Mr. Eric Vachon reports

STELLA-JONES ANNOUNCES THIRD QUARTER RESULTS AND UPDATES 2023-2025 FINANCIAL OBJECTIVES

Stella-Jones Inc. has released its financial results for the third quarter (Q3) ended Sept. 30, 2024.

"Stella-Jones' strategy is, as always, rooted in the long-term growth of our resilient infrastructure business. In the third quarter, despite strong long-term demand tailwinds, we witnessed a slower pace of purchases by our utility customers. Though total sales were lower than anticipated, we delivered a solid quarter EBITDA margin of 17.7 per cent and strong operating cashflows," said Eric Vachon, president and chief executive officer of Stella-Jones. "Year to date, sales were higher and our profit margins remained above target levels. Based on utilities' current purchasing behaviour and the company's solid margin performance, we are updating our three-year financial objectives to sales of approximately $3.6-billion by 2025 and an EBITDA margin of more than 17 per cent.

"Utilities continue to forecast meaningful increases in infrastructure investments, evidenced by the longer-term sales contracts secured from new and existing customers. These commitments support our confidence in the solid and sustained growth in demand for utility poles. With our compelling infrastructure offering, robust available capacity and strong balance sheet, we are enthusiastic about the opportunities for continued growth and enhanced profitability," concluded Mr. Vachon.

Third quarter results

Sales in the third quarter of 2024 were $915-million, compared with sales of $949-million for the corresponding period last year. Excluding the positive effect of currency conversion, sales were down $44-million, or 5 per cent. The decrease was driven by lower volumes across all product categories, partially offset by higher pricing to cover increased costs. Volumes for infrastructure product categories, namely utility poles, railway ties and industrial products, were impacted by the slower pace of purchases and a deferral in the execution of projects by utilities, and a reduction in the maintenance program of certain railroads, while residential lumber volumes were lower due to softer consumer demand.

Pressure-treated wood products:

• Utility poles (49 per cent of Q3 2024 sales): Utility poles sales increased to $448-million in the third quarter of 2024, compared with sales of $438-million in the corresponding period last year. Excluding the currency conversion effect, utility poles sales increased by $4-million, or 1 per cent. Higher pricing to cover increased costs more than offset the decrease in volumes when compared with the same period last year. The lower sales volumes in the third quarter were largely explained by the slower pace of purchases and a deferral in the execution of projects by utilities, largely influenced by economic factors, including inflation and utilities' supply chain constraints, as well as timing of utilities' rate-based financing.
• Railway ties (22 per cent of Q3 2024 sales): Railway ties sales decreased by $25-million to $205-million in the third quarter of 2024, compared with sales of $230-million in the same period last year. Excluding the currency conversion effect, sales of railway ties decreased by $28-million, or 12 per cent, largely attributable to lower sales volumes explained by the reduction in the maintenance program of certain Class 1 customers and timing of shipments.
• Residential lumber (21 per cent of Q3 2024 sales): Sales in residential lumber decreased by $11-million to $191-million in the third quarter of 2024, compared with sales of $202-million in the corresponding period last year. This decrease was mainly driven by lower sales volumes due to softer consumer demand.
• Industrial products (4 per cent of Q3 2024 sales): Industrial product sales were $41-million, compared with $42-million in the corresponding period last year.

Logs and lumber:

• Logs and lumber (4 per cent of Q3 2024 sales): Logs and lumber sales totalled $30-million, compared with $37-million in the corresponding period last year. The decrease in sales compared with the third quarter last year was largely attributable to less lumber trading activity. Logs sales remained stable as lower log sales activity was offset by the higher market price of logs.

Gross profit was $188-million in the third quarter of 2024, compared with $215-million in the corresponding period last year, representing a margin of 20.5 per cent and 22.7 per cent, respectively. The decrease in gross profit was largely driven by lower sales volumes across all product categories.

Similarly, operating income totalled $130-million in the third quarter of 2024, versus operating income of $166-million in the corresponding period of 2023.

EBITDA (earnings before interest, taxes, depreciation and amortization) totalled $162-million, representing a margin of 17.7 per cent, compared with $193-million, or a margin of 20.3 per cent reported in the corresponding period last year.

Net income for the third quarter of 2024 was $80-million, or $1.42 per share, compared with a net income of $110-million, or $1.91 per share, in the corresponding period of 2023.

