Earnings call transcript: Stella-Jones Q1 2025 earnings beat forecast

Stella-Jones Inc. (SJ) reported its Q1 2025 earnings, delivering an earnings per share (EPS) of $1.67, surpassing the forecast of $1.16. The company’s revenue came in at $773 million, slightly below the anticipated $804.96 million. Despite the revenue miss, the stock showed resilience, with only a slight decline of 0.3% in pre-market trading, closing at $67.20, compared to the previous close of $67.40. According to InvestingPro, the company maintains a "GREAT" financial health score of 3.05 out of 5, supported by its impressive 20-year consecutive dividend growth streak.

Key Takeaways

• EPS significantly outperformed forecasts, rising to $1.67 against an expected $1.16.
• Revenue fell short of expectations at $773 million versus $804.96 million forecasted.
• The company acquired Lockwell, entering the $5 billion steel transmission market.
• Utility poles and railway ties sales faced challenges, impacting overall performance.
• Stella-Jones maintained its full-year guidance, anticipating growth in utility poles.

Company Performance

Stella-Jones reported a mixed performance for Q1 2025, with a notable EPS beat but a revenue shortfall. The company saw a 5% organic decline in sales, yet EBITDA increased by $23 million to $179 million, aided by a $38 million insurance settlement. The firm managed to maintain a solid EBITDA margin of 18% when excluding the settlement. Cash flow from operations showed improvement, reducing the negative flow to $16 million from $62 million in Q1 2024. The company’s strong financial position is evident in its healthy current ratio of 3.39, indicating robust liquidity with assets well exceeding short-term obligations.

Financial Highlights

• Revenue: $773 million, down from the forecast of $804.96 million.
• EPS: $1.67, exceeding the forecast of $1.16.
• EBITDA: Increased by $23 million to $179 million.
• Cash flow from operations: Improved to -$16 million from -$62 million in Q1 2024.

Earnings vs. Forecast

Stella-Jones reported an EPS of $1.67, significantly beating the forecast of $1.16 by approximately 44%. However, revenue came in at $773 million, missing the forecast of $804.96 million by about 4%. The EPS beat was substantial and marked a positive deviation from previous quarters, where earnings aligned more closely with forecasts.

Market Reaction

Despite the revenue miss, Stella-Jones’ stock showed minimal movement, with a slight pre-market decline of 0.3%, closing at $67.20. The stock remains within its 52-week range of $62.26 to $98, indicating steady investor confidence amidst broader market fluctuations. InvestingPro analysis reveals the stock generally trades with low price volatility, making it an attractive option for stability-focused investors. Based on InvestingPro’s Fair Value analysis, the stock currently appears undervalued. For more insights on undervalued opportunities, visit our Most Undervalued Stocks list.

Outlook & Guidance

Stella-Jones maintained its full-year guidance, expecting mid-single digit growth in utility poles, driven by volume increases. The company anticipates flat performance in railway ties for the year but foresees stronger utility pole volumes in the second half of 2025. Strategic acquisitions, like Lockwell, are expected to bolster future growth, particularly in the steel transmission market. InvestingPro data shows an encouraging revenue growth forecast of 11% for FY2025, supporting management’s optimistic outlook. The company’s attractive P/E ratio of 6.85 and strong free cash flow yield suggest potential for continued value creation.

Executive Commentary

CEO Eric Machon expressed optimism, stating, "We are excited to further capitalize on the growing North American infrastructure demand." He highlighted the $5 billion addressable steel transmission market as a significant opportunity. CFO Silvana Travellini emphasized the company’s balanced approach to capital allocation, ensuring continued shareholder returns.

Risks and Challenges

• Declining utility pole and railway tie volumes could pressure future revenues.
• Macroeconomic challenges may impact capital deployment and growth initiatives.
• Competitive pressures in the steel transmission market may affect margins.
• Potential supply chain disruptions could hinder operational efficiency.
• Changes in customer preferences, such as internal railway tie treatment, could affect sales.

Q&A

During the earnings call, analysts focused on the Lockwell acquisition’s impact on growth in the steel transmission market. Management reassured that input costs for steel structures would be passed through to customers, minimizing tariff impacts. The company also indicated that capacity at Lockwell is currently sold out, underscoring strong demand in the sector.

