TRADING SYMBOL: Toronto Stock Exchange - HWD
LANGLEY, B.C., May 14, 2014 /CNW/ - Hardwoods Distribution Inc.
("Hardwoods" or "the Company") today announced financial results for
the three months ended March 31, 2014. Hardwoods is one of North
America's largest wholesale distributors of hardwood lumber and related
sheet good products, operating from a network of 33 locations in the US
and Canada.
Highlights
(For the three months ended March 31, 2014)
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Sales increased 16.0% to $100.9 million, up from $87.0 million in the
first quarter of 2013.
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First quarter gross profit increased 14.9% year-over-year to $18.3
million.
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Hardwoods reported first quarter EBITDA of $5.1 million and profit for
the period of $3.0 million.
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Subsequent to the quarter end, Hardwoods announced the US$15.4 million
acquisition of the business operations of Hardwoods of Michigan, Inc.
("HMI"), a fully integrated producer of high-quality, value-added
hardwood lumber.
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Hardwoods' Board of Directors declared a quarterly dividend of $0.045
per share, payable July 31, 2014 to shareholders of record as of July
18, 2014.
"We achieved record sales results in the first quarter of 2014, breaking
the $100 million quarterly mark for the first time in our history,"
said Lance Blanco, President and CEO of Hardwoods. "This achievement is
all the more significant given it occurred in the first quarter which
is traditionally a seasonally slower period for our business, and
considering the severe weather challenges during the quarter that
forced multi-day closures at a number of our US branches. That we were
able to achieve our best-ever sales quarter against this backdrop
underscores the momentum in our business."
Hardwoods sales growth continues to be supported by the ongoing recovery
in the US residential construction market. According to the US Census
Bureau, in the twelve months ended March 31, 2014 construction started
on new housing units was up 10% compared to the same period in the
prior year. With approximately 75% of its business in the US, and
approximately 60% of its sales focused on new residential construction,
Hardwoods is benefiting from this recovery.
First quarter sales results were further supported by a decline in the
value of the Canadian dollar relative to the US dollar. A weaker
Canadian dollar benefits Hardwoods by: (i) increasing the value of
sales and profits earned in its US operations when translated into
Canadian dollars for financial reporting purposes; (ii) increasing the
selling price of US dollar-denominated products sold to Canadian
customers; and (iii) improving the export competitiveness of Hardwoods'
Canadian industrial customers, many of whom have the capability to sell
their manufactured products in the US.
To support existing strong sales levels and to prepare for future
growth, Hardwoods increased its investment in personnel and premises
during the first quarter of 2014. The Company also increased investment
in strategic initiatives, including its "Leverage Imports" and
"Strengthen Commercial" strategies discussed in the Company's outlook
below. First quarter operating expenses increased by $2.5 million
year-over-year, largely due to these investments. The higher expenses
fully offset the $2.4 million increase in first quarter 2014 gross
profit, with the result that EBITDA remained consistent at $5.1 million
in both the 2013 and 2014 first quarter periods.
Subsequent to the quarter end, Hardwoods announced the acquisition of
HMI, a fully integrated producer and exporter of high-quality,
value-added hardwood lumber based in Clinton, Michigan.
"HMI represents an attractively priced acquisition that is well-timed to
the ongoing recovery in the US housing market," said Mr. Blanco. It
broadens our customer base, is expected to generate approximately $33
million in additional revenues per year, while also providing new
cross-selling opportunities for our established lines of import
products. HMI also strengthens the expertise in value-added
manufacturing that we have developed since acquiring the Frank Paxton
Lumber Company in 2011 and which has proved to be an attractive line of
business."
In conjunction with the HMI transaction, Hardwoods increased its US
credit facility from US $50.0 million to US $79.1 million and extended
the term of the facility to April 27, 2017. The amended facility
enabled Hardwoods to finance the transaction, while still providing
sufficient unused borrowing availability for the Company to pursue its
growth strategy.
"We believe we are now better positioned than ever to continue capturing
the potential in our markets. As we move forward, we will continue to
implement our strategies, including pursuing select acquisition
opportunities that support our objectives," said Mr. Blanco. "Overall,
we are optimistic about the business and pleased to announce another
quarterly dividend of $0.045 per share."
