TRADING SYMBOL: Toronto Stock Exchange - HDI
Profit per share increases 13.5%, Cash flow from
operations increases $21.6
million
Increases quarterly dividend for the seventh consecutive year
LANGLEY, BC, Nov. 11, 2019 /CNW/ - Hardwoods Distribution Inc.
("HDI" or the "Company") today announced financial results for the
three and nine months ended September 30,
2019. HDI is North
America's largest wholesale distributor of architectural
grade building products to the residential and commercial
construction markets, with a comprehensive US and Canadian
distribution network.
Highlights (For the three months ended September 30, 2019 unless otherwise
noted)
- Achieved 0.7% growth in sales, 5.0% growth in EBITDA, and 11.2%
growth in profit as compared to the third quarter of 2018.
- Generated $25.5 million of cash
flow from operations in the third quarter, a year-over-year
increase of $21.6 million.
- Third quarter gross profit percentage increased to 18.2% from
17.8% last year. This was the Company's best quarterly gross profit
margin performance since Q3 2017.
- In the first nine months of 2019, HDI returned $8.3 million of cash to shareholders in the form
of dividends and share re-purchases.
- Net bank debt-to-Adjusted EBITDA after rent ratio of 1.6x, net
bank debt-to-capital ratio of just 23%, and $100.1 million of unused borrowing capacity as at
September 30, 2019.
- Subsequent to the quarter-end, on October 28, 2019, closed the previously announced
acquisition of Pacific Mutual Door Company ("Pacific") for a
purchase price of US$34.5 million,
subject to post-closing working capital adjustments.
- Concurrent with the close of Pacific the Company amended it's
US credit facility to increase the revolving credit line to
US$150 million, extend the term to
October 2024, and lower the
applicable borrowing rates.
- The Board of Directors approved an increase of the quarterly
dividend to $0.085 per share,
representing a 6% increase from the previous level, payable on
January 31, 2020 to shareholders of
record as at January 20, 2020.
"We turned in a strong third quarter with 5.0% EBITDA growth and
11.2% profit growth, supported by an increase in our gross profit
margin to 18.2%, from 17.8% last year," said Rob Brown, President and CEO of HDI. "This
was our best margin result in two years and it reflects the
traction we are gaining with our revitalized import program. Our
ability to provide customers with high-quality, proprietary import
product solutions that complement our domestically sourced products
has historically been a major strength for HDI, and we are once
again demonstrating our competitive advantage in this area."
"Our third quarter results were achieved despite continued
headwinds in the domestic hardwood lumber segment, which have
impacted sales in this category. Generally sales in our other
product segments were up year-over-year, underscoring the benefits
of our well-diversified product mix."
"We also generated impressive cash flow results again this
quarter, with cash from operations climbing to $25.5 million -- an increase of $21.6 million from the same quarter last year.
Year-to-date our cash flow from operations increased $65.9 million as compared to the same period in
the prior year. This strong cash generation is supporting our
ability to provide value to shareholders in the form of dividends,
which we increased by 6%, and share buybacks, while also
underpinning our strategy of pursuing growth through
acquisitions."
"Subsequent to the quarter end, on October 28, 2019, we executed our second
acquisition of the year with our US$34.5M purchase of Pacific Mutual Door Company,
a US-based wholesale distributor of interior and exterior doors,
custom millwork and ancillary products. The acquisition, which is
immediately accretive to shareholders, brings us five new
locations, including a significant presence in the high-growth
Tennessee market, a highly
profitable business model, a complementary product and customer
mix, and annual sales of approximately US$58
million."
"We are pleased with the direction of our business, our success
in executing our strategies, and our continued track record of
generating shareholder returns," concluded Mr. Brown.
Outlook
HDI is well positioned for success going forward as the only
North American-wide distributor in this industry. The Company
benefits from a comprehensive suite of architectural building
products, including proprietary offerings from its global supply
chain. It also has a robust pipeline of accretive acquisition
targets, and maintains a strong balance sheet.
