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Stella-Jones reports “strong sales and profitability growth” in Q1 2019


May 2, 2019
By Stella-Jones Inc.

“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, about Stella-Jones Inc.’s Q1 2019 results.

First quarter results

Sales for the first quarter of 2019 reached $440.7 million, up 10.5 per cent 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 per cent.

Utility pole sales reached $170.5 million in the first quarter of 2019, up 11.5 per cent from sales of $153.0 million for the corresponding period last year. Railway tie sales for the first quarter of 2019 amounted to $161.4 million, representing an increase of 10.2 per cent, from sales of $146.4 million in the corresponding period last year.

Sales in the residential lumber category totalled $57.6 million in the first quarter of 2019, up 14.6 per cent 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 per cent of sales, compared with $35.5 million, or 8.9 per cent 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.

Outlook

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.