Full transcript - Stella-Jones Inc. (SJ) Q1 2025:

Ina, Conference Call Moderator, Stella Jones: Good morning, and thank you for standing by. Welcome to Stella Jones First Quarter of twenty twenty five Earnings Call. At this time, all participants are in listen only mode. Following the presentation, we will hold a question and answer session. I would like to remind everyone that this conference call is being recorded on Wednesday, 05/07/2025.

Please note that comments made on today’s call may contain forward looking information, and this information, by its nature, is subject to risks and uncertainties. Actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, please consult the company’s relevant filings on SEDAR plus. These documents are also available in the Investor Relations section of Stella Jones’ website at www.stellajones.com. Additionally, during this 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 and A available on Stella Jones’ website and on SEDAR plus Lastly, we have prepared a corresponding presentation, which we encourage you to follow along with during this call. I now hand the call over to Mr. Eric Machon, President and Chief Executive Officer of Stella Jones. Eric?

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, Ina. Good morning, everyone, and thank you for joining us today. With me on today’s call is Silvana Travellini, Senior Vice President and Chief Financial Officer of Stella Jones. Earlier this morning, we issued our press release reporting our results for the first quarter of twenty twenty five. Along with our MD and A, it can be found in the Investor Relations section of our website at www.stellajones.com as well as on SEDAR plus As a reminder, all figures expressed on today’s call are in Canadian dollars unless otherwise stated.

In Q1, we continued to deliver solid profit margins and maintain a robust financial position. Even as ongoing macroeconomic headwinds, unfavorable weather conditions, and a shifting landscape for our railway type business weighed on volumes. 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. Our expansion into the steel transmission market 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

Eric Machon, President and Chief Executive Officer, Stella Jones: quarters. Our utility customers continue to affirm their critical needs for pole replacement. 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 February. 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. In terms of spot pricing, pressures are expected to persist in certain regions pending increased demand.

Our exposure to the spot market remains limited at 25% of our total utility pole business and is expected to be mitigated by favorable contract pricing. For railway ties, sales in the first quarter were impacted in large part by a Class I customer now treating more of their railway ties internally. While this shift will result in lower sales going forward from this customer, we’re executing on opportunities to strengthen our relationships with other Class one customers, and we anticipate to recover the volume shortfall. The railway tie 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 this strategic shift to improve the profitability of this product category.

Railway ties remain a stable source of revenue. Residential lumber’s performance this quarter was marked by the slower start to the exterior home improvement season. While volumes were down due to unfavorable weather conditions, demand for the remainder of the year is expected to trend favorably. 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. 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.

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. This is a step change acquisition that allows us to leverage our expansive sales and distribution network to offer a more comprehensive suite of products to customers. It also provides Stella Jones with new growth opportunities in steel transmission structure markets. The addressable steel transmission market currently exceeds $5,000,000,000 in annual sales and its growth potential is supported by a robust pipeline of confirmed and newly announced transmission projects. 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 and D market is poised for sustained growth.

Our strategic presence in this attractive market positions us well to capitalize on these opportunities. We welcome Lockwell’s approximately two twenty employees to Stella Jones and look forward to a bright future of better serving North America’s utilities together. With that, I will ask Silvana to provide a more detailed overview of our first quarter financial results. Thank you, Eric, and

Silvana Travellini, Senior Vice President and Chief Financial Officer, Stella Jones: good morning, everyone. Sales for the first quarter were down 5% organically, but we continued to deliver a solid EBITDA margin of about of above 18% excluding the 5% margin impact from the insurance settlement recorded in Q1. While utility poles and residential lumber sales were relatively unchanged on an organic basis, Q1 sales were impacted by the decrease in the railway tie volumes when compared to the same period last year. For utility poles, we generated $419,000,000 in sales in the first quarter, up from $4.00 $2,000,000 in the same period last year. Sales benefited from the contribution of newly secured business and stable contractual maintenance demand.

But similar to the trend observed since Q3 last year, the pace of purchases by utilities and the timing of projects were unfavorably impacted by macroeconomic factors, which influenced the capital deployment strategies of our customers. Compared to Q1 last year, volumes were down 4%. Lower quarter over quarter volumes for poles were more than offset by favorable pricing and the positive impact of currency conversion compared to the same period last year. Sales of railway ties were down 14% organically this quarter to $2.00 $8,000,000 The decrease was almost all attributed to lower volumes. Class one volumes decreased due to a shift by rail world to the internal treating of the railway ties, while non Class I volumes were largely impacted by delays in projects, which are expected to be recovered in the second quarter.

