Q1 2025 Stella-Jones Inc Earnings Call
Thank you.
Good morning, and thank you for standing by. Welcome to Stella Jones' first quarter of 2025
Speaker Change: At this time, all participants are in listen only mode. Following the presentation, we will hold a question in the answer session. The queue up for questions by phone, please best start one and the moderator will contact you.
Speaker Change: If anyone experienced difficulties hearing the conference call, these best are zero for operator assistance at any time. I would like to remind everyone that this conference call has been recorded on Wednesday, May 7, 2025.
Speaker Change: 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.
Speaker Change: Alshar results in a different material from the views expressed today. For further information on this risk and uncertainties, please consult the company's rather than follow-ins on
Speaker Change: Additionally, during this conference call, the company may refer to non-GAAP measures, which have no standardized meaning underGAAP and are not likely to be comparable to similar measures presented by other issuers.
Speaker Change: For more information, you can purchase the company's latest MDNA available on Stella Jones website and on Cedar Plus.
Speaker Change: Lastly, we have prepared a corresponding presentation which we encourage you to follow along with during this call. Adam Hanna-Cole over to Mr. Eric Vachon, President and Chief Executive Officer of Stella Jones, Eric.
Thank you, Eena.
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 of Stella Jones.
Speaker Change: Earlier this morning, we issued our press release reporting our results for the first quarter of 2025.
Speaker Change: Along with our MDNA, it can be found in the Investor Relations section of our website at www.stella-jones.com as well as on Cedar Plus.
Speaker Change: As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated.
Speaker Change: In Q1, we continue to deliver solid product margins and maintain a robust financial position.
Speaker Change: Either as ongoing macroeconomic headwinds, unfaithable weather conditions, and a shifting landscape for our railway-side business weighed on volumes. [inaudible]
Speaker Change: We have a resilient business with strong core fundamentals which enabled us to manage through the current dynamic environment while executing on our strategy to further capture infrastructure growth.
Speaker Change: Our expansion into the steel transmission markets announced earlier today enhances our resiliency by enabling us to better serve the growing needs of our infrastructure customers.
Turning to a performance review of our main product categories, starting with utility poles.
Q1 followed the same trajectory as the last two quarters.
Speaker Change: Are utility customers continue to affirm their critical needs for poll replacements?
Speaker Change: While utilities are committed to the timely maintenance and upgrade of the electrical grid, their capital deployment strategies and timing of investments remain influenced by the ongoing economic challenges that have persisted since the second half of 2024.
Speaker Change: We are, however, encouraged by the increase in quoting requests, and we continue to anticipate stronger volume performance in the latter part of the year.
Speaker Change: In terms of spot pricing, pressures are expected to persist in certain regions pending increased demand.
Speaker Change: For railway ties, sales in the first quarter were impacted in large part by a Class 1 customer, now treating more of their railway ties internally.
Speaker Change: While this shift will result in lower sales going forward from this customer, we are executing on opportunities to strengthen our relationships with other class-one customers, and we anticipate to recover the volume shortfall.
Speaker Change: The railway Thai landscape is evolving with customers looking to Stella Jones to deliver meaningful solutions to address their demand and optimize their business model. We will leverage the strategic shift to improve the profitability of this product category.
Railway ties remain as table source of revenue.
Speaker Change: Randental Lumber's performance this quarter was marked by the slower start to the exterior home improvement season.
Speaker Change: While volumes were down due to unfavorable weather conditions, the man for the remainder of the year is expected to trend favorably.
Speaker Change: Even amidst the dynamic economic environment, our customers have expressed confidence in the demand outlook as the home remodeling spending is anticipated to be solid.
Speaker Change: The company remains confident in the long-term prospect of each of its main product categories, and we are excited to further capitalize on the growing North American infrastructure demand with the acquisition of Lockwell.
Speaker Change: A leading designer and manufacturer of lattice transmission towers and steel transmission poles, Lockwell will provide Stella Jones a presence in the high voltage transmission space where wood utility poles are not commonly used.
Speaker Change: This is a step-changed acquisition that allows us to leverage our expansive sales and distribution network to offer a more comprehensive suite of products to customers.
Speaker Change: It also provides Stella Jones with new growth opportunities in steel transmission structure markets.
Speaker Change: The addressable steel transmission market currently exceeds $5 billion in annual sales, and its growth potential is supported by a robust pipeline confirmed and newly announced transmission projects.
