TSE:SJ Stella-Jones Q1 2023 Earnings Report C$67.60 +0.17 (+0.25%) As of 04:00 PM Eastern Earnings HistoryForecast Stella-Jones EPS ResultsActual EPSC$1.03Consensus EPS C$0.82Beat/MissBeat by +C$0.21One Year Ago EPSN/AStella-Jones Revenue ResultsActual Revenue$710.00 millionExpected Revenue$711.85 millionBeat/MissMissed by -$1.85 millionYoY Revenue GrowthN/AStella-Jones Announcement DetailsQuarterQ1 2023Date5/10/2023TimeN/AConference Call DateWednesday, May 10, 2023Conference Call Time1:30PM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress ReleaseEarnings HistoryCompany ProfilePowered by Stella-Jones Q1 2023 Earnings Call TranscriptProvided by QuartrMay 10, 2023 ShareLink copied to clipboard.There are 7 speakers on the call. Operator00:00:00Good afternoon and thank you for standing by. Welcome to the Stella Jones First Quarter 2023 Earnings Call. At this time, all participants are in listen only mode. Following the presentation, we will hold a question and answer session. I would like to remind everyone that this conference call is being recorded on Wednesday, May 10, 2023. Operator00:00:35Please note that comments made on today's call may contain forward looking information and this information by its nature is subject to risks and Uncertainties. Actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR. These documents are also available in the Investor Relations section of Stella Jones website at www.stella jones.com. We have also prepared a corresponding presentation, which we encourage you to follow along with during this call. Operator00:01:15I now pass the call over to Eric Vachon, President and Chief Executive Officer of Stella Jones. Eric? Speaker 100:01:23Good afternoon, everyone, and thank you for joining us today. I'm here with Silvana Travellini, our Senior Vice President and Chief Financial Officer of Stella Jones. Earlier this morning, we issued our press release reporting the results of our Q1 of 2023. Along with our MD and A, it can be found in the Investor Relations section of our website at www.stellajones hyphen.com as well as on SEDAR. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. Speaker 100:02:03The positive momentum we generated from our record year in 2022 has carried into 2023. Our first quarter results were excellent, featuring strong sales and increase in EBITDA, which has outpaced sales growth. Our great start to the year reflects our growth plan in action. During the quarter, we successfully secured fiber supply, enhanced production capacity at our plants And invested in the network upgrades to further increase pole production. All of these initiatives speaks to our unwavering focus on continuity and quality of customer service, maintaining our American leadership position in the markets we serve. Speaker 100:02:50Now let's turn to the performance of our product categories for the quarter. Our utility poles product categories significantly outperformed during the quarter. Sales grew organically by 29% and also benefited from the contribution of our timely acquisition in 2022 of the treating assets of Texas Electric Cooperatives or TEC. The strong growth in this product category is a testament to our pole procurement team, which once again continued to leverage their long standing industry relationships to meet growing customer demand, while establishing the foundation to access new procurement areas. Sales of railway ties were also up, Increasing organically by 5%. Speaker 100:03:38We are encouraged to see signs of continued increased railway tie availability in the Q1 of this year. At the current rate of procurement, we expect untreated tie inventories to be replenished by midyear With optimal dry inventory levels being reached in the second half of twenty twenty three, this will reduce the number of Open up nice charges and open opportunities to respond to customer demand, which is being driven by steady railroad maintenance and ongoing infrastructure spend. For industrial products, sales continue to benefit from higher demand. Our industrial product category perfectly complements our rail and utility offerings. Finally, sales for residential lumber pulled back in this quarter, in line with our expectations. Speaker 100:04:29Before I turn the call over to Saldana, I want to provide an update on ESG. As many of you know, health and safety is a priority at Stella Jones. We strive to create a safe and healthy workplace that promotes responsibility and mutual respect. We are in the final phase of rolling out The SHIELDS program across North America. SHIELDS stands for Safety, Health, Improvement, Leading Our Decisions and is an integrated environmental health and safety management system. Speaker 100:04:59These systems allow us to more accurately track and assess progress of our Health and safety metrics to maintain our company wide commitment to the safety and well-being of our people. At the start of this year, we reinforced our commitment to health and safety with the launch of a new employee focused educational and informative campaign called Safety Matters Because You Matter. We believe that our most valuable asset is the people that walk into our facilities and offices each day. We almost play a role in owning health and safety and ensuring everyone performs successfully in their work environment and returns home safely at the end of the day. With that, I will turn it over to Sylvana to provide a more detailed overview of our Q1 financial results. Speaker 100:05:46Sylvana? Speaker 200:05:48Thank you, Eric, and good afternoon, everyone. As Eric mentioned, we began the quarter on a very positive note, which is reflected in our strong financial results. Net income in the Q1 was $60,000,000 up 30% compared to net income of $46,000,000 last year. This translated into earnings per share of $1.03 compared to $0.73 in the same period in 2022. We generated total sales of $710,000,000 compared to $651,000,000 last year. Speaker 200:06:26The increase was driven by an 18% organic sales growth of our infrastructure related businesses. Sales this quarter also benefited from the contribution of the pole treating assets acquired from TC late in 2022 and the positive effect of currency conversion. This growth in sales was partly offset by the anticipated pullback of residential lumber sales. Utility poll sales rose to $362,000,000 up from $254,000,000 from the same period last year. Excluding the currency conversion effect and the contribution From the acquisition of TEC Assets, utility pole sales increased by $73,000,000 or 29%, almost entirely driven by higher pricing. Speaker 200:07:24Sales volume gains were limited this quarter by our current production capacity. Downtime related to the ongoing capital projects largely offset the increase in our treating capacity stemming from the installation of upsized lenders. Sales from our utility pole product category accounted for more than half of total sales for the Q1. Sales of railway ties grew to $195,000,000 versus $175,000,000 in the corresponding period last