Stella-Jones Inc T.SJ

Alternate Symbol(s): STLJF

Forest Products Lumber & Wood Production

Stella-Jones Inc. is a Canada-based manufacturer of pressure-treated wood products. The Company is focused on supporting infrastructure that is essential to the delivery of electrical distribution and transmission, and the operation and maintenance of railway transportation systems. It supplies the electrical utilities and telecommunication companies with wood utility poles and North America’s short line and commercial railroad operators with railway ties and timbers. The Company's infrastructure product categories also include industrial products, namely wood for railway bridges and crossings, marine and foundation pilings, construction timbers and coal tar-based products. Additionally, the Company manufactures and distributes premium treated residential lumber and accessories to Canadian and American retailers for outdoor applications, with a significant portion of the business devoted to servicing Canadian customers through its national manufacturing and distribution network.

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Stella-Jones Inc

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Post by retiredcfon Aug 11, 2024 12:15pm

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Post# 36173470

TD Report

EARNINGS UPDATE

SOLID Q2/24 RESULTS; UTILITY POLES ORGANIC GROWTH GUIDANCE REAFFIRMED

THE TD COWEN INSIGHT

Overall, we view Q2/24 as a solid quarter, and see SJ's guidance as encouraging (2024 margin outlook raised and SJ no longer flagging spot utility poles market pricing as a risk). We are also encouraged by SJ's reaffirmed 2024/2025 Utility Poles organic growth guidance (even if pricing makes up for somewhat slower volume growth). We continue to like SJ's mix of growth and defensive attributes.

Event

Stella-Jones reported Q2/24 EBITDA that was slightly ahead of expectations (driven by

better-than-forecast margins).
SJ reaffirmed its organic revenue growth outlook for Utility Poles and Railway Ties. That said, SJ now expects full-year 2024 sales for its Residential Lumber segment to
be at the lower end of its $600mm–$650mm target range. Meanwhile, with SJ's YTD EBITDA margin at 19.5%, management indicated that full-year 2024 EBITDA margin is now expected to be closer to the 18% level vs. prior guidance for 2024's EBITDA margin to exceed the company's formal annual EBITDA margin target of 16% (note: prior to the Q2/24 results release, consensus was already at an 18% EBITDA margin for 2024, but was at 17% for 2025).

Impact: SLIGHTLY POSITIVE

Q2/24 EBITDA was $200mm vs. consensus/TD at $197mm/$196mm. EBITDA margin was 19.1% (+110bps y/y; -100bps q/q) vs. consensus/TD at 18.6%/18.2%. Favourable product mix (i.e., higher proportion of higher-margin Utility Poles sales and lower proportion of lower-margin Residential Lumber sales) supported Q2/24's margin. Revenue was $1,049mm (+8% y/y) vs. consensus/TD at $1,058mm/$1,076mm.

SJ's infrastructure-related businesses (Poles, Ties, and Industrial Products) delivered organic growth of +13% y/y (driven in particular by organic growth in Utility Poles and Railway Ties; +16% y/y and +10% y/y, respectively), offset by lower sales in SJ's Residential Lumber and Logs & Lumber businesses.

Outlook Commentary: SJ remains confident in achieving utility poles organic growth of ~15% CAGR in 2024 and 2025 (potential benefit from lower interest rates is not built into management's guidance). We note that SJ has seen a somewhat slower pace of volume growth from certain utility poles customers. That said, encouragingly, management indicated that spot utility poles market pricing is holding steady, and SJ does not expect any significant unfavourable impact in H2/24 from spot utility poles market pricing pressures.

Updated Estimates: Our consolidated revenue forecast is little changed, but our higher margin expectations have caused our earnings estimates to increase. Our target price has increased to $103.00 (from $98.00).