Stella-Jones Q1 2026 Earnings Report

Stella-Jones EPS Results

• Actual EPS: C$1.12
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Stella-Jones Revenue Results

• Actual Revenue: $791.00 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Stella-Jones Announcement Details

• Quarter: Q1 2026
• Date: 5/6/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 6, 2026
• Conference Call Time: 8:00AM ET

Stella-Jones (TSE:SJ) 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. Its geographical segments are the United States and Canada, of which the majority of its revenue is derived from the United States.

Stella-Jones Q1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Utility products remain the primary growth driver—Q1 utility sales were CAD 469M (up 12%) with wood pole volumes +12% and recent acquisitions contributing to demand; the company is also on schedule to double steel structure capacity by mid‑2026.
• Positive Sentiment: Management is expanding its North American steel footprint with a new Fayetteville, TN lattice facility (approximately US$500 million investment, ~20,000 tons capacity) targeting commissioning late 2027 and full production by end of 2028, which should support future topline and backlog for U.S. customers.
• Neutral Sentiment: Railway ties are broadly stable (Q1 ties sales CAD 198M, down 5% largely from FX); leadership is consolidating the network to target CAD 10–15 million of annualized cost savings starting in 2027, but will incur mostly non‑cash one‑time restructuring charges to implement the plan by end of Q2.
• Positive Sentiment: The balance sheet and cash generation are solid—Q1 sales were CAD 791M, adjusted EBITDA CAD 136M (17.2% margin), operating cash flow CAD 47M, available liquidity CAD 646M and net debt/adjusted EBITDA of 2.6x, providing flexibility to fund expansions and M&A.
• Negative Sentiment: Residential lumber softened in Q1 (sales down 14% to CAD 76M) with declines roughly split between lower volumes and weaker pricing, creating near‑term headwinds despite management's confidence in the business model and seasonal pickup expectations.

Presentation

[Operator]

Good morning, and thank you for standing by. Welcome to Stella-Jones' first quarter 2026 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 star one. If anyone experience any difficulties for today's conference, please press star zero for the operator for assistance. I would like to remind everyone that this conference is being recorded on Wednesday, May 6th, 2026. I'll now turn it over to David Galison, Vice President, Investor Relations of Stella-Jones.

[David Galison, VP of Investor Relations at Stella-Jones]

Thank you, Vincent. Good morning, everyone. Earlier this morning, we issued a press release reporting our results for the first quarter of 2026, along with our MD&A that can be found in the investor relations section of our website at www.stella-jones.com, 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 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+. These documents are also available in the investor relations section of Stella-Jones' website at www.stella-jones.com.

[David Galison, VP of Investor Relations at Stella-Jones]

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 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 Éric 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 of Stella-Jones, who will provide a more detailed financial overview. Éric, over to you.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, David. Good morning, everyone, and thank you for joining us today. 2026 is off to a solid start with results that highlight both the fundamental resilience of our business and our progress on key strategic priorities. The market dynamics we outlined in our Q4 call remains largely unchanged, and our first quarter performance is consistent with those expectations. Our utility products business continues to be the primary growth driver, delivering over 10% growth. This was fueled by strong demand for wood utility poles and the profitable contribution of our steel structures and crossarms businesses. Meanwhile, our railway tie division demonstrated notable stability this quarter, effectively navigating a complex competitive landscape.

[Éric Vachon, President and CEO at Stella-Jones]

While railway ties continue to deliver profitable sales, we're taking actions to further strengthen this business by optimizing our production network and aligning capacity with demand to ensure railway ties remains a cornerstone of our success. We are also advancing our growth initiatives with good momentum. The acquisition of Locweld has provided us with an immediate platform for growth, and our expected capacity expansion in Canada is well on its way to be fully allocated until the end of 2027. Our investments to double steel structure production capacity remains on schedule for completion by mid-2026, with a full ramp-up expected in the second half of the year. In the U.S., we have taken a significant step forward in building our manufacturing footprint for steel lattice towers by selecting Fayetteville, Tennessee as a site for our new facility.