year. Excluding the currency conversion effect, Sales of railway ties increased by $9,000,000 or 5%, all attributable to favorable sales price adjustments to cover higher costs. Speaker 200:08:15Volumes for non Class 1 customers were lower due to the reduced level of treated ties inventory following the limited fiber supply availability in 2022. However, the steady maintenance demand for railway ties enabled this product category to account for 27% of total sales for the quarter. Residential lumber sales were down compared to the same period last year, which as Eric mentioned, We're in line with our expectations. The decrease was attributable to lower volumes and pricing compared to the stronger demand and the rise in the market price of lumber in the same quarter last year. Sales in residential lumber accounted for 13% of total sales during the quarter. Speaker 200:09:10Turning now to profitability. Led by the strong organic sales growth, particularly for utility poles, our EBITDA increased to $120,000,000 in Q1 of 2023, up 36% compared to $88,000,000 in the Q1 last year. We saw notable strength in our EBITDA margin, growing 3.40 basis points to 16.9% in the first quarter of 13.5% last year. The increase was largely due to the margin expansion of the company's infrastructure related product categories, particularly stemming from favorable price adjustments realized for utility and railway ties, as well as the impact of a better product mix. The relative proportion of utility poles in the Q1 amounted to over 50%. Speaker 200:10:08During the quarter, we continued to actively invest in our inventory position. We invested $138,000,000 in inventories to build our position to support the continued Strong demand for poles and to replenish our untreated ties inventory given the market availability. Inventories are significant component of working capital and the turnover is relatively low. We consider this an investment in our ability to provide service to our customers and meet their demand. During the quarter, we also used our liquidity to maintain the quality of assets and expand our pole production capacity, including acquiring the pole peeling and drying assets of industry as well as return capital to shareholders. Speaker 200:11:01Yesterday, our Board of Directors announced a dividend of $0.23 per share. And during the quarter, we repurchased over 6 100 and 10 shares for a total of $30,000,000 Since the beginning of the current NCIB program In late 2022, we have repurchased over 1,000,000 shares for $50,000,000 As a result of our buyback programs, we had almost 4,500,000 fewer average shares outstanding this quarter compared to last year's Q1. We ended the year with a net debt to EBITDA ratio of 2.8 times, which is within our expectations due to our typical working capital requirements in the Q1 of each year. We hold a strong financial position and are able to finance our business plans, meet working capital requirements and maintain our assets through our cash flow generation and available credit facilities. In summary, Financial performance to begin the year has positioned us well to remain on track to treat future growth and value for our shareholders. Speaker 200:12:16With that, I will now pass it on to Eric for his concluding remarks. Eric? Thank Speaker 100:12:23you, Silvana. Our established track record of achieving robust results, delivering return to shareholders and maintaining a solid financial position Continued into 2023. We attribute these achievements to our proven and resilient business model as well as our ability to supply the growing demand for our products in the marketplace. We are well positioned to meet or exceed the targets laid out in our 3 year plan. From a sales perspective, we continue to benefit from strong demand on the utility pole side. Speaker 100:12:59Building on the growth trend for 2023, utility poles 2024 Sales are now projected to grow at a compound annual rate of 20% from 2022 and the company also expect The EBITDA margin to exceed its 15% target by 100 basis points. We also continue to enjoy steady growth The forecast for utility pole growth CapEx stood between $90,000,000 $100,000,000 Since the beginning of 2022, we have committed to equipment purchases and spent $49,000,000 So far, we have successfully changed 3 treating cylinders and increased our Douglas fir network trading capacity by 15%. We will also benefit from the production of 2 new Southern Yellow Pine, oil peeling and drying facilities starting mid year. Finally, we have returned $273,000,000 of capital to shareholders since 2022, We are on track to achieve the target we outlined in our 3 year plan of between $500,000,000 $600,000,000 We have started 2023 on the right foot. We will continue to build on our achievement to support future growth of our infrastructure related product categories and continue to return capital to shareholders. Speaker 100:14:36Before I conclude this call, I would like to acknowledge all of our employees across North America. They are the reason behind the great brand and reputation we have built. Our customer can rely on us for quality products, customer care and meeting deadlines. All of those traits are because of our dedicated employee base. Thank you for all of your efforts. Speaker 100:14:59I also want to extend a special thank you to those who attended annual meeting of shareholders earlier today, both in person and virtually. We are grateful for your ongoing support and trust in our business and look forward to seeing you again next year. This concludes our prepared remarks. Thank you for your time today, and I will now open up the lines for questions. Operator00:15:24Thank you, Erik. The line is now open for questions. Our first question is from Walter Spracklin from RBC Capital Markets. Please go ahead, Mr. Spracklin. Speaker 300:15:44Good afternoon, everyone. Congratulations on a great quarter here. Eric, I guess starting with you on Pulse, it's a pretty high run rate, 20% now out to 2024 on a CAGR basis. I guess maybe you can give a little color. I apologize I was only connected in later in the call a little later in the call. Speaker 300:16:07The main drivers of that is this kind of a fast and furious situation or higher for longer? I don't think it's going to Drop off from 20 down to 5 in 2025, is this something that kind of stays at a heady clip For many years based on what you're seeing or do you see a lot of upfront here and then indeed falling off quicker after a few years. Speaker 100:16:37Thank you, Walter. So, if you recall, last year, we had a great Year in organic growth 20 plus percent. In March, when we disclosed our Q4 results, we Provided more insight for this year's stating that we would see in 2023 Similar growth to the prior year. So obviously, us seeing a CAGR of 20% over, let's say, the whole year of 'twenty three and 'twenty four Would suggest something that's a bit front loaded, obviously, since we would be in the 20 ish this year. We've seen great growth in the last 2 years on