Q4 2024 Stella-Jones Inc Earnings Call
Good morning, and thank you for standing by and welcome to Stella Jones fourth quarter of 2024 earnings call. At this time all participants are in listen only mode. Following the.
We will hold a question and answer session.
You asked a question by phone please press star one.
Anyone experiences difficulties during the conference call. Please press star zero for operator assistance at any time.
I'd like to remind everyone that this conference call is being recorded on Thursday February 27th 2025. Please.
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.
Further information on these risks and uncertainties. Please consult the company's relevant filings on SEDAR plus.
These documents are also available in the Investor relations sections of Stella Jones' website at Stella Jones Dash Johns Dotcom.
Additionally, during the conference call. The company May refer to non-GAAP measures, which have no standardized meaning under GAAP and are not likely to be comparable to similar measures presented by other issuers.
For more information please refer to the company's latest MD&A available on Stella Jones' website and on SEDAR class.
Speaker Change: Lastly, we have prepared a corresponding presentations, which we encourage you to follow along with the call I will now turn the call over to Eric Bass shop, President and Chief Executive Officer of Stella Jones. Please go ahead.
Speaker Change: Thank you Sylvie good.
Morning, everyone and thank you for joining us today.
Speaker Change: With me on today's call is Silvana, Travaglini Senior Vice President and Chief Financial Officer at Stella Jones.
Speaker Change: Earlier. This morning, we issued our press release reporting our results for the fourth quarter.
Speaker Change: Quarter and year end 2024.
Speaker Change: Along with our MD&A it can be found in the Investor Relations section of our website at Www Dot Stella Jones' dot com as well as on SEDAR plus.
Speaker Change: As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated.
Speaker Change: Before we dive into our strategy and performance overview I want to take a moment to acknowledge the communities. Our customers are served which were impacted by a number of natural disasters in the last year.
Speaker Change: Times of need we spared no efforts.
Speaker Change: Our focus is to help recovery efforts as quickly and efficiently as possible.
Speaker Change: Following the recent California wildfires, we engaged our emergency response program to swiftly support our customers.
Speaker Change: Our products play a vital role as the backbone of electrical infrastructure that delivers essential services across the continent.
Speaker Change: And we take pride in our role of helping connect community.
Speaker Change: Turning now to our business update.
Speaker Change: In 2024, we delivered a solid performance despite some top line headwinds.
Speaker Change: We grew sales for the 24th consecutive year.
Speaker Change: Increased EBITDA and maintain an EBITDA margin of more than 18%.
Speaker Change: Additionally, we generated strong operating cash flows and maintain a discipline discipline capital allocation strategy, which allowed us to continue investing in growth, while delivering on our commitment to return capital to our shareholders.
Speaker Change: This performance is a testament to the strength of our team and to our ability to leverage our robust market trends for instructed infrastructure business.
Speaker Change: 2024 set the stage for continued profitable growth thanks to a number of significant achievements.
Speaker Change: Over the last year, we expanded our customer base and secured several new long term contracts with utilities.
Speaker Change: Our promise to customers to deliver quality products on time is supported by our enhanced procurement and production capabilities and our extensive distribution network.
Speaker Change: With the addition of two new utility pole finished good yards to better service our customers, we are continuously investing in ways to meet and exceed our customers' expectations.
Speaker Change: These initiatives align with our business strategy to secure long term commitments as we strive to be a partner of choice.
Speaker Change: To live up to our customer promise and delivered the highest level of service and quality. We are continually raising the bar to achieve operational excellence.
Speaker Change: During the year, we completed our extensive utility pole growth Capex program initiated in 2022.
Speaker Change: We now have a network footprint that is wider reaching and more flexible, allowing us to be more competitive and to increase output as needed.
Speaker Change: Expansion has presented opportunities to improve operational efficiency and future proof our business program.
Speaker Change: On the railway ties side, we undertook meaningful actions to enhance our network.
Speaker Change: For instance, we invested in new treating assets and the drip pad at our facility in Winslow, Indiana, which will allow us to consolidated capacity and further optimize our network.
Speaker Change: Set to continue into this year, we will pursue asset upgrades targeted at servicing key customers to better support the railway industry.
And our residential lumber product category continued to serve its customers with leading service. It is known for delivering above exception exceptional levels of order fulfillment rates in 2024.
Speaker Change: In great part to investments in our distribution capabilities across Canada.
Speaker Change: Lastly, because of the value, we deliver to customers and our operational efficiency gains we have been able to maintain a solid EBITDA margin and generate strong operating cash flows.
Speaker Change: Our success as a company stems from a culture of growing and investing in all facets of our business.
Speaker Change: This past year, we made significant strides towards the reduction of greenhouse gas emissions through a number of initiatives for instance, we finalize our second solar panel installation at our utility pole manufacturing facility in Cameron, Wisconsin, which is expected to cover 48% of the facility's electrical consumption.