[Éric Vachon, President and CEO at Stella-Jones]

This site has an existing newly constructed building that is suitable for our operations, which will help mitigate project risk. Its strategic location also offers access to a skilled labor pool and favorable proximity to key galvanizing partners. This approximately $500 million U.S. dollar investment will add roughly 20,000 tons to our total production capacity. We continue to expect commissioning by late 2027, with a full production capacity by the end of 2028. Let's turn to a performance overview of our main product categories. Starting with utility products, we are encouraged by the business's continued strength, which remains a cornerstone of our growth. The purchasing momentum that began in the third quarter of last year carried into the first quarter of 2026, supporting double-digit volume growth for wood utility poles.

[Éric Vachon, President and CEO at Stella-Jones]

Importantly, growth continued to be anchored in our contract-based business, which we have deliberately strengthened by partnering with customers who value long-term supply security. In terms of pricing, it was tempered this quarter by product mix fluctuations and continued pressures in the spot market. While spot pricing was below the levels realized in the first quarter of 2025, it remained broadly in line with pricing realized in the second half of 2025. Competition in the spot market remains intense, and we expect that dynamic to continue as additional capacity comes online later this year. Despite lower pricing, the strength of our volume performance help offset these near-term pricing pressures while we maintain our focus on long-term profitability. Turning to railway ties, results in the quarter were broadly in line with the market conditions we expected.

[Éric Vachon, President and CEO at Stella-Jones]

While Class I volumes remain under pressure from industry consolidation and a more competitive landscape, we maintain relatively stable sales by growing our commercial business. Combined with disciplined execution, this allowed us to preserve margins. At the same time, as part of our continuous improvement strategy, we're consolidating our production footprint by idling a treating plant and a procurement yard and reallocating volume to our most efficient facilities, ensuring our network remains aligned with the evolving needs of our customers. This strategic review work is ongoing, and we continue to evaluate network performance to optimize returns and position the railway tie business as a high-performing contributor to our infrastructure platform for years to come. In parallel with the network optimization work, we remain focused on growth.

[Éric Vachon, President and CEO at Stella-Jones]

Through Class I contract renewals, we see meaningful potential to strengthen our position and expand higher-value offerings such as bridge, crossings, and preplate products. Additional discussions with Class Is are opening opportunities to offer treating services. Beyond Class Is, we continue to pursue growth in the commercial market with encouraging project opportunities ahead. Consistent with our long-term approach, we will also continue to evaluate selective organic and M&A opportunities that can further strengthen our network and reinforce our role as a trusted partner to the North American rail industry. Overall, our priority in railway ties is clear: to reposition the business for stronger returns. Turning to residential lumber, the business faced softer demand this quarter. Despite this near-term backdrop, our confidence in the business and its long-term strategy remains unchanged.

[Éric Vachon, President and CEO at Stella-Jones]

We continue to manage the business with discipline, leveraging our national distribution network and value-added capabilities to maintain strong service levels for our customers. We remain confident that residential lumber's value-added business model will continue to be a meaningful contributor to our profitability across market cycles. Overall, our first quarter performance reflects the strength of our infrastructure platform. Utility products continue to drive growth, railway ties remain resilient as we undertake our optimization initiatives, residential lumber continued to be managed with discipline through a softer market. Across our businesses, we remain focused on execution, customer service, and profitability. With that, I will now ask Silvana to provide a more detailed overview of our first quarter financial results.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Thank you, Éric. Good morning, everyone. Sales for the first quarter increased by CAD 18 million-CAD 791 million, supported by higher volumes in wood utility poles and the full quarter contribution from our recent acquisitions. On an organic basis, sales increased 1% as the strength in utility products was largely offset by lower residential lumber sales, while railway ties sales remained relatively stable. Utility product sales were CAD 469 million in the quarter, up 12% from the CAD 419 million in the same period last year. This increase reflected the contribution from our 2025 acquisitions, Locweld and Brooks, as well as organic sales growth of 6%. This growth was entirely volume-driven, with volumes up 12% compared to the same quarter last year.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Volume gains were partially offset by lower pricing, which was down 6%, largely due to a less favorable product mix. Railway tie sales were CAD 198 million, down 5% or CAD 10 million from the prior year period, largely due to foreign exchange. Excluding the currency impact, railway tie sales were relatively stable as lower Class I volumes were largely offset by stronger commercial demand. As Éric noted, we have identified and initiated targeted actions within the railway tie business as part of our focus on continuous improvement. These initiatives are expected to generate approximately CAD 10 million-CAD 15 million in annualized cost savings starting in 2027. To implement these actions, we expect to incur one-time restructuring charges, the vast majority of which will be non-cash and recorded by the end of the second quarter.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

