Transcript: Stella-Jones Q2 2026 Earnings Conference Call

Stella-Jones (TSX: SJ ) released second-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Stella-Jones Inc. 042 billion, a slight increase from the previous year, driven by utility products, particularly wood utility poles and crossarm acquisitions, offset by softer residential lumber and logs and lumber performance. The company is advancing strategic initiatives, including network optimization and capacity expansions in wood utility poles and railway ties, which are expected to yield annual cost savings of CAD 10 to 15 million starting in 2027. 5%.

Full Transcript Operator (Operator) Good morning and thank you for standing by. Welcome to Stella-Jones second quarter 2026 earnings conference 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 a question by phone, please press star one and the moderator will contact you. If anyone experiences technical difficulties with the conference call, please press star zero for the operator at any time. I would like to remind everyone that this conference call is being recorded on Thursday, August 6, 2026. I will now turn the call over to David Gallison, Vice President of Investor Relations of Stella-Jones.

David Gallison, Vice President, Investor Relations Thank you, John, and good morning, everyone. Earlier this morning we issued our press release reporting our results for the second quarter of 2026 along with our MD&A. It can be found in the Investor Relations section of our website at as well as on SEDAR+. As a reminder, all figures expressed on today's call are in Canadian dollars unless otherwise stated.

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+. These documents are also available in the Investor Relations section of the Stella-Jones website.

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&A available on the Stella-Jones website and on SEDAR+. 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 Vachon, President and Chief Executive Officer of Stella-Jones, for a strategic business update, followed by Silvana Travaglini, Senior Vice President and Chief Financial Officer, who will provide a more detailed financial overview of the quarter. Eric, over to you. Eric Vachon, President and CEO Thank you, David, and good morning, everyone. Today we reported second quarter results that reflect continued strength in utility products, supported by positive volume momentum in wood utility poles and a solid contribution from our recently acquired crossarms business.

In railway ties, stronger commercial activity provided a significant offset to lower Class 1 volumes, while our network optimization plan continued to advance and remains on track to support profitability improvement. In residential lumber, pricing and volumes remained below prior-year levels, although trends improved towards the end of the quarter and into Q3. While underlying business conditions remain supportive, profitability in the quarter was affected by several near-term cost headwinds, including higher site-specific environmental and maintenance costs, temporary inefficiencies from our steel structure capacity expansion project, and increased fuel costs.

These pressures were amplified by the lag in recovering certain cost increases through pricing. 5%. Margin improvement is also expected to be driven by a greater contribution from higher-margin businesses such as crossarms and steel structures, along with a better railway tie sales profile, including more TSO volumes and higher-value rail products. Together, these factors support our expectation that EBITDA margin should improve in the second half of 2026 while remaining below our three-year target range for the full year.

In parallel, we continue to advance our continuous improvement and footprint optimization initiatives, which we expect will drive efficiencies, strengthen margins, and enhance profitability over time. Combined with a more supportive business mix and favorable end-market fundamentals, these actions reinforce our view that the current level of margin performance does not represent a structural change in the earnings power of the business. 5%. Turning to a performance and overview of our main product categories, and starting with utility products, we remain encouraged by the strength of the business, which continues to be a key growth driver.

In wood utility poles, momentum remained positive in the second quarter, although the volume growth moderated from the strong pace seen in the first quarter. Importantly, on a year-to-date basis, volume growth remained in line with our mid single-digit outlook, supported by the continued strength in our contract-based business. Spot pricing has also stabilized broadly on a sequential basis, and we expect the additional capacity coming online later this year, which we mentioned in our Q1 call, to have only a negligible impact on overall spot pricing.

When fully operational, we believe the new capacity will represent less than 1% of the total North American treating capacity. Turning to our continuous improvement initiatives, we are now planning the next phase of our network optimization, focusing on our wood utility pole facilities. The objective is to consolidate some capacity so we can fully realize the benefits of investments already made, as well as increasing plant specialization. Most of the network is already operating on a single-product basis, with only a few facilities left to transition.