Nine-month results

For the first nine months of 2024, sales amounted to $2,739-million, versus $2,631-million for the corresponding period last year. Excluding the contribution from the acquisition of Baldwin Pole and Piling Company Inc., Baldwin Pole Mississippi LLC, and Baldwin Pole & Piling Iowa Corp. of $25-million, and the currency conversion of $22-million, pressure-treated wood sales rose by $79-million, or 3 per cent, while logs and lumber sales decreased by $18-million, or 19 per cent. The pressure-treated wood sales growth was driven by the increase in infrastructure sales. Favourable pricing for utility poles and pricing and volumes gains for railway ties were only partially offset by lower utility poles volumes. The increase in infrastructure sales was largely offset by the softer demand for residential lumber and less logs sales and lumber trading activity compared with the same period last year.

Gross profit increased to $586-million, or 21.4 per cent of sales, in the first nine months of 2024, from $551-million, or 20.9 per cent of sales, in the corresponding period last year. Similarly, operating income amounted to $422-million, versus $410-million a year ago, while EBITDA was $518-million, compared with $488-million in the prior year, and EBITDA margin expanded from 18.5 per cent in 2023 to 18.9 per cent in 2024.

Net income in the first nine months of 2024 was $267-million, or $4.72 per share, versus net income of $270-million, or $4.63 per share, in the corresponding period last year.

Liquidity and capital resources

During the third quarter ended Sept. 30, 2024, Stella-Jones used the cash generated from operations of $186-million to maintain its assets and pursue its growth capital expenditure, as well as reduce long-term debt and return capital to shareholders.

During the first nine months of the year, the company returned $112-million to its shareholders, through dividends of $47-million and share repurchases of $65-million. Since the beginning of the normal course issuer bid (NCIB) on Nov. 14, 2023, the company repurchased a total of 1,015,670 common shares for cancellation in consideration of $85-million.

As at Sept. 30, 2024, the company had a total of $342-million available under its credit facilities and maintained a solid financial position with a net debt to EBITDA of 2.5 times.

Subsequent to the quarter-end, the company issued $400-million aggregate principal amount of 4.312 per cent senior unsecured notes, due Oct. 1, 2031. The company used the net proceeds of this offering to repay existing indebtedness under its revolving credit facilities.

Announcement of normal course issuer bid

Given the highly cash generative nature of the company's business, in November, 2024, the company's board of directors authorized a new NCIB for share repurchases. On Nov. 6, 2024, the company announced that the Toronto Stock Exchange has accepted its notice of intention to make a NCIB. Please refer to the news release issued by the company, a copy of which is located in the investor relations section of its website.

Updated 2023-2025 financial objectives

The company has updated its 2023-2025 financial objectives to reflect lower-than-expected organic sales growth and a higher EBITDA margin, compared with the financial objectives set in May, 2023. The projections do not include the impact of potential future acquisitions and assume that foreign currency exchange rates remain generally consistent with current levels.

Sales are now expected to be approximately $3.6-billion by 2025, compared with organic sales greater than $3.6-billion, previously set out in the three-year financial objectives. This update was driven by the lower-than-anticipated organic sales growth for utility poles, largely influenced by customers' current purchasing behaviour.

EBITDA margin is expected to exceed 17 per cent and compares with the prior projection of 16 per cent. This reflects an EBITDA compound annual growth rate of 11 per cent for the 2023-to-2025 period, compared with the prior growth expectation of 9 per cent.

Quarterly dividend

On Nov. 5, 2024, the board of directors declared a quarterly dividend of 28 cents per common share, payable on Dec. 20, 2024, to shareholders of record at the close of business on Dec. 2, 2024. This dividend is designated to be an eligible dividend.

Conference call

Stella-Jones will hold a conference call to discuss these results on Nov. 6, 2024, at 10 a.m. EST. Interested parties can join the call by dialling 1-866-518-4114. A live audio webcast of the conference call will be available on the company's website, on the investor relations section's home page. This recording will be available on Wednesday, Nov. 6, 2024, as of 1 p.m. EST, until 11:59 p.m. EST on Wednesday, Nov. 13, 2024.

About Stella-Jones Inc.

Stella-Jones is a leading North American manufacturer of pressure-treated wood products, focused on supporting infrastructure that is essential to the delivery of electrical distribution and transmission, and the operation and maintenance of railway transportation systems. It supplies the continent's major electrical utilities and telecommunication companies with wood utility poles and North America's Class 1, short-line and commercial railroad operators with railway ties and timbers. It also supports infrastructure with industrial products, namely wood for railway bridges and crossings, marine and foundation pilings, construction timbers, and coal tar-based products. Additionally, the company manufactures and distributes premium treated residential lumber and accessories to Canadian and American retailers for outdoor applications, with a significant portion of the business devoted to servicing Canadian customers through its national manufacturing and distribution network.

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