The Company's longer-term view on US construction demand remains
positive, supported by the current level of housing starts relative
to the long-term average, low levels of current housing inventory,
and the favorable demographic characteristics of US consumers.
Numerous indicators, including recent data related to US housing
starts and permits, suggest residential construction activity could
begin to gain traction in the next year, supported in part by lower
interest rates.
Moving forward, HDI will continue to pursue its strategy of
capturing market share in the US, including capitalizing on
opportunities in the fragmented US distribution market to grow
through acquisitions. The near-term focus will remain on management
of the balance sheet and meeting the Company's capital allocation
priorities.
Q3 2019 Investor Call
HDI will hold an investor call on Tuesday
November 12, 2019 at 8:00 am
Pacific (11:00 am Eastern).
Participants should dial 1-888-390-0546 or (416) 764-8688 (GTA) at
least five minutes before the call begins. A replay will be
available through November 26, 2019
by calling toll free 1-888-390-0541 or (416) 764-8677 (GTA),
followed by passcode 462177.
Summary of Results
|
Selected Unaudited
Consolidated Financial Information (in thousands of Canadian
dollars)
|
|
|
|
Restated
|
|
|
|
Restated
|
|
Three
months
|
|
Three
months
|
|
Nine
months
|
|
Nine
months
|
|
ended Sept
30
|
|
ended Sept
30
|
|
ended Sept
30
|
|
ended Sept
30
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Total
sales
|
$
|
292,459
|
|
290,354
|
|
$
|
884,091
|
|
$
|
859,281
|
Sales in the US
(US$)
|
194,833
|
|
195,447
|
|
585,944
|
|
583,729
|
Sales in
Canada
|
35,209
|
|
35,009
|
|
105,255
|
|
107,672
|
Gross
profit
|
53,281
|
|
51,593
|
|
159,332
|
|
153,636
|
Gross profit
%
|
18.2%
|
|
17.8%
|
|
18.0%
|
|
17.9%
|
Operating
expenses
|
(39,194)
|
|
(38,363)
|
|
(121,554)
|
|
(112,890)
|
Profit from operating
activities
|
14,087
|
|
13,230
|
|
37,778
|
|
40,746
|
Add: Depreciation and
amortization
|
6,636
|
|
6,504
|
|
20,267
|
|
18,896
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
|
|
amortization
("EBITDA")
|
$
|
20,723
|
|
19,734
|
|
$
|
58,045
|
|
$
|
59,642
|
EBITDA as a % of
revenue
|
7.1%
|
|
6.8%
|
|
6.6%
|
|
6.9%
|
Add
(deduct):
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
(6,636)
|
|
(6,504)
|
|
(20,267)
|
|
(18,896)
|
Net finance income
(expense)
|
(1,897)
|
|
(2,410)
|
|
(6,402)
|
|
(6,102)
|
Income tax
expense
|
(3,336)
|
|
(2,858)
|
|
(8,377)
|
|
(8,729)
|
Profit for the
period
|
$
|
8,854
|
|
$
|
7,962
|
|
$
|
22,999
|
|
$
|
25,915
|
Basic profit per
share
|
$
|
0.42
|
|
$
|
0.37
|
|
$
|
1.07
|
|
$
|
1.21
|
Diluted profit per
share
|
$
|
0.41
|
|
$
|
0.37
|
|
$
|
1.06
|
|
$
|
1.20
|
Average Canadian
dollar exchange rate for one US dollar
|
$
|
1.320
|
|
$
|
1.307
|
|
$
|
1.329
|
|
$
|
1.288
|
|
Analysis of
Specific Items Affecting Comparability (in thousands of Canadian
dollars)
|
|
|
|
Restated
|
|
|
|
Restated
|
|
Three
months
|
|
Three
months
|
|
Nine
months
|
|
Nine
months
|
|
ended Sept
30
|
|
ended Sept
30
|
|
ended Sept
30
|
|
ended Sept
30
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Earnings before
