Q3 2023 Stella-Jones Inc Earnings Call
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If anyone has any difficulties hearing the conference trees. Please press star one for operator assistance at any time I would like to remind everyone that this conference call is being recorded on Tuesday November 7th 2023.
Speaker 2: Please 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 CIDAR.
Please 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.
Speaker 2: These documents are also available in the Investor Relations section of Stella Jones' website at www.stella-jones.com. We have prepared a corresponding presentation, which we encourage you to follow along with during this call. I'll now pass the call over to Eric Vachon, President and Chief Executive Officer of Stella Jones. Eric.
These documents are also available in the Investor Relations section of Stella Jones' website at Triple W. Dot stomach Dash Jones Dot com, we have prepared a corresponding presentation, which we encourage you to follow along with during this call.
I'll now pass the call over to Eric fashion, President and Chief Executive Officer of stellar Jones Eric.
Thank you Shirley.
Speaker 3: Good morning, everyone, and thank you for joining us today. With me on today's call is Sylvana Travolini, Senior Vice President and Chief Financial Officer of Stella Jones.
Good morning, everyone and thank you for joining us today.
With me on today's call is Silvana, Travaglini Senior Vice President and Chief Financial Officer of Stella Jones.
Speaker 3: Arial year this morning we issued a press release reporting our results for the third quarter of 2020.
Earlier. This morning, we issued a press release reporting our results for the third quarter of 2023.
Speaker 3: Along with our MDNA, it can be found in the Investor Relations section of our website at www.stele-jones.com as well as on CEDA.
Along with our MD&A and DNA. It can be found in the Investor Relations section of our website at Www Dot Stella Jones' dot com as well as on SEDAR.
Speaker 3: As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise it stays.
As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated.
Speaker 3: During the third quarter, we made notable progress in our growth trajectory, generating strong sales growth and a record increase in profitability.
During the third quarter, we made notable progress in our growth trajectory generating strong sales growth and a record increase in profitability.
Speaker 3: Our results speak to the continued positive momentum and performance of our infrastructure-related businesses, as well as our residential lumber business, which delivered results in line with our expectations.
Our result.
Speak to the continued positive momentum and performance of our infrastructure related businesses as well as our residential lumber business, which delivered results in line with our expectations.
Speaker 3: While our organic growth so far has been supported by terrible pricing dynamics, 2023 has also been a year where we focused on building additional capacity and inventory levels to take on more demand from our customers and meet their long-term needs for our infrastructure products. We're doing this...
While our organic growth. So far has been supported by favorable pricing dynamics 2023 has also been a year, where we focused on building additional capacity and inventory levels to take on more demand from our customers and meet their long term needs for infrastructure products.
We're doing this with ongoing investments.
Speaker 3: and acquisitions to support our growth while ensuring predictable and consistent customer service.
And acquisitions to support our growth, while ensuring predictable and consistent customer service.
Speaker 3: Let's take a closer look at the performance of our key product categories during the quarter.
Let's take a closer look at the performance of our key product categories during the quarter.
Speaker 3: Building on the momentum it has generated since the start of the year, our Utility Polls product category continued its strong performance during the quarter, driven by favorable pricing dynamics and a continued increase in production volume.
Building on the momentum it has generated since the start of the year, our utility Poles product category continued its strong performance during the quarter driven by favorable pricing dynamics and a continued increase in production volumes.
Speaker 3: In Q3 we benefited from added bandwidth, standing from a number of capital projects, which I'd like to provide some color on.
In Q3, we benefited from added bandwidth sending from a number of capital projects, which I would like to provide some color on it.
Speaker 3: Since January , we concluded three utility pole-related acquisitions, adding pole-treating facilities and pole-pilling operations to our expansive North American network, as well as securing fiber supply.
Since January we concluded three utility pole related acquisitions, adding pole treating facilities and pull peeling operations to our expensive North American network as well as securing fiber supply.
Speaker 3: The latest of these acquisitions was Baldwin's two treating facilities in Baymanette, Alabama and Wiggins, Mississippi.
The latest of these acquisitions was baldwin's two treating facilities in <unk>, Alabama and Mississippi.
Speaker 3: We've also made important inroads in bolstering our assets on the procurement front with the addition of pole peeling facilities to optimize efficiencies and enable us to deliver on growing demand.
We've also made important inroads in bolstering our assets under procurement front with the addition of pulp peeling facilities to optimize efficiencies and enabled us to deliver on growing demand.
Speaker 3: Our own new peeling facility in the Red Mississippi became operational in June and our N.F.Y.L. North Carolina facility is set to be commissioned earlier next year. Both focus on augmenting our sun yellow pine off.
Our own new peeling facility indirect Mississippi became operational in June and our NGL North Carolina facility set to be commissioned earlier next year, both focus on augmenting our southern yellow pine offering.
Speaker 3: Additionally, we are targeting the commissioning of another peeling facility in Camelou, British Columbia in 2024, which will serve to further support our Western species operations.
Additionally, we are targeting the commissioning of another appealing facility in Kamloops, British Columbia in 2024, which will serve to further support our western species operations.
Speaker 3: These facilities, along with our new treating operations, acquired from Baldwin, are presented by the yellow dots on the map you see on the current slide.
These facilities, along with our new treating operations acquired from Baldwin or presented by the yellow dots on the map you see on the current slide.
Speaker 3: Significant investments have been also made to upsized treating equipment at a number of our poll treating facilities through 2023, further building out our production volume capacity.
Significant investments has been also made to upsized treating equipment at a number of our pole treating facilities through 2023 further building out our production volume capacity.
Speaker 3: These projects and initiatives showcase our proactive and thoughtful planning and execution in building a robust procurement and manufacturing platform, which in turn will allow us to further reap the benefits of favorable conditions and enhance our leadership position.
These projects and initiatives showcase, our proactive and thoughtful planning and execution and building a robust procurement and manufacturing platform, which in turn will allow us to further reap the benefits of favorable conditions and enhance our leadership position.