Speaker Change: Additionally, our initiative to cover nearly all of our scope to ghd emissions through an investment in renewable energy credits will allow us to get closer to our 2030 emissions reduction objective of 32%.
Speaker Change: These accomplishments amongst others demonstrates Stella Jones is ongoing commitment to act responsibly as we progressed towards our sustainability objectives and work to ensure the long term viability of our business.
Speaker Change: Turning now to our performance overview of our main product categories.
Speaker Change: Starting with utility Poles.
Speaker Change: The favorable industry outlook for Poles remains unchanged.
Speaker Change: Strong demand drivers like aging infrastructure grid resiliency requirements and energy transition continued to accelerate the need to upgrade existing infrastructure.
Speaker Change: In the current economic environment utilities need to allocate capital to numerous capex needs and find the balance between service reliability and revenue generating projects.
Speaker Change: Our utility customers have reiterated the critical need for pole replacement and confirm their continued commitment to tightly grid maintenance and upgrades.
Speaker Change: Recent indication from contractors also suggest an uptick in project request considering that projects can take a few quarters to materialize.
Speaker Change: As we turn to 2025, our volume growth expectation is unchanged at the mid single digit rate.
Speaker Change: We are encouraged by recent indications of more quoting activity understanding that purchases can continued to be impacted by the uncertainty related to the currently evolving economic landscape.
Speaker Change: In terms of pricing there are indications that industry inventory levels continue to be high.
Speaker Change: We expect this to lead to softer spot market pricing, which should be mitigated by contractual price adjustments.
Speaker Change: Railway tie sales grew above our expectations in 2024, marking the third consecutive year of achieving mid single digit sales growth.
Speaker Change: Category strong performance in 2024, it was a reflection of our unwavering focus on servicing class, one customers and robust commercial market demand.
Speaker Change: In 2024, our overall class one volume increased despite the reduction in maintenance spend of some railroads and we serviced the strong commercial demand by leveraging our robust inventory position.
Speaker Change: Looking ahead, we will execute on opportunities to further grow our customer relationships as class one customers looking to Stella Jones for innovative solutions to help optimize their business model.
We will also look to reset contract pricing and established improved cost recovery and customer agreements to ensure costs are better incorporated and pass through clauses.
Speaker Change: With these initiatives and the stable maintenance driven demand for railway ties we remain assured in this product category is ability to consistently deliver at least low single digit sales growth.
Speaker Change: Residential longer delivered a solid performance in 2024, reflecting the value driven dynamics of our customer base, which provide relative steadiness and positive prospects for this business.
Speaker Change: With the resourcefulness of our procurement team offering a consistent supply to big box retailers, we continued to achieve sales within their projected target range. Despite some macroeconomic headwinds.
Speaker Change: Lumber prices have shown an uptick in the second half of 2024 and expected demand is trending favorably or.
Our forecast for residential lumber sales remained in the 600 million to $650 million target range as outlined in our financial objectives.
With that I'll now ask savanna to provide a more detailed overview of our fourth quarter financial results.
Savanna: Thank you Eric and good morning, everyone as Eric stated at the top of the call Stella Jones delivered another year of sales and EBITDA growth.
Savanna: For the year were up 5% to $3 $5 billion, driven by a 6% organic sales growth for both the utility Poles and railway ties.
Savanna: EBITDA increased to $633 million compared to $608 million in 2023, and we maintained an EBITDA margin of over 18%.
Savanna: For the fourth quarter sales were $730 million, an increase of 6% versus Q4 of 2023.
Savanna: While utility pole sales were unchanged compared with the same period last year Q4 sales benefited from the strong performance of railway ties and residential lumber.
Savanna: For utility Poles, we generated $385 million in sales in the fourth quarter compared to $383 million in the same period last year.
Savanna: Favorable price adjustments were more than offset by lower volumes for non contract business.
Savanna: Similar to Q3 volumes from contract business were stable as we benefited from the contribution of newly secured business.
Savanna: But the non contract volumes were impacted by the continued softness in maintenance the man and the deferral of projects by utility.
Savanna: Compared to Q4 last year utility pole volumes were down 4%.
Savanna: Sales of railway ties were up 15% organically this quarter to $193 million compared to $165 million in the fourth quarter of last year.
Savanna: The increase was all attributed to more class one volume.
Savanna: For the year, the 6% organic sales growth for railway ties mainly stemmed from the strong non class one market demand and our capacity to service this market given the replenished the level of our tight inventory.
Savanna: Class one volumes were up slightly year over year, even as certain railroads reduced or internalize their annual type replacement program.
Savanna: Residential lumber sales were also up 12% organically in the fourth quarter to $93 million.
Savanna: Q4 sales that benefited from the increase in the market price of lumber that's about a stronger consumer demand when compared to Q4 last year.
Savanna: We ended the year with sales of $614 million within the $600 million to $650 million target range for this product category.
Savanna: Turning now to profitability.
