Stock Name: HWD
Amount: CAD 0.02
Announcement Date: 07/11/2011
Record Date: 18/01/2012
Dividend Detail:
TRADING SYMBOL: Toronto Stock Exchange - HWD
A conference call to discuss third quarter 2011 financial results will
be held on November 8, 2011, at 8:00 a.m. Pacific Time (11:00 a.m.
Eastern). The call can be accessed by dialing: 1-888-231-8191 or
647-427-7450. A replay will be available until November 22, 2011
at:1-855-859-2056 or 416-849-0833(Passcode 23344698).
LANGLEY, BC, Nov. 7, 2011 /CNW/ - This press release discusses financial
results for Hardwoods Distribution Inc. ("Hardwoods" or the "Company")
for the three and nine-month periods ended September 30, 2011.
Hardwoods is one of North America's largest wholesale distributors of
hardwood lumber and related sheet good products, operating a network of
31 distribution centres in the US and Canada.
Third Quarter Highlights
(For the three months ended September 30, 2011)
Third quarter revenue increased 13.5% to $57.4 million compared to the
third quarter of 2010.
EBITDA increased 37.8% to $1.9 million compared to the third quarter of
2010.
Third quarter profit increased to $5.6 million, which included a $3.8
million future income tax recovery arising from various restructuring
activities that occurred during the quarter, compared to a loss of $0.1
million in the same period last year.
On July 1, 2011 Hardwoods successfully completed its conversion from an
income trust to a publicly traded corporation.
On September 19, 2011 Hardwoods completed the acquisition of Frank
Paxton Lumber Company ("Paxton") for $13.7 million, adding five new
branch locations in the US.
Concurrent with the Paxton acquisition, Hardwoods amended its US credit
facility to increase borrowing capability from US$25 million to US$30
million.
The Board of Directors announced a quarterly dividend of $0.02 per
share, payable on January 31, 2012 to shareholders of record on January
20, 2012.
"The third quarter brought a number of achievements for Hardwoods,
including a significant acquisition, the continued strengthening of our
financial performance and our successful conversion to a corporation,"
said Lance Blanco, President and CEO of Hardwoods.
"The acquisition of Frank Paxton Lumber Company for $13.7 million
represents a significant step in our market expansion strategy. Paxton
is a leading remanufacturer and distributor of premium hardwood lumber,
millwork and architectural sheet goods, with five branches located in
Chicago, Cincinnati, Denver, Kansas City and San Antonio. This
acquisition is highly consistent with our market expansion strategy in
that it provides us with an attractive entry point into new
high-potential geographic markets, while also increasing our access to
commercial and institutional markets through Paxton's expertise in
architectural millwork. In addition, we have gained an expanded
customer base for our existing lines of high-quality import products,"
said Mr. Blanco.
"Going forward, our new Paxton operations are expected to provide
approximately $45 million of profitable annual sales to our business,
although their impact on third quarter results was minimal giving the
timing of the transaction. While we benefited from two weeks of added
revenue, EBITDA on those sales was largely offset by one-time
transactions costs incurred and expensed during the period," said Mr.
Blanco.
"I am pleased to report that our financial performance continued to
improve in the third quarter even without the benefit of Paxton. We
achieved our sixth consecutive quarter of revenue growth, with sales up
13.5% year-over-year, despite ongoing weakness in US residential
construction markets and the negative impact of a stronger Canadian
dollar. We also strengthened our margins, EBITDA and profit results.
These gains reflect the successful expansion of our import product
line, our growing base of commercial and institutional customer
accounts, and the addition of experienced sales personnel."
"Our top-line results for the first nine months of 2011 also improved as
a result of our strategies, with sales increasing 9.8% compared to the
same period last year. Despite this sales growth our nine-month EBITDA
was flat however, as a result of one-time costs related to our
conversion to a corporation and the absence of a recovery from a
lawsuit in the prior-year period. Excluding these items, nine-month
adjusted EBITDA increased 19.0% year-over-year."
"We are encouraged by the improvements in our performance, and confident
in our ability to continue making gains. While we do not anticipate any
significant improvement in market conditions in the near term, our
emphasis on profitable market expansion is expected to continue
delivering results for our shareholders. In the third quarter we
declared a quarterly dividend of $0.02 per share to shareholders,
which was paid on October 31, 2011. Based on our strong performance
and positive outlook, today our Board of Directors declared a quarterly
dividend of $0.02 per share, payable on January 31, 2012 to
shareholders of record on January 20, 2012," said Mr. Blanco.
