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SECOND QUARTER RESULTS

Sales for the second quarter of 2022 amounted to $907 million, up from $903 million for the same period in 2021. Excluding the $22 million favourable impact of currency conversion and the contribution from the acquisitions of Cahaba Pressure Treated Forest Products, Inc. and Cahaba Timber, Inc. (collectively "Cahaba") of $15 million, pressure-treated wood sales were unchanged compared to last year, while sales of logs and lumber decreased by $33 million. The pressure-treated wood sales attributable to the Company’s infrastructure-related businesses, namely utility poles, railway ties and industrial products, increased 10% compared to the second quarter of 2021 but was entirely offset by the lower residential lumber sales.

Pressure-treated wood products:

• Utility poles (35% of Q2-22 sales): Utility poles sales amounted to $316 million in the second quarter of 2022, up from $236 million for the same period last year. Excluding the currency conversion effect and the contribution from the Cahaba acquisitions, sales increased 23%, driven by the upward price adjustments in response to cost increases, the continued improvement in maintenance and project-related demand.
  
  

• Railway ties (24% of Q2-22 sales): Sales of railway ties amounted to $215 million in the second quarter of 2022, versus $216 million in the corresponding period last year. Excluding the currency conversion effect, sales of railway ties decreased by 4%, mainly attributable to the reduced maintenance demand of certain Class 1 customers, offset in part by favourable sales price adjustments, largely to cover higher fibre costs.
  
  

• Residential lumber (32% of Q2-22 sales): Residential lumber sales totaled $286 million in the second quarter of 2022, down from $330 million in the second quarter of 2021. Excluding the currency conversion effect, sales decreased 14% as a result of lower sales volume, largely stemming from a slower start to the season due to unfavourable weather conditions and lower pricing compared to the record high market price of lumber in the second quarter of 2021.
  
  

• Industrial products (4% of Q2-22 sales): Industrial product sales amounted to $38 million in the second quarter of 2022, slightly up compared to the $36 million of sales generated a year ago, largely due to higher pricing for projects related to railway bridges and crossings.
  

Logs and lumber:

• Logs and lumber (5% of Q2-22 sales): Logs and lumber sales totaled $52 million in the second quarter of 2022, down from $85 million compared to the same period last year. The decrease in sales is largely due to less lumber trading activity compared to same period last year.
  

Gross profit was $173 million in the second quarter of 2022, versus $197 million, in the second quarter of 2021, representing a margin of 19.1% and 21.8% respectively. The decrease in gross profit was primarily driven by the normalization of residential lumber gross profit, which outweighed the pricing gains and resulting gross profit margin expansion for utility poles and railway ties.

Similarly, operating income totaled $133 million in the second quarter of 2022 versus operating income of $161 million in the corresponding period of 2021, and EBITDA decreased to $154 million, compared to $180 million reported in the second quarter of 2021.

As a result, net income for the second quarter of 2022 was $94 million, or $1.51 per share, compared to net income of $115 million, or $1.76 per share, in the corresponding period of 2021.

SIX-MONTH RESULTS

For the first six months of 2022, sales amounted to $1,558 million, versus $1,526 million for the corresponding period last year. Excluding the positive impact of the currency conversion of $22 million and the contribution from the Cahaba acquisitions of $30 million, pressure-treated wood sales rose by $21 million, or 2%, and logs and lumber sales dropped by $41 million. The year-over-year sales growth in pressure-treated wood stemmed from upward price adjustments and increased maintenance and project-related demand for utility poles, as well as higher pricing for railway ties. These factors were largely offset by a decrease in residential lumber volumes and pricing, as well as lower railway ties volumes, particularly for Class 1 business.

Gross profit decreased to $273 million, or 17.5% of sales, from $309 million, or 20.2% of sales, in the corresponding period last year. Operating income amounted to $200 million, versus $243 million a year ago, while EBITDA was $242 million, compared to $279 million in the prior year.

Net income in the first six months of 2022 was $140 million, or $2.23 per share, versus net income of $171 million, or $2.61 per share, in the corresponding period last year.

LIQUIDITY AND CAPITAL RESOURCES

During the second quarter ended June 30, 2022, Stella-Jones used the cash generated from operations of $228 million to reduce indebtedness related to the seasonal investment in working capital in the first quarter by $130 million, invest in capital expenditures of $20 million and return capital to shareholders with dividends and share repurchases totaling $69 million.

The Company’s long-term debt, including the current portion, stood at $820 million as at June 30, 2022 with a net debt-to-EBITDA of 2.7x, primarily driven by the lower trailing 12-month EBITDA.

ACQUISITION OF TRANSPORTATION ASSETS

Subsequent to quarter-end, Stella-Jones completed the acquisition of substantially all of the operating assets of the Dinsmore Trucking group (“Dinsmore”), a specialty poles and logs carrier and transportation business. Dinsmore’s operations are principally located in Ontario and Alberta and their services extend across Canada and to parts of the United-States. Total consideration associated with the acquisition was approximately $9 million. As much of the Company's business relies on sound logistics, securing trucking assets through this acquisition will help the Company better serve its network and customers through increased control and flexibility of transport operations.