Savanna: Q4, EBITDA decreased 4% to $115 million or 15, 8% of sales following a record 38% increase in EBITDA in Q4 last year.
Savanna: The decrease was explained by an unfavorable sales mix versus the same period in 2023 attributable to the lower relative proportion of utility Poles sales.
Savanna: EBITDA was also impacted by nonrecurring expenses recorded in other losses.
Savanna: For the year EBITDA improved by 4% largely explained by the organic sales growth of the company's infrastructure product categories.
Savanna: Turning to cash flow.
Savanna: Q4 o'clock cash flows contributed to the strong full year as cash generated from operations of $408 million and free cash flow of $275 million in 2024, we deployed cash generated to invest in our network complete our growth Capex program as well as <unk>.
Savanna: $153 million to shareholders.
Savanna: Returning capital to shareholders is a core foundation of our capital allocation strategy in.
Savanna: In 2024, it will increase the dividend payout by 22% to $1.12 per share.
Savanna: And yesterday, the board of Directors announced an 11% increase in the company's quarterly dividend to <unk> 31 cents per share.
This marks our 24th consecutive annual dividend increase which speaks to our overall confidence in the long term fundamentals of our business.
Savanna: During the quarter, we initiated another normal course issuer bid as part of our strategy to return capital to shareholders.
Savanna: So far as at December 31st, including dividends, we returned $348 million to shareholders out of the $500 million committed for the 2023 to 2025 period.
Savanna: In October we bolstered our strong financial position and flexibility with an inaugural bond offering of $400 million for seven years using the proceeds to repay the amounts outstanding on our revolving credit facilities.
Savanna: We ended the year with over $800 million in available liquidity and our net debt to EBITDA ratio of two six times.
Savanna: The leverage ratio deviated slightly above our target range as the appreciation of the clothing U S dollar relative to the Canadian dollar resulted in a higher value of the company's net debt denominated in U S dollars.
Savanna: With a focus on profitability and working capital management, we expect to reduce the leverage ratio within the desired target range in 2025.
Savanna: In summary, with the strength of our business, our healthy financial position and strong cash generating ability Stella Jones is well positioned for continued growth and success in 2025.
Eric Bass: I will now turn the call back to Eric for his closing remarks.
Eric Bass: Thank you Silvana.
Eric Bass: I am enthusiastic about where we stand today.
Eric Bass: We continue to invest strategically raised the bar on operational excellence and.
And hence our presence in the markets, we serve invest in securing new business and.
Eric Bass: And allocate capital prudently all as part of our strategy to remain a leading actor in our space.
Eric Bass: And some of the actions we undertook in 2024 have set us up for improved performance in 2025 and beyond.
Eric Bass: We are excited about the long term growth prospect of the infrastructure markets we serve.
Eric Bass: Utilities Capex spending is expected to remain elevated for many years to come and our utility pole business is well positioned to benefit from this multiyear secular growth.
Eric Bass: Standing at the end of three years of capital investments focused on growing utility pole capacity and upgrading our network assets, we continue to optimize operations and welcome new business in 2025.
Eric Bass: For railway ties are strong competitive advantages and customer centric innovation are expected to help us execute on opportunities that will drive increased profitability.
Eric Bass: We're open to considering capital projects that it would offer value for our customers, helping further our position as a supplier of choice.
Eric Bass: Acquisitions have always been a Keystone of Stella Jones this growth strategy.
Eric Bass: We will continue and it will continue to be a priority.
Eric Bass: In our efforts to continue to position ourselves as a partner of choice, we will be looking to build even stronger customer relationships by expanding our infrastructure product offering.
Eric Bass: We will be highly discerning on a selection prioritizing opportunities that enhance our market and product reach contribute to earnings growth and ensure a healthy return on invested capital.
Eric Bass: As mentioned at our last call. We are confident that in 2025, we can realize accretive acquisitions that will drive higher sales and profitability.
Eric Bass: As we enter the final year of our three year financial plan, we are assured in our ability to deliver on our financial objectives.
Eric Bass: We remain dedicated to maintaining our investment grade leverage ratio and disciplined capital allocation strategy.
Eric Bass: In 2025, we will continue to lead our business with discipline to deliver value to our shareholders and we look forward to providing a new three year plan in the second half of the year.
Before concluding I want to note that the potential exposure to tariffs is limited.
Eric Bass: Given our north American presence the majority of <unk> products manufactured or sold domestically with minimal cross border transactions.
Eric Bass: We are nevertheless, staying informed on developments and we will be proactively.
Eric Bass: We will be proactive in mitigating any potential impact.
Speaker Change: As always Stella Jones is enduring the resilience and success lies in the strength and dedication over more than 3000 employees across North America, who I wish to thank once again for ensuring stellar job is and remains the backbone of solid infrastructures for stronger communities.
Eric Bass: This concludes today's prepared remarks, I will now open the line for questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to queue up for questions by phone. Please press star one to be removed from the queue. Please press star two.