Summary of Results
Selected Unaudited Consolidated Financial Information (in thousands of
Canadian dollars)
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For the three months
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For the three months
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Ended March 31
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Ended March 31
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$ Increase
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% Increase
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2014
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2013
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( Decrease)
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(Decrease)
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Total sales
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$
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100,934
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$
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86,983
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$
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13,951
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16.0%
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Sales in the US (US$)
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69,541
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63,912
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5,629
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8.8%
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Sales in Canada
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24,189
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22,560
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1,629
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7.2%
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Gross profit
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18,263
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15,900
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2,363
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14.9%
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Gross profit %
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18.1%
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18.3%
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Operating expenses
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(13,598)
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(11,086)
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2,512
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22.7%
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Profit from operating activities
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4,665
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4,814
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(149)
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-3.1%
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Add: Depreciation and amortization
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438
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329
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109
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33.1%
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Earnings before interest, taxes, depreciation and
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amortization ("EBITDA")
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$
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5,103
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$
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5,143
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$
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(40)
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-0.8%
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Add (deduct):
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Depreciation and amortization
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(438)
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(329)
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(109)
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-33.1%
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Net finance income (cost)
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65
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167
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(102)
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-61.1%
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Income tax expense
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(1,765)
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(1,801)
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36
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2.0%
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Profit for the period
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$
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2,965
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$
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3,180
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$
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(215)
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-6.8%
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Basic and fully diluted profit per share
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$
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0.18
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$
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0.19
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Average Canadian dollar exchange rate for one US dollar
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1.104
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1.008
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Results from Operations - Three Months Ended March 31, 2013
For the three months ended March 31, 2014, total sales increased by
16.0% to $100.9 million, from $87.0 million during the same period in
2013. The year-over-year sales growth includes a 7.6% increase due to
stronger underlying sales activity and higher product prices, together
with an 8.4% increase due to the positive impact of a weaker Canadian
dollar. Organic growth from existing operations accounted for
approximately 92% of the sales increase, with the Leland import
business, acquired on May 31, 2013, accounting for the balance.
Sales in the United States, as measured in US dollars, increased by
8.8%, despite severe weather conditions in the US Midwest and South
which resulted in lost sales days at a number of Hardwoods' branches.
In the US regions impacted by the severe weather, sales declined by
7.4% year over year. In the US regions not affected by severe weather,
sales increased by 17.8%, reflecting continued strength in product
prices and the ongoing recovery in the US housing market.
First quarter sales in Canada increased by 7.2% year-over-year. This
increase was primarily due to higher product pricing and the positive
impact of a weaker Canadian dollar.
First quarter gross profit increased 14.9% to $18.3 million, from $15.9
million during the same period last year. This improvement reflects the
higher sales revenue for the period, partially offset by a slightly
lower gross profit margin. At 18.1%, gross profit margin was well
within Hardwoods' target level, but below the 18.3% achieved in the
first quarter of 2013 when the Company experienced rapid product price
escalation. Hardwoods' considers a gross margin percentage of
approximately 18.0% to be a sustainable level for its operations under
normal business conditions.
Operating expenses for the three-month period increased to $13.6
million, from $11.1 million during the same period in 2013. The $2.5
million increase reflects investments in personnel, premises and
strategic initiatives designed to support existing and future growth, a
return to more typical bad debt levels following unusually low levels
in the first quarter of 2013, the negative impact of a higher Canadian
dollar on US operating expenses, and incremental expenses related to
the Leland operations acquired in May 2013.
First quarter EBITDA was $5.1 million, on par with the first quarter of
2013 results, reflecting the offsetting impact of higher operating
expenses on increased gross profit.
Profit for the period was $3.0 million, compared to $3.2 million during
the same period in 2013. The decrease reflects the flat EBITDA result,
together with higher depreciation and a decrease in net finance income.
Outlook
Hardwoods anticipates continued strength in sales in the second quarter
of 2014, supported by momentum in US market demand and product pricing,
implementation of the Company's business strategies, the positive
foreign exchange impact of a weaker Canadian dollar, and the addition
of the HMI business. Second quarter gross profit margin is expected to
be within the normal target range for the Company, but is not expected
to match the unusually high 18.9% margin achieved in the second quarter
of 2013 during a period of rapid product price escalation.
Market forecasters indicate continued recovery in the US residential
construction market, with US housing starts expected to increase from
0.924 million starts in 2013 to 1.145 million starts in 2014 (+24%)
according to the National Association of Homebuilders. Hardwoods is
well positioned to capitalize on this growth with approximately 75% of
its business in the US, and approximately 60% of its products used in
the residential construction market. The outlook for the US repair and
remodeling market remains positive with growth of over 10% forecast for
2014 by Harvard's Joint Center for Housing Studies. Indicators for
commercial construction are for steady mid-single digit growth in 2014.
In the Canadian market, 2014 housing starts are expected to remain
unchanged from 2013 levels, while growth in the renovation and
commercial construction markets is expected to be in line with
inflation.
Hardwoods' goal in 2014 continues to be to capture the growth potential
in the US market, both in terms of sales volume and product pricing.
Hardwoods will also focus on successfully integrating the newly
acquired HMI business. In addition, the Company is actively pursuing
its "Leverage Imports" and "Strengthen Commercial" strategies which
focus on:
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Growing sales of Hardwoods' high-quality proprietary import lines,
supported both by the established quality assurance team located in
Asia and new international sourcing initiatives designed to bring
world-wide product solutions to Hardwoods' customers.
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Capitalizing on significant opportunities in the commercial market. In
particular, Hardwoods is actively growing its supply of first-tier
product supply for commercial customers and capitalizing on its import
capabilities to offer off-shore product solutions to the commercial
sector to supplement domestic product solutions.
Hardwoods' Board of Directors will continue to review the Company's
financial performance and assess dividend levels on a regular basis.
