Mr. Eric Vachon reports

STELLA-JONES REPORTS RECORD FIRST QUARTER RESULTS; GROWTH PLAN IS IN ACTION

Stella-Jones Inc. has released financial results for its first quarter ended March 31, 2023.

"The company had an excellent start to the year, propelled by the momentum of our growth in 2022," said Eric Vachon, president and chief executive officer of Stella-Jones. "Our record results in Q1 featured strong sales, higher EBITDA [earnings before interest, taxes, depreciation and amortization] and margin, and were marked by an outperformance of our utility poles product category, which saw a 29-per-cent organic sales increase. Our first-quarter results also reflected steady sales growth in railway ties, aligned with our expectations for this product category, and an anticipated pullback in residential lumber sales compared to 2022.

"Stella-Jones's performance in the first quarter further evidenced our ongoing pro-activity in securing fibre supply and increasing pole production capacity, and our financial strength to support growth. We are executing on our plan to grow our infrastructure-related businesses and deliver on our commitment to return capital to shareholders. As we continue to invest in our business and seek expansion opportunities, we are fulfilling or exceeding the objectives laid out in our three-year plan, and I am proud of our business for continuously delivering such a high standard of service to our customers."

First-quarter results

Sales in the first quarter of 2023 were up 9 per cent to $710-million, compared with $651-million last year. Excluding the contribution from the acquisition of the utility pole manufacturing business of Texas Electric Cooperatives Inc. (TEC) and the positive effect of currency conversion, sales were up $9-million, or 1 per cent. The increase was driven by an 18-per-cent organic sales growth of the company's infrastructure-related businesses, namely utility poles, railway ties and industrial products, offset in large part by lower residential lumber as well as logs and lumber sales when compared with the same period last year. Led by the strong organic sales growth, particularly for the company's largest product category, utility poles, EBITDA increased to $120-million in the first quarter of 2023, compared with $88-million in the first quarter last year, and EBITDA margin expanded from 13.5 per cent in 2022 to 16.9 per cent.

Pressure-treated wood products:

• Utility poles (51 per cent of Q1 2023 sales) -- Utility pole sales amounted to $362-million, up from $254-million for the same period last year. Excluding the contribution from the acquisition of TEC assets and the currency conversion effect, utility pole sales increased by $73-million, or 29 per cent, driven by higher pricing. While the market demand for utility poles remained strong, sales volume gains were limited by the company's current production capacity, which was impacted in part by continuing capital projects.
• Railway ties (27 per cent of Q1 2023 sales) -- Sales of railway ties amounted to $195-million, versus $175-million in the corresponding period last year. Excluding the currency conversion effect, sales of railway ties increased by $9-million, or 5 per cent, attributable to favourable sales price adjustments, largely to cover higher costs. This increase was offset in part by a decrease in volumes for non-Class 1 customers due to the reduced level of treated ties inventory following the limited fibre supply availability in 2022.
• Residential lumber (13 per cent of Q1 2023 sales) -- Sales in residential lumber decreased $42-million to $90-million in the first quarter of 2023, compared with sales of $132-million in the corresponding period last year. Excluding the currency conversion effect, residential lumber sales decreased $44-million, or 33 per cent. This decrease was attributable to lower volumes and pricing compared with the stronger demand and the rise in the market price of lumber in the same quarter last year.
• Industrial products (5 per cent of Q1 2023 sales) -- Industrial product sales were $36-million in the first quarter of 2023, compared with sales of $33-million in the corresponding period last year. The increase was largely due to higher volumes related to bridge projects.

Logs and lumber:

• Logs and lumber (4 per cent of Q1 2023 sales) -- Sales in the logs and lumber product category were $27-million in the first quarter of 2023, compared with $57-million in the corresponding period last year. The decrease in sales was attributable to lower lumber trading volumes and pricing compared with the first quarter last year.

Gross profit was $136-million in the first quarter of 2023, compared with $100-million in the corresponding period last year, representing a margin of 19.2 per cent and 15.4 per cent, respectively. The increase in gross profit in absolute dollars was largely due to the margin expansion of the company's infrastructure-related product categories, particularly stemming from the favourable price adjustments realized for utility poles and railway ties. This improvement was offset in part by a decrease in the gross profit of residential lumber, mainly due to lower pricing. As a percentage of sales, the gross profit margin also benefited from a better product mix, led by the strong growth of utility pole sales.

Similarly, operating income totalled $95-million in the first quarter of 2023, versus operating income of $67-million in the corresponding period of 2022, while EBITDA increased to $120-million, compared with $88-million reported in the first quarter of 2022.

Net income for the first quarter of 2023 was $60-million, or $1.03 per share, compared with net income of $46-million, or 73 cents per share, in the corresponding period of 2022.

Liquidity and capital resources

During the quarter ended March 31, 2023, Stella-Jones used its liquidity to support the seasonal increase in working capital requirements, invest to maintain the quality of its assets, and expand and secure its production capacity, including acquiring the pole peeling and drying assets of IndusTREE Pole & Piling LLC, as well as return capital to shareholders.

In the three-month period ended March 31, 2023, the company repurchased 608,709 common shares for cancellation in consideration of $30-million under its current normal course issuer bid (NCIB). Since the beginning of the NCIB on Nov. 14, 2022, the company has repurchased 1,026,569 common shares for cancellation in consideration of $50-million.

As at March 31, 2023, the company had a total of $309-million available under its credit facilities, and its net-debt-to-EBITDA ratio increased to 2.8 times due to the company's typical working capital requirements in the first quarter of each year.

Quarterly dividend

On May 9, 2023, the board of directors declared a quarterly dividend of 23 cents per common share, payable on June 23, 2023, to shareholders of record at the close of business on June 5, 2023. This dividend is designated to be an eligible dividend.

2022-to-2024 financial objectives -- continued progress

The company continues to be favourably positioned to meet or exceed the financial objectives set for 2024, as summarized in an attached table. Driven by the outperformance of utility poles, sales in 2024 are now expected to exceed the target range. By 2024, utility pole sales are projected to grow at a compound annual rate of 20 per cent from 2022, and the company's EBITDA margin is expected to exceed the 15-per-cent target by approximately 100 basis points.

Annual general meeting of shareholders

Stella-Jones will hold its annual general meeting of shareholders on May 10, 2023, at 10 a.m. ET. Interested parties may attend in person at 1250 Rene-Levesque Blvd. West, suite 3610, Montreal, Que.

Conference call

Stella-Jones will hold a conference call to discuss these results on May 10, 2023, at 1:30 p.m. ET. Interested parties can join the call by dialling 1-844-491-1187. A live audio webcast of the conference call will be available on the company's website. This recording will be available on-line on Wednesday, May 10, 2023, as of 4:30 p.m. ET until 11:59 p.m. ET on Wednesday, May 17, 2023.

Investor day

The company will hold an investor day on May 25, 2023, for institutional investors and research analysts in Toronto, Ont., at 8 a.m. ET. A link to the webcast of the event will be available the morning of May 25 at the company's website. An investor presentation will also be made available on the company's website.

About Stella-Jones Inc.

Stella-Jones is North America's leading producer of pressure-treated wood products. 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. Stella-Jones also provides industrial products, which include: 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 U.S. retailers for outdoor applications, with a significant portion of the business devoted to servicing the Canadian market through its national manufacturing and distribution network.

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