Earnings call transcript: Stella-Jones Q2 2025 sees EPS beat, stock dips

Stella-Jones Inc. reported its second-quarter 2025 earnings, revealing a notable earnings per share (EPS) beat but a decline in revenue compared to forecasts. The company’s EPS stood at $1.91, surpassing the forecast of $1.78, resulting in a 7.3% surprise. However, revenue came in at $1.03 billion, below the anticipated $1.07 billion, marking a 3.74% shortfall. Despite the EPS beat, the company’s stock fell 4.24% to $75.16 in pre-market trading, reflecting investor concerns over the revenue miss and market dynamics. According to InvestingPro analysis, the stock currently appears undervalued based on its Fair Value calculations, with strong financial health metrics supporting its long-term outlook.

Key Takeaways

• EPS of $1.91 exceeded expectations, with a 7.3% surprise.
• Revenue fell short of forecasts by 3.74%, reaching $1.03 billion.
• Stock price dropped 4.24% in pre-market trading.
• Revised full-year sales guidance to approximately $3.5 billion.
• Continued exploration of M&A opportunities in adjacent markets.

Company Performance

Stella-Jones faced a challenging quarter with a 4% organic sales decline, bringing total sales to $962 million. Despite this, the company maintained a strong EBITDA margin of 18.3%, although EBITDA itself declined to $189 million. The company successfully reduced its net debt to EBITDA ratio to 2.4x, indicating a solid financial position amidst market challenges. InvestingPro data reveals impressive financial strength with a current ratio of 3.27, showing liquid assets well exceed short-term obligations. The company’s overall financial health score stands at "GOOD," supported by strong cash flow and value metrics.

Financial Highlights

• Revenue: $962 million, down 4% organically year-over-year
• EBITDA: $189 million, decreased from the previous year
• Operating cash flow: $224 million
• Net debt to EBITDA ratio: 2.4x

Earnings vs. Forecast

Stella-Jones reported an EPS of $1.91, beating the forecast of $1.78 by 7.3%. This positive surprise contrasts with the revenue miss, where actual revenue of $1.03 billion fell short of the $1.07 billion forecast by 3.74%. This mixed performance reflects ongoing market challenges and strategic shifts within the company.

Market Reaction

The stock of Stella-Jones declined by 4.24% to $75.16 following the earnings announcement. This drop comes despite the EPS beat, likely due to concerns over the revenue miss and broader market conditions. The company’s stock is trading closer to its 52-week low of $62.26, indicating investor caution.

Outlook & Guidance

Stella-Jones revised its full-year sales guidance to approximately $3.5 billion. The company anticipates low single-digit growth in utility pole sales and a slight decline in railway tie sales. It aims for $600-650 million in residential lumber sales while maintaining EBITDA margins above 17%. The company is also exploring expansion opportunities in the U.S. lattice and tubular pole market.

Executive Commentary

CEO Eric Rashaan expressed optimism, stating, "We are encouraged by the progressive improvement in utility pole volumes." CFO Salvina Travellini emphasized financial stability, noting, "We remain committed to maintaining our strong balance sheet." This commitment is evidenced by management’s aggressive share buyback program and 20-year track record of consecutive dividend increases, according to InvestingPro analysis. Subscribers can access 8 additional ProTips and comprehensive financial metrics through the platform’s detailed research reports.

Risks and Challenges

• Revenue miss could indicate potential market share loss.
• Macroeconomic pressures, including interest rates, may impact infrastructure investments.
• Customer insourcing challenges in the railway tie market.
• Potential supply chain disruptions impacting production and delivery.

Q&A

During the earnings call, analysts inquired about the company’s strategy to mitigate railway tie volume loss and the potential impact of interest rates on infrastructure investments. Executives highlighted ongoing M&A opportunities and strategies to maintain competitive positioning in key markets.

Full transcript - Stella-Jones Inc. (SJ) Q2 2025:

Conference Operator, Call Moderator: Good morning, and thank you for standing by. Welcome to Stella Jones Second Quarter of twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. Following the presentation, we will hold a question and answer session. To queue up for questions by phone, please press 1 and a moderator will contact you.

If anyone experiences difficulties during the conference call, please press 0 for operator assistance at any time. I would like to remind everyone that this conference call is being recorded on Thursday, 08/07/2025. I will now turn over to David Allison, Vice President, Investor Relations of Stella Jones. Please go ahead.