Non Class I demand remains strong. Residential lumber sales were relatively stable at $88,000,000 in Q1 of twenty twenty five compared to $87,000,000 in the first quarter last year. Q1 sales benefited from the increase in the market price of lumber, but volumes were down. Challenging weather conditions in the first quarter of twenty twenty five contributed to lower volumes, especially when compared to unusually favorable weather during the same period last year. Turning now to profitability.

EBITDA increased by $23,000,000 to $179,000,000 in Q1 of twenty twenty five. The increase was attributable to the settlement of an insurance claim of $38,000,000 for a 2023 fire at one of our facilities, offset in part by a decrease in sales volume. Despite lower volumes, the company continued to generate a strong EBITDA margin. Excluding the impact of the insurance settlement, the first quarter EBITDA 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. Turning to cash flows.

During the quarter, the cash flow used in operating activities was $16,000,000 compared to $62,000,000 used in Q1 last year. This improvement was largely attributable to lower inventory. We started the year with a higher level of inventory. As a result, the net investment in inventory in Q1 was lower and limited to the seasonal build of residential lumber inventory. We continue to expect to end the year with lower levels of inventory.

We remain committed to a balanced approach to capital allocation. Over the last twelve months, we generated cash from operations of about $450,000,000 deploying about $145,000,000 towards investing in our business and a similar amount of about $150,000,000 to shareholders’ return. The remaining capital of $155,000,000 was used to bolster our liquidity. As at the March, we returned $380,000,000 of capital to shareholders out of the $500,000,000 committed for the twenty twenty three to twenty twenty five period. And yesterday, our Board of Directors approved a quarterly dividend of $0.31 per share.

We ended the quarter with almost $700,000,000 in available liquidity and a net debt to EBITDA ratio of 2.6 times unchanged from the ratio at the end of the year. A ratio above the target range is typical in the first quarter due to the seasonal working capital requirements. With a continued focus on profitability and working capital management, the leverage ratio is expected to be within the desired target range by the end of the year. After quarter end, we entered into a definite agreement to acquire Lockheed for an initial consideration of $58,000,000 This transaction is expected to close today. We are also planning to invest in a CapEx program totaling about $15,000,000 to increase Lockwell’s current output and enhance its operational efficiencies.

Our strong balance sheet allows us to execute on strategic growth initiatives like Rockwell and continue to pursue value accretive acquisitions core to our growth strategy. 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. I will now turn the call back to Eric for his closing remarks.

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, Silvana. Q1 has unfolded largely as anticipated. And at this stage, we maintain our guidance and remain confident in meeting our financial objectives, which will also benefit from the contribution of the Lockheed acquisition. As a reminder, Stella Jones’ exposures to tariff is limited. And while other macroeconomic conditions could continue to pose some challenges, we remain vigilant and prepared to adapt our strategies as necessary.

Our continued focus on acquisitions remains a cornerstone of our growth strategy. The acquisition of Lockheedl exemplifies our commitment to expanding our offering and enhancing our market position. We are dedicated to pursuing acquisitions that are accretive and complementary to our current infrastructure portfolio, further strengthening our overall business resilience. We remain steadfast in our pursuit of growth. We look forward in sharing more information at our next Investor Day schedule for later this year.

Thank you for your continued support and trust in Stella Jones’ vision of connecting communities through stronger infrastructure. As a reminder, later this morning, we will be holding our annual meeting of shareholders. I would like to take this opportunity to recognize two outgoing board members who will not be seeking reelection this year. Mister Jim Manzi, in his decade long tenure on our board, helped drive a global compensation philosophy that was anchored in performance and ownership. And mister Rodry Harris, member of our board since 02/2020, who has made invaluable contributions to the board’s audit and environmental health and safety committees in his time with us.

On behalf of management, I would like to thank both of them for their judicious guidance and their service to our board and its committees. This concludes today’s prepared remarks, and I will now open the lines to questions.

Ina, Conference Call Moderator, Stella Jones: Thank you, Eric. Your first question comes from the line of Hamir Patel from CIBC Capital Markets. Please go ahead.

Hamir Patel, Analyst, CIBC Capital Markets: Hi, good morning. Eric, could you comment on how the margins of the Lockheld business would compare to your consolidated margins and also how they compare with Woodpulls?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yes. So I would say very similar, Amir. That was one of the factor that made this business appealing to us, very comparable.