Speaker 3: The added capacity provided by these capital projects and Q3 and throughout the year allowed us to grow our inventories to the levels needed to deliver on long-term sales commitments to where utility customers and secure agreements with new customers.
The added capacity provided by these capital projects.
In Q3 and throughout the year allowed us to grow our inventories to the levels needed to deliver on long term sales commitments to our utility customers and secure agreements with new customers.
Speaker 3: We don't take it for granted that our teams can quickly wrap up existing capacity or commission facilities on time and on budget because sometimes not everything goes as-
We don't take it for granted that our teams can quickly ramp up existing capacity or commission facilities on time and on budget, because sometimes not everything goes as planned.
Speaker 3: To that end, a portion of our Silver Springs manufacturing operations in Nevada was damaged by fire during the quarter.
To that end a portion of our silver Springs manufacturing operations in Nevada was damaged by fire during the quarter. Fortunately there were no injuries. Following the incident and work is already underway to repair the damaged equipment.
Speaker 3: Fortunately, there were no injuries following the incident and work is already underway to repair the damage equipment.
Speaker 3: We have been able to adjust production and to continue serving our customers with the help of our extensive network while repairs are ongoing, a testament to our agility in responding to unforeseen situations.
We have been able to adjust production and to continue serving our customers with the help our extensive network. While repairs are ongoing a testament to our agility and responding to unforeseen situations.
Moving onto railway ties.
Speaker 3: This product category experienced a strong quarter with increased sales, which speaks to our continuing ability to pass along price increases to our customers.
This product category experienced a strong quarter with increased sales, which speaks to our continuing ability to pass along price increases to our customers.
Speaker 3: The limited supply of untreated Thai inventories in 2022 has impacted sales volumes so far in 2023.
The limited supply of untreated tie inventories in 2022 has impacted sales volumes so far in 2023.
Speaker 3: Having replenished our untreated Thai inventory by June of this year, we now have fine-herself standing at an optimal level of dry inventory, which sets us up to meet customer demand as we move into 2024.
Having a replenished our untreated tie inventory by June of this year, we now find ourselves standing at an optimal level of dry inventory, which sets us up to meet customer demand as we move into 2024.
Speaker 3: However, in 2023, volumes are expected to remain lower, which will result in a year-over-year low single-digit sales growth in line with our guidance versus the mid-single-digit growth realized so far this year.
However in 2023 volumes are expected to remain lower which will result in a year over year low single digit sales growth in line with our guidance versus the mid single digit growth realized so far this year.
Speaker 3: Sales volumes for residential lumber were higher this quarter compared to the same quarter last year, which is indicative of our proven ability to supply consistently to big box retailers.
Sales volumes for residential lumber were higher this quarter compared to the same quarter last year, which is indicative of our proven ability to supply consistently to big box retailers.
Speaker 3: Even considering the decrease in lumber pricing year over year, our residential lumber product category is performing with in management's expectation and in line with our stated guidance. Let me now.
Even considering the decrease in lumber pricing year over year, our residential lumber product category is performing within management's expectation and in line with our stated guidance.
Let me now take a moment to discuss ESG of Stella Jones.
Speaker 3: During the quarter, we published our 5th Annual Environmental, Social and Governance Report, which is now available for download on our website.
During the quarter, we published our fifth annual environmental social and governance report, which is now available for download on our website.
Speaker 3: For the first time in our company's history, we have formalized our ESG strategy titled Connecting our Sustainable Future.
For the first time in our company's history, we have formalized our ESG strategy titled connecting our sustainable future.
Speaker 3: This strategy is the product of extensive listening and data collection across our organization and has measurable targets across six key strategic topics.
This strategy is the product of extensive listening and data collection across our organization and has a measurable targets across six key strategic topics.
Speaker 3: These topics include climate change, greenhouse
These topics include climate change greenhouse.
Speaker 3: Yes, emissions as well as health and safety. An area where we have made great strides so far in 2023, namely through initiatives such as our safety matters because you matter, Ken.
Gas emissions as well as health and safety an area, where we have made great strides so far in 2023, namely through initiatives such as our safety matters, because you matter campaign.
Speaker 3: Before I turn it over to Sylvana to provide a more detailed overview of our third quarter financial results, let me provide a brief update on our efforts to phase out the wood preservative Penta through our net.
Before I turn it over to savanna to provide a more detailed overview of our third quarter financial results. Let me provide a brief update on our efforts to phase out the wood preservative pent up through our network.
Speaker 3: Pentachlorophenol, or Penta for short, is an oil-borne preservative which is being discontinued across North America.
Pentachlorophenol, our penta for short is an onboard preservative, which is being discontinued across North America.
Speaker 3: In the United States, our phase out of Tenta is largely complete, which places us well ahead of the 2027 end date required by the United States Environmental Protection Agency.
In the United States, our phaseout of Panther is largely complete which places US well ahead of the 2027 and data required by the United States Environmental Protection Agency.
Speaker 3: In Canada, operations were required to cease use of Penta by October 4th of this year.
And Canada operations, where required to cease use of pent up by October 4th of this year.
Speaker 3: Our team has gone to great lengths leveraging our network and internal resources to adjust our Canadian offerings to ensure continuity of supply for our utility customers.
Our team has gone to great lengths, leveraging our network and internal resources to adjust our Canadian offerings to ensure it continues to be of supply for our utility customers.
Speaker 3: We have been at the forefront of the industry with respect to this transition and are working collaboratively with utilities to tailor solutions to meet their required.
We have been at the forefront of the industry with respect to this transition and are working collaboratively with utilities to tailor solutions to meet their requirements.
Speaker 3: I am very proud of our team for their tireless efforts towards addressing this phase-out, the culmination of many years of hard work. With that.
I am very proud of our team for their tireless efforts towards addressing this phase out the culmination of many years of hard work.
With that I will now hand, it over to sylvana.