Speaker Change: With an expected backlog of transmission projects and nearly 45% of North America's transmission and distribution infrastructure nearing the end of its service life, the T&D market is poised for sustained growth.
Speaker Change: Our strategic presence in this attractive market positions us well to capitalise on these opportunities.
Speaker Change: We welcome Lockwell's approximately 220 employees, Stella Jones, and look forward to a bright future of Federal Serving North America's utilities together.
Speaker Change: With that, I will ask Silvana to provide a more detailed overview of our first quarter financial results.
Silvana Travaglini: Thank you, Eric, and good morning, everyone. Fail for the first quarter were down 5% organically, but we continue to deliver a solid EBITDA margin of about 18%, excluding the 5% margin impact from the insurance settlement recorded in Q1.
Silvana Travaglini: While utility posts and residential lumber sales were relatively unchanged on an organic basis, Cuban sales were impacted by the decrease in the railway tie volumes when compared to the same period last year.
Silvana Travaglini: For utility polls, we generated 419 million dollars in sales in the first quarter, up from 402 million in the same period last year.
Silvana Travaglini: Sales benefited from the contribution of newly secured business and stable contractual maintenance demand.
Silvana Travaglini: But similar to the trend observed since 2003 last year, the pace of purchases by abilities and the timing of projects were un favourably impacted by macroeconomic factors which influenced the capital deployment strategies of our customers.
Compared to Q1 last year, volumes are down 4 percent.
Silvana Travaglini: Lower, quarter over quarter volumes for polls were more than offset by favorable price pricing and the positive impact of currency conversion compared to the same period last year.
Silvana Travaglini: Sales of railway ties were down 14% organically disquartered to $208 million. The decrease was almost all attributed to lower volumes.
Silvana Travaglini: Class 1 volumes decreased due to a shift by rail world to the internal treating of the railway ties, while non-class 1 volumes were largely impacted by delays in projects which are expected to be recovered in the second quarter. Non-class 1 demands remain strong. [inaudible]
Silvana Travaglini: Residential lumber sales were relatively stable at $88 million in 21 of 2025, compared to $87 million in the first quarter last year.
Silvana Travaglini: 21 sales benefited from the increase in the market price of lumber but volumes were down, challenging weather conditions in the first quarter of 2025 contributed to lower volume, especially when compared to unusually favorable weather during the same period last year.
Turning now to profitability.
Silvana Travaglini: EBITDA increased by $23 million to $179 million in Q1 of 2025.
Silvana Travaglini: The increase was attributable to the settlement of an insurance claim of $38 million for a 2023 prior at one of our facilities, offset in parts by a decrease in sales volume.
Silvana Travaglini: Despite liberal volumes, the company continues to generate a strong evident margin.
Silvana Travaglini: Excluding the impact of the insurance settlement, the first quarter ever done margin of 18% was lower than the record 20% generated in the same period in 2024, but in line with the annual margin, we have generated over the last two years.
Tony Patel, Ashblow,
Silvana Travaglini: During the quarter, the cash flow used in operating activities was $16 million compared to $62 million used in Q1 last year. This improvement was largely attradable to lower inventory.
Silvana Travaglini: We started the year with a higher level of inventory, as a result of the net investment in inventory in Q1 with lower and limited to the seasonal build of residential lumber inventory.
Silvana Travaglini: We continue to expect to end the year with lower levels of inventory.
We remain committed to a balanced approach to capital allocation.
Silvana Travaglini: Over the last 12 months, we generated cash from operations of about $450 million, deploying about $145 million towards investing in our business, and a similar amount of about $150 million to shareholders return.
Silvana Travaglini: The remaining capital of 155 million was used to bolster our liquidity.
Silvana Travaglini: At the end of March, we returned $380 million of capital to shareholders out of the $500 million committed to the 2023 to 2025 period, and yesterday, our Board of Directors approved a quarterly dividend of $0.31 per share.
Silvana Travaglini: We ended the quarter with almost $700 million in available liquidity and a net debt to ever-duration of 2.6 times unchanged from the ratio at the end of the year.
Silvana Travaglini: A racial above-the-target range is typical in the first quarter due to the seasonal working capital requirements.
Silvana Travaglini: With a continued focus on profitability and working capital management, the leverage racial is expected to be within the desired target range by the end of the year.