the pricing side and the volume side. Speaker 100:17:21I do see going beyond continued maintenance from our customers and continued maintenance and that is Our belief to that are supported by our growth CapEx initiatives. As I mentioned a few minutes ago, we've got 2, 4,000,000 yards that are coming online mid year, which will offer us More fiber in our network and we do plan on seizing more opportunities in the market. To your point Well, to your question, will it be 20% every year for the next 5 years? I would think so. We'll provide more insight at our Investor Day on May 25. Speaker 100:17:57But I could confidently say that the level that we're seeing now will be Staying through time for a number of years at the very least. Speaker 300:18:08That's fantastic. The 100 basis point improvement in margin, would you say that's A function of pricing or kind of scale with higher volumes or would it be a bit of both? I'm trying to Ascertain whether this is something that we can put in our model now longer term as the new 2016 the new 2015 Or is this something that you think maybe just a temporary benefit you're receiving and maybe $15,000,000 is still the better number to use longer term? Speaker 100:18:41So the short answer is our recommendation would be the 16. We will see we have seen in the Q1 improved pricing and we'll continue to That's throughout the year. We believe that will be sustained over time. And there's also a product mix, if you want, in the sense that obviously Our fast growing product category is utility poles, so their weight in the mix of products is heavier, therefore, enabling us to reach better EBITDA margins. Speaker 300:19:10Okay. Last question for me is now that the CP deal is done, KCS is now part of the new CPKC and given CP's historical decision to kind of outsource tie treatment Versus KCS' focus on doing it in house. Can you size that for us, just not whether you're going to get it or not, but From your understanding of what KCS does in house, how would that be what percent of your overall High volume, would that be on just a rough basis to get a sense of upside if you were to get that contract? Speaker 100:19:52Well, so Walter, so we know the team at that treating facility in Louisiana well, as I Stated before, we do have interactions with them for bridge timbers and some very small volume of railway ties. It would be a low percentage of our total business. If I have to size those annual sales from outside, I think we'd Big privilege to any information. I would say it's, call it, dollars 30,000,000 to $35,000,000 in annual sales if we were to be supplying them. And obviously, I'm sort of not an educated guess, but it's fairly it's our appreciation of what that could be. Speaker 400:20:35Yes. Speaker 300:20:36That's great. Okay. That's all my questions. Really appreciate the time and again, congrats on a great quarter. Speaker 100:20:41Thank you, Walter. Operator00:20:43Thank you. Our following question is from Gabriel Nicholson from CIBC Capital Markets. Please go ahead, Mr. Nicholson. Speaker 500:20:53Hey, hi. Hope you all are doing well and once again congrats on the quarter. You mentioned that you were capacity And this is kind of building off of Walter's first question. How much additional volume growth do you think you could have realized If you had the capacity and do you think that the 2 new additions would cover that unmet demand? Speaker 100:21:20It's a great question. Thank you. Our constraint right now is not on the treating capacity, it's on the procurement capability. And even then when I say procurement, it's really more on the drying capability on the 7 yellow pine. It's a wood species That you need to kiln dry and right now we're putting in new pulp 1,000,000,000 yards and each of those yards have kiln capacity. Speaker 100:21:44So we're definitely going to leverage that up and everything we'll be able to produce out of those facilities will be sold Going forward, we have no doubt of that. We have discussions with customers on their needs and we're adjusting our offerings to them and they're adjusting their maintenance It's based on our long term commitments to them. So I feel very optimistic about our ability to be able To start seeing volume growth in the coming quarters. Speaker 500:22:16Okay. Yes, great. Thanks. And then also on poles, the high teens growth, your pole guidance Is embedding for 2024. How much is price versus volume? Speaker 100:22:31I would say it's heavily weighted towards the price, but call it 30, 70, let's say, on 70 being the pricing. Speaker 500:22:43Okay, great. Thank you. I'll leave it there. Speaker 100:22:45Thank you very much. Operator00:22:47Thank you. Our following question is from Michael Karprios from Desjardins Securities. Please go ahead, Mr. Karprios. Speaker 600:22:58Thanks and congratulations on the great quarter. Maybe just on the Canadian federal budget that was released since you last reported 4Q results It included a 15% investment tax credit for corporations like Hydro Quebec and some positive comments on electrical grid Expansion in demand in Canada. Is there maybe anything that specifically caught your eye and could be a driver for utility pools moving forward? Speaker 100:23:24Well, obviously, we're always happy when we hear different governments or Canada and the U. S. Put in place programs to help Utilities or companies investing in their infrastructure. So obviously, yes, our utilities are well in tune, our Our forecast doesn't when we talk about potential growth, does not scope in Those infrastructure initiatives, it sometimes takes a while to start seeing them. If I think about our the U. Speaker 100:24:00S. Infrastructure bill, I can't say we've seen much of that to date, maybe a bit on the real tie side. So these programs take a while to get to market. So they're not scoped into our Our view is in future sales and future demand for us. So obviously, all of this would be just over and above and Obviously, great news for us. Speaker 600:24:22Thanks. That's very helpful. And maybe just on residential number, I know Seasonally played a factor in the Q1, but looking forward, do you still have confidence in $600,000,000 to $650,000,000 in sales for the year? And maybe are there any changes or tone in commentary that you could share from your discussions with your retail partners on the customers demand so far this spring? Speaker 100:24:46No, no change in views on that on our part. I think we were Wise in establishing this base of expectation in sales, I think it's something that as a company we can We create year over year confidently and if then there's favorable R and R trends, if there's Different dynamics, lumber prices impacting this business. I think it would be just upside for us on that point on, but we remain confident with that 6 to 6.50. Thank you. My pleasure. Operator00:25:26Thank you. Our following question is from Michael Tupholme from TD Securities. Please go ahead, Mr. Tupholme. Speaker 400:25:35Thank you. Good afternoon. Speaker 