Speaker 4: Thank you, Eric, and good morning, everyone. Our strong start to 2023 has carried into Q3, which featured another quarter of solid organic sales growth, a record increase in EBITDA and EBITDA margin, and a notable contribution from equity.
Thank you, Eric and good morning, everyone.
<unk> start to 2023 has carried into Q3, which featured another quarter of solid organic sales growth a record increase in EBITDA and EBITDA margin and a notable contribution from acquisition.
Speaker 4: Sales in the third quarter reached $949 million, up from $842 million last year.
Sales in the third quarter reached $949 million up from $842 million last year.
Speaker 4: This increase was driven by organic sales growth of our infrastructure-related businesses of 17%.
This increase was driven by organic sales growth infrastructure related business is 17%.
Speaker 4: Sales also benefited from the acquisition of Texas Electric Cooperatives in November last year, the more recent Baldwin acquisition, as well as the positive effect of currency conversion.
Sales also benefited from the acquisition of Texas Electric cooperatives in November last year, the more recent bolt on acquisition as well as the positive effect of currency conversion.
Speaker 4: Pricing gains for utility poles, railway ties, and industrial products, as well as volume gains for residential lumber, largely explained the increase in sales, which was mitigated, in part, by a decrease in residential lumber prices.
Pricing gains for utility pole railway tie and industrial products as well as volume gains for residential lumber largely explain the increase in sales, which was mitigated in part by a decrease in residential lumber pricing.
Speaker 4: Utility pole sales grew to $438 million in Q3 compared to $331 million for the same period in 2022.
Utility pole sales grew to $438 million in Q3 compared to $331 million for the same period in 2022.
Speaker 4: The increase was largely explained by organic sales growth of 21% and the contribution from the acquisition mentioned moments ago.
The increase was largely explained by organic sales growth of 21% and the contribution from the acquisition mentioned moments ago.
Speaker 4: The organic growth was driven by higher pricing as sales volumes remained relatively flat compared to last year.
The organic growth was driven by higher pricing our sales volumes remained relatively flat compared to last year.
Speaker 4: As Eric mentioned, in the quarter, we focused on increasing capacity and building inventory to support long-term sales contracts, which currently represent over 70% of our utility pole business.
As Eric mentioned in the quarter, we focused on increasing capacity and building inventory to support long term sales contracts, which currently represent over 70% of our utility pole business.
Speaker 4: Sales of railway ties increased by $31 million to $230 million, compared to $199 million last year.
Sales of railway ties increased by $31 million to $230 million compared to $199 million last year organically.
Speaker 4: Organically sales were up 26 million dollars or 13% all attributable to favorable price.
Organically sales were up $26 million or 13% all attributable to favorable pricing.
Speaker 4: Volumes were relatively unchanged in Q3 compared to the same quarter line.
Volumes were relatively unchanged in Q3 compared to the same quarter last year.
Speaker 4: The lower non-class one volume, stemming from the limited supply of untreated tight inventories in 2022, were largely offset by higher class one volume, mainly attributable to the timing of ships.
Lola non class class one volume stemming from the limited supply of untreated tie inventories in 2022 were largely offset by higher class one volume mainly attributable to the timing of shipments.
Speaker 4: Class 1 volumes in 2023 are expected to be unchanged versus 2020.
Last one volume in 2023, I expect it to be unchanged versus 2022.
Speaker 4: Residential lumber sales of $202 million decreased $24 million compared to the same period last year.
Residential lumber sales of $202 million decreased $24 million compared to the same period last year, while sales volumes were higher in the third quarter of this year compared to the same quarter last year. The volume gains were not enough to offset the lower pricing attributable to the decrease.
Speaker 4: While sales volumes were higher in the third quarter of this year compared to the same quarter last year, the volume gains were not enough to offset the lower pricing attributable to the decrease in the market price of lumber.
And the market price of lumber.
Speaker 4: The overall decrease in sales was, however, in line with expectations as we continue to project $600 to $650 million of annual sales for residential lumber.
The overall decrease in sales however in line with expectations as we continue to project $600 million to $650 million of annual sales for residential lumber.
Turning now to profitability.
Speaker 4: EBITDA increased to $193 million in the third quarter, up from $119 million in the same period last year.
EBITDA increased to $193 million in the third quarter up from $119 million in the same period last year.
Speaker 4: This increase was largely explained by the margin expansion of our infrastructure-related businesses, particularly utility poles, as well as the EBITDA contribution of our acquisitions.
The increase was largely explained by the margin expansion of our infrastructure related businesses, particularly utility poles as well as the EBITDA contribution of our acquisition.
Speaker 4: As a percentage of sales, EBITDA also benefited from the higher proportion of utility poll sales this quarter, representing 46% of total sales compared to 39% in Q3 last year.
As a percentage of sales EBITDA also benefited from the higher proportion of utility pole sales this quarter, representing 46% of total sales compared to 39% in Q3 last year.
Speaker 4: Epidemic margin expanded to 20.3% a record improvement discordor from 14.1% in Q3 last.
EBITDA margin expanded to 23% a record improvement this quarter from 14, 1% in Q3 of last year.
Speaker 4: Year-to-date, our EBITDA margin stood at 18.5%. We now expect the EBITDA margin for 2023 to be closer to the 18% mark.
Year to date, our EBITDA margin stood at 18, 5%. We now expect the EBITDA margin for 2023 to be closer to the 18% Mark.
Speaker 4: Looking forward into 2024, the uncertain effects of external factors, such as the higher cost of capital and increased supply from the utility poll industry, may impact our current level of Edvard-Demard.
Looking forward into 2024.
Can effects of external factors, such as the higher cost of capital and increase the price in the utility pole industry may impact our current level of EBITDA margin.
Speaker 4: With this considered, we remain confident in achieving the 16% margin objective stated in our guide.
With this considered we remain confident in achieving a 16% margin objective stated in our guidance.