Summary of Results | | | | | | | | | | | | | | | | | |||||
Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars except where noted) | | | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | | | | ||
| | | | | | | | | | | | | | | | | | | | ||
| | | | 3 months ended | | 3 months ended | | 9 months ended | | 9 months ended | |||||||||||
| | | | | September 30, | | September 30, | | September 30, | | September 30, | ||||||||||
| | | | | | | 2011 | | | | 2010 | | | | 2011 | | | | 2010 | ||
Total sales | | | | | | $ | 57,372 | | | $ | 50,559 | | | $ | 166,120 | | | $ | 151,263 | ||
| Sales in the US (US$) | | | | | | 37,187 | | | | 29,246 | | | | 104,477 | | | | 87,302 | ||
| Sales in Canada | | | | | | | 20,908 | | | | 20,164 | | | | 63,921 | | | | 60,827 | |
Gross profit | | | | | | 10,121 | | | | 8,716 | | | | 29,305 | | | | 26,668 | |||
| Gross profit % | | | | | | | 17.6% | | | | 17.2% | | | | 17.6% | | | | 17.6% | |
Operating expenses | | | | | | (8,412) | | | | (7,572) | | | | (24,946) | | | | (22,543) | |||
Profit from operating activities | | | | | | 1,709 | | | | 1,144 | | | | 4,359 | | | | 4,125 | |||
Add: Depreciation | | | | | | 219 | | | | 255 | | | | 669 | | | | 901 | |||
Earnings before interest, taxes, depreciation and amortization and non-controlling interest ("EBITDA") | | | | | $ | 1,928 | | | $ | 1,399 | | | $ | 5,028 | | | $ | 5,026 | |||
| Add (deduct): | | | | | | | | | | | | | | | | | | | ||
| | Depreciation | | | | | | | (219) | | | | (255) | | | | (669) | | | | (901) |
| | Net finance income (cost) | | | | | | | 725 | | | | (757) | | | | (57) | | | | (586) |
| | Income tax recovery (expense) | | | | | | | 3,171 | | | | (534) | | | | 2,113 | | | | (1,622) |
Profit (loss) for the period | | | | | | $ | 5,605 | | | $ | (147) | | | $ | 6,415 | | | $ | 1,917 | ||
Basic profit (loss) per share/unit | | | | | | $ | 0.35 | | | $ | (0.01) | | | $ | 0.43 | | | $ | 0.13 | ||
Fully diluted profit (loss) per share/unit | | | | | | | 0.35 | | | | (0.01) | | | | 0.42 | | | | 0.13 | ||
Average Canadian dollar exchange rate for one US dollar | | | | | | 0.981 | | | | 1.0395 | | | | 0.978 | | | | 1.036 | |||
Results from Operations - Three Months Ended September 30, 2011
For the three months ended September 30, 2011, total sales increased by
13.5% to $57.4 million, from $50.6 million in the same period in 2010.
The year-over-year sales growth reflects a 17.9% increase in underlying
sales activity, partially offset by a 4.4% decrease in sales due to the
negative effect of a stronger Canadian dollar on US sales. Sales in the
United States, as measured in US dollars, increased by $7.9 million, or
27.2%, to $37.2 million. Included in this increase is US$2.1 million
from two weeks' operation of the Paxton branches. Sales in Canada, a
market which experienced more stable ongoing demand for hardwoods
through the recent economic downturn, increased by a more modest $0.7
million, or 3.7%, to $20.9 million.
Third quarter gross profit increased to $10.1 million, up 16.1% from
$8.7 million in the third quarter of 2010. This reflects the higher
sales revenue, combined with a higher gross profit margin. As a
percentage of sales, gross profit increased to 17.6% in the third
quarter of 2011, from 17.2% in the same period last year. Management
views 17% to 18% gross margins as appropriate given competitive
conditions at this point in the business cycle.
Operating expenses in the third quarter were $8.4 million, compared to
$7.6 million during the same period in 2010. The increase in expenses
reflects higher personnel costs incurred to support our market
expansion strategies.