By consolidating activity into our most efficient facilities, we are lowering our cost base, improving network efficiency, and positioning the business to better protect margins through volume fluctuations. Residential lumber sales were CAD 76 million in the first quarter, down 14% from CAD 88 million in the first quarter of last year. Volumes were negatively impacted by softer demand, pricing was also lower year-over-year as inventory costs averaged down throughout 2025. Before turning to profitability, I'd like to take a moment to discuss our approach to reporting. Starting this quarter, we are introducing adjusted EBITDA and adjusted EPS as part of our financial disclosures.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

As we execute strategic initiatives, GAAP results may include non-routine items that do not reflect our ongoing day-to-day business. This framework also allows for a more comparable year-over-year analysis by adjusting for the insurance settlement that impacted our 2025 results. It is important to note that for the current quarter, there were no adjustments to our adjusted EBITDA. A full reconciliation of these adjustments has been provided in our financial filings. For the quarter, adjusted EBITDA was CAD 136 million, reflecting a margin of 17.2%, compared to CAD 141 million and a margin of 18.2% in the first quarter of 2025. The decline was primarily attributable to two factors. First, we had a less favorable product mix for our wood utility poles.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Q1 last year benefited from a greater proportion of higher priced wrapped pole sales. Second, we recorded a CAD 5 million mark-to-market adjustment on our stock-based compensation expense resulting from the appreciation of the company's share price. While these factors impacted our quarterly margin profile, our cost discipline and operating execution remained solid. When viewed in the context of the seasonal nature of our business, our Q1 margin remained well within our expected levels as we head into our peak demand season. Moving on to cash flows. During the quarter, we generated CAD 47 million of cash from operations, a significant improvement over the CAD 60 million used in the first quarter of last year. This is a direct result of our disciplined working capital management. The strength of our operating cash flow was underscored by the stability of our balance sheet.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Despite the typical seasonal increase in working capital in the first quarter, our net debt was unchanged since the start of the quarter. We ended Q1 with CAD 646 million in available liquidity and a net debt to adjusted EBITDA ratio of 2.6x. At 2.6, our leverage ratio remained in line with our capital allocation strategy, which provides flexibility to fund seasonal working capital needs. In summary, our first quarter results underscore the strength of our cash generation and balance sheet. Solid operating cash flow, stable leverage, and ample liquidity give us the flexibility to support the needs of the business, fund strategic investment, and evaluate growth opportunities from a position of strength. With that, I will turn the call back to Éric.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, Silvana. To close, we are encouraged by our start to 2026 and by the progress we are making against our strategic priorities. We continue to build momentum in utility products, advance our steel growth initiatives, and optimize our railway tie business. Combined with disciplined management in residential lumber, these actions keep us on track to strengthen returns and create long-term value. I want to thank our employees for their dedication and hard work and our shareholders for their continued trust. We look forward to welcoming them at our annual general meeting later this morning. This concludes our prepared remarks, and we will now open the line for questions.

[Operator]

Thank you, Éric. As a reminder to queue up for questions by phone, please press star, then the number one. Our first question is from Hamir Patel from CIBC Capital Markets. Please go ahead.

[Hamir Patel, Analyst at CIBC Capital Markets]

Hi, good morning. Éric, on the railway tie side, are you still expecting flat sales there overall for the full year? I know last quarter you mentioned you had four Class I contracts renewing this year. Have any of those been renewed yet?

[Éric Vachon, President and CEO at Stella-Jones]

Our views for the year are still flat sales year-over-year for 2026. Obviously, we hold our guidance for that low single-digit growth over the three-year guidance period. With regards to contract, there's still ongoing discussions. You know, very positive on discussions with several of our customers. As I mentioned in my prepared notes, we're also entertaining discussions about moving to some treating services. That could impact top line maybe more in 2027 than in 2026. We know we'll provide more color when that time comes around. Ultimately, the profitability, you know, and margin remains the same.