Speaker Change: And our first question will be from Hamzah <unk> with CIBC capital markets. Please go ahead.
Hamzah: Hi, good morning.
Hamzah: Eric last quarter, you you indicated you expected pull growth going forward in the in the 6% to 7% range are the wording today seem to reference mid single digit growth.
Hamzah: Does that suggest some further moderation in a in your demand expectations.
Speaker Change: No Amir essentially mid single digit can.
It can be.
Speaker Change: In that range of the numbers you just quoted the 6% let's say.
Speaker Change: Okay, Perfect and then Eric you referenced looking at expanding.
Speaker Change: The offering for for infrastructure customers.
Speaker Change: Right more on what potential products.
Speaker Change: That could include and perhaps.
Speaker Change: Perhaps instead of potential sales.
Speaker Change: Sales stream some.
Speaker Change: Some of these markets could that could represent.
Speaker Change: Right.
Speaker Change: Not ready to disclose that level of detail here, but you know it.
Speaker Change: There's been several quarters now that we've been referring to expanding our product offering has been several quarters that we have been working with our board and exploring.
Speaker Change: Different different markets.
Speaker Change: And what would be potentially good.
Speaker Change: Addressable markets for Stella Jones.
Speaker Change: We continue to focus on supporting the utility and rail industry.
Speaker Change: And as I mentioned, you know we're at the point now that we're actually in discussion with our with potential targets.
Speaker Change: Obviously, when you look at where our customers spend if you think about utilities.
Speaker Change: Obviously, you know I've always referred to three buckets, the generating assets to transmission into distribution.
Speaker Change: Hard for me to.
Speaker Change: Far from it.
Speaker Change: That I want you to think that we'd be getting in generating asset so transmission or hardware that supports our customers' needs would definitely be a good place for us to go when I think about that the rail industry.
Speaker Change: Customers keep referring to.
Speaker Change: US expanding our capabilities either.
Speaker Change: End of life solutions or composite type product to be able to properly.
Speaker Change: Properly responsibility.
Speaker Change: Harvest of the engineering departments, So I guess, that's a bit more color.
Speaker Change: Okay great.
Speaker Change: Thanks, Eric and just the last question I had tariff related you know on the.
Speaker Change: On the Red lumber side, if we did see the SPF lumber price in the U S. Go up you know call. It 25% if tariffs come into effect do you think the untreated lumber pricing in Canada remains unaffected or would you expect it to move kind of dollar for dollar with the with the U S price.
Speaker Change: Hello.
Speaker Change: That's a big question right.
Speaker Change: Sure.
Speaker Change: I've heard arguments to support.
Speaker Change: Lumber indeed.
Speaker Change: Canadian lumber prices trending with the U S. I've also heard the opposite where.
Speaker Change: Do we see Canadian manufacturers prefer to.
Speaker Change: Sell within Canada, instead of trying to export to the U S.
Speaker Change: My view at this point is.
Our our lumber prices today.
Speaker Change: Today are higher than that.
Speaker Change: Then they were in the first part of last year. We're building our program now for 2025, so we have a lot of commitments.
Speaker Change: Given prices side.
Speaker Change: Wayne.
Speaker Change: With the pricing uptick I would think that we should or will yield some bidder. Some some better pricing on the sales.
Speaker Change: So even if the market spike up or down it would probably take several months for us to see that impact either way.
Speaker Change: Okay fair enough, but I think that's all I had him I'll turn it over.
My pleasure.
Operator: Next question will be from James Mcgarrigle RBC capital markets. Please go ahead.
James Mcgarrigle: Hey, Thanks for having me on good morning.
Speaker Change: Good morning, James.
Speaker Change: Yeah I was just wondering if you can provide a little bit more.
James Mcgarrigle: Fitbit.
James Mcgarrigle: EBITDA range for 2025, I know you reiterated your longer term target you kind of give us a floor but.
James Mcgarrigle: But you know consensus is kind of trending quite a bit ahead of that so yeah anything more specific you can provide there and I guess you know consensus is at $630 million for 2025 is that a number you're comfortable with.
James Mcgarrigle: Well I'll answer in terms of percentages.
James Mcgarrigle: I'll, let you.
James Mcgarrigle: Forecast, where you think our sales can land so you're right.
James Mcgarrigle: We are very confident with our floor at 17%.
James Mcgarrigle: We're now.
James Mcgarrigle: Two years, achieving the 18% level it would be in the range of what is achievable. This year, obviously, there's lots of uncertainty in the markets right now so I guess I'm, leaving the door open to give us.
James Mcgarrigle: Just to work through a couple of quarters to see how this year goes and how the different.
James Mcgarrigle: And how does the economic environment will will adjust but.
James Mcgarrigle: Yes, I guess that that would be my thought we were maintaining our confidence.
James Mcgarrigle: <unk> at least 17% and they refer to in my script, we're working on operational efficiencies. We are working on opportunities to make sure that we can we can hold the highest margin possible that our business Ken.