Silvana Travaglini: After quarter-end, we entered into a definite agreement to acquire a law quell for an initial consideration of $58 million. This transaction is expected to close today.
Silvana Travaglini: We are also planning to invest in a CAPEX program, totaling about $15 million to increase lock-ups current output and enhance its operational efficiency.
Silvana Travaglini: Our strong balance sheet allows us to execute on strategic world initiatives like O'Lockwell and continue to pursue value-ocreative acquisitions core strong world strategy.
Silvana Travaglini: 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 at success in 2025.
Eric Vachon: I will now turn the call back to Eric first calls in remarks.
Thank you so that I'm-
Eric Vachon: Q1 has unfolded largely as anticipated, and at this stage, we maintain our guidance and remain confident in meeting or financial objectives, which will also benefit from the contribution of the Lockwell acquisition.
Eric Vachon: As a reminder, Stella Jones exposure to tariff is limited, and while other macroeconomic conditions
Eric Vachon: Could continue to pose some challenges we remain vigilant and prepared to adapt our strategies as necessary.
Eric Vachon: Our continued focus on acquisitions remains a cornerstone of our growth strategy.
Eric Vachon: The acquisition of Lockwell exemplifies our commitment to expanding our offering and enhancing our market position.
Eric Vachon: We are dedicated to pursuing acquisitions that are accretive and complementary to our current infrastructure portfolio, further strengthening our overall business resilience. Thank you very much.
We remain steadfast in our pursuit of growth.
Eric Vachon: We look forward and sharing more information at our next investor day schedule for later this year.
Eric Vachon: Thank you for your continued support and trust in Stella Jones's vision of connecting communities through stronger infrastructure.
Eric Vachon: As a reminder, later this morning we will be holding our annual meeting of shareholders.
Eric Vachon: I would like to take this opportunity to recognize two outgoing board members who will not be seeking
Eric Vachon: Mr. Jim Manzi in his decade-long tenure on our board helped drive a global compensation philosophy that was anchored in performance and ownership.
Eric Vachon: And Mr. Rodry Harris, member of our board since 2020, who has made invaluable contributions to the board's audit and environmental health and safety committees in his time with us.
Speaker Change: On behalf of management, I would like to thank both of them for their duties as guidance and their service to our board and its committees.
Eric Vachon: This concludes today's prepared remarks, and I will now open the lines to questions.
Speaker Change: Thank you, Eric. As a reminder, to give up your questions by phone, please press star one on your telephone keypad and should you wish to cancel your request, please press star for the two. If you're using a speaker phone, please list the handset before pressing any keys.
Speaker Change: Your first question comes from the line of Hamir Patel from CAPC Capital Markets. Please go ahead.
Speaker Change: Hi, good morning. Eric, could you comment on how the margins of the Lockwell business would compare to your consolidated margins and also how they compare with with wood pulse?
Speaker Change: So, I would say very similar, Hamir, you know, and that that was one of the factors that made this business appealing to us, so very comparable.
Amir: And Eric, sorry, it's comparable to the wood poles, which I believe are higher margins than your consolidated margins. Would that be fair? All right, all right.
Amir: Okay. And then just with the planned 15 million capital investment that you have planned, you know, what sort of margin uplift and capacity increase would you expect from that?
Amir: From the capacity standpoint, we expect a double the capacity of the same footprint in the Fisodi-Khandjak Kovek, and obviously through it, the same footprint will definitely increase the margin by a couple of basis points.
Amir: Great. And I know the sales disclosure you gave for Lockwell was September 30th, 2024. You speak to maybe how the...
Amir: I trade impacts of affected, I think about the sales from that business this year and maybe the growth rate for steel pulse differs all that much from wood pulse.
Amir: Yes, no, certainly the, so the September figure is actually coincides with their fiscal year, so it was a rid of the results of the last fiscal year which was September . [inaudible]
Amir: Going forward, the backlog of your book is very healthy and I work for a bit 24 months going out, so very optimistic about the outlook for that business and the demand in general.
Speaker Change: Great. And just a last question I had, Eric. Could you speak to the input-cost dynamics with these steel structures and how the pass-throughs typically work there? And, you know, if there's [inaudible]
It's a lag that we should think about.
Speaker Change: So, the way the contracts are structured, there are indexes for steel that are associated with the product. So, all of the risk on fluctuation of the input material is actually...