100:25:38Hi, Mike. Speaker 400:25:40Hey, Eric. Just a question on the 16% margin. So I understand that that's the number we should be focused on for 2024 and beyond, is that also what we should be thinking about for this year? I mean, I really had a strong start to the year, But is that the 2023 number as well? Speaker 100:26:0116 would be our guidance going forward. And If I could maybe clarify, our Q1 result, the 16.9% is a very strong number. But obviously, we don't have a full year mix of products, right? Other products such as residential lumber have a stronger presence in our product mix in Q2 and Q3. So I do expect to average down During the course of the year, but using 16 would be my recommendation or our guidance presently for coming years. Speaker 400:26:33Okay. That's helpful. Thank you. Yes, and sorry, just to I think to say the overlaps a little bit with one of the But just in terms of the demand, the market demand you're seeing in the utility poles area now, I realize In Q1, it was primarily price or almost all price that drove the organic growth. But it does sound like from your comments, there is strong market demand and it's just a function of being able to meet that demand and hence the investments you're making in capacity and drying and whatnot. Speaker 400:27:07But Is this really just heightened replacement activity and I guess the benefits of the fire wrap and there's really nothing contributing at this point at all in terms of Any sort of EV related infrastructure initiatives or broadband initiatives and things of that nature? Speaker 100:27:26Well, so there is some of that in the mix of the demand we're seeing. A good example is The Ontario broadband program is a $4,000,000,000 program over it was over 4 years now, we're a bit into it right now. But Obviously, that spend will increase demand for products and that's a public example I could point to. There are other similar examples across different EV is a growing point of discussion with our customers. I think utilities realize that there's going to be increased demand from the network. Speaker 100:28:04So obviously, as maintenance is being planned out, All of these factors are now taken into account, right, because you're replacing a pole, it has more hardware and more line loads than it had 50 years ago and there will probably be increased demand going forward with AC, with electric vehicles. So Our customers are discussing about it and are planning accordingly. So obviously, all of that, it's hard to say how much dollars would go to 1 of these. It's now part of The new mix and demand of our customers are designing line and designing their maintenance programs at this general approach is driving the volume for A greater number of products from our part. Speaker 400:28:49Okay. That's helpful. It makes sense. I guess, and not to belabor But it just sounded like earlier on you were suggesting you haven't really built that into the sort of the 20% CAGR Number you would put out there for the pools business, is that correctly, notwithstanding the fact that there's things happening in that area, That's not really a driver, your 20% number? Speaker 100:29:12So all of that is in. What's not in is government infrastructure bills, for example. The previous question was about the federal budget that came out a few weeks ago and had special Acknowledgments of reserves for particular infra programs. So that I don't know what's going to come out of this, so we can't speculate, so that's not in there. But definitely everything our utilities are talking about to increase their network that is definitely scoped in our 20% CAGR. Speaker 400:29:43Got it. Okay. Just shifting over to the ties business, 5% organic growth in the quarter. How do you see that trending over the balance of the year? Because if I'm not mistaken, originally you were thinking maybe a little lower than that. Speaker 400:29:58Just curious about how to think about the rest of the year here. Speaker 100:30:02Yes. So I would see the pricing piece decline slightly throughout the quarters. We've been increasing sales prices to our customers every quarter of last year. So obviously, We're coming into the year in Q1 with 4 quarters of price increases. As we're lapping ourselves, you would see that pricing effect reduce over time. Speaker 100:30:28With my comment on Increasing dry inventory, I think we would have the opportunity to sell a bit more volume in the back half of the year. So still think that Low single digit, maybe a bit lower than the 5%, somewhere in there is where we will end up the year. Speaker 400:30:48Okay. And raw tie availability, is that improved now? Speaker 100:30:54It has. I mean, The last two quarters sorry, the last two months of Q4, so November to December was great, the 4, I can actually talk to April now, the first Four quarters of this year, supply has been coming in at a very healthy rate. We will be at optimum inventory levels by midyear. And obviously the inventory we procure in December, January, February will be dry by call it September. So somewhere in H2, We will have more dry inventory. Speaker 100:31:25Therefore, we'll be volatilizing less and have an opportunity to treat more ties and take Advantage of some bidding opportunities in the market. Speaker 400:31:35Okay, perfect. Thank you. And then just lastly, and I also had some issues earlier with the call, so I don't know if I missed This or not, but the industry acquisition that's called out in the release, is that Is there any revenue associated with that or is that more just in order to enhance your production capacity? Speaker 100:31:56No, there's no revenues, it's enhanced production and optimize the cost profile of our product and optimize production. Speaker 400:32:06Okay. And that's one of the things that you were pointing to in terms of seeing enhanced glitching in meat market and sort of overcoming quarters here? Speaker 100:32:15Correct. Speaker 400:32:17Okay. Great. Thank you. Speaker 100:32:19Thank you, Mike. Operator00:32:21We have no further question in line. Speaker 200:32:23Thank you. Speaker 100:32:25Thank you, operator, and thank you, everyone, for joining us today. We hope you can listen in to our Investor Day on May 25 in Toronto. Details for virtual attendance will be posted on our website as we get closer to date. Operator00:32:39Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallStella-Jones Q1 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release Stella-Jones Earnings HeadlinesStella-Jones Appoints Wesley Bourland as Chief Operating OfficerApril 11, 2025 | marketwatch.comStella-Jones’ First Quarter Results Conference Call and Annual Meeting of ShareholdersApril 9, 2025 | markets.businessinsider.comURGENT: This Altcoin Opportunity Won’t Wait – Act NowThe July 23rd Crypto Trigger Could Mark the Beginning of Bitcoin’s Next Big Move Bitcoin’s early 2024 ETF rally made headlines—but according to veteran crypto strategist Joel Peterson, the real wave of opportunity is about to start… and it hinges on one little-known event scheduled to take place on July 23rd.April 28, 2025 | Crypto Swap Profits (Ad)Stella-Jones' (TSE:SJ) Upcoming Dividend Will Be Larger Than Last Year'sMarch 29, 2025 | finance.yahoo.comThe Returns At Stella-Jones (TSE:SJ) Aren't GrowingMarch 23, 2025 | finance.yahoo.comStella-Jones Full Year 2024 Earnings: Beats ExpectationsMarch 5, 2025 | finance.yahoo.comSee More Stella-Jones Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Stella-Jones? