Stella-Jones Q2 Earnings Call Highlights

Stella-Jones (TSE:SJ) reported second-quarter 2026 sales of CAD 1.042 billion, up CAD 8 million from a year earlier, as growth in utility products offset softer residential lumber results and lower activity in its logs and lumber business.

Adjusted EBITDA declined to CAD 167 million, or 16% of sales, from CAD 189 million, or 18.3%, in the prior-year quarter. Management attributed the margin decline to site-specific environmental and maintenance costs, higher fuel costs, temporary inefficiencies tied to a steel-structure capacity expansion in Candiac, Quebec, and delays in recovering some cost increases through pricing.

President and Chief Executive Officer Éric Vachon said that excluding items not expected to recur, the company’s quarterly margin would have been closer to 17.5%. He said Stella-Jones expects EBITDA margins to improve during the second half of 2026, though they are expected to remain below the company’s three-year adjusted EBITDA margin target of 17.5% to 18.5% for the full year.

Utility products lead sales growth

Utility product sales rose 7% to CAD 510 million in the second quarter, driven by a CAD 29 million contribution from the company’s crossarms acquisition and modest organic growth in wood Utility poles. Wood pole sales increased 1% organically, as a 2% volume gain in contract business was partly offset by a 1% decline in pricing.

Chief Financial Officer Silvana Travaglini said unusually wet spring weather in Texas delayed project execution in one of Stella-Jones’ active markets. She estimated that, absent the weather disruption, wood utility pole growth would have been closer to 4% to 5% during the quarter.

Vachon said the company continued to expect mid-single-digit volume growth in wood utility poles for the full year. Spot pricing has remained broadly stable for four quarters, he said, and the company expects new industry capacity expected later this year to have a negligible impact on overall spot pricing.

Stella-Jones is planning another phase of network optimization focused on its wood utility pole facilities. The effort is intended to consolidate capacity, increase plant specialization and improve utilization. Travaglini said the initiatives could generate approximately CAD 10 million to CAD 12 million in incremental annual profitability beginning in 2027, although the company may incur mostly non-cash one-time charges as it advances the plan.

The crossarms business, acquired recently by Stella-Jones, performed in line with expectations, according to Vachon. The company began recording Canadian crossarm sales during the quarter as it expanded the product through its existing customer network.

Steel capacity project progresses

Steel structure sales declined from the prior-year period because of temporary lost production time and lower throughput during equipment changes associated with the Candiac expansion. Vachon said the operational disruption was largely behind the company following plant work and a July shutdown.

The Candiac modernization remains on track to double capacity to 20,000 tons by the third quarter, with a full ramp-up anticipated by year-end. Demand for lattice towers remains strong, management said, and capacity has been substantially allocated through the end of 2027. Stella-Jones also secured a customer contract representing about one-third of Candiac’s production capacity for the next 10 years.

In Tennessee, the company continued development of its Fayetteville steel structure facility. The approximately CAD 50 million project is expected to add 20,000 tons of capacity, with commissioning anticipated in late 2027 and full production by the end of 2028. Vachon said existing U.S. customers have expressed interest in placing orders during 2027 to support the new facility’s certification and ramp-up process.

Railway ties face lower Class I volumes

Railway tie sales fell to CAD 235 million from CAD 240 million a year earlier, with lower Class I railroad volumes partly offset by continued growth in commercial business. Overall volumes were down 1%, while pricing was slightly lower because of a larger mix of lower-priced treating services only, or TSO, volumes.

Stella-Jones recorded CAD 32 million in one-time charges related to railway-tie network optimization during the quarter, including CAD 24 million of non-cash asset write-downs. Adjusted EBITDA excluded these items. The company expects the railway optimization actions to produce annual cost savings of approximately CAD 10 million to CAD 15 million beginning in 2027.

Vachon said Stella-Jones finalized one Class I contract renewal that includes volume growth and is negotiating potential bridge-timber business with that customer. The company is also negotiating another renewal, which it expects to finalize in the fourth quarter, and said additional volumes have been included in its forecast beginning in 2027.

Management expects full-year railway tie volumes to range between flat and down 2%, with TSO volumes representing a larger share of second-half activity. Travaglini said TSO could account for 5% to 10% of total railway tie sales in the second half and potentially going forward.

Residential lumber declines; cash flow remains positive

Residential lumber sales declined 5% to CAD 234 million, reflecting a 4% reduction in pricing and a 1% volume decline amid softer demand and adverse weather. Despite improving pricing and volume trends toward the end of the quarter and into the third quarter, the company maintained its full-year residential lumber sales target of CAD 600 million to CAD 650 million.

Cash from operations totaled CAD 192 million, down from CAD 224 million in the prior-year quarter, primarily because of lower profitability. Stella-Jones reduced net debt by more than CAD 100 million during the first half, excluding foreign exchange effects, and ended the quarter with CAD 759 million of available liquidity and a leverage ratio of 2.5 times.

Vachon said the company remains confident that optimization initiatives, pricing pass-through mechanisms and a greater contribution from higher-value products can improve margins over time. He also said Stella-Jones continues to evaluate merger-and-acquisition opportunities in railway ties and utility poles while pursuing organic growth in its infrastructure-focused businesses.

About Stella-Jones (TSE:SJ)

Stella-Jones Inc produces and sells lumber and wood products. The company operates in two segments: Pressure-treated wood, which includes utility poles, railway ties, residential lumber, and industrial products; and Logs Lumber segment comprises of the sales of logs harvested in the course of the company's procurement process that is determined to be unsuitable for use as utility poles, it also includes the sale of excess lumber to local home-building markets. The vast majority of its revenue comes from the Pressure-treated wood segment.

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