Speaker Change: I passed on to the customer, so it's incorporated some very little exporter from that standpoint. And Hamir, I apologize, you had another part to your previous question, which was regards to Tarris.
Speaker Change: To date in my last discussion with the team as of, you know, last Friday.
Speaker Change: Tyrus are passed onto the customers and orders are keep coming in and it's not a it's not a thing that you can issues most of most of the suppliers to the US market are actually all outside of the US.
Speaker Change: So Hofshore and Canada. So, everybody's on their level playing field from that perspective and tires are being passed through, because there's a pain for them.
Speaker Change: Great. Thanks, Eric. That's all I had. I'll turn it over.
My pleasure. Thank you, Amir.
Speaker Change: Thank you. Our following question is from James McGarragle from RBC. Please go ahead.
James Mcgarrigle: Hey, thanks for having me on and congrats on the detail units today.
James Mcgarrigle: Yes, I was just wondering if you can give us, you know, range of how you expect that even to evolve.
Speaker Change: During the year, I know coming into the quarter, you don't call it consensus as well as that 640, you announce the acquisition, you had the insurance settlement gain, but are you comfortable with that number and any color you can provide, you know, especially as it relates to the polls and the rarely time business. .
Speaker Change: Certainly, so obviously you mentioned the key topics, excluding the insurance proceeds. We maintain our objectives to be over 17% as we stated previously very comfortable with how our business is heading for the balance of the year.
Okay, and then just on the...
Speaker Change: Gauth, it'll be the same though, what we announced today is essentially probably the biggest part of the impact going forward.
Speaker Change: So it's now sort of included in the way we view the balance of the year. And as I mentioned, you know, in my remarks, we're currently working on a few projects that will help us compensate the shortfall.
All right, thank you all, I'll turn the line over. [inaudible]
Thank you, James.
Speaker Change: Thank you and your next question comes from the line-up, Benoit Poirier. From the joy that I know, please go ahead.
Yes, thank you very much. Good morning, everyone.
First question.
Speaker Change: In terms of organic growth, how should we be thinking, Erik and Silvana, for utility pull and railway ties, obviously given the macro environment, but also maybe given the tough comparison versus Q2 last year? I would be curious to have a little bit more color around those two segments for Q2.
Speaker Change: Well, you bring up a bit, quite Q2 last year with a very strong quarter, so I would...
Speaker Change: I would suggest probably a flatish performance with regards to that. I did mention in our in our comments that you know we believe.
Speaker Change: Mid single digit growth for the year, for railway ties, you know, because of one customer bringing their production internally, and that's working to re-adjust and compensate the shortfall, it would most likely be flatish for the year, Benoit.
Speaker Change: Okay, that's perfect. And just with respect to the shortline, what is the latest status in terms of funding with the Christy given the whole new administration? [inaudible]
Speaker Change: That's a good question. I mean, no real changes as the last time we spoke. I mean, there were...
Speaker Change: Discussions earlier this year, earlier in the quarter about the U.S. government, you know, thinking of...
Speaker Change: Changing the structure of those crazy grads, ultimately they were not impacted or changed.
Obviously...
You know, our comments are a bit tinted with...
Speaker Change: on certainties and, you know, evolving macroeconomic situation that would be one of them, so...
Speaker Change: There is some cautiousness there with some short lives, but definitely still a very healthy market, strong demand, all in all. So everybody has to work with what they know today.
Speaker Change: We're in Q2, it's the peak season for maintenance for all our product categories at this point and short lines have to seize the opportunity to do some work so we're still seeing some very healthy demand in the non-class 1 business.
Speaker Change: for seeing more M&A opportunities with steel pole and any parts about the leverage situation and the welling mist to go higher than the three terms for their right ones.
Bill Transmission, a market.
Lockwell, Odyssey, and the transaction has been done. Thank you very much.
The expansion over product offering to our customers.
Speaker Change: It comes with the solid management team, very happy to see them come along with us.
You know, hope for this right, so there definitely, definitely plans.
to expand the current footprint.
to continue pursuing M&A in this space.
Speaker Change: And we're definitely not necessarily ruling out any potential expansion in the US. Obviously, we need to do some homework here to properly understand what the market has to offer, but we understand currently that there's lots of projects that are being structured and more than used to come on that front. But we're looking at all possibilities to keep growing this business, as I said. But, you know, we're looking at all possibilities that are being structured and more than used to come on that front.
5 billion sale, annual market, the very attractive one.