interest, taxes, depreciation and
|
|
|
|
|
|
|
|
amortization
("EBITDA"), per table above
|
$
|
20,723
|
|
$
|
19,734
|
|
$
|
58,045
|
|
$
|
59,642
|
Non-cash LTIP
expense
|
574
|
|
1,113
|
|
1,719
|
|
2,353
|
Allowance related to
duty deposits receivable
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
$
|
880
|
Adjusted
EBITDA
|
$
|
21,297
|
|
$
|
20,847
|
|
$
|
59,764
|
|
$
|
62,875
|
Adjusted EBITDA as
a % of revenue
|
7.3%
|
|
7.2%
|
|
6.8%
|
|
7.3%
|
|
|
|
|
|
|
|
|
Profit for the
period, as reported
|
$
|
8,854
|
|
$
|
7,962
|
|
$
|
22,999
|
|
$
|
25,915
|
Adjustments, net of
tax
|
510
|
|
1,017
|
|
1,522
|
|
2,820
|
Adjusted profit for
the period
|
$
|
9,364
|
|
$
|
8,980
|
|
$
|
24,521
|
|
$
|
28,735
|
|
|
|
|
|
|
|
|
Basic profit per
share, as reported
|
$
|
0.42
|
|
$
|
0.37
|
|
$
|
1.07
|
|
$
|
1.21
|
Net impact of above
items per share
|
0.02
|
|
0.05
|
|
0.07
|
|
0.13
|
Adjusted basic profit
per share
|
$
|
0.44
|
|
$
|
0.42
|
|
$
|
1.14
|
|
$
|
1.34
|
|
|
|
|
|
|
|
|
Diluted profit per
share, as reported
|
$
|
0.41
|
|
$
|
0.37
|
|
$
|
1.06
|
|
$
|
1.20
|
Net impact of above
items per share
|
0.02
|
|
0.05
|
|
0.07
|
|
0.13
|
Adjusted diluted
profit per share
|
$
|
0.43
|
|
$
|
0.42
|
|
$
|
1.13
|
|
$
|
1.33
|
|
|
|
|
|
|
|
|
Results from Operations - Three Months Ended
September 30, 2019
For the three months ended September 30, 2019, total sales
increased 0.7% to $292.5 million,
from $290.4 million during the same
period in 2018, a year-over-year increase of $2.1 million. The addition of Acquired Businesses
contributed $4.1 million of this
increase, representing a 1.4% increase in total sales, and
$2.6 million was related to a
favorable foreign exchange impact from a stronger US dollar when
translating US sales to Canadian dollars for reporting purposes.
These gains were partially offset by a $4.6 million year-over-year decrease in organic
sales, which represents a 1.6% decrease in total sales.
Third quarter sales from US operations were US$194.8 million, as compared to US$195.4 million in the same period in 2018, a
decrease of US$0.6 million, or 0.3%.
While the Acquired Businesses contributed sales growth of
US$3.1 million, these gains were
offset by a US$3.7 million reduction
in organic sales. Sales in Canada
increased by $0.2 million, or 0.6%,
year-over-year.
Gross profit for the three months ended September 30, 2019
increased 3.3% to $53.3 million, from
$51.6 million during the same period
in 2018. This $1.7 million
improvement primarily reflects a higher gross profit margin. As a
percentage of sales, third quarter gross profit margin increased to
18.2%, from 17.8% year-over-year as the Company benefited
from re-established import supply lines.
For the three months ended September 30, 2019, operating
expenses were $39.2 million as
compared to $38.4 million during the
same period in 2018. The $0.8
million increase includes $0.5
million of operating expenses from the Acquired Businesses
and $0.4 million of expenses related
to the impact of a stronger US dollar on translation of US
operating expenses. As a percentage of sales, third quarter
operating expenses were 13.4%, compared to 13.2% in Q3 2018.