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Stella-Jones and other key companies, straight to your email. Email Address About Stella-JonesStella-Jones (TSE:SJ) Inc produces and sells lumber and wood products. The company operates in two segments: Pressure-treated wood, which includes utility poles, railway ties, residential lumber, and industrial products; and Logs & Lumber segment comprises of the sales of logs harvested in the course of the company's procurement process that is determined to be unsuitable for use as utility poles, it also includes the sale of excess lumber to local home-building markets. The vast majority of its revenue comes from the Pressure-treated wood segment. 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There are 7 speakers on the call. Operator00:00:00Good afternoon and thank you for standing by. Welcome to the Stella Jones First Quarter 2023 Earnings Call. At this time, all participants are in listen only mode. Following the presentation, we will hold a question and answer session. I would like to remind everyone that this conference call is being recorded on Wednesday, May 10, 2023. Operator00:00:35Please note that comments made on today's call may contain forward looking information and this information by its nature is subject to risks and Uncertainties. Actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company's relevant filings on SEDAR. These documents are also available in the Investor Relations section of Stella Jones website at www.stella jones.com. We have also prepared a corresponding presentation, which we encourage you to follow along with during this call. Operator00:01:15I now pass the call over to Eric Vachon, President and Chief Executive Officer of Stella Jones. Eric? Speaker 100:01:23Good afternoon, everyone, and thank you for joining us today. I'm here with Silvana Travellini, our Senior Vice President and Chief Financial Officer of Stella Jones. Earlier this morning, we issued our press release reporting the results of our Q1 of 2023. Along with our MD and A, it can be found in the Investor Relations section of our website at www.stellajones hyphen.com as well as on SEDAR. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated. Speaker 100:02:03The positive momentum we generated from our record year in 2022 has carried into 2023. Our first quarter results were excellent, featuring strong sales and increase in EBITDA, which has outpaced sales growth. Our great start to the year reflects our growth plan in action. During the quarter, we successfully secured fiber supply, enhanced production capacity at our plants And invested in the network upgrades to further increase pole production. All of these initiatives speaks to our unwavering focus on continuity and quality of customer service, maintaining our American leadership position in the markets we serve. Speaker 100:02:50Now let's turn to the performance of our product categories for the quarter. Our utility poles product categories significantly outperformed during the quarter. Sales grew organically by 29% and also benefited from the contribution of our timely acquisition in 2022 of the treating assets of Texas Electric Cooperatives or TEC. The strong growth in this product category is a testament to our pole procurement team, which once again continued to leverage their long standing industry relationships to meet growing customer demand, while establishing the foundation to access new procurement areas. Sales of railway ties were also up, Increasing organically by 5%. Speaker 100:03:38We are encouraged to see signs of continued increased railway tie availability in the Q1 of this year. At the current rate of procurement, we expect untreated tie inventories to be replenished by midyear With optimal dry inventory levels being reached in the second half of twenty twenty three, this will reduce the number of Open up nice charges and open opportunities to respond to customer demand, which is being driven by steady railroad maintenance and ongoing infrastructure spend. For industrial products, sales continue to benefit from higher demand. Our industrial product category perfectly complements our rail and utility offerings. Finally, sales for residential lumber pulled back in this quarter, in line with our expectations. Speaker 100:04:29Before I turn the call over to Saldana, I want to provide an update on ESG. As many of you know, health and safety is a priority at Stella Jones. We strive to create a safe and healthy workplace that promotes responsibility and mutual respect. We are in the final phase of rolling out The SHIELDS program across North America. SHIELDS stands for Safety, Health, Improvement, Leading Our Decisions and is an integrated environmental health and safety management system. Speaker 100:04:59These systems allow us to more accurately track and assess progress of our Health and safety metrics to maintain our company wide commitment to the safety and well-being of our people. At the start of this year, we reinforced our commitment to health and safety with the launch of a new employee focused educational and informative campaign called Safety Matters Because You Matter. We believe that our most valuable asset is the people that walk into our facilities and offices each day. We almost play a role in owning health and safety and ensuring everyone performs successfully in their work environment and returns home safely at the end of the day. With that, I will turn it over to Sylvana to provide a more detailed overview of our Q1 financial results. Speaker 100:05:46Sylvana? Speaker 200:05:48Thank you, Eric, and good afternoon, everyone. As Eric mentioned, we began the quarter on a very positive note, which is reflected in our strong financial results. Net income in the Q1 was $60,000,000 up 30% compared to net income of $46,000,000 last year. This translated into earnings per share of $1.03 compared to $0.73 in the same period in 2022. We generated total sales of $710,000,000 compared to $651,000,000 last year. Speaker 200:06:26The increase was driven by an 18% organic sales growth of our infrastructure related businesses. Sales this quarter also benefited from the contribution of the pole treating assets acquired from TC late in 2022 and the positive effect of currency conversion. This growth in sales was partly offset by the anticipated pullback of residential lumber sales. Utility poll sales rose to $362,000,000 up from $254,000,000 from the same period last year. Excluding the currency conversion effect and the contribution From the acquisition of TEC