Speaker Change: Okay, and just curious, maybe Silvana from the capital deployment in terms of leverage given you're already at 2.65. I know you typically target 2.5. It's a stable business of just wandering the willingness maybe to go up a little bit more from the leverage standpoint.
2.5 that we would.
Speaker Change: You know, be willing to deviate above it for growth opportunities or strategic acquisitions. But currently, you know, like we mentioned, we are expecting, you know, to focus on our working capital and our inventory management, so we are expecting, you know, a reduction in our inventory. So with that and with this acquisition, I don't see any issues for us to be good.
Speaker Change: Silveston, the 22.5 times range before the end of the year.
Excellent. Thank you very much for that time.
Thank you, Benoit.
Speaker Change: Thank you. Our following question is from Michael Tupholme, from TD Cohen, please go ahead.
Thank you. Good morning.
Good morning, Michael.
Speaker Change: Yeah, so it's about 30% Canada, 70% US currently. It is project-based, so definitely it can shift over time depending on, you know...
Would Utilities Providing the Project?
Speaker Change: What's interesting is, Lockwell has been able to establish relationships with utilities across North America, so definitely a well-balanced...
Speaker Change: A customer list, which is very attractive, and a customer list that is common to Stella Jones, which is also exciting for us, but currently the mix is 37.
Speaker Change: Okay, so then in terms of the historical sales growth, like you're coming about project-based, does that mean there's some volatility here and it's not...
Speaker Change: It's sort of differs from your wood poles business where we've seen kind of, you know, it did it.
Speaker Change: It's relatively steady growth over time. Is it different characteristics with this business?
Speaker Change: So looking at historical sales, you know, they have a...
Speaker Change: A well-balanced portfolio customer that has brought inconsistent business. So that's why I highlighted that in my previous answer. So they have not seen like balance cycles. It's stable and that can actually fit. Thank you very much.
Speaker Change: He's actually growing for the last 18-24 months, as we...
We keep hearing of transmission projects, announcement across North America.
Speaker Change: including in Canada and Quebec and Ontario as well, a lot of activity going on there. So the logbook for the next several quarters is actually full, so happy to say that a lot of the capacity is...
Speaker Change: currently sold for for the next year, so very excited about how that management team approaches the market, so they figured out a very good model that drives consistent revenue. Thank you.
Okay, perfect, and then just...
Speaker Change: The capacity expansion you're undertaking, so is the plant near capacity at present and then this will double it, or is there still room? [inaudible]
Speaker Change: within the current footprint and but on top of that you're doubling in.
Speaker Change: With what's being observed right now in the markets and the local orders and confirmation of orders coming in, capacity is sold out, and the intent of the investment is to double the capacity because
We can actually...
Bill, that capacity pretty quickly, as well as all, you know.
Speaker Change: Give it till the end of this year until we know we got a product going, but I do feel that we'll have that entire capacity including the expansions fully sold by the end of the year.
Speaker Change: Okay, great. And then, sorry, one more on Lockwell. Just in response to some Benoit's questions you were talking about.
Speaker Change: The potential to continue growing in this steel structures market and potentially additional M&A, so...
Just want to sort of get expectations. Expectations.
Speaker Change: Set properly here is the idea to continue on with that sort of, you know, imminently and right away, or is the idea just as I'm more of a comment over the medium to longer term once you sort of digest this acquisition and understand what you really bought here.
Yes.
Speaker Change: So, I mean, the first step obviously is to, you know, get our Capix project going.
Speaker Change: So, we've already done all the engineering work with the Lockwell team. We've got, you know,
Speaker Change: Purchase orders ready to sign. We're just waiting to complete the acquisition. So I'm hoping to start seeing some of the equipment rolling into the facility. Let's end Q4 in early next year.
Speaker Change: So, as that is on for, they will be then looking out our option. So...
You know, we can...
Typically, they're no significant or sizable players.
Speaker Change: But there are some players here in Canada that would be a nice opportunity for us as well. So we're definitely looking at our options. I don't want to go light things speed into this, but we definitely want to make sure that we keep a good cadence.
Speaker Change: To keep building on the momentum we have and keep growing our offering to North America's utilities.
Speaker Change: Okay, perfect. And then just a couple about the existing business. So in utility polls, negative 1% organic growth in the first quarter, can you break that down in terms of the composition and price versus volume in Q1?