David Allison, Vice President, Investor Relations, Stella Jones: Thank you, Ina, and good morning, everyone. Earlier this morning, we issued our press release reporting our results for the 2025. Along with our MD and A, it can be found on the Investor Relations section of our website at www.stellajones.com as well as SEDAR plus As a reminder, all figures expressed on today’s call are in Canadian dollars unless otherwise stated. Please note that the 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’ll now hand the call over to Eric Rashaan, President and Chief Executive Officer of Stella Jones, for a strategic business update, followed by Salvina Travellini, Senior Vice President and Chief Financial Officer of Stella Jones, who will provide a more detailed financial overview for the quarter. Eric, over to you.

Eric Rashaan, President and Chief Executive Officer, Stella Jones: Thank you, David. Good morning, everyone, and thank you for joining us today. Our q two results reflected the disciplined execution of our strategy for value creation, supported by the scale and reach of our extensive network. Though volumes were softer, we focused on sustaining a strong EBITDA margin and generating healthy cash flows while executing on on our strategy to broaden our infrastructure offering. With the acquisition of Rockwell, which was completed in q two, we now have a presence in the steel transition structure market and the platform to further expand our reach and share of wallet as we leverage our robust customer relationships.

The integration of Lockwell into our business and the operational investments to increase production capacity are well underway, and we are already seeing the benefits of this addition to our network. I will now turn to a performance overview of our main product categories before moving to the outlook for the remainder of the year. Starting with utility poles. Since the end of Q2, we’ve seen a pickup in quoting activity, particularly in the Southern Yellow Pine region in The US, and we have started to benefit from new customer agreements secured last year. While utilities continue to acknowledge the need to upgrade the grid and expand capacity, in the current economic environment, certain utilities have maintained a more cautious purchasing pace with this trend being particularly pronounced in Canada.

Although sales volumes were lower when compared to the strong shipments recorded in the same period last year, volumes were above those seen since q two two thousand and twenty four, and we expect continued improvement in the second half of the year. Based on the lower level of demand experienced since mid two thousand and twenty four and the expectation of a return to a mid single digit growth only towards the 2025, we have reduced our utility pole sales outlook for the back half of the year. We now expect sales growth for utility poles for the remainder of the year to be in the low single digit range versus 02/2024. Our extensive network and strong offering utility pole positions us well to benefit from the meaningful investments required by our customers over the long term to replace aging infrastructure and increase grid resiliency. Timing of these investments will continue to be influenced by our customers’ capital expenditure program and their capital deployment strategies.

In July, there was a fire incident at our Brierfield, Alabama utility pole fitting facility. We are pleased to report that no Seller Grove employees were injured. The fire impacted the site’s oil treating facility, but its CCA treating, peeling, drying, and framing capabilities remain unaffected. Within hours of the incident, the team developed plans to leverage our network to reallocate the facility’s orders. As a result of this exceptional agility, we do not expect any significant impact on our capacity to fulfill customer orders.

The swift turnaround following the fire incident highlights the strategic value of our extensive network and the capabilities of our experienced management team. I’m very proud and appreciative of all employees involved for their mobilization and dedicated efforts. For railway ties, sales in the second quarter continued to be impacted by Class one customers now treating more of their railway ties internally. This shift follows this customer’s acquisition of the only class one railroads that operated its own treating facility. We expect this volume loss to provide headwind for the remainder of the year.

While we anticipate recovering some of the volume shortfall with more commercial sales in the second half of the year, certain project starts are taking longer than expected. As a result, we are now forecasting a low single digit year over year decline in railway tie sales. Railway tie customers continue to look to Teladrome to deliver solutions to address their evolving needs and optimize their business model. This allowed us to achieve a mid single digit sales growth over the last three years. Over the long term, we continue to leverage our customer relationships to deliver low single digit sales growth for this business.

While residential lumber’s performance this quarter remained relatively stable, we are encouraged by the improved volume performance we noted in June. We anticipate demand for the remainder of the year to trend favorably, and we remain optimistic about achieving sales within the 600,000,000 to $650,000,000 target range for this product category. As we enter the 2025, we have adjusted our revenue outlook for the year but remain confident in the long term sales growth trajectory of our infrastructure product categories. For 2025, we now expect to generate approximately $3,500,000,000 of sales, including the contribution from Rockwell versus our previous outlook of approximately $3,600,000,000 We are maintaining the same level of profitability with the EBITDA margins over 17%. Our commitment to return more than $500,000,000 to shareholders cumulatively over our outlook horizon while maintaining leverage within targeted levels remains unchanged.