Third quarter EBITDA of $1.9 million was up 37.8% from $1.4 million
during the same period in 2010. This increase reflects higher gross
profit, partially offset by the higher operating expenses.
Profit for the period increased to $5.6 million, reflecting the higher
EBITDA, a $1.5 million increase in net finance income, and a $3.7
million increase in income tax recovery primarily arising as a result
of various restructuring activities occurring during the third quarter.
Results from Operations - Nine Months Ended September 30, 2011
For the nine months ended September 30, 2011, total sales increased by
9.8% to $166.1 million, from $151.3 million in the first nine months of
2010. This performance improvement reflects a 13.8% increase in
underlying sales activity, partially offset by a 4.0% decrease in sales
due to the negative effect of a stronger Canadian dollar. The
improvement in underlying sales reflects increased sheet goods sales,
as well as success in leveraging Hardwoods' import program, adding
proven industry sales professionals to the staff and diversifying the
customer base. It also reflects the $2.1 million in sales contribution
from the newly acquired Paxton operations. Excluding the impact of the
Paxton acquisition, sales in the United States, as measured in US
dollars, increased by 17.2%. Sales in Canada, in Canadian dollars,
increased by 5.1%.
Year-to-date gross profit increased to $29.3 million, from $26.7 million
in the first nine months of 2010. This gain reflects the higher sales
revenue. Gross profit as a percentage of sales was 17.6% in the first
nine months of 2011, in line with expectations and unchanged from the
same period in 2010.
Nine month operating expenses were $24.9 million, compared to $22.5
million during the same period in 2010. The most significant factors in
the increase in operating expenses are a $2.1 million increase in
personnel costs to support higher sales, $0.8 million in non-recurring
transactions costs incurred to convert the Fund to a corporation and to
acquire Paxton, as well as the absence of a $0.3 million recovery from
a lawsuit settlement that helped reduce nine month 2010 expense
results. These cost increases were partially offset by a $0.8 million
reduction in operating expenses attributable to the positive impact of
a stronger Canadian dollar on conversion of expenses at our US
operations.
The Company reported year-to-date EBITDA of $5.0 million, on par with to
$5.0 million generated during the same period in 2010. Higher gross
profits were fully offset by the higher operating expenses. However
when adjusted for non-recurring expense items as outlined below,
adjusted EBITDA increased 19.0% to $5.6 million, from $4.7 million in
the same period last year.
| | | | |||
| 9 months | | 9 months | |||
Selected Unaudited Consolidated Financial Information | ended | | ended | |||
(in thousands of dollars) | Sept 30, | | Sept 30, | |||
| 2011 | | 2010 | |||
EBITDA as reported $ | $ | 5 ,028 | | $ | 5 ,026 | |
Add (deduct): | | | | | | |
| Corporate conversion expenses | | 571 | | | - |
| Proceeds received from litigation settlement | | - | | | (320) |
Adjusted EBITDA | $ | 5,599 | | $ | 4,706 | |
Profit for the nine months ended September 30, 2011 increased to $6.4
million, from $2.0 million in 2010. The increase in profit reflects a
$3.7 million increase in income tax recovery, a $0.2 million decrease
in depreciation expense, and a $0.5 million decrease in net finance
expense.
Outlook
The North American economy continues to experience a sluggish recovery.
Although US residential construction activity has improved slightly
from a year ago, the pace of new housing starts remains at historically
low levels. Industrial and commercial construction markets are
generally healthier, but here too, the pace of recovery is slow.
While the Canadian economy is generally faring better than the US, this
market is significantly smaller than the US market. The Company will
continue to rely on its market expansion strategy to achieve growth and
enhance profits. The strategy focuses on:
Increasing end-market diversification with a stronger focus on the
commercial and institutional construction markets. To date, Hardwoods has created a dedicated sales force and an expanded
roster of products focused on these markets, and will continue working
to build and expand its account base. The Paxton acquisition expands
the range of products Hardwoods can make available to commercial and
institutional customers and the Company will work to leverage this
opportunity going forward.
Leveraging Hardwoods' successful import program to grow sales and build
market share. The Company has been successful in increasing sales volumes of its
high-quality imported sheet goods and higher-margin specialty products,
including EchoWoodTM and O2 BambooTM brands. It will continue to seek out attractive new products, while
also introducing its import line to Paxton's base of customers.