Hamir Patel, Analyst, CIBC Capital Markets: Eric, sorry, comparable to the wood poles, which I believe are higher margins than your consolidated margins. Would that be fair? Correct. Okay. And then just with the planned $15,000,000 capital investment that you have planned, what sort of margin uplift and capacity increase would you expect from that?

Eric Machon, President and Chief Executive Officer, Stella Jones: From a capacity standpoint, we expect to double the capacity of the existing footprint in in the the facility in Candia, Quebec. And obviously, you know, throughput through, you know, the the same footprint will definitely increase the margin by a couple of basis points.

Hamir Patel, Analyst, CIBC Capital Markets: Great. And I know the sales disclosure you gave for Lockheed was 09/30/2024. Could you speak to maybe how the trade impacts have affected how you think about sales from that business this year and maybe if the growth rate for steel poles differs all that much from wood poles?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yes. No. Certainly. The so the the the September figure is is actually coincides with their, fiscal year. So this is the those were the results of the last fiscal year, which was September.

You know, going forward, the, the backlog and the order book is very healthy. And, for you know, ongoing for definitely a good twenty four months going out. So very optimistic about, about the outlook for that business and and the demand in general.

Hamir Patel, Analyst, CIBC Capital Markets: Okay. Great. And just 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 if there’s any notable sort of lag that we should think about.

Eric Machon, President and Chief Executive Officer, Stella Jones: Right. So the way the way the contracts are structured, there there are indexes for steel that are associated with the product. So all of the risk on fluctuation of the the input material is actually passed on to the customer. So it it’s incorporated, so very little exposure from that standpoint. And, Amir, I apologize.

You had another part to your previous question, which was regards to tariffs. And to date, in my last discussion with the team as of, you know, last Friday, tariffs are passed on to the customers and orders are keep coming in, and it’s it’s not a it’s not a significant issues. Most of, most of the suppliers to The US market are actually all, outside of The US, so offshore and Canada. So everybody’s on a level playing field from that perspective and tariffs are being passed through and customers are paying for them.

Hamir Patel, Analyst, CIBC Capital Markets: Great. Thanks. Thanks, Eric. That’s all I had. I’ll I’ll turn it over.

Eric Machon, President and Chief Executive Officer, Stella Jones: My pleasure. Thank you, Hamir.

Ina, Conference Call Moderator, Stella Jones: Thank you. Our following question is from James McGarrigle from RBC. Please go ahead.

James McGarrigle, Analyst, RBC: Hey, thanks for having me on and congrats on the deal you announced today. Yes, I was just wondering if you can give us a range of how you expect that EBIT to evolve during the year. Coming into the quarter, call it, consensus was at $640,000,000 You announced the acquisition. You had the insurance settlement gain. But are you comfortable with that number?

And any color you can provide, know, especially as it relates to the poles and the the railway tie business?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yeah. Certainly. So, obviously, you mentioned the the the key topics, so excluding the insurance proceeds, you know, we we 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.

James McGarrigle, Analyst, RBC: Okay. And then just on the pie business, I know one of the Class one customers is further utilizing some internal capacity. Do you expect that just to be a headwind in 2025? Or is that facility expected to ramp up over the next two to three years where that’s going to be a further headwind into 2026 and into 2027?

Eric Machon, President and Chief Executive Officer, Stella Jones: Well, it’s it’ll be the same. No. What we announced today is essentially the probably the biggest part of the, of the impact, going forward. 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.

James McGarrigle, Analyst, RBC: Alright. Thank you. I’ll I’ll turn the line over. Thank you, James.

Ina, Conference Call Moderator, Stella Jones: Thank you. And your next question comes from the line of Benoit Poirier from Desjardins. Please go ahead.

Benoit Poirier, Analyst, Desjardins: Yes. Thank you very much. Good morning, Good morning. First question, in terms of organic growth, how should we be thinking, Eric and Silvana, for utility pole 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.

Eric Machon, President and Chief Executive Officer, Stella Jones: Well, bring up a good point. Q2 last year was a very strong quarter. So I would suggest probably a flattish performance with regards to that. I did mention in our in our comments that, you know, we believe that we’re foreseeing some volume growth in the second half of this year for utility poles. So definitely, you know, comfortable changing our views there to that, you know, single digit growth for the year.

For railway ties, you know, because of of one customer bringing their production internally and us working to readjust and compensate the shortfall, it would most likely be flattish for the year been one.

Benoit Poirier, Analyst, Desjardins: Okay. That’s perfect. And just with respect to the short line, what is the latest status in terms of funding with the crisis given the the the the whole new administration?