James Mcgarrigle: I appreciate the color and then you know.
Speaker Change: Question on the Pi business.
Speaker Change: A few potential move moving parts here you mentioned the timing of our railway tie shipments kind of help Q4.
Speaker Change: A potential headwinds from a CP.
Speaker Change: Whether utilizing their tcs facility.
Speaker Change: And then you know on the other side potential you know some some pricing increases as you negotiate some contracts with Dr. Paz, one rail so with all that going on how should we think about your sales growth on the tie side.
Speaker Change: Perfect for 2025, and I forgot I can turn the line over thank you.
James Mcgarrigle: Yes, Thanks James.
James Mcgarrigle: Thinking about our rail business, if we go back to our discussions at our Q3 conference call. You know we came out of the first nine months of the year with strong organic growth.
James Mcgarrigle: We were guiding a softer fourth quarter.
James Mcgarrigle: Understanding that it was timing within the year.
James Mcgarrigle: We did finish the year with 6% organic growth.
James Mcgarrigle: And we did have the opportunities to <unk>.
James Mcgarrigle: Sell more products that were unplanned demand from our customers.
James Mcgarrigle:
James Mcgarrigle: Need to acknowledge that our customers have options to to purchase pies, where theyre at a contract or out of sequence. So we're very pleased that they came to Stella Jones' four due to quality and the service of the products our team executed.
James Mcgarrigle: Perfectly to be able to turn around very tight deadlines just to support our customer needs. So that being said we finished the year as I expect.
James Mcgarrigle: Commented or expectation with 6% organic growth. Nonetheless, we still believe that going into 2025, we would be.
James Mcgarrigle: Low single digit or could be slightly better as long as they awarded.
Speaker Change: Thank you.
James Mcgarrigle: My pleasure James.
Speaker Change: Our next question will be from <unk> <unk> at <unk> capital markets. Please go ahead.
Speaker Change: Yes, good morning, everyone.
Speaker Change: Just to come back on the Youtube people are with respect to the mid single digit growth.
Speaker Change: You mentioned that it's mostly volume, but when I look at the second half performance in 2024.
Speaker Change: You you were it was still very decent so I'm just wondering what makes you confident that the volume can be in the mid single digit in 2025 given the.
Speaker Change: Just wondering about the cadence.
Speaker Change: Whether it should be more skewed toward the second half of 2025, given the tough compare for the first time.
Bruno: That's a good point thank you Bruno.
Speaker Change: So.
Speaker Change: Maybe just for the general audience.
Speaker Change: We did readjust our guidance last year. So we did have softer volumes in Q3 and slightly softer volumes again in Q4, we adjusted our guidance. It was shooting for that mid single digits going forward, So where we are.
Speaker Change: We're confirming and reiterating our views that this morning with regards to that when I look at the the demand for our customers for the for the coming year.
Speaker Change: There are some strong strong demand for the maintenance and replacement programs. We do have some new customers as I mentioned in my no for 2025, which will contribute to that.
Speaker Change: To date, we've seen some some healthy activity and in certain markets, Texas for example, where oilfield seems to be to four projects in the oil field seems to be going strong.
Speaker Change: We're seeing increased quoting activity so all of that.
Speaker Change: Together, we still feel that it's a good target for us to achieve and to strive for.
Speaker Change: Could it be skewed a bit more to the back later half of the year.
Speaker Change: I want to say, yes.
Speaker Change: We've had a harsher winter so far this year it has slowed down.
Speaker Change: To some extent in the northern part of North America, but as spring kicks in I would expect things to resolve itself and hopefully also.
Speaker Change: Economic uncertainty, we would or unknowns would be a piece in the next few months and we have a better understanding of the landscape for the balance of the year.
Speaker Change: Okay, that's great color and just moving on the railway ties you made great comment about the demand for class one going into 2025, and obviously the moving parts, but when we look at the short lines. There are some uncertainties with respect to.
Speaker Change: The funding so I was curious to know your your view about what we should expect from the short lines going into 2025, especially given them or are favorable.
Speaker Change: Pricing.
Speaker Change: Okay well.
Speaker Change: Today, we haven't seen so we've seen some continued active quoting for the short line Oh four according to the commercial business that as an entire space, we haven't seen anybody pull back our purchase orders. So there's just still some some confidence out there that those projects will come through.
Speaker Change: Sure.
Speaker Change: Also a reminder, or our capacity is it mix of call. It 70, 30%. So as soon as we hit that 30% of our capacity in the balance of all of our capacity is also dedicated to serve as class one customers that have that noted the bigger the bigger volume in the industry. So there's always a bit.
Speaker Change: <unk> effort there so when we typically get the volume we need out of the due to commercial business at the margins that we're looking for so I'm not as concerned since we've also done dessert mentioned a few minutes ago. Some investments in certain of our plants and it will continue to do so in the coming year.