For the three months ended September 30, 2019, Adjusted
EBITDA increased to $21.3 million,
from $20.8 million during the same
period in 2018. The $0.4 million
improvement primarily reflects the $1.7
million increase in gross profit, offset by the
$1.3 million increase in operating
expenses (before changes in depreciation and amortization, and
non-cash LTIP expense).
Profit for the three months ended September 30, 2019
increased to $8.9 million, from
$8.0 million in the same period in
2018. The $0.9 million or 11.2%
improvement primarily reflects the $1.7
million increase in gross profit and a $0.5 million decrease in net finance expense,
partially offset by a $0.8 million
increase in operating expenses and a $0.6
million increase in income tax expense. Third quarter
diluted profit per share increased to $0.41, from $0.37
in Q3 2018.
Adjusted profit for the three months ended September 30,
2019 increased 4.3% to $9.4 million,
from $9.0 million in the same period
in 2018. Third quarter Adjusted diluted profit per share was
$0.43, the same as in Q3 2018.
Results from Operations - Nine Months Ended
September 30, 2019
For the nine months ended September 30, 2019, total sales
increased 2.9% to $884.1 million,
from $859.3 million during the first
nine months of 2018, a year-over-year increase of
$24.8 million. The addition of
Acquired Businesses contributed $19.4
million of this growth, representing a 2.3% increase in
total sales, and $23.8 million of the
growth related to a favorable foreign exchange impact from a
stronger Canadian dollar when translating US sales to Canadian
dollars for reporting purposes. These gains were partially offset
by a year-over-year organic sales decrease of $18.4 million, which represents a 2.1% decrease
in total sales.
Sales from US operations increased by US$2.2 million, or 0.4%, to US$585.9 million, from US$583.7 million in the same period in 2018. The
Acquired Businesses contributed sales growth of US$14.6 million, which was partially offset by a
US$12.4 million reduction in organic
sales. Sales in Canada decreased
by $2.4 million, or 2.2%,
year-over-year.
Gross profit for the nine months ended September 30, 2019
increased 3.7% to $159.3 million,
from $153.6 million during the same
period in 2018. This $5.7
million improvement primarily reflects the higher sales.
Gross profit margin also improved year-over-year to 18.0%, from
17.9% in the first nine months of 2018.
For the nine months ended September 30, 2019, operating
expenses were $121.6 million as
compared to $112.9 million during the
same period in 2018. The $8.7
million increase includes $3.3
million of expenses related to the impact of a stronger US
dollar on translation of US operating expenses, $2.8 million of operating expenses from the
Acquired Businesses, a $2.1 increase
in bad debt expense, and $0.5 million
of added costs to support the Company's growth strategy. As a
percentage of sales, operating expenses were 13.7%, compared to
13.1% in the same period last year.
For the nine months ended September 30, 2019, HDI reported
Adjusted EBITDA of $59.8 million, as
compared to $62.9 million during the
same period in 2018. The $3.2 million
reduction primarily reflects the $8.9
million increase in operating expenses (before changes in
depreciation and amortization, non-cash LTIP expense, and an
allowance related to duty deposits receivable), partially offset by
the $5.7 million increase in gross
profit.
Profit for the nine months ended September 30, 2019 was
$23.0 million, as compared to
$25.9 million in the same period in
2018. The $3.1 million decrease
primarily reflects the $8.7 million
increase in operating expenses and a $0.3
million increase in net finance expense, partially offset by
the $5.7 million increase in gross
profit and the $0.2 million decrease
in income tax expense. Diluted profit per share was $1.06 as compared to $1.20 in the same period in 2018.
Adjusted profit for the nine months ended September 30,
2019 was $24.5 million, as compared
to $28.7 million in 2018. Nine
month Adjusted diluted profit per share was $1.13, as compared to $1.33 in the same period last year.