Eric Machon, President and Chief Executive Officer, Stella Jones: That’s a good question. I mean, no real changes since the last time we spoke. I mean, you know, there were discussions earlier this year or earlier in the in in the quarter about the US government, you know, thinking of changing the structure of those Krissy grads. Ultimately, they were not impacted or changed. Obviously, you know, our comments are a bit tinted with uncertainties and, you know, evolving macroeconomic situation that would be one of them.

So, there is some cautious cautiousness there with some short lines, but definitely still a very healthy, market, strong strong demand all all in all. So, everybody has to work with the, with with what they know today. It’s, you know, we’re in q two. It’s the it’s the the the peak season for 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 in the in the nonclass one business.

Benoit Poirier, Analyst, Desjardins: Okay. And just on LockWell, I understand that you’re on the same level of playing field right now with competitors outside The U. S. But given you already have a solid foothold in The U. S, is there any and I think two third of the volume of Lockwell goes into The U.

S. So is there any plan to build a U. S. Facility down the road? And I would be curious to have your thoughts whether you foresee more M and A opportunities with SteelPole and any thoughts about the leverage situation and the willingness to go higher than the three terms for the right one?

Eric Machon, President and Chief Executive Officer, Stella Jones: Well, that’s a great question, Benoit. So the the Lockwell acquisition, is definitely part of a a road map of, our projects to expand in this steel transmission market. You know, Lockwell, obviously, is a transaction that has has been done at a multiple that is comparable to to history. It’s it’s an expansion of our product offering to our customers. It comes with solid management team.

Very happy to see them come along with us, you know, for for this ride. So there there definitely definitely plans to expand the current footprint to continue pursuing m and a in this space, 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 what the market has to offer, but we understand currently, that, you know, there’s lots of projects that are are being structured and, you know, more more news to come on that front. But we’re looking at all possibilities to keep growing growing this this business. As I said, you know, lattice and steel poles is a 5,000,000,000, you know, 5,000,000,000 sales annual market.

It’s a very attractive one. It expands our our transmission capabilities beyond what our wood poles can do because it’s very limited in that space. So, all I can say is that all options are there. We have this a strong team, to to anchor this to to anchor this this this this veteran into this this this new this new part of the business.

Benoit Poirier, Analyst, Desjardins: Okay. And just curious, maybe, Silvana, from a 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. So just wondering what your the willingness maybe to go up a little bit more from the leverage standpoint?

Silvana Travellini, Senior Vice President and Chief Financial Officer, Stella Jones: Well, we always said as part of our capital allocation, obviously, that the range of 2.5 that we would be willing to deviate above it for growth opportunities or strategic acquisitions. But currently, as we mentioned, we are expecting to focus on our working capital and our inventory management. So we are expecting a reduction in our inventory. So with that and with this acquisition, I don’t see any issues for us to be still within the two to 2.5 times range before the end of the year.

Benoit Poirier, Analyst, Desjardins: Excellent. Thank you very much for the time.

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, Benoit.

Ina, Conference Call Moderator, Stella Jones: Thank you. Our following question is from Michael Tafoni from TD Cowen. Please go ahead.

Michael Tafoni, Analyst, TD Cowen: Thank you. Good morning.

Eric Machon, President and Chief Executive Officer, Stella Jones: Good morning, Michael.

Michael Tafoni, Analyst, TD Cowen: Good morning, Eric. Good morning. So just on Lockheed, sorry if I missed this, but can you speak to historical growth there? And also I think it came up

James McGarrigle, Analyst, RBC: in the last question, but

Michael Tafoni, Analyst, TD Cowen: it didn’t it wasn’t really from you. So what is the sales mix split between Canada and The U. S. For Lockheed?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yeah. So the the sales mix is about 30% Canada, seventy % US currently. It is project based. Definitely, it can shift over time depending on, you know, what utilities providing the project. What’s, interesting is, you know, Lockwell has been able to establish relationships with utilities across North America.

So definitely a well balanced, customer list, which is very attractive, and the customer list that is common to Stella Jones is, which which is also exciting for us. But currently, the the mix is, is 37.

Michael Tafoni, Analyst, TD Cowen: Okay. Sorry. Then in terms of the historical sales growth, like you’re kind of a project based, does that mean there’s some volatility here and it’s not sort of differs from your woodpoles business where we’ve seen kind of relatively steady growth over time? Like like, is is it is it different characteristics with this business?