Another important consideration as we develop our optimization plan is the current preservative availability in Canada, where approval of DCOI, the main oil-based alternative to Penta, remains outstanding. We expect these optimization efforts to improve utilization, enhance profitability, and free up capacity to support growth in wood utility poles. Beyond the operating and financial benefits of these optimization initiatives, they will also contribute to the broader sustainability strategy.

By streamlining our production footprint across both railway ties and utility poles, we're actively improving the GHG emission profile of our network, keeping us on track to meet our long-term sustainability targets. Turning to our latest acquisitions, the integration of the crossarms business continues to go well, and the business performed in line with our expectations, providing a solid contribution to results. We are also seeing strong interest from our existing customer base, as the product offers a natural value-added extension to our utility pole offering.

To this end, we began recording Canadian sales in the quarter, demonstrating the progress we are making in leveraging our established network and deep customer relationships to broaden our share of customer spend. For steel structures, sales in the quarter were lower compared to the prior year, primarily due to temporary lost production time and lower throughput during the equipment changeover related to our capacity expansion program. We continue to make solid progress in the steel structure capacity expansion. In Candiac, the plant modernization remains on track to double capacity to 20,000 tons by Q3 of 2026, with full ramp-up by year-end.

Demand for lattice towers remains strong, and the capacity is already substantially allocated through the end of 2027. Our team has also secured one customer contract for approximately one-third of the production capacity in Candiac for the next 10 years. , we continue to advance the development of our Fayetteville, Tennessee facility. Our focus to date has been on finalizing key vendor agreements, advancing permit work, and preparing the site and equipment plans needed to move into execution.

As a reminder, the site includes an existing newly constructed building that is suitable for operations, which helps mitigate execution risk. The project remains on track, and we continue to expect this investment of approximately US$50 million to add another 20,000 tons to our steel structure production capacity. Commissioning is expected in late 2027, with full production by the end of 2028. S.

customers that are currently served from Candiac to place orders in 2027 with the new facility as part of its ISO and customer certifications and ramp-up. These early volumes should help support commissioning and a smoother startup. S. demand to Fayetteville while backfilling capacity in Candiac with Canadian demand.

Turning to railway ties, second quarter results reflected similar market conditions to Q1 this year. As expected, Class 1 volumes remained lower in the quarter. However, we continued to see growth in our commercial business, which was able to offset a meaningful portion of the decline in Class 1 volumes. During the quarter, we began executing on the network optimization plan outlined in Q1, continuing to consolidate our footprint and reallocating volumes to the most efficient facilities to better align the business with the current demand.

While these actions resulted in some one-time costs in the quarter, we expect these initiatives to improve returns over time. At the same time, we remain focused on growth. During the quarter, we finalized one Class 1 contract renewal that includes volume growth, and we are seeing interest from that customer in bridge timbers, which could provide incremental upside. Looking ahead, we are actively negotiating another Class 1 contract renewal, and we are encouraged by additional volumes that were added to our forecasting starting in 2027, which stem from capital investments expected to conclude this year.

We expect to finalize this contract negotiation in Q4. This pipeline of renewals remains an important part of our strategy to strengthen our position and expand our product offering. We also continue to see a constructive funding backdrop in the commercial market. Although CRISI grants are scheduled to expire in 2026, previously awarded funding should continue to support project activity through 2028.

Beyond that, proposed enhancements to the 45G tax credit could provide an additional source of support for short line investments. Turning to residential lumber, results were softer in the quarter, but recent trends in both pricing and volumes have been encouraging, and we continue to expect full-year sales to remain within our $600 million to $650 million target range. Beyond our operational focus, we remain equally committed to sustainable development of our business. During the quarter we published our 2025 sustainability report.

The report reflects meaningful progress against our priorities, including a reduction in our injury rate frequency, which declined year over year and reflects our continued focus on the safety of our people. We achieved a 23% reduction in scope 1 and 2 greenhouse gas emissions against our 2022 baseline, driven by operational improvements, including waste heat recovery and expanded solar energy use. We also advanced our commitment to Indigenous people, with 96% of our Canadian salaried employees completing Indigenous cultural awareness training.