Speaker Change: There's more opportunity in that commercial space will be able to execute on that as well so I feel quite confident actually with our with our network at this point in our capability to address the market.
Speaker Change: Okay, that's great and maybe last one for me in terms of capital allocation you've been disciplined.
Speaker Change: You are increasing the dividend by 11%. So it implies that there is about 85 million of buyback in order to achieve the 500 million target for shareholders, which would be.
Speaker Change: Below 2022 2023, we.
Speaker Change: We are mindful of the leverage ratio that went up because the FX, but you also talked about and many of Fortunately T. So I would be curious to get more color about the size of the many unfortunate these that you're looking at right now and given that the on the utility side that you've been talking about.
Speaker Change: The transmission and artwork.
Speaker Change: I'm just mindful about the tariff whether it's something you should be taking into account.
Speaker Change: May be waiting to see more clarity before.
Speaker Change: Going into those vertical.
Speaker Change: <unk>. Thank you.
Speaker Change: I think think of it a lot to unpack there in your question and I'm going to try to hit the major points. So with regards to the size of M&A.
We're not going outside our traditional range. So it's always been between the.
Speaker Change: I don't know that.
Speaker Change: The 40 to 140 million 50 million U S dollars and so there's a wide range of off target that where we have opportunities to consider so I think for now that's what it looks like.
Speaker Change: You are right in asking the question there could be some more sizable into the future, but I think what we're looking for it and today is a <unk>.
Speaker Change: Good investment or a good return on capital solid management team and strong knowledge of the business to help us continue to grow with you or with regards to your question on tariffs. Obviously it is top of mind as we do due diligence, where our where the raw materials are sourced were already shipped to where does the distribution landscape and what is that.
Speaker Change: The city of <unk>.
Speaker Change: Our sensitivity to pricing for customers, who are their pass through clauses and what what is the perception on.
Speaker Change: The market if there is some pricing adjustments for these products. So my assumption you are looking at these M&A is is that whatever tariffs may do there will be a pass through the.
Speaker Change: Costs will be borne by our by the end customer.
Speaker Change: Okay. Thank you very much for the time.
Speaker Change: My pleasure. Thank you.
Speaker Change: Once again, ladies and gentlemen, if you do have any questions. Please press star followed by one on your Touchtone phone.
Speaker Change: Next question will be from Michael Stockholm at TD Cowen. Please go ahead.
Michael Stockholm: Thank you good morning.
Speaker Change: Good morning, Mike.
Michael Stockholm: Good morning, Eric and Savannah.
Michael Stockholm: First off just wanted to get a bit of a clarification on the some of the details you provided around the composition of the organic growth in the utility Poles.
Michael Stockholm: Business in the fourth quarter.
Michael Stockholm: You suggested that contract volumes were stable.
Michael Stockholm: Year over year, I think it was sold out of it that referenced a volume decline of 4% was that on an overall basis volumes across both contracted and non contracted business or was that a comment specifically about the non contracted piece of how much that was down.
Michael Stockholm: So it was that the comment was for the overall utility coal volumes.
Michael Stockholm: Okay perfect.
Michael Stockholm: And then as we look forward.
Speaker Change: Again from an outlook perspective on pause for organic growth talking about mid single digit it sounds like it's mainly volume, but can we just sort of unpack that and.
Speaker Change: Can you talk a little bit about what your expectations are both contract market versus non contract and then.
Speaker Change: Both from a volume and pricing perspective, like how youre thinking about.
Speaker Change: It all gets you to the sort of mid single digit type level.
Speaker Change: Okay.
Speaker Change: So I want.
Speaker Change: I do think we would expect some some volume gains from our contract customers.
Speaker Change: Better part actually sits.
Speaker Change: We have a long term relationship with them and we have ongoing discussions the spot market fees. You know there's always demand. It just depends on how tight the pricing is going to get and how much do we want to chase those those projects.
Speaker Change: We feel that they're going to come in.
Speaker Change: Lower margin piece. So that's why we're trying to balance it out so our my preference is to work with our ongoing customers. We work very hard to build a very extensive list of customers with very longer term contracts, we definitely need to make sure. We service them theyre very generous in sharing information with us.
Speaker Change: And then obviously the.
Speaker Change: Uh huh.
Speaker Change: The spot market, which we also have great relationships.
Speaker Change: You're a bit softer now.
Speaker Change: But I also want to remind you that we do have a couple of new customers. This year that transitioned to a long term agreement as well there were not supplied by stellar job last year and there will be 25.
Speaker Change: So it's two years in a row now that we've actually had the opportunity to increase our customer list. So the demand is obviously.
You should think about our results fluctuating, but the good news is that we keep securing customers and winning the confidence of the industry is our ability to service them. So for me, it's all very positive sentiment.
Speaker Change: Okay. That's helpful. In the past you've talked about the spot market for utility Poles being roughly 30% of the business I think in the balances contracted it sounds like that Ken.