NORMAL COURSE ISSUER BID

In the three-month period ended June 30, 2022, the Company repurchased 1,286,804 common shares for cancellation in consideration of $45 million under the Normal Course Issuer Bid commencing November 12, 2021 and ending November 11, 2022 ("2021-2022 NCIB"). For the six-month period ended June 30, 2022, the Company repurchased 2,286,186 common shares for cancellation in consideration of $85 million. Since the beginning of the 2021-2022 NCIB, the Company has repurchased a total of 3,007,734 common shares for cancellation in consideration of $115 million.

QUARTERLY DIVIDEND

On August 9, 2022 the Board of Directors declared a quarterly dividend of $0.20 per common share payable on September 23, 2022 to shareholders of record at the close of business on September 6, 2022. This dividend is designated to be an eligible dividend.

OUTLOOK

Stella-Jones’ sales are primarily to critical infrastructure-related businesses. While all product categories can be impacted by short-term fluctuations, the business is mostly based on replacement and maintenance-driven requirements, which are rooted in long-term planning. Corresponding to this longer-term horizon and to better reflect the expected sales run-rate for residential lumber and reduce the impact of commodity price volatility, the Company shifted its guidance to a three-year outlook in early 2022. Below are key highlights of the 2022-2024 outlook with a more comprehensive version, including management assumptions, available in the Company's MD&A. Management remains confident in the achievement of its three-year strategic guidance.

Key Highlights:

1. Compound annual sales growth rate in the mid-single digit range from 2019 pre-pandemic levels to 2024;

2. EBITDA margin of approximately 15% for the 2022-2024 period;

3. Capital investment of $90 to $100 million to support the growing demand of its infrastructure-related customer base, in addition to the $50 to $60 million of annual capital expenditures;

4. Residential lumber sales expected to stabilize between 20-25% of total sales while infrastructure-related businesses expected to grow and represent 75-80% of total sales by 2024;

5. Anticipated returns to shareholders between $500 and $600 million during three-year outlook period;

6. Leverage ratio of 2.0x-2.5x between 2022-2024, but may temporarily exceed range to pursue acquisitions.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on August 10, 2022, at 10:00 a.m. Eastern Daylight Time. Interested parties can join the call by dialing 1-416-764-8646 (Toronto or overseas) or 1-888-396-8049 (elsewhere in North America). Parties unable to call in at this time may access a recording by calling 1-877-674-7070 and entering the passcode 969499. This recording will be available on Wednesday, August 10, 2022 as of 1:00 p.m. until 11:59 p.m. on Wednesday, August 17, 2022.

ABOUT STELLA-JONES

Stella-Jones Inc. (TSX: SJ) is North America’s leading producer of pressure-treated wood products. It supplies all the continent’s major electrical utilities and telecommunication companies with wood utility poles and North America’s Class 1, short line and commercial railroad operators with railway ties and timbers. Stella-Jones also provides industrial products, which include wood for railway bridges and crossings, marine and foundation pilings, construction timbers and coal tar-based products. Additionally, the Company manufactures and distributes premium treated residential lumber and accessories to Canadian and American retailers for outdoor applications, with a significant portion of the business devoted to servicing the Canadian market through its national manufacturing and distribution network. The Company’s common shares are listed on the Toronto Stock Exchange.

CAUTION REGARDING FORWARD-LOOKING INFORMATION

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, general political, economic and business conditions (including the impact of the coronavirus pandemic), evolution in customer demand for the Company's products and services, product selling prices, availability and cost of raw materials, changes in foreign currency rates, and the ability of the Company to raise capital. As a result, readers are advised that actual results may differ from expected results. Unless required to do so under applicable securities legislation, the Company does not assume any obligation to update or revise forward-looking statements to reflect new information, future events or other changes after the date hereof.

Note to readers: Condensed interim unaudited consolidated financial statements for the second quarter ended June 30, 2022 as well as management’s discussion and analysis are available on Stella-Jones’ website at www.stella-jones.com.

NON-GAAP AND OTHER FINANCIAL MEASURES

This section includes information required by National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure in respect of “specified financial measures” (as defined therein).

Non-GAAP financial measures include:

• Gross profit: Sales less cost of sales

• EBITDA: Operating income before depreciation of property, plant and equipment, depreciation of right-of-use assets and amortization of intangible assets (also referred to as earnings before interest, taxes, depreciation and amortization)

• Net debt: Sum of long-term debt and lease liabilities (including the current portion)
  

Non-GAAP ratios include:

• Gross profit margin: Gross profit divided by sales for the corresponding period

• EBITDA margin: EBITDA divided by sales for the corresponding period

• Net debt-to-EBITDA: Net debt divided by trailing 12-month (TTM) EBITDA
  

Other specified financial measures include:

• Operating income margin: Operating income divided by sales for the corresponding period
  

Management considers these non-GAAP and other financial measures to be useful information to assist knowledgeable investors to understand the Company’s operating results, financial position and cash flows as they provide a supplemental measure of its performance. Management uses non-GAAP and other financial measures in order to facilitate operating and financial performance comparisons from period to period, to prepare annual budgets and to assess the Company’s ability to meet future debt service, capital expenditure and working capital requirements. Management uses net debt to calculate the Company’s indebtedness level, future cash needs and financial leverage ratios.

The following tables present the reconciliations of non-GAAP financial measures to their most comparable GAAP measures.