Ultimately, this report is a reflection of the dedication and effort of our people across the organization, and we are proud of what we've accomplished together in 2025. With this, I will turn the call over to Silvana Travaglini, who will provide an update on our financial performance in Q2. Silvana Travaglini, Senior Vice President and Chief Financial Officer Thank you Eric and good morning everyone. Today we reported second quarter sales of 1,042,000,000, an $8,000 increase compared to the same period last year.

This growth was led by utility products where we saw positive volume momentum in wood utility poles and a solid contribution from our crossarm acquisition. These gains were largely offset by softer performance in residential lumber and a decline in activity within our logs and lumber business. On a year-to-date basis, sales were 1,833,000,000 compared to 1,807,000,000 in the prior year period. This $26,000,000 increase was driven primarily by contributions from acquisitions and a 4% organic sales growth in wood utility poles.

These helped mitigate a $30 million foreign exchange headwind as well as softer year-to-date sales performance in our railway ties and residential lumber businesses. Utility product sales were $510 million in the second quarter, up 7% from $476 million in the same period last year. The increase was driven by a $29 million contribution from crossarms and a modest organic growth in wood utility poles, partly offset by a decline in steel structure sales which reflected the temporary operational factors mentioned earlier. For wood utility poles, sales increased 1% organically in the quarter with volumes up 2% entirely from contract business.

Underlying demand and customer activity remained healthy. However, unusually wet spring weather in Texas, one of our most active markets, delayed project execution and had a more meaningful impact on performance in the quarter. On a year-to-date basis, utility product sales were $979 million, up 9% from $895 million in the prior year period. Excluding the contribution of acquisitions and the impact of foreign exchange, wood utility pole sales were up 4% in the first half of the year.

This growth was volume-led, contributing about 7% to the increase. Offsetting in part the volume increase was lower pricing, primarily due to product mix, particularly the unusually favorable transaction recognized in the first quarter of 2025, which involved high-margin rack poles. When we normalize for that specific prior year item, pricing remained relatively stable. From a financial standpoint, the poles network actions Eric outlined are intended to improve network efficiency and better position certain facilities to focus on higher-margin products.

We estimate that these initiatives could contribute approximately $10 to $12 million of incremental annual profitability. As we continue to assess and advance these actions, we may incur one-time charges, most of which would be non-cash in nature and primarily related to potential asset write-downs. Turning to railway ties, the second quarter sales were $235 million compared with $240 million in the prior year period. The decline was primarily due to lower Class 1 volumes, with much of that pressure offset by continued strength in the non-Class 1 market.

Overall volumes were down 1% in the quarter while pricing was slightly lower due to a higher proportion of lower-priced TSO volumes. Year-to-date, railway tie sales totaled $433 million, down 2% excluding foreign exchange. This result reflects the same trend observed in the second quarter with both volumes and pricing contributing modestly to the decline. We continue to advance our railway ties optimization actions in the second quarter.

As part of these efforts we recorded $32 million of one-time charges including $24 million of non-cash asset write-downs. EBITDA was adjusted for these items. We continue to expect annual cost savings from these initiatives of approximately $10 to $15 million beginning in 2027. Residential lumber sales were $234 million in the second quarter, down 5% from $246 million in the prior year period.

The decrease primarily reflected lower pricing, which was down 4%, while volumes were modestly lower, down 1%, due to softer demand and adverse weather conditions. On a year-to-date basis, residential lumber sales were $310 million, down 7% from $334 million in the first half of 2025. The decline reflected both lower volumes, which were down 2%, and a softer pricing environment. 3%, in the second quarter of last year.

As Eric mentioned, the decrease primarily reflected near-term cost pressures. The main drivers were site-specific environmental and maintenance costs, most of which are not expected to recur, higher fuel costs, temporary inefficiencies associated with the Candiac steel structure expansion, and a lag in recovering certain cost increases through pricing. We expect margin performance in the second half of the year to improve as some of these pressures ease.