Speaker Change: Can move around depending on what's happening within the market, but is that still sort of the rate roughly the right range to think about between the in terms of the mix between the two.
Speaker Change: I would say a bit lower its probably closer to the 25 are at this point Michael is as I mentioned, we've been increasing our Uh huh.
Speaker Change: Our engagements or promise to customers with long term long term, our long term agreements or the proportion of that is shifting slightly.
Speaker Change: Okay.
Speaker Change: And then earlier in the call you talked a little bit briefly about inventory levels and suggested that within pulls again and that may be one of the reasons why there could be some.
Speaker Change: Some pricing pressure within the spot market in particular can you just maybe elaborate on on <unk>.
Speaker Change: Industry wide inventory levels, where they sit now versus say six months ago, and if you've seen although they may still be elevated like are you seeing any trends that would suggest there is.
Speaker Change: Some declines in inventory levels, just a bit more detail there to help us understand what's going on to be would be helpful.
So you're right the comment was about the digital industry and.
Speaker Change: It is it's more of a.
Speaker Change: Our sentiment the actual facts of the industry does not have an association like if you look at the railway tie Association you see that.
Speaker Change: The tight maintain in last year were actually slightly up.
Speaker Change: So that I can do I can see how well we track versus that what do you think about the utility pole business, we don't necessarily see that but we do know that there's obviously there is some new capacity available in the market. So theres at least one more when new training facility. Another competitor built last year that that is online and.
Speaker Change: My understanding is they do have a healthy level of inventory.
I guess that desk and it is also the case for ourselves we will be looking to to.
Speaker Change: To rationalize our inventories in the course of the year.
Speaker Change: That's where my sentiment is coming from.
Speaker Change: Pretty well base, but I don't I can't have.
Speaker Change: Provided any any strong or are solid facts to that effect.
Speaker Change: Okay. That's helpful. And then just sort of two more housekeeping items I guess first off 2025, capex expectations, what would those be.
Phil at anywhere between 75 and $85 million is what we know what it's a regular capex spend.
Speaker Change: Okay.
Speaker Change: And then the other losses line that I think you referred to I think it was a comment around the fourth quarter, but.
Speaker Change: It was a little higher in the fourth quarter versus last year's fourth quarter, and then also on a full year basis $15 million.
Speaker Change: I know you don't you don't normalize or adjust for these things, but can you just explain what exactly is running through that line.
Speaker Change: It was a bit higher and is that likely to be coming back down in 2025.
Speaker Change: So, they're mostly I'll call onetime or nonrecurring events, Michael part of that is.
Speaker Change: We we.
Speaker Change: Have some waste disposals at one of our facilities.
Speaker Change: And.
Speaker Change: In.
Speaker Change: Nevada metallurgy.
Speaker Change: In Nevada that had a fire last year and as we are cleaning up debris and putting them aside since.
The debris wasn't contact with preservatives products.
Speaker Change: Needs to be disposed of in a particular way so now that we've sort of.
Speaker Change: Readjusted the facility sort of finished or are there the renovation of our fixed fixing up the repairing the damage that we ended up with a with products of disposal, we booked a remediation provision if you want or disposal provision so thats part of that.
Speaker Change: I know you guys some more color around there yes, the only other big items in there are basically write offs of some fixed assets.
Speaker Change: Hmm.
Speaker Change: Like I said that we continue to optimize the IRA I facility. Some of the older assets that were no longer around one to use are being written off so that's the other part of the other lawsuits with Chet.
Speaker Change: With regards to the amount of fill that.
Speaker Change: 5 million of that was lifting and within the total $15 million.
Speaker Change: Okay. That's helpful. I mean, I guess hard to predict but is it reasonable to think that it's not any higher than it was in 2020 for next year or into 2025.
Speaker Change: Okay.
Speaker Change: But deals are all should definitely be lower I think it was kind of exceptional this year as Eric mentioned because of the waste disposal lab removal costs are.
Speaker Change: And some of the and it's been a it's been a while since we've seen a bigger number than the others, but.
Speaker Change: Every year, we do the exercise of looking at looking at our assets.
Speaker Change: Different onetime events.
Speaker Change: We rationalize and we optimize how we do things and it is just to move.
Speaker Change: Better forward, I guess, but I would.
Speaker Change: Hard to predict the future, but I would think.
Speaker Change: It wouldn't be higher in 'twenty five.
Speaker Change: Okay, Alright, I'll leave it there thank you.
Speaker Change: Thank you.
Patel: Next is a follow up from <unk> Patel of CIBC capital markets. Please go ahead.
Speaker Change: Hey, Eric I, just wanted to come back to you under the title segment.
You referenced sort.
Speaker Change: Renegotiating prices is.
Speaker Change: Contract renewals play out better reflect some of the.
Speaker Change: Cost inflation.
What percent of the class one business typically comes up for renewal in any given year and then as part of this sort of margin improvement are you considering.
Speaker Change: Perhaps transitioning some of those relationships back to maybe a treated service model.