Speaker Change: Yeah, so volume, I have to believe Silvana stated volume is about down 4%. You're a year and then it's lasted by Pradier, it's time that takes office.
Speaker Change: Okay. And then, if I got everything you said earlier, the expectation for Q2 is broadly flat, organic growth in polls, but you still feel comfortable at that mid-single digit, organic growth for the full year, suggesting...
Speaker Change: You're going to see most of this growth or all this growth coming in the back-off.
Yep.
Speaker Change: And is that because that's that's full your number then? [inaudible]
Speaker Change: I think previously the expectation was most of that full-year mid-single digit was going to be volume driven, but given sort of-
Speaker Change: You know, that hadn't been the case in Q1 like it is the is the full year composition shifting a little bit and how does that look as you look a little further out to 2026 like do you still think it's going to be mainly volume or is there a pricing element here. [inaudible]
Speaker Change: Yeah, at this point, it's all going to be volume. You know, we have different dynamics as, you know, we explain on the pricing depending on contract or not contract. So at this point our growth is going to be anchored in volumes for the balance of this year as for 26.
Okay, all right, I will leave it there. Thank you.
Thank you, Michael.
Thank you, and their next question comes to the line of Martin Pradier from Veritas Investment Research. Please go ahead.
Speaker Change: Yes, hi. Thank you. Thank you for taking my question. Is my understanding correct that the real learning says 40 million if I exclude insurance?
Speaker Change: You mean Ebedoa? No, you're not income, you're not income was 93 million, but I think it's 53 million insurance.
Accessment,
Speaker Change: So, the insurance assessment is at $30 million on the evidence front. So, basically, you know, once you tax affected, if you want to look at it that way, you know, probably you produce our effective tax rate, it's probably closer to $30 million impact.
Third million, Nareen Kamutvi, Oslo.
Yes, because 38 was basically an ever-that impact.
What's it making money?
Pardon me? What's it making money this company?
Margins are comparable to our e-gilly pool business.
Speaker Change: Yeah, but was it positive on the net income side? That's my question.
Of course, of course, it's rather than an income. [inaudible]
Okay, thank you very much.
Thank you, sir.
Hi Ericsson, good morning.
Speaker Change: Eric wanted to come back to the comments you made around the sold-out capacity at Lockwell, so does it mean that it's the projects on the transmission side are not being...
Speaker Change: Impacted by the same sort of delays where I see any distribution or is it just sort of the staggering of projects which is you know more driving kind of the visibility in the short term right now.
Thanks.
Divelius Astagring of Projects
Speaker Change: But there's also all the pressure that's being put on our customers, you know, by data centers requiring more and more energy. And therefore, as they're building capacity in different projects, DNA transmission links.
Speaker Change: So it's all of this dynamic currently that is creating a very fairable trend for the transmission business.
Speaker Change: Yeah, no, 100 percent, I mean, it looks like a great transaction. And in terms of going back to kind of, you know, the quote unquote, like the support operations, like between sort of the interest rate pressures, you know, permits. [inaudible]
Speaker Change: What are the pain points right now at the customer level? And I guess what gives the confidence that the back half of the year will relieve some of these pressures.
Yeah.
Speaker Change: Well, obviously there's ongoing discussions with our customers in the project that we're quoting that is showing some healthy momentum going forward.
Speaker Change: Ben Time, listening to our customers that are public, have to say, if I look at, you know, in our-
Speaker Change: You know, have capex ambitions in the next four to five years.
Speaker Change: that are in the billions of dollars. So the all acknowledged that there is a need to...
Speaker Change: Strengthen, in hardened, the distribution grid, the acknowledge that they also need to, you know, invest in degenerating assets and require the transmission assets of people to support, you know.
Industry, industrial business, but it is our communities.
So, you know, all in all, I do agree that...
Speaker Change: In our statement, there are some headwinds with uncertainties and probably higher interest rates in the U.S. than where customers would like or what the established their initial capex was.
Speaker Change: But nonetheless, every quarter, they reaffirmed their intentions to spend these billions of dollars, you know, over this four to five year period. And it sort of matches up when we have conversations with them and actually very excited now to be able to go meet them today and talk about the transmission needs going forward.
Speaker Change: So that's the reading out on the market right now.
Speaker Change: I know, let's start with this. It's for me. Thank you. I appreciate your time.
Thank you. Thank you.
