Stella-Jones Inc. has announced financial results for its first quarter ended March 31, 2021.
“We had an exceptionally robust start to the year, continuing our momentum of growth. Our first quarter performance was fuelled by record pricing and volume gains in the residential lumber product category, solid utility poles results, and strong railway ties demand tempered by pricing pressures in certain markets. EBITDA grew by 57 per cent to an all-time first quarter high of $99 million and net income doubled to $56 million compared to the same period last year,” stated Éric Vachon, president and CEO of Stella-Jones.
“In anticipation of continued strong market conditions for residential lumber and solid demand in the other core product categories, we leveraged our healthy balance sheet this quarter to increase working capital and invest in our network. In April, we increased our available liquidity with a new senior unsecured credit facility, further enhancing our financial flexibility. Together with our resilient business model and solid competitive position, we are well positioned to take advantage of the momentum in demand, create opportunities to grow our core businesses and deliver EBITDA in the mid-to-high $400 million range in 2021,” concluded Vachon.
First quarter results
Sales for the first quarter reached $623 million, up $115 million, versus sales of $508 million for the corresponding period last year. Excluding the negative impact of the currency conversion of $23 million, pressure-treated wood sales rose $102 million, or 21 per cent, driven by pricing and volume gains in the residential lumber product category and improved pricing for utility poles, offset in part by a reduction in sales price for railway ties, particularly for the non-Class 1 business. The increase in logs and lumber sales stems from the significant rise in the market price of lumber.
Pressure-treated wood products:
Utility poles (33 per cent of Q1-21 sales): Sales were $206 million in the first quarter of 2021, in line with the corresponding period last year. Excluding the negative currency conversion effect, utility poles sales increased by nine million dollars, or four per cent, driven by higher pricing, mainly in response to raw material cost increases and due to a favourable sales mix, including the impact of greater fire-resistant wrapped poles sales volume. More project-related volume this quarter was offset by lower maintenance demand, particularly in the U.S. Southeast due to extreme winter weather conditions.
Railway ties (25 per cent of Q1-21 sales): Sales were $158 million in the first quarter of 2021, down eight per cent compared to sales of $172 million in the same period last year. Excluding the negative currency conversion effect, railway ties sales decreased by six million dollars, or three per cent, largely due to lower pricing which more than offset the increase in volumes. The reduction in sales price is attributable to continued pricing pressures and an unfavourable product mix for the non-Class 1 business, as well as downward pricing adjustments in response to lower fibre costs for Class 1 customers. While volumes were lower this quarter for Class 1 customers due to the timing of shipments, overall volumes increased as a result of the robust demand from non-Class 1 customers.
Residential lumber (27 per cent of Q1-21 sales): Sales rose to $166 million in the first quarter of 2021, up 134 per cent from sales of $71 million in the corresponding period last year. Excluding the negative currency conversion effect, residential lumber sales increased $99 million, or 139 per cent. The significant increase in sales was in large part driven by the higher market price of lumber. Continued strong demand, an earlier start of the season for home improvement projects, as well as the increase in market reach as the Company gained a greater proportion of customers’ annual programs, further contributed to the exceptional sales growth this quarter.
Industrial products (five per cent of Q1-21 sales): Sales were $28 million in the first quarter of 2021, relatively unchanged compared to sales of $29 million in the first quarter last year. Lower bridge sales, mainly timing-related, were offset in large part by increased demand for pilings.
Logs and lumber:
Logs and lumber (10 per cent of Q1-21 sales): Sales were $65 million in the first quarter of 2021, more than double the sales of $29 million generated in the corresponding period in 2020. In the course of procuring residential lumber volume, excess lumber is obtained and resold. The increase in sales this quarter is largely attributable to the significant rise in the market price of lumber.
The strong sales growth led to an increase in gross profit, which grew 35 per cent to $112 million, compared to the prior year period, while operating income was $82 million, or 13.1 per cent of sales, compared with $45 million, or 8.8 per cent of sales last year. EBITDA rose to $99 million, up 57 per cent, compared to $63 million reported in the first quarter of 2020. The increase was primarily driven by sales price increases for residential lumber, which exceeded the higher cost of lumber, stronger residential lumber demand, as well as operational efficiency gains. Improved pricing for utility poles and volume gains for railway ties were largely offset by pricing pressures for the non-Class 1 railway ties business.
Net income for the first quarter of 2021 was $56 million, or $0.85 per share, double the net income of $28 million, or $0.41 per share, in the corresponding period of 2020.
Updated outlook
The company’s financial outlook provided in the MD&A for the year ended Dec. 31, 2020 is updated to reflect the strong quarterly performance, largely attributable to the unprecedented rise in the market price of lumber, and the expectation that the higher levels of pricing for lumber will continue to favourably impact the profitability of the residential lumber product category during the seasonal peak demand period.
Stella-Jones is now targeting to deliver EBITDA in the range of $450 to $480 million in 2021, up from the previously disclosed guidance of $385 to $410 million. This updated guidance anticipates a reduction of approximately $90 million in sales from the depreciation of the value of the U.S. dollar relative to the Canadian dollar to C$1.27 per U.S. dollar.
Excluding the impact of the currency conversion, the company is projecting 2021 sales growth of 15 per cent to low 20 per cent range compared to 2020. The projected 2021 sales for utility poles, railways ties and industrial products remain unchanged. Utility poles sales are expected to increase in the mid to high-single digit range compared to 2020, due to sustained healthy replacement demand, including an increase in value-added fire-resistant wrapped pole sales, while railway ties and industrial product sales are projected to be relatively comparable to those generated in 2020. For residential lumber, sales are now forecasted to increase in the range of 45 per cent to 65 per cent compared to 2020, driven by the current trend of higher pricing, which is projected to continue during the seasonal peak demand period for this product category.
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