Achieving increased market share in larger, high-potential geographic
markets The Paxton acquisition has given Hardwoods' access to three major
markets in which it wanted to have a presence but did not have one
previously, while increasing its presence in two existing markets. The
Company will now focus on solidifying and further expanding its
presence in these promising markets.
Operating expenses are expected to continue trending higher in 2011 as
the Company implements these market expansion strategies and supports
increased sales activity, as well as incorporates Paxton's business
costs.
Overall, Hardwoods' priorities for the balance of the year will be to
achieve a successful integration of the newly acquired Paxton
operations, and to continue executing the Company's business strategy
while tightly managing the business.
A more detailed discussion of the Company's financial performance can be
found in its Management's Discussion and Analysis (MD&A) for the three
and nine months ended September 30, 2011. The MD&A will be posted,
along with the Company's condensed consolidated interim financial
statements on SEDAR (www.sedar.com) and on the Fund's website http://www.hardwoods-inc.com.
About Hardwoods Distribution Inc.
Hardwoods Distribution Inc. ("HDI" or the "Company") is a publicly
traded company that holds, indirectly, a 100% ownership interest in
Hardwoods Specialty Products LP and Hardwoods Specialty Products US LP
(collectively, "Hardwoods" or the "Business"). Formerly the Hardwoods
Distribution Income Fund (the "Fund"), HDI was formed by the Fund in
order to convert from an income trust structure to a corporation. The
Fund was converted to a corporation by way of a plan of arrangement
effective July 1, 2011.
Pursuant to the conversion, all outstanding units of the Fund held by
unitholders were exchanged for common shares of Hardwoods Distribution
Inc. on a one-for-one basis. All of the Class B limited partner units
in the Fund's operating subsidiaries, which represented a 20% equity
interest in Hardwoods and were held by the former owners of the
Business, were exchanged for common shares of Hardwoods Distribution
Inc. on the basis of 0.3793 common shares per Class B limited partner
unit. As a result of these arrangements, Hardwoods Distribution Inc.
owns 100% of Hardwoods, whereas previously the Fund owned 80% of the
Business, and the Fund has been wound up into HDI. Hardwoods
Distribution Inc. is listed on the Toronto Stock Exchange and trades under the symbol HWD.
HDI's results are based upon the performance of Hardwoods.
About Hardwoods
Hardwoods is one of North America's largest distributors of high-grade
hardwood lumber, sheet goods and architectural millwork to the cabinet,
moulding, millwork, furniture and specialty wood products industries.
The Company currently operates a network of 31 distribution centers in
the U.S. and Canada.
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. In
addition to profit or loss, the Company considers EBITDA to be a useful
supplemental measure of a company's ability to meet debt service and
capital expenditure requirements, and the Company interprets trends in
EBITDA as an indicator of relative operating performance.
EBITDA is not an earnings measure recognized by International Financial
Reporting Standards ("IFRS") and does not have a standardized meaning
prescribed by IFRS. Investors are cautioned that EBITDA should not
replace profit or loss or cash flows (as determined in accordance with
IFRS) as an indicator of our performance. The Company's method of
calculating EBITDA may differ from the methods used by other issuers.
Therefore, the Company's EBITDA may not be comparable to similar
measures presented by other issuers. For a reconciliation between
EBITDA and profit or loss as determined in accordance with IFRS, please
refer to the discussion of Results of Operations described in section
3.0 of Management's Discussion and Analysis (MD&A) for the three and
nine months ended September 30, 2011.
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: our
expectation that Paxton operations will provide approximately $45
million of profitable annual sales to our business; our perspective
that while we do not anticipate any significant improvement in market
conditions in the near term, our emphasis on profitable market
expansion is expected to continue delivering results for our
shareholders; our expectation the Company will continue to rely on its
market expansion strategy to achieve growth and enhance profits; our
expectation that operating expenses will continue trending higher in
2011 as the Company implements its market expansion strategies,
supports increased sales activity and incorporates Paxton's business
costs; our intentions for the balance of the year to be to achieve a
successful integration of the newly acquired Paxton operations, and to
continue executing the Company's business strategy while tightly
managing the business.
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.
For further information:
Rob Brown
Chief Financial Officer
Phone: (604) 881-1990
Fax: (604) 881-1995
Email:robbrown@hardwoods-inc.com
Website:http://www.hardwoods-inc.com
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