[Hamir Patel, Analyst at CIBC Capital Markets]

Okay. Great. Thanks. Silvana, I think you referenced CAD 10 million-CAD 15 million of cost savings by early 2027. When's the earliest we'll start to see that the benefits there start to show up?

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Yeah, we don't expect any benefits this year. Most of the benefits will only start in 2027. When we talk about the CAD 10 million-CAD 15 million, that would be annualized, you know, starting in 2027.

[Hamir Patel, Analyst at CIBC Capital Markets]

Okay, great. Just the last question I had. On the res lumber side, Silvana, how much of the 11% decline was weaker volumes versus softer pricing? How is your key customer there thinking about spring demand?

[Silvana Travaglini, SVP and CFO at Stella-Jones]

The, in terms of the percentage decrease, it's pretty much 50/50, in terms of volumes and pricing. I think we're starting to see a nice pickup in demand. You know, obviously the season was a little bit late to start this year, but, I think we're starting to see some positive signs. I'll let Éric chime in.

[Éric Vachon, President and CEO at Stella-Jones]

Just an additional comment, Hamir. Our key customer remains bullish on the year with some growth or market share gains. You know, we're prepared for a strong season. As Silvana said, a bit of a later start with a later spring starting, you know, the last few weeks have been actually very good on volume shipments. We'll see if we can catch it up by the end of the year, the guidance still remains, you know, at that CAD 600 million-CAD 650 million.

[Hamir Patel, Analyst at CIBC Capital Markets]

Great. Thanks. I'll turn it over.

[Éric Vachon, President and CEO at Stella-Jones]

Thanks, Hamir.

[Operator]

Thank you. Our following question is from James McGarragle from RBC Capital Markets. Please go ahead.

[James McGarragle, Analyst at RBC Capital Markets]

Hey, good morning, and thanks for having me on.

[Éric Vachon, President and CEO at Stella-Jones]

Why don't you-

[James McGarragle, Analyst at RBC Capital Markets]

Just on the utility pole. Hey, Éric. Just on your utility poles, can you help us frame the cadence of the contracted backlog through the balance of 2026? You know, specifically, you know, do you have a line of sight to maintaining that strong volume growth that we saw in Q1 into Q2 and Q3? You know, maybe if you can comment on how you expect the pricing backdrop there to evolve in the back half as some of this new capacity comes on.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, James. A quick reminder, you know, first half of last year, if you remember, we had some softer volumes in utility poles. In the second half we actually saw some better performance. Definitely I would say the comp is easier in the first half of the year. Obviously you're seeing a 12% volume growth, which, you know, I don't think it'll carry through into the Q3 and Q4 periods that are upcoming. However, we still believe that, you know, we'll hit that mid-single digit net for the business and that would incorporate that pricing headwind.

[Éric Vachon, President and CEO at Stella-Jones]

We think it'll remain relatively stable for now compared to what, you know, we saw here in Q1 and hopefully it holds that level if you want of pricing in the, on the spot pricing market. Net, you know, we believe it'll be a mid-single digit as we have in our three-year guidance.

[James McGarragle, Analyst at RBC Capital Markets]

And then in terms of margins, I know there was, you know, some impact from mix this year and, you know, margins were down year-over-year. Should we be thinking about the cadence of margin improvement for the, or margin deterioration for the full year kind of in line with what we saw in Q1? Anything we should be thinking about in Q2, Q3, Q4 that would, you know, change the trajectory of margins versus what we saw in the quarter?

[Éric Vachon, President and CEO at Stella-Jones]

Yeah. Q1 and Q4 of every year are the lowest volume quarters. You know, I'm not surprised to see, you know, the level of profitability we had this quarter. I think it's pretty much in line with our expectations. You could expect better margins for Q2 and Q3 as obviously the volume helps us leverage better our network and we're more efficient and there's also more demand. Definitely believe that we will be within our guidance range for the year. I, you know, I think it's a bit of a normalization we're seeing this quarter.