Speaker 4: Net income in the third quarter was $110 million, up 69% compared to last year, while earnings per share was up 79% to $1.91 per share. Earnings per share also benefited from the ongoing share repurchase program.
Net income in the third quarter was $110 million.
69% compared to last year, while earnings per share was up 79% to $1 91 per share earnings per share also benefited from the ongoing share repurchase program.
Speaker 4: During the quarter, we used the cash generated from operations of $130 million to maintain and upgrade our assets, expand and secure production capacity, which included acquiring the utility pole manufacturing business of Baldwin, as well as return capital to shareholders.
During the quarter, we used the cash generated from operations of $130 million to.
To maintain and upgrade our asset expand and secure production capacity, which included acquiring the utility pole manufacturing business at Baldwin as well as return capital to shareholders during.
Speaker 4: During the nine months ended September 30th, we returned $145 million to shareholders through dividends of $40 million and share repurchases of $105 million.
During the nine months ended September 30, we returned $145 million to shareholders through dividends of $40 million.
And share repurchases of $105 million.
Speaker 4: With the beginning of the current normal course issue bid program, the company has repurchased 2.2 million shares at an average price of $57 for shares.
Since the beginning of the current normal course issuer bid program. The company has repurchased two 2 million shares at an average price of $57 per share.
Speaker 4: Yesterday, the TFX accepted our notice of intention to proceed with the new NCIB program, which we announced in a dedicated press release earlier today.
Yesterday, the TSA <unk> accepted our notice of intention to proceed with the new and CIB program, which we announced in a dedicated press release earlier today.
Speaker 4: Pursuant to this NCIB, Stella Jones is authorized to repurchase up to 2.5 million common shares representing approximately 5% of the public flows.
Pursuant to this and CIB Stella Jones is authorized to repurchase up to two 5 million common shares representing approximately 5% of the public float.
Speaker 4: These repurchases will take place over a 12-month period ending in November of next year.
Repurchases will take place over a 12 month period ending in November of next year.
Speaker 4: At quarter end, we had $271 million available under our credit facilities and maintained a solid financial position with a net debt to the average ratio of 2.4 times.
At quarter end, we had $271 million available under our credit facility and maintained a solid financial position with a net debt to EBITDA ratio of two four times.
Speaker 4: Our strong balance sheet and ability to finance our business plans, meet working capital requirements, and maintain and upgrade our assets through consistent cash flow generation and available credit facilities reflect our disciplined financial strides.
Our strong balance sheet and the ability to finance our business plan meet working capital requirements and maintain and upgrade our assets to consistent cash flow generation and available credit facilities reflect our disciplined financial strategy.
Speaker 4: Yesterday, our Board of Directors announced a dividend of $0.23 per common share payable on December 21st, 2023 to shareholders of record at the close of business on December 4th.
Yesterday, our board of directors announced a dividend of <unk> 23 cents per common share payable on December 21, 2023 to shareholders of record at the close of business on December four.
Speaker 4: In summary, our strong operating and financial performance positions as well to achieve our long-term growth plans while returning near-term value to our shareholders. I will now turn the call back to Eric for his call.
In summary, our <unk>.
Strong operating and financial performance positions us well to achieve our long term growth plans, while returning near term near term value to our shareholders.
I will now turn the call back to Eric for his closing remarks.
Thank you Silvana.
Speaker 3: Much of our efforts this year has been focused on meeting demand as well as preparing for long-term growth.
Much of our efforts. This year has been focused on meeting demand as well as preparing for long term growth.
Speaker 3: It's been thus far a year of building and setting up the business for the future.
It's been thus far a year of building and setting up the business for the future.
Speaker 3: And we've done that through a combination of capital investments, acquisition and ongoing organic growth.
And we've done that through a combination of capital investments acquisition and ongoing organic growth.
Speaker 3: Twenty four months ago, we had the foresight to target acquisitions that provided us with opportunities for enhanced poll procurement, drying and treating while investing in capital projects to build upon an already strong foundation which has proven to our customers are will and capacity to meet their requirements.
24 months ago, we had the foresight to target acquisitions that provided us with opportunities for enhanced pool procurement, drawing and treating while investing in capital projects to build upon an already strong foundation, which has proven to our customers our will and capacity to meet their requirement.
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Speaker 3: We believe these strategic decisions help enable us to capitalize on additional opportunities going forward.
We believe these strategic decisions helped enable us to capitalize on additional opportunities going forward.
Speaker 3: As we approach the end of the year, we are confident in the sustained growth of the company and is staying focused on our three-year financial objectives. Sallodone has been
As we approach the end of the year, we are confident in the sustained growth of the company and is staying focused on our three year financial objectives.
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Speaker 3: They recognize the quality of our work and our ability to adjust to their needs, which is anchored by our strong procurement, manufacturing and distribution net.
They recognize the quality of our work and our ability to adjust to their needs, which is anchored by our strong procurement manufacturing and distribution network.
Speaker 3: We take pride in knowing that our customers can rely on us for quality of products, certainty of supply, and timely service, and that we play a key role in the development and maintenance of a robust North American infrastructure landscape.
We take pride in knowing that our customers can rely on us for quality of products certainty of supply and timely service and.
And that we play a key role in the development and maintenance of a robust north American infrastructure landscape.
Speaker 3: with nine months of operations behind us in 2023. I'm very pleased with our performance, both as a business and collectively as a team.
With nine months of operations behind Us in 2023, I'm very pleased with our performance both as a business and collectively as a team.
Speaker 3: I often say that our people are our most valuable resources. And so I wish to thank our more than 2800 employees across North America who consistently bring their very best for stellar Jones and its customers.
I, often say that our people are our most valuable resources.
So I wish to thank our more than 2800 employees across North America, who consistently bring their very best for Stella Jones and its customers.
Speaker 3: Through our products, we are building a strong, resilient future together, and I look forward to us maintaining our position as a leader in our space. With that, I will open...