Speaker Change: That's a great question.
Speaker Change: Well the first part of your question in the next 24 months, we got four class one contract renewals that are coming out.
Speaker Change: Two actually got pushed out we're actually to be renewed last year got pushed out that this year and then.
Speaker Change: I've got two one over the next 24 months, we've got four contract renewals to to to negotiate.
Speaker Change: And after that to the second part of your question.
Speaker Change: A lot of things are on the table, yes, moving part of the volume trading services is definitely an option.
Speaker Change: As I said there are some customers that are looking for.
Speaker Change: Optimizing their own activities and theres, there might be a role for us to play in there. So we're definitely.
Speaker Change: Looking at how we could invest capital and what kind of return we can get to that and obviously always in the identity better servicing our customers, but also getting a greater share of their annual maintenance.
Speaker Change: A lot of.
Speaker Change: A lot of work ahead of us in the next two.
Speaker Change: Four months, but very exciting times, I think where we have opportunity to.
Speaker Change: To leverage the good work that we've done and maybe.
Speaker Change: Maybe Q4 was a small indication of the confidence of certain class one customers in the cellar jaws with additional volume.
Speaker Change: But yes, that's all.
Speaker Change: Reviewing the situation.
Speaker Change: Okay fair enough and Eric on the on the pole business, how much maybe near term demand lift would you expect out of California, just given that the wildfires there.
Speaker Change: Well yeah.
So we've already shipped some some products.
Speaker Change: The California region.
Speaker Change: But I guess, we also need to realize that certain parts of neighborhoods.
Speaker Change: Completely decimated so.
Speaker Change: Obviously.
Speaker Change: Houses and apartment buildings need to be rebuilt before we think about.
Speaker Change: But the volume we're going to sell so I think in this particular case it might get stretched out over a longer period of time simply because I think we need to understand how certainly originally had again rebuilding.
Speaker Change: Okay Fair enough and just a last question again kind of a tariff related I know in the past.
Speaker Change: You've been able to bring up southern yellow pine.
Speaker Change:
Speaker Change: Logs and treat them and sell them until the coal market in Canada is that something that you would sort of expect to put on pause the tariffs come into play or does.
Speaker Change: This is a sort of a margin profile still makes sense to do that sort of limited cross border flows that you do.
Speaker Change: So we always have the opportunity to do substitutions with its BC. So you know if there is some headwind and we can definitely transfer.
Speaker Change: Transfer back to some Canadian native species.
Speaker Change: We would also need to take a look at a closer look at the visit of Canadian government is going to put forward.
Speaker Change: So my understanding is in the U S. Government is just going to do a blanket tariff, Canada and it was with what we saw back in early February Canada had issued a list of products and our pull products were not subject to those terrorists know well.
Speaker Change: We'll have to see what is going to come up in the.
Speaker Change: The next few weeks, so we have options that as I mentioned.
Speaker Change: If we're going to mitigate any any potential situations, but we're also taking opportunities now in the last several weeks to move products into proper geographic regions just to help us support probably the next several months so.
Speaker Change: Even if tariffs comes it comes into effect in Illinois, and a months or when they come into effect.
Speaker Change: We will have a few more months to readjust and think through our strategy to supply our customers. So we have many options to mitigate those tariffs and again, it's not as significant.
Part of the business I guess move cross borders.
Speaker Change: It would be material.
Speaker Change: Any extent.
Speaker Change: Okay great.
Speaker Change: That's all I had thanks.
Speaker Change: Thank you Amir.
Speaker Change: Next we have a follow up from Michael <unk> TD Cowen. Please go ahead.
Michael Stockholm: Thank you yeah. This is a little bit specific but just thinking about your utility poles guidance.
Michael Stockholm: Mid single digit for 2025, I think there was a question earlier about cadence and you did say it could be a little more.
Michael Stockholm: Back half weighted but I guess, just given all of the focus from the market on that segment. If we look specifically at Q1.
Michael Stockholm: Is there any commentary you can provide around how to think about the first quarter. Specifically just so there's no situation here, where there was a misalignment between what youre trying to communicate and what the street is looking for.
Michael Stockholm: Right well, so obviously I don't.
Michael Stockholm: I will not comment on Q1 results. This morning, with Michael but winter is a good indication of a bit of a slower base.
Michael Stockholm: Especially a much harsher winter that we've seen in Canada in previous in previous years. So we would expect.
Michael Stockholm: Let's say Q1 to be either in line or maybe slightly softer than last year.
Michael Stockholm: Perfect. Thank you.
Matt: My pleasure Matt.
Speaker Change: We have no further questions in the queue. Thank you.
Speaker Change: Well, thank you Sylvia and thank you everyone for joining US today, we look forward to updating you on our first quarter call in May until then have a good day and stay safe.
Speaker Change: Thank you, Sir ladies and gentlemen, this does conclude today's conference call. Thank you for participating you may now disconnect your lines.
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