Assets, utility pole sales increased by $73,000,000 or 29%, almost entirely driven by higher pricing. Speaker 200:07:24Sales volume gains were limited this quarter by our current production capacity. Downtime related to the ongoing capital projects largely offset the increase in our treating capacity stemming from the installation of upsized lenders. Sales from our utility pole product category accounted for more than half of total sales for the Q1. Sales of railway ties grew to $195,000,000 versus $175,000,000 in the corresponding period last year. Excluding the currency conversion effect, Sales of railway ties increased by $9,000,000 or 5%, all attributable to favorable sales price adjustments to cover higher costs. Speaker 200:08:15Volumes for non Class 1 customers were lower due to the reduced level of treated ties inventory following the limited fiber supply availability in 2022. However, the steady maintenance demand for railway ties enabled this product category to account for 27% of total sales for the quarter. Residential lumber sales were down compared to the same period last year, which as Eric mentioned, We're in line with our expectations. The decrease was attributable to lower volumes and pricing compared to the stronger demand and the rise in the market price of lumber in the same quarter last year. Sales in residential lumber accounted for 13% of total sales during the quarter. Speaker 200:09:10Turning now to profitability. Led by the strong organic sales growth, particularly for utility poles, our EBITDA increased to $120,000,000 in Q1 of 2023, up 36% compared to $88,000,000 in the Q1 last year. We saw notable strength in our EBITDA margin, growing 3.40 basis points to 16.9% in the first quarter of 13.5% last year. The increase was largely due to the margin expansion of the company's infrastructure related product categories, particularly stemming from favorable price adjustments realized for utility and railway ties, as well as the impact of a better product mix. The relative proportion of utility poles in the Q1 amounted to over 50%. Speaker 200:10:08During the quarter, we continued to actively invest in our inventory position. We invested $138,000,000 in inventories to build our position to support the continued Strong demand for poles and to replenish our untreated ties inventory given the market availability. Inventories are significant component of working capital and the turnover is relatively low. We consider this an investment in our ability to provide service to our customers and meet their demand. During the quarter, we also used our liquidity to maintain the quality of assets and expand our pole production capacity, including acquiring the pole peeling and drying assets of industry as well as return capital to shareholders. Speaker 200:11:01Yesterday, our Board of Directors announced a dividend of $0.23 per share. And during the quarter, we repurchased over 6 100 and 10 shares for a total of $30,000,000 Since the beginning of the current NCIB program In late 2022, we have repurchased over 1,000,000 shares for $50,000,000 As a result of our buyback programs, we had almost 4,500,000 fewer average shares outstanding this quarter compared to last year's Q1. We ended the year with a net debt to EBITDA ratio of 2.8 times, which is within our expectations due to our typical working capital requirements in the Q1 of each year. We hold a strong financial position and are able to finance our business plans, meet working capital requirements and maintain our assets through our cash flow generation and available credit facilities. In summary, Financial performance to begin the year has positioned us well to remain on track to treat future growth and value for our shareholders. Speaker 200:12:16With that, I will now pass it on to Eric for his concluding remarks. Eric? Thank Speaker 100:12:23you, Silvana. Our established track record of achieving robust results, delivering return to shareholders and maintaining a solid financial position Continued into 2023. We attribute these achievements to our proven and resilient business model as well as our ability to supply the growing demand for our products in the marketplace. We are well positioned to meet or exceed the targets laid out in our 3 year plan. From a sales perspective, we continue to benefit from strong demand on the utility pole side. Speaker 100:12:59Building on the growth trend for 2023, utility poles 2024 Sales are now projected to grow at a compound annual rate of 20% from 2022 and the company also expect The EBITDA margin to exceed its 15% target by 100 basis points. We also continue to enjoy steady growth The forecast for utility pole growth CapEx stood between $90,000,000 $100,000,000 Since the beginning of 2022, we have committed to equipment purchases and spent $49,000,000 So far, we have successfully changed 3 treating cylinders and increased our Douglas fir network trading capacity by 15%. We will also benefit from the production of 2 new Southern Yellow Pine, oil peeling and drying facilities starting mid year. Finally, we have returned $273,000,000 of capital to shareholders since 2022, We are on track to achieve the target we outlined in our 3 year plan of between $500,000,000 $600,000,000 We have started 2023 on the right foot. We will continue to build on our achievement to support future growth of our infrastructure related product categories and continue to return capital to shareholders. Speaker 100:14:36Before I conclude this call, I would like to acknowledge all of our employees across North America. They are the reason behind the great brand and reputation we have built. Our customer can rely on us for quality products, customer care and meeting deadlines. All of those traits are because of our dedicated employee base. Thank you for all of your efforts. Speaker 100:14:59I also want to extend a special thank you to those who attended annual meeting of shareholders earlier today, both in person and virtually. We are grateful for your ongoing support and trust in our business and look forward to seeing you again next year. This concludes our prepared remarks. Thank you for your time today, and I will now open up the lines for questions. Operator00:15:24Thank you, Erik. The line is now open for questions. Our first question is from Walter Spracklin from RBC Capital Markets. Please go ahead, Mr. Spracklin. Speaker 300:15:44Good afternoon, everyone. Congratulations on a great quarter here. Eric, I guess starting with you on Pulse, it's a pretty high run rate, 20% now out to 2024 on a CAGR basis. I guess maybe you can give a little color. I apologize I was only connected in later in the call a little later in the call. Speaker 300:16:07The main drivers of that is this kind of a fast and furious situation or higher for longer? I don't think it's going to Drop off from 20 down to 5 in 2025, is this something that kind of stays at a heady clip For many years based on what you're seeing or do you see a lot of upfront here and then indeed falling off quicker