Release Date: August 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Stella-Jones Inc (STLJF, Financial) reported an 8% increase in sales for the second quarter, surpassing $1 billion, driven by higher utility poles, railway ties, and industrial product sales.
- The company's operating income rose to $168 million from $149 million in Q2 last year, with EBITDA growing by 14% to $200 million.
- Utility pole sales increased by over 20%, benefiting from the Baldwin acquisition and strong organic growth.
- Stella-Jones Inc (STLJF) has a strong cash generation capability, enabling it to finance growth plans and maintain a solid financial position.
- The company is on track to meet or exceed its financial objectives for the 2023 to 2025 period, with a positive outlook for utility poles and railway ties.
Negative Points
- Sales in the residential lumber category decreased by $28 million compared to the same period last year, due to lower consumer demand and weak market prices.
- The company noted a slower pace of incremental purchases from some customers, impacting short-term sales growth.
- There is an expectation of lower sales activity for railway ties and residential lumber in the second half of the year.
- The sequential decrease in EBITDA margin was attributed to the product mix, particularly the lower proportion of residential lumber sales.
- Inflationary costs have increased the capital expenditure for the utility pole category, impacting overall financial planning.
Q & A Highlights
Q: Can you provide a breakdown of the organic sales growth in utility poles in terms of volume versus price?
A: For the quarter, volume growth was approximately 40%, while 60% was attributed to pricing. - Eric Vachon, CEO
Q: What factors led to the change in expectation regarding pricing pressure in the second half of the year?
A: Initially, we anticipated potential softness in the spot market due to extra capacity. However, pricing has held relatively well, and we do not expect significant headwinds for the rest of the year. - Eric Vachon, CEO
Q: How does the long-term outlook for infrastructure spending align with your business strategy?
A: Infrastructure spending, particularly from the US IRA, is expected to have a long-term impact, likely post-2025. Projects are being structured, and funding is available, which will be a tailwind for demand. - Eric Vachon, CEO
Q: Can you comment on the M&A pipeline and potential expansion into adjacent business areas?
A: We are actively exploring opportunities in complementary products like steel or composites for railway ties and utility poles. We have a dedicated VP for business development and are well-positioned to expand our offerings. - Eric Vachon, CEO
Q: What is the outlook for utility poles' organic growth in 2025, and how does pricing factor into this?
A: We expect utility poles to grow at a 15% compound annual growth rate for 2024 and 2025, with pricing gains becoming stronger, potentially contributing 40% to growth. - Eric Vachon, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
