Release Date: November 06, 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 a solid EBITDA margin of 17.7% for the third quarter, exceeding their profitability objective.
- The company has expanded its EBITDA margin by over 300 basis points since 2022, with a target to sustain an expanded margin of over 17%.
- Stella-Jones Inc (STLJF) generated strong operating cash flows of $186 million during the quarter, contributing to a year-to-date operating cash flow of $301 million.
- The company has a strong financial position with almost $750 million of available capital following a successful $400 million bond offering.
- Stella-Jones Inc (STLJF) is actively pursuing acquisitions as a cornerstone of its growth strategy, leveraging its infrastructure customer base and North American footprint.
Negative Points
- Third quarter sales decreased by 4% year-over-year, driven by lower volumes across all product categories.
- Utility pole sales volumes were down 6% compared to the previous year, attributed to a slowdown in project-based activity.
- Railway tie sales decreased by $25 million due to lower volumes and the timing of shipments.
- Residential lumber sales decreased by 5% due to lower volumes, despite stable pricing.
- The company adjusted its three-year sales target to approximately $3.6 billion by 2025, down from the previous target of above $3.6 billion.
Q & A Highlights
Q: Can you provide additional color on the updated consolidated guidance for the pole and tie segments?
A: Eric Vachon, President and CEO, explained that the sales target for 2025 has been adjusted to $3.6 billion. Utility pole sales growth is expected to align with industry growth of 6% to 7%, while railway ties will maintain low single-digit growth. The adjustment reflects slower project demand and cautious order confirmations from long-term customers.
Q: With near-term headwinds to demand and increased industry capacity, do you expect pole pricing to hold up?
A: Eric Vachon noted that pricing has remained stable this year, with some softness in certain areas. For next year, slight softness in the spot market is expected due to increased capacity, but regular contract increases should offset this, resulting in flattish pricing overall.
Q: Can you clarify the expectation for organic growth within the utility poles product category for 2024 and 2025?
A: Eric Vachon confirmed that the expectation for organic growth in utility poles is 6% to 7% for both 2024 and 2025, with most of the growth being volume-driven rather than price-driven.
Q: What factors are causing utilities to defer projects, and have you seen any improvements?
A: Eric Vachon stated that all factors, including supply chain constraints and scrutiny of rate base cases, are still at play. While interest rates have come down, the positive effects on project approvals may take two to three quarters to materialize.
Q: Why is the EBITDA margin outlook for 2025 lower than recent years despite pole growth?
A: Eric Vachon explained that the mix of product categories and cost increases in SG&A could impact margins. The company is confident in maintaining a margin greater than 17%, which is an increase from the previous target of 16%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