Through our products, we are building a strong resilient future together and I look forward to us maintaining our position as a leader in our space.
With that I will open up the lines for questions.
Speaker 5: Thank you, Eric. The line is now open for questions. I would like to remind you that if you are on the phone and wish to ask a question, please press star one. Our first question is from James McGarigal, RBC Capital Markets. Please go ahead. Hey, good morning and congrats on the very strong.
Thank you Eric Your line is now open for questions I would like to remind you that if you are on the phone and wish to ask a question. Please press star one.
First question is from James Mcgarrigle RBC capital markets. Please go ahead.
Hey, good morning, and congrats on the very strong results.
Thank you Jamie.
Speaker 5: I have a question on margins, and I know you guided to the 18% this year. You pointed to someone certain you're looking ahead due to potential cost inflation. But anything to call it specifically in the quarter, I mean, you know, looking ahead, it seems like mix should continue to shift to word polls, that pricing will remain solid. You know, so that said, I'm just trying to understand the puts and takes and to what extent these margin levels could potentially be sustainable.
I have a question on margins I know you guided to the 18%. This year you pointed to some uncertainty looking ahead due to potential cost inflation.
But anything to call out specifically in the quarter.
Looking ahead, it seems like mix should continue to shift toward poles.
That pricing model remains solid.
That said I'm, just trying to understand the puts and takes and to what extent these margin levels could potentially be sustainable.
Speaker 3: Right. So, for the quarter, as Silvana pointed out, we did have a very strong mix towards utility polls, which helped the average of the margin profile.
Right. So for the quarter all of this has Savannah pointed out we did have a very strong mix towards utility Poles, which helped.
<unk> average.
The average EBITDA margin profile.
Speaker 3: Going forward, you know, prepared remarks, you know, we did speak about certain uncertainties in the future. One is the cost of capital increasing for our customers, which, you know, might change their behaviors or slow down the growth rate at which they're doing their, their, their maintenance.
Going forward in our prepared remarks, we did speak about certain uncertainties in the future.
What is the cost of capital increasing for our customers, which might change their behaviors or slow down the growth rate at which they are doing their maintenance.
Speaker 3: but also as an industry, you know, in my different travels, I've seen more availability of products from suppliers and to competition. So capacity has been brought online.
But also as an industry.
And in my drift in travel I've seen.
Availability of products from suppliers and the competition. So capacity has been brought online which would in turn.
Speaker 3: which wouldn't turn potentially bring some pricing pressures for the spot market business. Now, we do highlight that 70% of our business is...
Essentially bring some pricing pressures for the spot market business now, we do highlight that 70% of our business.
Speaker 3: Under long-term contracts for utility poles, which sort of shield us the thumb extend.
Is under long term contracts for utility Poles, which sort of shields us to some extent.
Speaker 3: but it doesn't show us on the 30% piece where we could see some pricing pressures in the future. So still very comfortable with us achieving that 16% very, very confident with that going forward, but I also want to sort of provide some insight as we see it today. And we will be obviously providing updates on that in future calls as we see the next quarters that be fulfilled.
But it doesn't show up on the 30% piece, where we could see some pricing pressures and into the future. So still very comfortable with us achieving that 16%.
We're very confident with that going forward, but I also wanted to sort of.
Provide some insight as we see it today and we will be obviously, providing updates on that in future calls as we see.
Yeah.
Next quarter's BBB fulfillment.
Speaker 5: On the railway tie business, your competitor last week, they were talking about some significant issues in their tie business due to cost inflation.
Okay. Thank you and just one more from me so on the railway tie business.
Your competitor last week, they were talking about some significant issues in their tie business due to cost inflation and your results today may makes it seem like youre dealing with these cost inflation issues much more effectively.
Speaker 5: And you know, your results today, it may make it seem like you're dealing with these cost inflation issues much more effectively. But with your guidance for sales of the low load single, sorry. Does that include any of the pass-through of cost inflation going forward? And you know, what type of upside could that represent if you're able to more effectively pass on some of that railway tie cost inflation going forward?
With your guidance for sales up low risk low single low single I'm sorry.
Does that include any of the pass through of cost inflation.
Forward and what type of upside that.
That represents if you are able to more effectively pass on some of that railway tie cost inflation going forward.
Speaker 3: So as we see, you know, you're today, after nine months, you know, our growth is 8%, which is driven by pricing. So obviously...
So as we see you know year to date after nine months.
Both is 8%, which is driven by pricing so obviously.
Speaker 3: Cost of untreated ties in the last 18 months have increased, you know, at the sawmill level. So we've been successfully passing through those cost increases throughout the year. But, you know, our guidance to the little single digits is more of volume related. Our class one programs for this year, you know, remain consistent with, you know, year over year.
Cost of untreated ties in in the last 18 months have increased.
The saw mill level. So we've been successfully passing through those cost increases throughout the year.
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But our guidance to the low single digits as more volume related.
Our class one programs for this year remain consistent with year over year.
Speaker 6: But we've seen most of our class one customers complete their maintenance at the end of September . So our Q4 volumes for railway ties would be lower. I guess in what we've seen previously updated after nine months, does bring us to the single digit growth, the lower single digit growth.
But we've seen most of our class one customers complete their maintenance at the end of September. So our Q4 volumes for railway ties will be lower I guess than what we've seen previously.
After nine months, thus, bringing us to the.
Single digit growth the lower single digit growth.
I appreciate it and I'll turn the line over thank you.
Thank you James.
Speaker 2: Thank you. Our following question is from Benoit Poivier, Dijonet de la sécurité.
Thank you. Our following question is from Ben Web.
Speaker 7: Please go ahead. Yeah, thank you. Good morning, Savannah. Good morning, Eric. And congrats for the strong achievement.
Securities. Please go ahead.
Yes. Thank you good morning, good morning, Eric and Matt Congrats for the strong achievement.