About Hardwoods Distribution Inc.
HDI is North America's largest
wholesale distributor of architectural grade building products to
the residential and commercial construction sectors. The Company
operates a North American network of 66 distribution centres, as
well as one sawmill and kiln drying operation.
Non-GAAP Measures - EBITDA
References to "EBITDA" are to earnings before interest, income
taxes, depreciation and amortization, where interest is defined as
net finance costs as per the consolidated statement of
comprehensive income. Furthermore, this press release
references certain EBITDA Ratios, such as EBITDA margin (being
EBITDA as a percentage of revenues). In addition to profit,
HDI considers EBITDA and EBITDA Ratios to be useful supplemental
measures of the Company's ability to meet debt service and capital
expenditure requirements, and interprets trends in EBITDA and
EBITDA Ratios as an indicator of relative operating
performance.
References to "Adjusted EBITDA" are EBITDA as defined above,
before certain items related to business acquisition activities.
"Adjusted EBITDA margin" is as defined above, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. References to
"Adjusted profit", "Adjusted basic profit per share", and "Adjusted
diluted profit per share" are profit for the period, basic profit
per share, and diluted profit per share, before certain items
related to business acquisition activities, mark-to-market
adjustments, and revaluation of deferred tax assets. The
aforementioned adjusted measures are collectively referenced as
"the Adjusted Measures". HDI considers the Adjusted Measures to be
useful supplemental measures of the Company's profitability, its
ability to meet debt service and capital expenditure requirements,
and as an indicator of relative operating performance, before
considering the impact of business acquisition activities.
EBITDA, EBITDA Ratios, and the Adjusted Measures (collectively
"the Non-GAAP Measures") are not measures recognized by
International Financial Reporting Standards ("IFRS") and do not
have a standardized meaning prescribed by IFRS. Investors are
cautioned that the Non-GAAP Measures should not replace profit,
earnings per share or cash flows (as determined in accordance with
IFRS) as an indicator of our performance. HDI's method of
calculating the Non-GAAP Measures may differ from the methods used
by other issuers. Therefore, Non-GAAP Measures may not be
comparable to similar measures presented by other issuers.
Forward-Looking Statements
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This news release includes forward-looking statements. These
involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements or
industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements are
identified by the use of terms and phrases such as "anticipate",
"believe", "estimate", "expect", "may", "plan", "will", and similar
terms and phrases, including references to assumptions. Such
statements may involve, but are not limited to: HDI is well
positioned for success going forward as the only North
American-wide distributor in this industry; the Company's
longer-term view on US construction demand remains positive,
supported by the current level of housing starts relative to the
long-term average, low levels of current housing inventory, and the
favorable demographic characteristics of US consumers; numerous
indicators, including recent data related to US housing starts and
permits, suggest residential construction activity could begin to
gain traction in the next year, supported in part by lower interest
rates.
These forward-looking statements reflect current expectations of
management regarding future events and operating performance as of
the date of this news release. Forward-looking statements involve
significant risks and uncertainties, should not be read as
guarantees of future performance or results, and will not
necessarily be accurate indications of whether or not such results
will be achieved. A number of factors could cause actual results to
differ materially from the results discussed in the forward-looking
statements, including, but not limited to: national and local
business conditions; political or economic instability in local
markets; competition; consumer preferences; spending patterns and
demographic trends; legislation or governmental regulation;
acquisition and integration risks.
Although the forward-looking statements contained in this news
release are based upon what management believes to be reasonable
assumptions, management cannot assure investors that actual results
will be consistent with these forward-looking statements. The
forward-looking statements reflect management's current beliefs and
are based on information currently available.
All forward-looking information in this news release is
qualified in its entirety by this cautionary statement and, except
as may be required by law, HDI undertakes no obligation to revise
or update any forward-looking information as a result of new
information, future events or otherwise after the date hereof.
SOURCE Hardwoods Distribution Inc.