With that, I will now ask Savannah to provide a more detailed overview of our second quarter financial results. Thank you, Eric, and good morning, everyone. Sales for the second quarter were down 4% organically compared to a strong prior year quarter, largely explained by lower railway tie volumes. While utility pole sales were also down, the decrease was modest, and we observed a positive sequential volume trend. Including the contribution from our recent acquisition and relatively stable sales for residential lumber, total sales were down about 1% or $15,000,000 compared to Q2 last year.

Despite lower sales, we continued to deliver a solid EBITDA margin of 18.3%. For utility poles, we generated $476,000,000 in sales in the second quarter. Compared to a strong shipment quarter last year, sales were down 4% organically. While the pace of purchases of some utilities remained slow, incremental volumes from new customers and improved quoting activity in the Southern Yellow Pine region provided a partial offset. Volumes in the quarter were down 2% with a corresponding decline in pricing largely attributable to an unfavorable sales mix.

Offsetting in large part the lower utility pole sales was the contribution of Rockwell, whose results are reported in the utility pole product category. Lock lost sales were better than anticipated as they had backlog orders that existed prior to the acquisition that was completed during the quarter. Sales of railway ties were down 11% organically this quarter to $240,000,000 as volumes continued to be impacted by a Class one customer shooting more of the railway ties at their company owned facility. While we expected to offset some of the sales shortfall with commercial sales, delays in the timing of major projects and funding grant reviews impacted these recoveries. In the second quarter, all of the sales decline for railway ties was attributable to lower volumes.

Residential sales were $246,000,000 in the 2025 compared to 243,000,000 in q two last year. Sales benefited from the higher market price of lumber, but volumes continued to be soft, particularly in the earlier part of the quarter. As the weather improved, we saw an upward trend in demand towards the end of the quarter. Turning now to profitability. EBITDA declined by $11,000,000 to $189,000,000 in 2025.

The decrease was largely attributable to lower sales volume and a less favorable sales mix in our utility poles business compared to the same period last year. Despite lower volumes, the company delivered an EBITDA margin of 18.3 for the quarter and 18.8% year to date excluding the insurance settlement gains recorded in the first quarter. Our strong EBITDA performance underscores the resilience of our business and ability to deliver results in a dynamic environment. During the quarter, cash generated from operating activities was $224,000,000 compared to $177,000,000 in Q2 last year. This improvement was largely attributable to a more significant decrease in inventory levels compared to the same period in 2024.

In addition to the typical seasonal decrease in inventory expected in Q2, we reduced inventories as part of our efforts to optimize the higher levels at the start of the year. We continue to expect to end the year with a lower inventory level compared to the beginning of the year. We remain committed to a balanced approach to capital allocation. Over the last twelve months, we generated cash from operations of approximately $500,000,000 allowing us to invest over $100,000,000 in our business, acquire Lockwell and return $155,000,000 to shareholders. The remaining capital was used to bolster our liquidity.

As of the June, we returned $470,000,000 of capital to shareholders out of the $500,000,000 that was 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 2.4 times down from the 2.6 times at the end of the previous quarter. With the continued focus on profitability and working capital management, the leverage ratio was reduced within the desired target range. We remain committed to maintaining our strong balance sheet, which allows us to execute on strategic growth initiatives and to continue to pursue value accretive acquisitions core to our growth strategy.

In summary, with the breadth of our network, the strength of our business and our teams, combined with our healthy financial position and strong cash generating ability, Stella Jones is well positioned for continued growth and success in 2025 and beyond. I will now turn the call back to Eric for his closing remarks. Thank you, Sylvanna. While our lower sales guidance reflects some near term softness largely associated with ongoing macroeconomic conditions, the mid to long term market dynamics remain intact. As such, we maintain our confidence in the growth prospects of each of our infrastructure businesses.