Speaker 7: Just to come back on their railway ties, could you provide some color on 2024 following the RTA conference, but also related to the 1 million additional ties that will go out for sale to non-class one customers. I'm just wondering whether we could expect double digit growth for railway ties in 2024 on the back of this additional capacity.
Just to come back on their rail weight size.
Could you provide some color on 2020 for.
Following the RTA conference, but also related to the 1 million additional tie that will go out for sale to non class one customers I'm just wondering whether we could expect double digit growth for railway ties in 2024 on the back of this addition.
<unk> capacity.
Speaker 3: So, say, thank you for the question, Benoit. Obviously, our inventory position, you know, today positions us favorably to address the spot market. So we've been very focused this year on servicing our larger long-term agreements with our class one customers, but you're completely right that we...
Okay. Thank you for your question Benoit.
Obviously, our inventory position today.
Today positions us.
Favorably to.
Address the spot market. So we've been very.
Focus this year on servicing our larger long term agreements there are class one customers, but you're completely right that we.
Speaker 6: that gave that we've seen in sales or driven by pricing offset by volume that we didn't have sufficient dry inventory. So going forward into next year, we're definitely well positioned and we're addressing that market. And, you know,
The gains that we've seen in sales are driven by pricing offset by volume.
We didn't have sufficient dry inventory so going forward into next year, and we are definitely well positioned and we're addressing that market.
And.
Speaker 6: We're working diligently at that. So I would expect next year, if I look at our crystal ball, could our pricing be relatively stable for the year, assuming that tie prices don't change too much. I think that would be a fair assumption, but I do expect our volumes to increase next year with regards to the non-class.
We're working diligently at that's why I would I would expect next year.
If I look at our Crystal ball clear pricing be relatively stable for the year, assuming that tie prices are trying to change too much I think that would be a fair assumption.
But I do expect our volumes to increase next year with regards to where the the non class one business.
Speaker 7: Okay, perfect. And just for the utility poll, it looks like the demand environment still remains pretty strong with hydrochebag that wants to double electricity production and add basically 5,000 kilometers of transmission line by 2034 or 5. Do you have a sense of the would poll requirement for this particular opportunity?
Okay, perfect and just for the utility coal it looks like the demand environment still remains pretty strong with hydro, Quebec that wants to double electricity production.
Basically 5000 kilometers of transmission line by 2034 five.
Do you have a sense of the wood pulled requirement for this particular oh.
Fortunately.
So.
Speaker 6: We are a supplier to hydrochromec. They have not qualified that for us as of today, but you're right that in their announcement last week, which was $150 to $180 billion of investment.
Yes, we are a supplier to hydro Quebec.
<unk> not quantified that for us.
As of today.
But you're right that in their announcement last week, which was $150 billion to $180 billion of investment if I recall about 45% to $50 billion is dedicated to the reliability of the network. So I do think that there where there will be a significant investments as.
Speaker 6: If I recall, about 45 to 50 billion is dedicated to the reliability of the network. So I do think that there will be significant investments. As we see with many other utilities in North America, but if we're speaking in this particular case about hydro Quebec, I do think we're well positioned to benefit from any increased demand for maintenance or expansion of the grid network.
How do we see with many other utilities in North America, but if we're speaking in this particular case about hydro, Quebec I do think we are well positioned to benefit from any increased demand for maintenance or expansion.
Expansion of the grid network.
Speaker 7: Okay, and last one for me, could you provide an update on where you are related to the 115 million growth Catholics and whether additional Catholics is needed to grow above the mid-single digit growth that's your implying in 2025, especially in light of the strong market environment for YouTube people?
Okay and last one for me could you provide an update on where you are related to the 115 million growth Capex and whether additional capex is needed to grow above the mid single digit growth that you're implying in 2025, especially in light of the strong market.
The environment for utility pole.
Speaker 6: I'll ask Silvara to comment on that part, but we'll thank you.
I'll ask <unk> to comment on that part of it and well. Thank you. Greg. This is still 5 million loan by $115 million as at the end of September we have.
Speaker 4: So so far been long, the 115 million as at the end of September , we have
Speaker 4: approximately 80 million of that is done as we have noted in when we have presented our three-year guns we said most of the 115 would be front loaded so you know there is about 30 million less.
Approximately 80 million of that get done as we have noted in the end when we at present directly Gunther at most of the 115 would be frontloaded selling out there is about $30 million less at between Q4 and next year to complete that program so pretty much in line.
Speaker 4: between Q4 and next year to complete that program. So pretty much in line with that. And yes, as we had noted that this...
With that and yes, as we had noted that this capex program is really to meet the demand that we have currently in Iraq in our radar. So any additional infrastructure related demand would go above that so we would need additional.
Speaker 8: CAPEX program is really to meet the demand that we had currently in our radar, so any additional infrastructure related demand would go above that, so we would need additional capacity in order to be able to service significantly additional demand from infrastructure money. Okay, thank you.
Capacity in order to us to be able to service and a significantly additional demand from eskom infrastructure around that.
Okay. Thank you very much for that Brian.
Thank you Peter.
Speaker 2: Thank you. Our following question is from Hamir Petel, CIBC Capital Markets. Please go ahead.
Thank you. Our following question is from Hamiel Petco CIBC capital markets. Please go ahead.
Speaker 9: We start on the the poll side. Could you scale how much additional poll volumes you'll have available next year just based on the capacity initiatives that you have underway.
Let's start on the pulp side could you scale, how much additional pole volumes, you'll have available next year, just based on the capacity initiatives that.
Do you have underway.
Speaker 9: So I'm trying to figure out because we typically measure everything in cubes, right? So which does it in the cell? Oh, I guess I meant just like a volume percentage.
Yes, so I'll try to figure out because we typically measure everything in cubes rights, which does it necessarily.
Just like a volume percentage increase.
Speaker 6: Yeah, so call it 10 to 15% additional capacity would be available.
Yes, so call it 10% to 15% additional capacity would be available for next year.
Next year Okay.