Speaker Change: Thank you, and your next question counts on the line of Jonathan Goldman from Scotia Bank. Please go ahead.
Hi, good morning team, and thanks for taking my questions.
Jonathan Goldman: Maybe just a husky and want to start. How much did weather impact, poll, and railway tie volumes in Q1?
Oh, well...
Jonathan Goldman: Very hard to quantify. There is some slowness there. We don't split it out. It's actually a very difficult exercise.
David.
Jonathan Goldman: January was extremely cold and February had significant snowfall, so it does slow down the activities for all three product categories for sure, but very hard to qualify compared to last year which was mild and spring came in very early, but I apologize it's not something that we actually...
Carvout and very difficult to do so actually.
Jonathan Goldman: No fair enough, and Eric, he reiterated the expectations for the mid-single-digit growth in polls this year. I think the original guide you gave back in November was 6-7%.
Speaker Change: And you did address this earlier, but that implies a piece can be acceleration in the second half. I mean, you did talk about the customers and what they're putting out in terms of darkness, but what are you assuming for the macro environment to hit those numbers in the back half of the year? [inaudible]
Well, where? [inaudible]
Speaker Change: Honestly, we're sort of saying a steady state from what we've seen so far, right? It's very…
Speaker Change: A lot of it is hard to predict, obviously, you know, with decisions that are remaining with the US administration. Thank you very much.
Speaker Change: So, you know, the only subject we can take is the current state we know with the context of tariffs that we know today, and the current level of interest rates. Now, you know, our customers...
Speaker Change: Have, you know, are taking all of this into account and themselves are using similar assumptions. And, you know, if anything happens in a favorable sense, interest rates dropping, for example, well, literally that would definitely create a more positive momentum. Thank you very much.
Speaker Change: Okay, definitely. And then on the breakdown of price and volume and railway ties, I think it's a disclosure said it was predominantly volumes, but do you have the exact breakdown? The breakdown?
You can assume it's all volumes, honestly.
Speaker Change: Okay, and then one more for me on the Class One customer in sourcing. Can you speak some of the factors that may influence their decision and what gives you confidence this is an isolated case?
All right.
Speaker Change: But so there was one class one customer who owned its own treating plant for several decades actually.
Speaker Change: And recent merger sort of brought it to life with the...
Speaker Change: with the newly formed company, and the newly formed company believes that they want to leverage that asset and use it going forward. You know, we'll see how long they'll deem it a strategic asset.
and you know, we.
Speaker Change: Historically, a lot of railroads did own treating plants and they were all divested to the industry, but I really did not see that as a possible scenario for the future.
Understood. Thanks for the time.
Bye Pleasure.
Speaker Change: Thank you. I have a follow-up question that comes from the line of Michael Tupholme from
Well, thank you. Yeah, I just wanted to... [inaudible]
Speaker Change: Circleback on the outlook for rowatize, thinking about part of the last question there. So, I think the prior guidance had been low single digit organic growth for the year and then now it sounds like it's sort of flatish organic growth for the year but given the. [inaudible]
Speaker Change: 14% organic decline in ties in Q1. Obviously, you're still looking for a pick-up tip. Did I understand that you believe you're going to win some new business, or is this just...
Speaker Change: Just trying to bridge, I guess, what you didn't cue one to get into this flat for the year organic growth, what needs to happen to make that possible.
Speaker Change: So, I mean, you know, every year, all our customers in Gulling Gauth Class 1s, you know, have different projects that pop up, and there are some opportunities that we can address. So, there are a few projects that we're working on right now that will, you know.
Speaker Change: Okay, that's helpful. And then in terms of Q2 though, is that, is Q2 the expectation that that is also...
Speaker Change: sort of flat-ish, or where do you see Q2 in terms of organic growth for ties?
Yeah, I mean, you were got to grow, could be slightly lower, or... [inaudible]
Speaker Change: She's a bit better pricing, honestly, in the second quarter, so could be flatish, perhaps, both of them off-setting. [inaudible]
Okay. Thank you.
Thank you, Michael.
Speaker Change: Thank you. We have no further questions in the queue. Please proceed.
Speaker Change: Thank you, you know, and thank you everyone for joining us today. We look forward to updating you on our second quarter call in August , and we look forward to welcoming those who will be attending our annual meeting of shareholders later this morning, until then have a good day and stay safe.
Speaker Change: Thank you and ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect your lines. Thank you very much.