We are encouraged by the progressive improvement in utility pole volumes, and we’re positioned to further capitalize on the growing North American infrastructure demand. For railway ties, we’re focused on exploring opportunities that will mitigate some of the near term headwinds and leverage the evolving railway tie landscape. Our customers use Celezone as a partner that is capable of delivering impactful business enhancing solutions, and we are fully committed to fulfilling that role. Enhancing our growth through acquisitions remains a cornerstone of our value creation strategy as we focus on expanding our offering and strengthening 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 expect to continue to maintain EBITDA margins above our 17% target, reflecting the strength of our business. Compared to our original guidance from 02/2023, where we projected a 9% EBITDA CAGR for the twenty twenty three to twenty twenty five period, the EBITDA CAGR is now expected to be closer to 11% despite softer sales over the past year. We look forward to providing further insight on our growth strategy at our next Investor Day, which is planned to be hosted in November. Thank you for your continued support and trust in Stellagones’ vision of connecting communities through stronger infrastructure. This concludes today’s prepared remarks.

I will now open the line to questions.

Conference Operator, Call Moderator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Press star followed by the one on your telephone keypad. You will hear a comment that your hand has been raised. And should you wish to cancel your request, please press star followed by the two.

If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Thank you. And your first question comes from the line of Hamir Patel from CIBC Capital Markets. Please go ahead.

Eric Rashaan, President and Chief Executive Officer, Stella Jones: Hi. Good morning. Eric, to start with the pull side of the business, the 4% organic decline in in q two, how much of that was was pricing versus weaker volumes? Roughly half and half. You know, 22% on pricing and 2% on volume.

Okay. Great. And then with in terms of the outlook for the remainder of the year, pointing to low single digit organic growth in poles, What’s the similarly, you know, what’s the the pricing and volume assumptions underlying that? And can you speak to what you’re seeing in the spot market for for pole prices? Right.

So I would say, you know, pretty much all volume for the back half of the year, progressively growing now, you know, moving forward. As I said, very encouraged to see, you know, the the the the the steady trend of of increasing volumes year over year. So to answer your question, all all volumes, I think we have much of the the pricing headwinds now what now behind us. Okay. And and then in the spot market, I know in the past, you pointed to some pockets of weakness.

Is that still the case, or have things stabilized? Compared to last year, it’s slightly down compared to last year. Luckily for us, the largest percentage of our sales are through the long term contract, which is around 75%. So that has been mitigating that impact. Yes, we’re seeing the spot market being softer.

Okay. Great. And just the last question I had, Eric, with respect to Lockheed. Can you speak to how the integration has been going over the past two months? And how are you feeling about your plans to sell through the the capacity expansion that you have planned over there?

Yeah. Certainly. We obviously, it’s been three months now. I would say the integration has gone extremely well. That’s I wanna say, pretty much behind us.

We’ve we’ve committed to the capital investment to expand the capacity that I would, you know, announce at $15,000,000. You can expect, you know, by the end of this year, we’ll have spent a first charge of, let’s say, 9 to $10,000,000 of that CapEx. And, you know, delivery of equipment is expected between well, some equipment is actually going to be delivered in September, and then the balance will be early next year. So that is progressing well. Happy to to inform the listener that we secured a a five year commitment from the large North American utility to produce structures, which, you know, will will take up or or utilize a large part of that or a good part of that capacity.

So that’s very encouraging as we’re making this investment. I’m confident now for the next five years, you know, we’ve we’ve got a a solid a solid a solid book of order, and we’re actually quoting a lot of long term projects right now that span between the two to five year horizon. And there’s actually some some discussions about quoting the the period from 2030 to 2035. So it’s it’s an interesting environment to transmission world as, you know, project get project get get get planned over, you know, a much longer horizon, the seven to ten year time frame. So but things are looking very well.

Thanks for the question. Okay. Great. I appreciate the color. That’s that’s all I had.

I’ll I’ll turn it over. Thanks. Thanks, Sameer.

Conference Operator, Call Moderator: Thank you. And your next question comes from the line of James McGarrigal from RBC Capital Markets. Please go ahead.

Eric Rashaan, President and Chief Executive Officer, Stella Jones: Yes. Good morning, and thanks for having me on. Just on the change in guidance, can you just elaborate a little bit on some of the primary challenges that you’re seeing at the customer level? I guess, kind of what changed with those conversations between Q1 and Q2? And I guess, just what underpins your confidence in achieving group of utility poles, the guidance in the second half of the year?

Well, thank you, James. What encourages me and what we’re seeing is that there’s a constant trend in improving volumes. And in recent discussions with shareholders, I mentioned what’s important for me is to see that trend and for me, it will continue into 2026. So obviously, bit more softness. Had pointed out, we’re seeing some softness in the Canadian market.