Speaker 9: Eric, on the the res lumber side, you know, your volumes were actually up in the quarter. I think some of your peers were down. You think you can continue driving volume growth in lumber in 24. I'm just wondering what you're hearing from your your retail apartment.
And then Eric on the res lumber side.
Your volumes were actually up in the quarter I think some of your peers were down.
You can continue driving volume growth.
And lumber and 24, just wondering what you're hearing from your retail partners.
Speaker 3: Right, so here here your question is a spot on timing. We debriefed earlier this week with several of our customers on the year and their expectation for next year. There is a...
Right so.
Your question is spot on timing, we we debrief. The earlier this week with several of our of our customers on the year and their expectation for next year.
There is.
Speaker 6: positive momentum from our customers at the very least to be able to hold these volume gains into next year with potentially slight upside. Obviously that there are views on it, but I'd be very pleased if we'd be able to hold the current volumes into next year. And I think that's quite feasible and that would still bring us within our guidance in our three-year objectives. Great.
Positive momentum from our customers at the very least to be able to.
Hold these volume gains into next year with potentially slight upside.
Obviously that their views on it but I'd be very pleased if we'd be able to hold noted the current volumes into into next year and I think that's quite feasible and that would.
Still bring us within our our guidance in our three year objectives.
Great. Thanks, Thats, all I had I'll turn it over.
Thank you Amir.
Speaker 2: Thank you. Our following question is from Michael Tapom, PD Security. Please go ahead.
Thank you. Our following question is from Michael Top home TD Securities. Please go ahead.
Thank you good morning.
Good morning, Michael.
Speaker 10: Morning, Eric. Can you talk about when you will start to lap the pricing increases that have been benefiting your results and continue to do so this quarter in both utility pools and railways? So when you'll be facing essentially tougher you over your comps and then fully lap the benefits you were seeing this quarter.
Good morning, Eric.
Can you talk about when you will start to lap the pricing increases that have.
That had been benefiting our results and continued to do so this quarter in both utility Poles and railway ties so a win.
When you'll be facing essentially tougher year over year comps in a fully lap the benefits you are seeing this quarter.
Speaker 6: So I would say no again, this quarter we will have left this
So I would say no at the end of this quarter, we will have lapped this.
Speaker 6: 20-some percent are organic growth, which is driven by pricing. And going into next year, then we would be looking at what would be more normal increases compared to historical trends. But yeah, I think this year, and the end of quarter is where we'd be laughing at, but still for some pricing up to go all those small, they're going in.
27% of our organic growth, which is driven by pricing.
And going into next year, then we would be looking at what would be more.
Normal increases compared to historical.
Trends.
But yes, I think this year.
At the end of quarter was where we'd be lapping it still foresee some pricing uptick.
Uptick, although smaller going into the future.
Speaker 10: Sorry, I'm just to be clear when you say end of the quarter, are you talking about the end of Q3? It's now fully lapped. And we can see it come down in Q4, where you still have those benefits.
I'm, sorry, and just to be clear when you say end of the quarter Youre talking about the end of Q3, it's now fully lapped.
You can see it come down in Q4 or are you still have those benefits in Q4.
Speaker 6: I'm sorry, Q4. So at the end of the year, December 30th, after we'd be pretty much laughed on this 20% organic growth.
I am sorry, Q4, Q4, so at the end of the year December 31 factor, we would be we would be pretty much lapped on this 20% organic growth piece.
Speaker 10: Okay, and that's on the, that's on the pole side. What about on the railway tie side? Where again in the quarter, I think you're up 13.
Okay and Thats on the that's on the pole side, what about on the on the railway ties side, where again in the corner I. Thank you Rob.
Third.
In.
Speaker 10: Person on on our unit base is all pricing.
Percent.
Because all pricing.
Speaker 3: Yeah, I think we're pretty much there at this point. At the end of Q3, at the end of September , I think we've done all the catch-up that is related to the increased cost of railway ties. We've been seeing railway tie prices being relatively stable now for the last five, six months, I would say. So we're pretty much done with those.
Yes, overall pricing I think we're pretty much there at this point at the end of Q3 at the end of September I think we've done all the catch up that is related to the.
Increased cost of railway ties, we have been seeing railway tie prices.
Being relatively stable now for the last.
Five six months I would say so we're pretty we're pretty much done with dose increases.
Speaker 10: And then I just go back to utility polls, because if I think about your comment about having largely lap those pricing gains by or pricing increases by the end of the year, maybe still some additional ones next year, but it doesn't sound like to the same extent. But then your production capacity is up, which should allow some volume growth. Thinking back to your multi-year guidance or objectives, you've talked about, I think, 20% keg or utility polls over the first couple of years of your three-year.
Okay, and then just going back to the utility Poles I guess, if I think about your comment about having.
Largely lap those pricing gains by our pricing increases by the end of the year, maybe still some some additional ones next year, but it doesn't sound like to the same extent, but then your production capacity is up which should allow us some volume growth.
Thinking back to your multi year guidance are objectives, you've talked about I think 20% CAGR in utility Poles.
Over the first couple of years of your three year.
Speaker 10: So I guess we should see a significant improvement or step up in your volume gains next year in polls and then just a lower level of price.
Plan.
So I guess, we should see a significant improvement or step up in year over year volume gains next year and pools, and then just a lower level of pricing gains.
Speaker 6: Yeah, I agree with that statement. We will see volume gains into next year. And I guess back to my capital cost, comment earlier, can that sort of that grow slipping to early 25, you know, we'll have to see. So I guess that's part of the reason why we added a bit of that color of the CR.
Yes.
Agree with that statement and we will see volume gains into next year, and I guess back to Mike capital cost comment earlier that sort of thing that growth slip into early 'twenty five we'll have to see so I guess, that's part of the reason why we added a bit of that color obviously R. R.
Speaker 6: our customers are living in interest rate increases like everybody else in the planet I guess, but all to say, there's still strong momentum for maintenance to be done in quite a positive sense. I mean, it was our customer that there's a lot of work to it.