Eric Machon, President and Chief Executive Officer, Stella Jones: So looking at, you know, historical sales, you know, they have a a well balanced portfolio of customers that has brought inconsistent business. So that’s why I highlighted that in, you know, my previous answer. So they they have not seen, like, down cycles. It’s stable, and that I can actually say it’s actually growing, for the last, the last eighteen, twenty four months as, you know, we we keep hearing of, transmission projects announcement across North America, you know, including in Canada, in Quebec, in Ontario as well. A a lot of activity going on there.

So the the the the logbook, you know, for, for the the the next, several quarters is actually full. Happy to to say that a lot of the capacity is is currently sold for for the next year. So very excited to how that management teams approaches the market. So they they’ve they’ve figured out a very good model that drives consistent revenue.

Michael Tafoni, Analyst, TD Cowen: Okay, perfect. And then just 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 within the current footprint and but on top of that, you’re doubling it?

Eric Machon, President and Chief Executive Officer, Stella Jones: With, what’s being observed right now in the markets and, you know, the orders and confirmation of orders coming in, capacity is sold out, and the the intent of the investment is to double the capacity because, we can actually fill that capacity pretty quickly as well. So, you know, give it till the end of this year until we we know we we we got a project going, but I do feel that we’ll have that entire capacity including the expansion fully sold by the end of the year.

Michael Tafoni, Analyst, TD Cowen: Okay, great. And then sorry, one more on Lockheed. Just in response to some Benoit’s questions, you were talking about the potential to continue growing in this steel structures market and potentially additional M and A. So just want to sort

James McGarrigle, Analyst, RBC: of get

Michael Tafoni, Analyst, TD Cowen: expectations set properly here. Is the idea to continue on with that sort of imminently and right away? Or is the idea just is that more of a comment over the medium to longer term once you sort of digest this acquisition and understand what you’ve really bought here?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yes. So I mean, the first step, obviously, is to, you know, get our CapEx project going. So we’ve already done all the engineering work, with the Lockheed team. We’ve got, you know, purchase orders ready to sign. We’re just waiting to complete the acquisition.

So I’m hoping to start seeing some of the equipment roll into the facility, you know, let’s say, in q four and and and early next year. So as that is unfolding, we’ll be then looking at our our options. So, you know, we can invest and build or look at some m and a. M and a in The US is actually very light simply because there there are no significant or sizable players, but there are some players here in in Canada that would be a a nice opportunity for us as well. So we’re definitely looking at at our options.

I don’t wanna go lightning speed into this, but we definitely wanna make sure that we keep a good cadence to keep building on the momentum we have and, you know, keep keep growing, our our offering to the North American North America’s utilities.

Michael Tafoni, Analyst, TD Cowen: Okay. Perfect. And then just a couple about the existing business. So in utility poles, negative 1% organic growth in the first quarter. Can you break that down in terms of the composition price versus volume in Q1?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yes. So volume, believe, Silvana stated, volume is about down 4% year over year, and then it’s offset by pricing and some FX, obviously.

Michael Tafoni, Analyst, TD Cowen: 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 with that mid single digit organic growth for the full year suggesting you’re going to see most of this growth or all this growth coming in the back half?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yes. Yes, exactly.

Michael Tafoni, Analyst, TD Cowen: And is that full year number then like I think previously, the expectation was most of that full year mid single digit was going be volume driven. But given sort of that hasn’t been the case in Q1, like 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 be mainly volume? Or is there a pricing element here?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yes. At this point, it’s all going to be volume. We have different dynamics as we explain on the pricing depending on contract or noncontract. So at this point, our growth is going to be anchored in volumes for the balance of this year at $4.26.

Michael Tafoni, Analyst, TD Cowen: Okay. All right. I will leave it there. Thank you.

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, Michael.

Ina, Conference Call Moderator, Stella Jones: Thank you. And our next question comes from the line of Martin Padier from Veritas Investment Research. Please go ahead.

: Yes. Hi. Thank you for taking my question. Is my understanding correct that the real earnings is $40,000,000 if I exclude insurance for the quarter?

Eric Machon, President and Chief Executive Officer, Stella Jones: You mean EBITDA results?

: No, net income. Your net income was $93,000,000 but I think it’s $53,000,000 the insurance adjustment.

Silvana Travellini, Senior Vice President and Chief Financial Officer, Stella Jones: So the insurance adjustment is at $30,000,000 on the EBITDA front, Meltij.