So Canadian companies have definitely taken a more prudent approach to projects. But that being said, we’re still confident about seeing that volume growth in the back half of the year. It’s just a slower pace, as I mentioned in my notes. I appreciate the color. And then you alluded to M and A in your prepared remarks.

I guess, can you just remind us how you’re viewing your balance sheet capacity right now? And any color that you can provide on your recent acquisition of Loch Weld and any potential opportunities that might have opened up in The U. S. For you? And after that, I’ll turn the line over.

Thank you. Thank you, James. I I still haven’t pointed out. We have a lot of availability on the credit facilities right now around $700,000,000. Our leverage is sitting at 2.4 for this time of the year, both very well as, you know, typically, we we actually leverage down in the second half of the year.

So I think from a financial perspective, we have a lot of dry powder to go out and and, you know, execute on acquisitions. And to that extent, we are looking at a few projects that are related to the wood treating industry and also related to, as I had qualified in the best of adjacent businesses. Now to the point of the Lawquel question, you know, we definitely executed on that transaction with the intention to use it as a, you know, an entrance to to this market, which, you know, we’ve qualified to be like $55,000,000,000 Canadian in annual sales, which would be lattice and and tubular pull. But that being said, our intention is definitely to keep pursuing m and a in in that space in North America. Thank you.

Conference Operator, Call Moderator: Thank you. And your next question comes from the line of Natsu Sytchev from National Bank Financial. Please go ahead.

Eric Rashaan, President and Chief Executive Officer, Stella Jones: Hi, Eric. Good morning. How are you? Good. Good.

Thank you. Yourself, man? Good. Good. Thank you.

The first question, actually, I just wanted to follow-up on on Lockheed and your thought process as you learn more about some of the the Lattice market and and the capacity to expand organically in in The US. What what are your thoughts there? And can you provide maybe a little bit of an update there in terms of what’s happening in that market specifically? Thanks. Yes.

Yes. Sure. Certainly. So, you know, think I’m happy to provide, you know, more details on. You know, the last two months, our our sales team and the Rockwell team have been meeting with customers, introducing the new joint forces of the two businesses and definitely introducing LogWell to new potential customers.

It has been widely welcomed by all our customers. And the same question you have our customers have for us now is that, so what are your intentions? Are you guys going to acquire something in The U. S? Is Stella Jones going to expand?

And so there’s a lot of interest for us to do so. So we’re definitely putting some time behind analyzing that that possibility. So I think right now, there’s a very positive feedback from our customers, which is usually the hardest part of a project is to probably scope out the commercial aspect and and the the ability to to penetrate the market. So I think that is indicating very positively for us right now. The balance of executing on that comes back down to, you know, CapEx, which, you know, obviously, we have a lot of financial means, know how, which we now have with with the Rockwell team.

And to say that this team at Rockwell is definitely very high on the idea of of expanding, you know, the the the division and, you know, becoming the largest flattest manufacturer in in North America. So, yeah, I would say we’re definitely exploring those those avenues. Okay. And do you do you have a sense of potential, you know, timing to kind of sort of making a decision? Is that the 2025, 2026 time frame?

Or is it is it too premature to talk specifics? It’s a bit early to talk specifics. Obviously, you know, we do have governance. I need to have discussion with the board. We need to structure just to structure a project.

But I guess I wanna say that we don’t wanna drag our feet. I think there’s an opportunity and, you know, being personal market is key in my mind. So it’s too early to talk about the timing, but it’s definitely, you know, something that’s, you know, on my priority list. Okay. Okay.

Great to hear. And then just one quick question around ties. I mean, now that we’re seeing, you know, speculation around additional consolidation in in the rail space, Do you have a sense in terms of if there could be some slower effect in terms of insourcing, or do these companies don’t have their own, you know, treatment capacity? Just any color there would be great. That’s good question, Max.

It’s it’s it’s a question that has come up recent several times in in recent months. So, you know, to clarify, there was only one class one that had a treating facility and, you know, they they merged, you know, they merge with another class. So there’s only one one class on that owns the treating facility. Now they’re using it internally. So all the other customers do not have these this this capability.