Customers are leaving interest interest rate increases like everybody else.
In.
On the planet I guess, but I'll just say there is still a strong momentum for <unk>.
Maintenance to be done in quite a positive sentiment with our customers that there is a lot of work to get done.
Speaker 10: Do you have a sense for, again, a lot of the gains recently in utility polls have been coming on the pricing side and you'll have the increased production capacity to better capitalize on volume?
Okay do you have a sense for again a lot of the gains recently in utility Poles have been coming on the pricing side and you'll have.
The increased production capacity too.
To better capitalize on volume gains next year do you have a sense for what the growth rate in terms of volumes is within the.
Speaker 10: gains next year, give a sense for what the growth rate in terms of volumes is within the broader utility pull market given the replacement cycle, given some of the other drivers related to energy transition and things of that nature. Just again, what overall kind of volume growth is looking like in the industry at the moment.
The broader utility pole market, given given the replacement cycle given some of the.
Some of the other drivers related to energy transition and things of that nature.
Again, what overall kind of volume growth is looking like in the industry at the moment.
Speaker 3: Very hard to answer as a question, Mike. There's no industry associated, and that sort of collects all the data to give us some insight. I guess we...
Very hard to answer the question Mike.
No industry association that sort of.
Collect all the data to give us some insight I guess we.
Speaker 6: really see what our customers are sharing with us. Obviously, there's some indications through different announcements that believe, you know, last week, the US federal government announced three major transmission projects. So those are all kinds of infrastructure money getting spent, obviously, it'll take a time to plan out and execute on it, but it's really hard to say where that growth percentage is for the total industry. That development technology really feels better here. Rather than p?ed, we've got technology which we're going to be interested in, so I'm looking forward to seeing what b?d? operations will do with its application.
We really see what our customers are are sharing with US. Obviously there are some indications through different announcements I believe last week. The U S. Federal government announced three major transmission projects.
So those are all signs of infrastructure money getting spent obviously it will take a time to plan and execute on it but it's really hard to say where that growth percentages for that for the total industry.
Okay fair enough.
Speaker 10: So question, next question related to your comments around the strong margins this year, but still comfortable with 16% as we get into next year in 2025, on the basis of some of these uncertainties you called out. I think you specifically mentioned, besides a higher rate environment, which could impact capital spending decisions, you talked about the possibility of spot market pricing pressures on the 30% of your business that's not under a long-term contract.
Just.
Question next question related to your comments around the strong margins this year, but still comfortable with 16% as we get into next year in 2025 on the basis of some of these uncertainties you called out I think you specifically mentioned.
Besides the higher rate environment, which could impact capital spending decisions you talked about.
Possibility of spot market pricing pressures on the 30% of your business Thats not under a long term contract.
Speaker 10: Have you seen any evidence to suggest there is pressure already in spot market price in utility pools or is this more just a potential risk as we look for?
Have you seen any evidence to suggest there is pressure already.
In spot market pricing in utility Poles or is this more.
Just a just a potential risk as we look forward.
Speaker 6: So no evidence as of today of the pressures. So it is a bit, I guess, an assumption or a sort of looking into the future.
So no evidence as of today of the pressures.
It has been I guess, an assumption or.
Sort of looking into the future.
Speaker 3: Talking with suppliers and understanding what our competition is doing. The industry is investing. There's obviously strong demands throughout the industry. And as we have been doing for the last 24 months investing and acquiring, wanting to see those opportunities for the long term business, we're seeing fiber being made available on the market. So I guess my suspicion is that at one point,
But.
Talking with suppliers and understanding what our competition is doing the industry is investing is obviously strong demand throughout the industry as we have been doing for the last 24 months investing in acquiring wanting to see those opportunities for the long term business.
We're seeing fiber being made available on the market. So.
I guess my my my suspicion is that at one point.
Speaker 6: Our competition, our traders and the industry will want to move their inventory and we might see some pressing pressures, but for now no evidence of that.
Our competition are treaters in the industry will want to move their inventory and we might see some pricing pressures, but for now no no evidence of that.
Okay. That's helpful.
Yes.
Speaker 10: And then there was an announcement yesterday by President Biden about uh... sixteen point four billion dollars of new funding for twenty five passenger rail projects on amtrak's northeast corridor
And then there was an announcement yesterday by President Biden about $16 $4 billion of new funding for 25 passenger rail projects on Amtrak's northeast corridor.
Speaker 10: I know a lot of your businesses historically been obviously on the Relatized side dominated by class one activity, but can you comment on the extent to which you see that as a whole opportunity for Stella Jones, and if that could result in incremental sales volumes within your ties business relative to what you might've been
I know a lot of your business has historically been obviously on the railway ties side dominated by <unk>.
Class one activity, but can you comment on the extent to which you see that as a bit on co opportunity for Stella Jones.
That could result in incremental sales volumes within your ties business relative to.
What you might have been able to do absent that announcement.
Speaker 11: Our exposure to abstract is very small. It's less than 1% of ourselves, they buy a variety of products. So I don't want to see that. The abstract piece, the barely, I don't see that as being a big impact for us. That's all, Paul. All right, thank you.
Yes, our exposure to Amtrak is very small it's less than 1% of ourselves.
They buy a variety of products or.
I don't want to see that the Amtrak early I don't see that as being.
A b in impact for us.
Okay. That's helpful Alright, Thank you.
Thank you Michael.
We have no further questions in the queue. Thank you.
Speaker 6: Well, take you surely and thank you everyone for joining us today. We look forward to updating you on our fourth quarter and year end results in the new year.
Well, thank you Shirley and thank you everyone for joining US today, we look forward to updating you on our fourth quarter and year end results in the new year.
Speaker 2: Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect your lines.
Ladies and gentlemen. This concludes today's call. Thank you for participating you may now disconnect your lines.
Please standby and enjoyed this music.
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