: So

Silvana Travellini, Senior Vice President and Chief Financial Officer, Stella Jones: basically, once you tax affected, if you want to look at it that way, probably you could use our effective tax rate, it’s probably close to that $30,000,000 impact.

: $30,000,000 net income would be also?

Silvana Travellini, Senior Vice President and Chief Financial Officer, Stella Jones: Yes, because $38 was basically an EBITDA impact.

: Okay, perfect. And in terms of the new company that you bought, can share how much was the sales and what was how much was the net income of that company in the last year?

Eric Machon, President and Chief Executive Officer, Stella Jones: Oh, the the trailing last twelve months sales for their fiscal year ended September was CAD55 million, and we don’t disclose Okay. We don’t disclose margins or profit.

: Was it making money?

Eric Machon, President and Chief Executive Officer, Stella Jones: Pardon me?

: Was it making money, this company?

Eric Machon, President and Chief Executive Officer, Stella Jones: Margins are are comparable to our utility pole business.

: Yeah. But the net was it positive on the net income side? That’s my question.

Eric Machon, President and Chief Executive Officer, Stella Jones: Of course. Of course it’s positive net income.

: Okay. Great. Thank you very much.

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, sir.

Ina, Conference Call Moderator, Stella Jones: Thank you. Your next question comes from the line of Maxim Sytchev from National Bank Financial. Please go ahead.

Maxim Sytchev, Analyst, National Bank Financial: Eric. Good morning. Eric, wanted to come back to the comments you made around the sold out capacity at Lock World. So does it mean that it’s the projects on on on the transmission side are not being impacted by the same sort of delays we’re seeing in 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?

Eric Machon, President and Chief Executive Officer, Stella Jones: It’s definitely a a staggering of projects, you know, and the the the needs for transmission, I guess, twofold. One, there there is some replacement happening there for, you know, older structures, But there 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 in different projects, they need transmission lines. So it’s it’s it’s all of this dynamic currently that is creating a very favorable trend for the transmission business.

Maxim Sytchev, Analyst, National Bank Financial: Yeah. No. No. A %. I mean, it looks like a great transaction.

And in terms of, going back to kind of, you know, the legacy post operations, like between sort of the interest rate pressures, permits, what are the pain points right now at the customer level? And I guess what gives you the confidence that know, the back half of the year will, you know, relieve some of these pressures?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yeah. Well, you know, obviously, there’s ongoing discussions with our customers and the projects that we’re quoting that, you know, is showing some some healthy momentum going going forward. You know, if I know I spent time listening to what our customer our our customers that are public have to say, if I look at, you know, in our top five, ten utilities, you know, have CapEx ambitions in the next four to five years that, know, are are in the billions of dollars. So they they all acknowledge that there is a need to, you know, strengthen and harden the the distribution grid. They acknowledge that they also need to, you know, invest in the generating assets and and require the transmission, the the the transmission assets to be able to to support, you know, industry, industrial business, but it is what communities.

So, you know, all in all, I do agree that, and it’s, you in our statement, there are some headwinds with uncertainties and probably higher interest rates in The US than where customers would like or when they established their initial CapEx plans. But nonetheless, every quarter, they reaffirm their intention to spend these billions of dollars, you know, over this four to five, 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. So, you know, that’s that that’s the reading we have on the market right now.

Maxim Sytchev, Analyst, National Bank Financial: Yeah. No. That’s perfect. That’s it for me. Thank you.

Appreciate your time.

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, Maxim.

Ina, Conference Call Moderator, Stella Jones: Thank you. And your next question comes from the line of Jonathan Goldman from Scotiabank. Please go ahead.

Jonathan Goldman, Analyst, Scotiabank: Hi, good morning team and thanks for taking my questions. Maybe just a housekeeping one to start. How much did weather impact Poland railway tie volumes in q one?

Eric Machon, President and Chief Executive Officer, Stella Jones: Oh, well, very hard to quantify. You know, there there is some slowness there. I mean, we don’t split it out. It’s it’s actually a very difficult exercise. But, you know, January was extremely cold, and February had, you know, a significant snowfall.

So, you know, it does slow down the the activities for all three product categories for for sure, but very hard to quantify compared to last year where, you know, winter was mild and spring came in came in very early. But I apologize. It it’s not something that we can that that we actually, carve out and very difficult to to do so, actually.