However in terms of cash utilization, the Company's primary focus in
2014 will remain on retaining the cash necessary to finance the
significant market opportunity in the US and to keep the Company's
balance sheet strong to support strategic acquisitions.
A more detailed discussion of the Company's financial performance can be
found in its Management's Discussion and Analysis (MD&A) for the three
months ended March 31, 2014. The MD&A will be posted, along with the
Company's condensed consolidated interim financial statements on SEDAR
(www.sedar.com and on the Company's website www.hardwoods-inc.com).
Non-GAAP Measures - EBITDA
References to "EBITDA" are to earnings before interest, income taxes,
depreciation and amortization, where interest is defined as net finance
costs as per the consolidated statement of comprehensive income. In
addition to profit, the Company considers EBITDA to be a useful
supplemental measure of a company's ability to meet debt service and
capital expenditure requirements, and the Company interprets trends in
EBITDA as an indicator of relative operating performance.
EBITDA is not an earnings measure recognized by IFRS and does not have a
standardized meaning prescribed by IFRS. Investors are cautioned that
EBITDA should not replace profit or loss or cash flows (as determined
in accordance with IFRS) as an indicator of Hardwoods' performance.
The Company's method of calculating EBITDA may differ from the methods
used by other issuers. Therefore, the Company's EBITDA may not be
comparable to similar measures presented by other issuers. For a
reconciliation between EBITDA and profit as determined in accordance
with IFRS, please refer to the discussion of Results of Operations
described in section 3.0 of Management's Discussion and Analysis (MD&A)
for the three months ended March 31, 2014 available at www.sedar.com and the Summary of Results section of this news release.
Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This news release includes forward-looking statements. These involve
known and unknown risks, uncertainties and other factors that may cause
actual results, performance or achievements or industry results to be
materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
These forward-looking statements are identified by the use of terms and
phrases such as "anticipate", "believe", "estimate", "expect", "may",
"plan", "will", and similar terms and phrases, including references to
assumptions. Such statements may involve, but are not limited to: that
Hardwoods anticipates continued strength in sales in the second quarter
of 2014, supported by momentum in US market demand and product pricing,
implementation of the Company's business strategies, the positive
foreign exchange impact of a weaker Canadian dollar, and the addition
of the HMI business; that second quarter gross profit margin is
expected to be within the normal target range for the Company, but is
not expected to match the unusually high 18.9% margin achieved in the
second quarter of 2013 during a period of rapid product price
escalation; that market forecasters indicate continued recovery in the
US residential construction market, with US housing starts expected to
increase from 0.924 million starts in 2013 to 1.145 million starts in
2014 (+24%) according to the National Association of Homebuilders; that
Hardwoods is well positioned to capitalize on this growth with
approximately 75% of its business in the US, and approximately 60% of
its products used in the residential construction market; that the
outlook for the US repair and remodeling market remains positive with
growth of over 10% forecast for 2014 by Harvard's Joint Center for
Housing Studies; that indicators for commercial construction are for
steady mid-single digit growth in 2014; that in the Canadian market,
2014 housing starts are expected to remain unchanged from 2013 levels,
while growth in the renovation and commercial construction markets is
expected to be in line with inflation; that Hardwoods' goal in 2014
continues to be to capture the growth potential in the US market, both
in terms of sales volume and product pricing, and to successfully
integrate the newly acquired HMI business; that the Company is actively
pursuing its "Leverage Imports" and "Strengthen Commercial" strategies
which focus on growing sales of Hardwoods' high-quality proprietary
import lines, and capitalizing on significant opportunities in the
commercial market; that Hardwoods' Board of Directors will continue to
review the Company's financial performance and assess dividend levels
on a regular basis; and that in terms of cash utilization, the
Company's primary focus in 2014 will remain on retaining the cash
necessary to finance the significant market opportunity in the US and
to keep the Company's balance sheet strong to support strategic
acquisitions.
These forward-looking statements reflect current expectations of
management regarding future events and operating performance as of the
date of this news release. Forward-looking statements involve
significant risks and uncertainties, should not be read as guarantees
of future performance or results, and will not necessarily be accurate
indications of whether or not such results will be achieved. A number
of factors could cause actual results to differ materially from the
results discussed in the forward-looking statements, including, but not
limited to: national and local business conditions; political or
economic instability in local markets; competition; consumer
preferences; spending patterns and demographic trends; legislation or
governmental regulation (including trade outcomes that impact upon the
Company's business); acquisition and integration risks.
Although the forward-looking statements contained in this news release
are based upon what management believes to be reasonable assumptions,
management cannot assure investors that actual results will be
consistent with these forward-looking statements. The forward-looking
statements reflect management's current beliefs and are based on
information currently available.
All forward-looking information in this news release is qualified in its
entirety by this cautionary statement and, except as may be required by
law, HDI undertakes no obligation to revise or update any forward
looking information as a result of new information, future events or
otherwise after the date hereof.
SOURCE Hardwoods Distribution Inc.