[Éric Vachon, President and CEO at Stella-Jones]

As Silvana pointed out, we had some, you know, product mix essentially being some higher wrapped pole volumes in Q1 2025, which sort of uplifted the margin profile for the quarter. You know, other than that, par for the course, I think we'll be within our guidance range for the year.

[James McGarragle, Analyst at RBC Capital Markets]

Appreciate it, and I'll turn the line over. Thank you.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you.

[Operator]

Thank you. Our following question is from Benoit Poirier from the Desjardins Capital Markets. Please go ahead.

[Benoit Poirier, Analyst at Desjardins Capital Markets]

Yes. Good morning, Éric. Good morning, Silvana. You talked a little bit about the optimization of the railway ties production network. You gave a great color about the initiatives, the opportunities, the benefits. Do you see an opportunity to do the same for utility poles and residential lumber?

[Éric Vachon, President and CEO at Stella-Jones]

Great question, Benoit. You know, it's been a year now that we've added a COO to the organization, and he's got, you know, strategic improvements initiatives going on in the business and continuous improvement. It's definitely something that we are, you know, deploying throughout the organization. Obviously there'll be different impacts. If I think about our utility pole business, it's been a growth business now for several years. We're using capacity very well and increasing capacity. I don't think, you know, for example, restructuring and capacity, downward capacity adjustment would be something we will see in utility poles, but it doesn't mean that we're not working on other efficiency initiatives within the division. I would say same for residential lumber.

[Éric Vachon, President and CEO at Stella-Jones]

We're pretty happy with our footprint and our capacity usage there. Not to say that, you know, we're not looking for other opportunities to improve our bottom line.

[Benoit Poirier, Analyst at Desjardins Capital Markets]

Okay. When I look at the organic growth for railway ties was just the slight thing it is, how should we be thinking about Q2? It looks like that you're gonna still be facing a tough compare versus a year ago. Just wondering whether we could still see the railway ties organic growth in the negative territory.

[Éric Vachon, President and CEO at Stella-Jones]

Obviously I want to call out FX because it was a big impact this quarter. If we exclude FX, we still see it flattish, Benoit. It is a very dynamic market and as I mentioned, our team is adjusting very well, getting some extra business in the spot market or the commercial market. There's lots of great opportunities there. That's how we sort of navigated Q1. We compensated, you know, with that spot market. Not to say that as we're negotiating contracts with Class I, we might see certain things switch, but I don't think it'll be in Q2. It'll be probably a bit later in the year.

[Éric Vachon, President and CEO at Stella-Jones]

You know, for now my thoughts are, you know, what I expressed earlier, should be flat through the year.

[Benoit Poirier, Analyst at Desjardins Capital Markets]

Okay, perfect. Free cash flow, Silvana, very strong performance in Q1 in what we is a typically a seasonal weak quarter. Any explanation, I see less working capital build. Was it the call on the residential lumber inventory? Is it impact from network optimization? Any color behind the strong free cash flow performance in Q1?

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Yeah. Most of the favorable impact in the first quarter was us right-sizing some of the inventory, particularly in ties, you know, as we're looking to, you know, potentially, as Éric mentioned, opportunities for maybe TSO volumes, which is less capital intensive. You know, we did make an effort already starting in Q1 to, you know, to right-size that inventory. That was most of the impact. The build of residential lumber, obviously, you know, with a bit of the later season, you know, was actually going the other way. We definitely have, you know, poles in line with what we, what we typically see in the first quarter.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Also, using the tools that we have with SAP, a lot more visibility into inventory management. Definitely, that is also helping out as part of that optimization and being efficient with our working capital.

[Benoit Poirier, Analyst at Desjardins Capital Markets]

Okay. Maybe last one for me. Could you maybe provide an update on the Brooks automation and the potential for selling crossarms in Canada? Maybe also, with respect to the new location in Tennessee for steel lattice, was curious to know how much of the upcoming capacity has been already sold. Thank you.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, Benoit. The first part of your question with regards to Brooks, very happy with the progress in the integration. I would say probably fully integrated by now other than probably the IT systems, and that'll be completed by the end of the year. We've opened the door to a lot of new customer contacts to the Brooks team, including Canadian customers. Can't divulge too much into the weeds, but yes, we're making inroads with Canadian utilities, so we're very happy with the progress there. The second part of your question was, I believe, was with regards to our selection of our Tennessee location for our steel lattice business. That is also progressing very well. Obviously we've selected the site.