And I would say, if I were, you know, to personally comment, I don’t think any of them are interested in owning those assets. You know, we have customers talking to us about doing treating services where there would actually be you could own the size of use leverage our our our network. Some of us are talking to us about expansion projects, so they’re definitely wanting Sella Jones to service them better in certain geographical regions. So we we know we we do have, you know, some some of these discussions with our customers, which indicate to me that this is not a trend in the industry of of seeing, you know, the the railroad start investing in these assets, are, you know, not their core business. Yeah.

Makes sense. Okay. That’s great. Thank you so much. Thank you, Maxim.

Conference Operator, Call Moderator: Thank you once again. That is time one to ask a question. And your next question comes from the line of Benoit Perrier from Desjardins Capital Markets. Please go ahead.

Eric Rashaan, President and Chief Executive Officer, Stella Jones: On the Railtie, could you maybe provide an update on the Railtie customer project that could help compensate for the volume shortfall we see with the this Class one? Yes. Yes. Certainly. So, you know, as I said in the prepared remarks, we’re definitely looking compensate some of the headwinds with the with with some commercial some commercial business.

There was there was a bit of delay in the first half of the year with with federal funding in The US after the program got reviewed, and there there were some delays in those funds, being made available to our customer base. But now we, you know, we’ve been quoting and got awarded contracts here in the second half of the year, which will which supports my view that we’ll be able to compensate some of the lost volume into into the sorry, the lost volumes that had in the first part of the year. Once we get into next year, obviously, this headwind of this is Class one will be behind us. So it’s just like a once and done. And then I do believe, as I said, we’re going to continue growing our business at that low single digit pace.

But I also see some opportunities with certain of our customers looking towards us for some capital investment so we can enhance our our business with them. So, you know, more to come in, you in obviously, it takes take a bit of time, but it’s in ’26 and ’27. But, you know, we’ll put this behind us, and I I think, you know, decision looks good for the railway tie division. Okay. And could you talk a little bit about the upcoming contract renewals to come with the class one?

How many might we see in 2025? And should we expect this to be more a positive or a negative catalyst, Ehid? So well, without naming them, one is behind us and another one to go this year, which is renewed at the October. Obviously, as we’re renegotiating these these these contracts, you know, we’re looking to adjust pricing favorably for us in the sense that we need to catch up on some cost increases that we’ve seen, you know, over the last few years. You know, these contracts are for the long term and we still, in certain cases, feel the pain of cost increases through COVID, which has not repeated and have and have maintained.

So, you know, as we execute on these contracts and and look for adjusted pricing or, I would say, favorable triggers or to to to incent us on on on good pricing and by that, I mean, someone wants to give me more volume, I can definitely be more flexible on pricing. You know, I think it it it looks favorable for us, you know, in well, for the balance of the year, obviously, but I think we got renewals now in ’26 and ’27 also. So it it’ll gradually sort of make it make it way in our results over the next twenty four months, I think. Okay. And moving on utility poles, when we look at The US electric companies, they’ve asked 29,000,000,000 in the rate increase for this year, which more than doubled their request for the 2024.

American Electric Power also was quarter. So of upside would you say that utilities now realize the importance to to spend despite the elevated interest rate environment? Any thoughts about the fundamentals for utility pole? Well, thank you, Benoit. I think you described the fundamentals very well because what you just stated is what we observed as well.

So rate base increases have been allocated to several customers. We see some customers adjusting their capital structure to be able to to go to move forward with their investments. And, you know, I associated I associated that those factors to, you know, what we expressed in seeing, you know, our our volumes picking up here in the second half of the year. And I’d like to think we will keep doing so into ’twenty six. There’s no doubt about the investment being required in the grid as a whole.

And I think no matter what the interest rate environment does at this point, I think our customers have adjusted to to this reality. I mean, the interest do drop into The US in the next several months, it it will normally be favorable, I would say. But at this point, I think our our customers have found ways to move forward. Okay. And just looking for residential lumber, it’s been flat.

We’ve seen, obviously, the housing starts down, home renovation also down, home prices are down. Although weather, any thoughts whether it was more driven by rain or any thoughts about what we we should expect from residential number in in the second half, Ily? Yeah. Well, you know, I I really rated our view is of that the range of 6 to 650,000,000, and and I think we will be largely trying to hit the range the middle of the range, let’s say, for this year. You’re completely right that we had some headwinds early spring with a lot of rainy weekends and, you know, you know, I guess, unfavorable weather.