after a few years. Speaker 100:16:37Thank you, Walter. So, if you recall, last year, we had a great Year in organic growth 20 plus percent. In March, when we disclosed our Q4 results, we Provided more insight for this year's stating that we would see in 2023 Similar growth to the prior year. So obviously, us seeing a CAGR of 20% over, let's say, the whole year of 'twenty three and 'twenty four Would suggest something that's a bit front loaded, obviously, since we would be in the 20 ish this year. We've seen great growth in the last 2 years on the pricing side and the volume side. Speaker 100:17:21I do see going beyond continued maintenance from our customers and continued maintenance and that is Our belief to that are supported by our growth CapEx initiatives. As I mentioned a few minutes ago, we've got 2, 4,000,000 yards that are coming online mid year, which will offer us More fiber in our network and we do plan on seizing more opportunities in the market. To your point Well, to your question, will it be 20% every year for the next 5 years? I would think so. We'll provide more insight at our Investor Day on May 25. Speaker 100:17:57But I could confidently say that the level that we're seeing now will be Staying through time for a number of years at the very least. Speaker 300:18:08That's fantastic. The 100 basis point improvement in margin, would you say that's A function of pricing or kind of scale with higher volumes or would it be a bit of both? I'm trying to Ascertain whether this is something that we can put in our model now longer term as the new 2016 the new 2015 Or is this something that you think maybe just a temporary benefit you're receiving and maybe $15,000,000 is still the better number to use longer term? Speaker 100:18:41So the short answer is our recommendation would be the 16. We will see we have seen in the Q1 improved pricing and we'll continue to That's throughout the year. We believe that will be sustained over time. And there's also a product mix, if you want, in the sense that obviously Our fast growing product category is utility poles, so their weight in the mix of products is heavier, therefore, enabling us to reach better EBITDA margins. Speaker 300:19:10Okay. Last question for me is now that the CP deal is done, KCS is now part of the new CPKC and given CP's historical decision to kind of outsource tie treatment Versus KCS' focus on doing it in house. Can you size that for us, just not whether you're going to get it or not, but From your understanding of what KCS does in house, how would that be what percent of your overall High volume, would that be on just a rough basis to get a sense of upside if you were to get that contract? Speaker 100:19:52Well, so Walter, so we know the team at that treating facility in Louisiana well, as I Stated before, we do have interactions with them for bridge timbers and some very small volume of railway ties. It would be a low percentage of our total business. If I have to size those annual sales from outside, I think we'd Big privilege to any information. I would say it's, call it, dollars 30,000,000 to $35,000,000 in annual sales if we were to be supplying them. And obviously, I'm sort of not an educated guess, but it's fairly it's our appreciation of what that could be. Speaker 400:20:35Yes. Speaker 300:20:36That's great. Okay. That's all my questions. Really appreciate the time and again, congrats on a great quarter. Speaker 100:20:41Thank you, Walter. Operator00:20:43Thank you. Our following question is from Gabriel Nicholson from CIBC Capital Markets. Please go ahead, Mr. Nicholson. Speaker 500:20:53Hey, hi. Hope you all are doing well and once again congrats on the quarter. You mentioned that you were capacity And this is kind of building off of Walter's first question. How much additional volume growth do you think you could have realized If you had the capacity and do you think that the 2 new additions would cover that unmet demand? Speaker 100:21:20It's a great question. Thank you. Our constraint right now is not on the treating capacity, it's on the procurement capability. And even then when I say procurement, it's really more on the drying capability on the 7 yellow pine. It's a wood species That you need to kiln dry and right now we're putting in new pulp 1,000,000,000 yards and each of those yards have kiln capacity. Speaker 100:21:44So we're definitely going to leverage that up and everything we'll be able to produce out of those facilities will be sold Going forward, we have no doubt of that. We have discussions with customers on their needs and we're adjusting our offerings to them and they're adjusting their maintenance It's based on our long term commitments to them. So I feel very optimistic about our ability to be able To start seeing volume growth in the coming quarters. Speaker 500:22:16Okay. Yes, great. Thanks. And then also on poles, the high teens growth, your pole guidance Is embedding for 2024. How much is price versus volume? Speaker 100:22:31I would say it's heavily weighted towards the price, but call it 30, 70, let's say, on 70 being the pricing. Speaker 500:22:43Okay, great. Thank you. I'll leave it there. Speaker 100:22:45Thank you very much. Operator00:22:47Thank you. Our following question is from Michael Karprios from Desjardins Securities. Please go ahead, Mr. Karprios. Speaker 600:22:58Thanks and congratulations on the great quarter. Maybe just on the Canadian federal budget that was released since you last reported 4Q results It included a 15% investment tax credit for corporations like Hydro Quebec and some positive comments on electrical grid Expansion in demand in Canada. Is there maybe anything that specifically caught your eye and could be a driver for utility pools moving forward? Speaker 100:23:24Well, obviously, we're always happy when we hear different governments or Canada and the U. S. Put in place programs to help Utilities or companies investing in their infrastructure. So obviously, yes, our utilities are well in tune, our Our forecast doesn't when we talk about potential growth, does not scope in Those infrastructure initiatives, it sometimes takes a while to start seeing them. If I think about our the U. Speaker 100:24:00S. Infrastructure bill, I can't say we've seen much of that to date, maybe a bit on the real tie side. So these programs take a while to get to market. So they're not scoped into our Our view is in future sales and future demand for us. So obviously, all of this would be just over and above and Obviously, great news for us. Speaker 600:24:22Thanks. That's very helpful. And maybe just on residential number, I know Seasonally played a factor in the Q1, but looking forward, do you still have confidence in $600,000,000 to $650,000,000 in sales for the year? And maybe are there any changes or tone in commentary that you could share from your discussions with your retail partners on the customers demand so far this spring? Speaker 100:24:46No, no change in views on that on our part. I think we were Wise in establishing