[Éric Vachon, President and CEO at Stella-Jones]

It has a building, as I mentioned, so it sort of de-risks a lot of the project. We're already done and probably in the coming weeks we'll be finalizing the purchase of all the equipment to be delivered in about a year from now, so we're on track to be to commission the facility at the end of 2027. Things are working well. We've aligned our resources internally to be able to support that project. Obviously, again, under our COO, we've developed an engineering team, so now we have actually employees that are well-versed in this type of project and are dedicated to it.

[Éric Vachon, President and CEO at Stella-Jones]

Like my VP of sales likes to say, we have someone that goes to bed and wakes up in the morning thinking about these projects. We're, you know, really focused on the success of the project. Looking forward to commission it. I also think you were inquiring about having some purchase orders there. No firm purchase orders, a lot of discussions with customers, a lot of increased visits in our Canadian facility from U.S. customers to understand our quality control, our processes to certify the facility. You know, ultimately, once we have a U.S. facility fully functional, the opportunity will be, of course, servicing U.S. customers. We'll be able to move some production from Canada into the U.S., freeing up some capacity in Canada for Canadian projects.

[Éric Vachon, President and CEO at Stella-Jones]

We have a lot of Canadian utilities that are looking to source Canadian content, and we will be very well positioned to answer their requirements. All in all, very, very positive. I'll be on my part on what's going on there.

[Benoit Poirier, Analyst at Desjardins Capital Markets]

That's great. Great color. Thank you.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, Benoit.

[Operator]

Thank you. As a reminder, if you would like to ask question by the phone, please press star one. Our following question is from Michael Tupholme from TD. Please go ahead.

[Michael Tupholme, Analyst at TD Cowen]

Thank you. Good morning.

[Éric Vachon, President and CEO at Stella-Jones]

Good morning, Michael.

[Michael Tupholme, Analyst at TD Cowen]

Good morning, Eric, Silvana. Question on the restructuring within the ties business. You mentioned two sites that are going to be idled. Is it specifically those two that get you to this CAD 10 million-CAD 15 million of savings, or are there additional opportunities or additional, you know, restructuring options contemplated as well?

[Éric Vachon, President and CEO at Stella-Jones]

The savings Silvana mentioned, the CAD 10 miliion-CAD 15 million, is associated to those two facilities. A treating plant and a finished good or sorry, a raw material green tie consolidation yard. As I also mentioned in my remarks, it's an ongoing process. We're evaluating other opportunities, but for the time being, you know, this is the adjustment we deem necessary. We have enough depth in our network to be able to accommodate the production or even a spike in demand if that would come in the coming years. We've seen the industry, you know, go up to 24 million ties, and today it's maybe sitting around, I wanna say, the high 19s.

[Éric Vachon, President and CEO at Stella-Jones]

If there would be a spike at one point in the future, we definitely have the capacity, even though we're idling these facilities, within our network to be able to address the demand. With that information, you can understand that it was, it's not an easy decision to make, obviously, 'cause it impacts our employees and it impacts, you know, people that work for us. From an operational and financial perspective, it made a lot of sense.

[Michael Tupholme, Analyst at TD Cowen]

Yep, that makes sense. Thank you. Just as far as the restructuring charge, I realize it's largely non-cash, did you quantify what we should expect that to be in the second quarter, Silvana?

[Silvana Travaglini, SVP and CFO at Stella-Jones]

No, we're still working on those numbers. You know, where obviously there's a, you know, when we talk about the non-cash, it's really the write-down of the assets. We're just trying to figure out which assets, basically we can reuse in the network. There's still some work to be done there.

[Michael Tupholme, Analyst at TD Cowen]

Okay. Got it. As far as the pricing headwind in the poles business, you mentioned it was largely mix. What happens as far as the prior comp from a mix perspective as we move into Q2 and then through the balance of the year? Is that dynamic still at play from a mix perspective, or is it more just the industry headwinds on the pricing side? Just trying to understand how we think about pricing and the composition of pricing, particularly or inclusive of the year-over-year comp, as we move through the year?