Jonathan Goldman, Analyst, Scotiabank: No. Fair enough. And and, Eric, you reiterated the expectations for mid single digit growth in polls this year. I think the original guide you gave back in November was 6% to 7%, and you did address this earlier, but that implies a pretty significant reacceleration in the second half. I mean, you did talk about the customers and what they’re putting out in terms of target.

But what are you assuming for the macro environment to hit those numbers in the back half of the year?

Eric Machon, President and Chief Executive Officer, Stella Jones: Well, we’re honestly, we’re sort of saying, a steady state from what we’ve seen so far. Right? It’s very a lot of it is hard to predict, obviously, you know, with decisions that are are made in with the US administration. So, you know, the only assumption we can take is the current state we know with the the the context of tariffs that we know today and the current level of of interest rates. Now, you know, our customers have you know, are are taking all of this into account and themselves are using similar assumptions.

And, you know, if if anything happens in a favorable sense, interest rates dropping, for example, well, definitely, that would definitely, create a more positive momentum.

Jonathan Goldman, Analyst, Scotiabank: Okay, definitely. And then on the breakdown of price and volume in railway ties, think the disclosure said it was predominantly volumes, but do you have the exact breakdown?

Eric Machon, President and Chief Executive Officer, Stella Jones: You could assume it’s all volumes honestly.

Jonathan Goldman, Analyst, Scotiabank: Okay. And then one more for me. On the class one customer insourcing, can you speak to some of the factors that may have influenced their decision? And what gives you confidence this is an isolated case?

Eric Machon, President and Chief Executive Officer, Stella Jones: So, I wanna be respectful and not disclose names because, you know, I but, so there was one a class one customer, who owned its own treating plant for, you know, several several decades actually, and recent merger sort of brought it to light with the with the with the the newly formed company. And the newly formed company believes that, you know, they wanna leverage that asset and and use it going forward. You know, we’ll see how long, they’ll deem it a strategic asset. And, you know, we it’s a customer that we know very well. We service for bridge timbers and and switch ties and other specialty products, so we have good relationship with them.

I I would be very skeptical to see the other class ones start investing or acquiring wood treating facilities. Historically, those

James McGarrigle, Analyst, RBC: a lot

Eric Machon, President and Chief Executive Officer, Stella Jones: of railroads did own treating plants, and they were all divested to to the industry. But I I really do not see that as a as a possible, you know, scenario for the future.

Jonathan Goldman, Analyst, Scotiabank: Understood. Thanks for the time.

Eric Machon, President and Chief Executive Officer, Stella Jones: My pleasure.

Ina, Conference Call Moderator, Stella Jones: Thank you. We have a follow-up question comes from the line of Michael Tafomni from TD Cowen. Please go ahead.

Michael Tafoni, Analyst, TD Cowen: Thank you. Yes, just wanted to circle back on the outlook for railway ties thinking about part about 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 of flattish organic growth for the year. But given the 14% organic decline in ties in Q1, obviously, you’re still looking for a pickup. Did I understand that you believe you’re going to win some new business?

Or is this just like, just trying to just trying to bridge, I guess, what you did in Q1 to getting this this flat for the year organic growth for Taz. What what needs to happen to to make that possible?

Eric Machon, President and Chief Executive Officer, Stella Jones: So I mean, you know, every every year, all our customers, including class ones, you know, have different projects that pop up, and there are some opportunities that that we can we can address. So there are a few projects that we’re working on right now that will, you know, complete that that that shortfall if you want. And so we we feel we feel confident that, you know, we can get in the we will have that extra volume in in the next in the next three quarters.

Michael Tafoni, Analyst, TD Cowen: Okay. That’s helpful. Just and then in terms of Q2 though, is that Q2 the expectation that, that is also sort of flattish? Where does how do you see Q2 in terms of organic growth ties?

Eric Machon, President and Chief Executive Officer, Stella Jones: Yes. I mean, the organic growth could be slightly lower. We should see a better pricing, honestly, the second quarter. So could it be flattish perhaps, both of them offsetting?

Michael Tafoni, Analyst, TD Cowen: Okay. Thank you.

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, Michael.

Ina, Conference Call Moderator, Stella Jones: Thank you. We have no further questions in the queue. Please proceed.

Eric Machon, President and Chief Executive Officer, Stella Jones: Thank you, Yina. 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.

Ina, Conference Call Moderator, Stella Jones: Thank you. Ladies and gentlemen, this concludes today’s call. Thank you for participating. You may now disconnect your lines.

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