But, you know, the the month of June has actually was actually very good, and, you know, we’re we’re seeing positive trend on the volume side right now. You know, we definitely, again, have a great partner for on the on the retail side. It’s very aggressive on the pricing and dedicated to get market share in Canada. So that is a real positive thing for us. So you’re right.

If market I mean, if marketing starts pick up again, that would also be very favorable and contribute positively to to the business. But even that, at this point, I I still think, you know, we’re we’re that this is is a decline. Okay. Thank you very much for the time. Thanks, everyone.

Conference Operator, Call Moderator: Thank you. And once again, if you have a question, please press 4 by the one on your telephone keypad. And your next question comes from the line of Jonathan Goldin from Scotiabank. Please go ahead.

Eric Rashaan, President and Chief Executive Officer, Stella Jones: Good morning, team. Thanks for taking my question. Eric, just a question on the outlook for polls for the rest of the year. Do you assume any rate cuts? And what sort of macroeconomic variables are you considering in that guidance?

Well, no, we’re not, you know, we’re not taking in any any any rate cuts. That’d be very difficult for us to speculate on. So, you we use the information we have today, the current effects or some projections of effects and and current interest rates and, you know, anything else that happens if there are rate cuts and it’s positive. First, it takes a while to scope into our it trickles back down to us. I think it’s a bleeding indicator of positive for us.

But and we also follow what our customers say. At this point, if the rate cuts, if it might impact next year’s plan at this point, then probably not as much this year. But as I said, it’s a good leading indicator for us. Alright. So if the macroeconomic conditions stay the same, what gives you confidence that volumes will accelerate through the back half of the year?

And if it’s the order book, what sort of visibility do you have on that? And can customers delay orders and push them out potentially further? Yeah. That’s good question. You know, at this point, and, you know, I guess, we went to this exercise last year in the third quarter, so we definitely scrubbed scrubbed the order book and had good discussions with with our customers with regards to what’s expected this year.

You will notice the guidance slightly adjusted, right, in the expected growth, but it’s still a positive growth for the year. To be honest, there’s also an easier comp over year because we had declined last year in q three and q four. So I’m quite comfortable with what’s going on right now as far as the order book is, conversations that our team is having with customers. I myself had a, you know, couple of discussions with some key customers as well. You know, I I think what we’ve put out is definitely achievable.

Okay. That makes sense. And then maybe moving to the the margin guidance, still the same sort of guidance above 17%. I mean, that gives a lot to the imagination. You’re above 18% for the second quarter in a row now.

Why wouldn’t we assume that you can do 18%? I mean, spot volumes have been weaker for a bit now, and you’re still able to maintain that 18% mark. So I think it’s a reference. If you look last year, but it’s true in many years, the second half of the year typically has less volume. So the residential lumber business sort of slowed down.

The maintenance season also sort of for fall and dry sort of slowed down as well. But typically, the H2 is a bit of a lower volume, and the EBITDA margin is slightly lower than the first half of the year. So if you scope that in, put us a bit downwards from the point we are today on the year to date. So we had 17 to four. You’re right.

It leaves a lot of imagination. You know, as I’d like to say, the team always, you know, swing for defenses. We’re always looking for home runs. I’m I don’t let anyone off the hook easily. I’m looking for for good performance, But there’s always that impact here of of a issue that would would bring us, you know, slightly lower than the the year to date number we have now.

Okay. That makes sense. And if you look at the historical cadence from the first half to the second half in terms of margin, is the last couple of years, three years, maybe a good reference point? Or is it better to look farther back to kinda remove some of pricing dynamics we’ve seen in the past couple of years? I’ll I’ll let Sylvain know because we actually spent some time talking about it the last few days.

So so I I would say, Jonathan, that in most years, it’s pretty representative starting last year. I would say probably one of the anomalies that we saw was in 2023. It was a year I’d probably remember when there’s a lot of a lot of demand and a little bit of craziness in the market. But other than that, you know, I think if you go back historically, I think you’ll always see probably, you know, that that that gap between the first and half and second half. Okay.

Makes sense. Thanks for taking my questions. Thanks, Jonathan.

Conference Operator, Call Moderator: Thank you. No further questions at the queue.

Eric Rashaan, President and Chief Executive Officer, Stella Jones: Thank you, Ina, and thank you, everyone, for joining us today. We look forward to updating you when we release our third quarter results. Until then, enjoy the rest of the summer and stay safe.

Conference Operator, Call Moderator: This concludes today’s call. Thank you for participating. You may all disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.