[Éric Vachon, President and CEO at Stella-Jones]

For Q1 of 2025, it was a very unique situation with a, you know, unusual revenue stream for utility wrapped poles. That does not come into play following Q1, it is back to a normal comparison. We would have that mix effect to explain it, the delta between profitability year-over-year for the balance of the year.

[Michael Tupholme, Analyst at TD Cowen]

Okay. I guess though as we move through the year though, that goes away, that part of the headwind, but at the same time you mentioned that from a volume perspective, the comps get tougher, there's sort of an offset there.

[Éric Vachon, President and CEO at Stella-Jones]

Yeah. Exactly.

[Michael Tupholme, Analyst at TD Cowen]

Okay. Also wondering if you can just, I don't think it's been asked yet, just talk a little bit about M&A opportunities. Obviously, you've got a lot on your plate with the Logwall expansion, the U.S. lattice expansion, closing facilities in ties, but just, you know, are you still focused on potential M&A opportunities? What does the landscape look like? Is there anything that we should be thinking about on that front?

[Éric Vachon, President and CEO at Stella-Jones]

Thank you for recognizing that we've got a lot going on, and we do. Fortunately, you know, we also have a Vice President of Business Development, so he is dedicated to the pursuit of M&A or and, you know, finding new opportunities. We still have a lot of interest. We have a, I would say, healthy pipeline of projects ahead of us in our traditional wood treating railway ties and utility poles, and as well in on the steel transmission side. I would qualify it in that broader market, which if you remember at our Investor Day, we had talked about an addressable market of a total of CAD 5 billion annual.

[Éric Vachon, President and CEO at Stella-Jones]

Definitely that's part of our strategic priorities as we were discussing here earlier in our prepared remarks. Definitely, our VP of Business Development has all of those three in the line of sight and working on some projects. Obviously can't promise the timing on those. Each project has its own cadence, but I would be, you know, very, very happy if we could, you know, execute on some of these in the next 12 months.

[Michael Tupholme, Analyst at TD Cowen]

All right. Thank you. I will leave it there.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, Michael.

[Operator]

Thank you. Our following question is from Maxim Sytchev from National Bank of Canada. Please go ahead.

[Maxim Sytchev, Analyst at National Bank of Canada]

Hi, good morning. Éric, I was wondering if it's possible to get a bit more color on the state of the lattice market in the U.S., and I guess any incremental data points you can even point to, and if it's still the case that sort of all the end product is coming offshore still. Thank you very much.

[Éric Vachon, President and CEO at Stella-Jones]

A lot of articles have been, you know, published, and they keep, you know, on a regular basis about the effervescence in the electrical grid in North America. I think it, you know, from our standpoint, we still see that market being very dynamic. We keep having discussions with our customers that are looking to invest and execute on large CapEx projects. A lot of transmission projects in there. I was mentioning earlier, in another question, we have seen an increase in visits or certification visits from customers at our facility here in Quebec. A lot of interest from North American utilities to buy a bit more, well, Canadian for Canada, but on the continent for our U.S. customers.

[Éric Vachon, President and CEO at Stella-Jones]

A lot of interest for our U.S. business or our U.S. facility that's getting built as well. I think that is also prompting the interest in how we're operating. You know, to your point, you were asking about the offshore, they remain in play. We know the players. We keep having discussions with them. We share some notes to make sure we understand what they're up to, and I think they appreciate that we have a bit of a unique service proposal, product offering in North America, having a footprint closer to the projects, and that's what our customers appreciate. I guess that's about, you know, our thoughts at this point, Maxim.

[Maxim Sytchev, Analyst at National Bank of Canada]

Okay. No, that's super helpful. One quick clarification. Is there any pinch point around preservatives given sort of all the geopolitical issues on kind of input costs, or it's just immaterial? Thank you.