this base of expectation in sales, I think it's something that as a company we can We create year over year confidently and if then there's favorable R and R trends, if there's Different dynamics, lumber prices impacting this business. I think it would be just upside for us on that point on, but we remain confident with that 6 to 6.50. Thank you. My pleasure. Operator00:25:26Thank you. Our following question is from Michael Tupholme from TD Securities. Please go ahead, Mr. Tupholme. Speaker 400:25:35Thank you. Good afternoon. Speaker 100:25:38Hi, Mike. Speaker 400:25:40Hey, Eric. Just a question on the 16% margin. So I understand that that's the number we should be focused on for 2024 and beyond, is that also what we should be thinking about for this year? I mean, I really had a strong start to the year, But is that the 2023 number as well? Speaker 100:26:0116 would be our guidance going forward. And If I could maybe clarify, our Q1 result, the 16.9% is a very strong number. But obviously, we don't have a full year mix of products, right? Other products such as residential lumber have a stronger presence in our product mix in Q2 and Q3. So I do expect to average down During the course of the year, but using 16 would be my recommendation or our guidance presently for coming years. Speaker 400:26:33Okay. That's helpful. Thank you. Yes, and sorry, just to I think to say the overlaps a little bit with one of the But just in terms of the demand, the market demand you're seeing in the utility poles area now, I realize In Q1, it was primarily price or almost all price that drove the organic growth. But it does sound like from your comments, there is strong market demand and it's just a function of being able to meet that demand and hence the investments you're making in capacity and drying and whatnot. Speaker 400:27:07But Is this really just heightened replacement activity and I guess the benefits of the fire wrap and there's really nothing contributing at this point at all in terms of Any sort of EV related infrastructure initiatives or broadband initiatives and things of that nature? Speaker 100:27:26Well, so there is some of that in the mix of the demand we're seeing. A good example is The Ontario broadband program is a $4,000,000,000 program over it was over 4 years now, we're a bit into it right now. But Obviously, that spend will increase demand for products and that's a public example I could point to. There are other similar examples across different EV is a growing point of discussion with our customers. I think utilities realize that there's going to be increased demand from the network. Speaker 100:28:04So obviously, as maintenance is being planned out, All of these factors are now taken into account, right, because you're replacing a pole, it has more hardware and more line loads than it had 50 years ago and there will probably be increased demand going forward with AC, with electric vehicles. So Our customers are discussing about it and are planning accordingly. So obviously, all of that, it's hard to say how much dollars would go to 1 of these. It's now part of The new mix and demand of our customers are designing line and designing their maintenance programs at this general approach is driving the volume for A greater number of products from our part. Speaker 400:28:49Okay. That's helpful. It makes sense. I guess, and not to belabor But it just sounded like earlier on you were suggesting you haven't really built that into the sort of the 20% CAGR Number you would put out there for the pools business, is that correctly, notwithstanding the fact that there's things happening in that area, That's not really a driver, your 20% number? Speaker 100:29:12So all of that is in. What's not in is government infrastructure bills, for example. The previous question was about the federal budget that came out a few weeks ago and had special Acknowledgments of reserves for particular infra programs. So that I don't know what's going to come out of this, so we can't speculate, so that's not in there. But definitely everything our utilities are talking about to increase their network that is definitely scoped in our 20% CAGR. Speaker 400:29:43Got it. Okay. Just shifting over to the ties business, 5% organic growth in the quarter. How do you see that trending over the balance of the year? Because if I'm not mistaken, originally you were thinking maybe a little lower than that. Speaker 400:29:58Just curious about how to think about the rest of the year here. Speaker 100:30:02Yes. So I would see the pricing piece decline slightly throughout the quarters. We've been increasing sales prices to our customers every quarter of last year. So obviously, We're coming into the year in Q1 with 4 quarters of price increases. As we're lapping ourselves, you would see that pricing effect reduce over time. Speaker 100:30:28With my comment on Increasing dry inventory, I think we would have the opportunity to sell a bit more volume in the back half of the year. So still think that Low single digit, maybe a bit lower than the 5%, somewhere in there is where we will end up the year. Speaker 400:30:48Okay. And raw tie availability, is that improved now? Speaker 100:30:54It has. I mean, The last two quarters sorry, the last two months of Q4, so November to December was great, the 4, I can actually talk to April now, the first Four quarters of this year, supply has been coming in at a very healthy rate. We will be at optimum inventory levels by midyear. And obviously the inventory we procure in December, January, February will be dry by call it September. So somewhere in H2, We will have more dry inventory. Speaker 100:31:25Therefore, we'll be volatilizing less and have an opportunity to treat more ties and take Advantage of some bidding opportunities in the market. Speaker 400:31:35Okay, perfect. Thank you. And then just lastly, and I also had some issues earlier with the call, so I don't know if I missed This or not, but the industry acquisition that's called out in the release, is that Is there any revenue associated with that or is that more just in order to enhance your production capacity? Speaker 100:31:56No, there's no revenues, it's enhanced production and optimize the cost profile of our product and optimize production. Speaker 400:32:06Okay. And that's one of the things that you were pointing to in terms of seeing enhanced glitching in meat market and sort of overcoming quarters here? Speaker 100:32:15Correct. Speaker 400:32:17Okay. Great. Thank you. Speaker 100:32:19Thank you, Mike. Operator00:32:21We have no further question in line. Speaker 200:32:23Thank you. Speaker 100:32:25Thank you, operator, and thank you, everyone, for joining us today. We hope you can listen in to our Investor Day on May 25 in Toronto. Details for virtual attendance will be posted on our website as we get closer to date. Operator00:32:39Ladies and gentlemen, this concludes the conference call for today. Thank you for participating. You may disconnect your lines.Read morePowered by