $243 million, or 15.9 per cent of sales, compared with $146 million, or 11.4 per cent of sales last year. EBITDA rose to $279 million, up 52 per cent, compared to $183 million reported in the prior year period, reflecting an EBITDA margin of 18.3 per cent. Net income totaled $171 million, or $2.61 per share, versus $97 million,or $1.43 per share last year.
The company has revised its full-year financial forecast to reflect the softening of residential lumber demand in the second half of 2021. Stella-Jones continues to foresee solid EBITDA growth in 2021 compared to 2020 but expects EBITDA to be in the range of $410 to $440 million, compared to the previously disclosed guidance of $450 to $480 million. The margin expansion realized in the first half of 2021 is projected to offset the margin compression expected from declining market prices of lumber until the company averages down its higher cost of inventory. As a result, the company anticipates EBITDA margin as a percentage of sales for 2021 to remain comparable to 2020. Excluding the impact of the currency conversion, the Company is projecting sales growth in the low-to-high teens for 2021 compared to 2020, down from the projected increase of 15 per cent to low 20 per cent previously disclosed. The decrease in the sales growth projection largely stems from the expected slowdown in consumer demand for residential lumber. Residential lumber sales are expected to increase 15 per cent to 20 per cent compared to 2020, down from the previously disclosed forecasted increase of 45 per cent to 65 per cent. While the sales growth forecast for utility poles remains unchanged with a high-single digit increase compared to 2020, railway ties and industrial products sales are projected to increase in the low-single digit range. For railway ties, the current pricing headwinds are expected to ease by the end of the year and the company believes it will continue to benefit from increased maintenance activity.
This updated guidance anticipates a reduction of approximately $130 million in sales from the depreciation of the value of the U.S. dollar relative to the Canadian dollar to C$1.25 per U.S. dollar.