[Éric Vachon, President and CEO at Stella-Jones]

I don't see not necessarily a pinch point. The only thing I guess I wanna point to since you're bringing it up is there could be a bit of headwinds because of fuel cost increases. Obviously our oil-borne preservative would have a bit of an impact and also on the fuel could impact our carrying costs, our distribution costs. Nothing material for now. All built into passthroughs we have in our contracts with our customers. No. Nothing of great concern at this point, obviously we're monitoring the oil price situation, well, in North America 'cause it's closer to home, but it's a global impact, I guess.

[Éric Vachon, President and CEO at Stella-Jones]

Yeah, that would be what are my thoughts are on your question.

[Maxim Sytchev, Analyst at National Bank of Canada]

Okay, that's great. Thank you for clarifying this for me.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, Maxim.

[Operator]

Thank you. Our following question is from Jonathan Goldman from Scotiabank. Please go ahead.

[Jonathan Goldman, Analyst at Scotiabank]

Hey, good morning, team. Thanks for taking my questions. Just a few qualifying ones on my end. I think you called out the mark-to-market item on stock-based compensation this quarter being a CAD 5 million headwind. I just wanna know, what was it last year? Just to be sure you're not adjusting either of those amounts out of adjusted EBITDA.

[Éric Vachon, President and CEO at Stella-Jones]

I'll, thank you for the question, Jonathan. I'll let Silvana answer the question.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Yes. That's to on the second part of your question, Jonathan, is that no, we are not adjusting any of the of the mark-to-market items, and last year it was actually a small negative amount, under CAD 1 million.

[Jonathan Goldman, Analyst at Scotiabank]

Okay, CAD 5 million this year, CAD 1 million-ish last year.

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Going the other way, yeah.

[Jonathan Goldman, Analyst at Scotiabank]

My second question. Sorry?

[Silvana Travaglini, SVP and CFO at Stella-Jones]

The Q1 last year was a net negative.

[Jonathan Goldman, Analyst at Scotiabank]

Yeah, exactly. And then another one, not to beat a dead horse here on the pricing decline in poles, but of that 6%, how much of it was due to mix versus competitive dynamics? If we're thinking about pricing for the rest of the year, if we back into the competitive element in Q1, is it the expectation that that's gonna accelerate and get worse through the balance of the year as more capacity comes online?

[Éric Vachon, President and CEO at Stella-Jones]

The Q1 impact is almost or probably all, Not probably. It is all mix. Excluding that factor, I think we see the pricing pressures being relatively stable year-over-year. Maybe there will be some headwinds for sure, a couple of percentage points, but no more than that, and not as significant as the first quarter.

[Jonathan Goldman, Analyst at Scotiabank]

Okay, that's good color. Maybe one more for you, Silvana. I think you talked about it earlier in the call on working cap, but it was specific to Q1. For the full year, how should we think about investment in working capital?

[Silvana Travaglini, SVP and CFO at Stella-Jones]

Yeah. You know, I've said in the past kind of, you know, our rule of thumb is always that, you know, for every incremental sales dollar, you know, we need to invest CAD 0.40 on that dollar to support those sales. You know, that said, you know, as I mentioned, you know, with perhaps more opportunities to do TSO, you know, that might be lower 'cause obviously that is less capital-intensive. You know, for the year, I still think there will be a net investment, but probably less than CAD 50 million.

[Jonathan Goldman, Analyst at Scotiabank]

Okay, thank you for the color. I'll get back in queue.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you.

[Operator]

We have no further questions in the queue. Thank you.

[Éric Vachon, President and CEO at Stella-Jones]

Thank you, Vincent. Thank you everyone for joining us today. We look forward to updating you when we release our second quarter results. Until then, have a safe and enjoyable summer.

[Operator]

Ladies and gentlemen, this concludes today's call. Thank you for participating. You may now disconnect your lines.

Participants

Executives

• David Galison, VP of Investor Relations
• Silvana Travaglini, SVP and CFO
• Éric Vachon, President and CEO

Analysts

• Benoit Poirier, Analyst at Desjardins Capital Markets
• Hamir Patel, Analyst at CIBC Capital Markets
• James McGarragle, Analyst at RBC Capital Markets
• Jonathan Goldman, Analyst at Scotiabank
• Maxim Sytchev, Analyst at National Bank of Canada
• Michael Tupholme, Analyst at TD Cowen