LANGLEY, B.C. - This press release discusses financial results for Hardwoods Distribution Inc. ("Hardwoods" or the "Company") for the three and twelve months ended December 31, 2011.
Hardwoods is one of North America's largest wholesale distributors of hardwood lumber and related sheet good products, operating a network of 30 distribution centres in the US and Canada.
(For the three and twelve months ended December 31, 2011)
- Revenue increased 37.7% in the fourth quarter and 16.4% for the full year, compared to the same periods in 2010.
- The Company increased gross profit margin to 17.7% in the fourth quarter and 17.7% in the 12-month period, up from 16.6% and 17.4% respectively during the same periods in 2010.
- Fourth quarter EBITDA increased to $0.9 million, from an EBITDA loss of $0.3 million last year. Full-year EBITDA increased 27.4% to $6.0 million, compared to $4.7 million in 2010.
- Fourth quarter loss was $0.4 million, compared to a loss of $1.0 million in the same period in 2010. Full-year profit increased to $6.1 million which included a $3.8 million deferred income tax recovery that arose from various restructuring activities that occurred during the year, compared to profit of $0.9 million in 2010.
- The Company paid quarterly dividends of $0.02 per share in October 2011 and January 2012, and today announced a third quarterly dividend of $0.02 per share to be paid on April 30, 2012, to shareholders of record on April 20, 2012.
"We achieved profitable growth in 2011 as we pursued our business strategy, investing in high-performing new operations, products and sales personnel, and strengthening results from our existing distribution centres," said Lance Blanco, President and CEO of Hardwoods.
"Our acquisition of Frank Paxton Lumber Company on September 19, 2011 was one of the highlights of the year and is already proving accretive to our results. Paxton is a respected 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. These branches also provide custom architectural millwork predominantly to commercial and institutional customers. During the 15 weeks we operated this business in 2011, Paxton contributed revenues of $13.6 million and a net positive EBITDA contribution of $0.2 million, even after accounting for $0.2 million of transaction costs we incurred to acquire the business."
"Importantly, our existing operations also boosted performance in 2011, with organic sales growth of $18.8 million, or 9.5%, and organic EBITDA growth of $1.1 million, or 23.1%, compared to last year," said Mr. Blanco. "These are significant gains given the challenging market conditions and flat hardwood lumber prices we experienced in 2011. In the US market, home building, remodeling and commercial construction activity all fell short of forecaster's expectations, resulting in continued closures and production cutbacks among secondary manufacturers, including some of the largest component and cabinet manufacturers in the US. In Canada, market demand remained relatively flat, with modest growth in residential housing starts partially offset by weak demand from secondary manufacturers."
"Our strong financial performance in the midst of these challenges reflects the success of our business strategy and the three broad initiatives we are implementing," added Mr. Blanco. "Firstly, our efforts to diversify into the commercial and institutional construction end-markets have begun to bear fruit. During 2011 we continued to fine-tune our product offering and selectively targeted customers in these sectors. The majority of the new accounts we opened in 2011 were in the commercial construction sector as a result of our efforts."
"Our sales of import products also continued to expand as we pursued our strategy of sourcing and supporting high-quality, proprietary products. We continued to refine this program in 2011 with the addition of new vendors and improved freight routes."
"Thirdly, we were successful in making our move into three large North American urban centres where we previously had little or no representation. Thanks to the Paxton acquisition we have gained a strong presence in Kansas City, Cincinnati and Chicago, all of which hold significant potential for us, and we expanded our presence in San Antonio and Denver. Our success in attracting industry experienced sales staff within other high potential geographic markets is also helping us build market share."
"We are encouraged by the improvements in our performance and very pleased to be sharing our gains with shareholders through quarterly dividend payments. 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 in 2012. We will also continue to seek out acquisition opportunities that further increase shareholder value," said Mr. Blanco.
Results from Operations - Three Months Ended December 31, 2011
For the three months ended December 31, 2011, total sales increased by 37.7% to $63.9 million, from $46.4 million in the same period in 2010. The year-overyear sales growth reflects a 40.0% increase in underlying sales activity, partially offset by a 2.3% 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 $16.7 million, or 61.2%, to $43.9 million. Included in this increase is $11.6 million of revenue generated by the new Paxton branches. The remaining $5.1 million of US sales growth was generated by Hardwoods' existing US branch network. Sales in Canada, a market which experienced more stable ongoing demand for hardwoods through the recent economic downturn, increased by a more modest $0.5 million, or 2.8%, to $19.4 million.
Fourth quarter gross profit increased to $11.3 million, up 47.2% from $7.7 million during the same period last year. The significant improvement in gross profit reflects the higher sales revenue, combined with a higher gross profit margin. As a percentage of sales, gross profit increased to 17.7% in the fourth quarter of 2011, from 16.6% in the same period last year. The lower gross profit margin realized in the fourth quarter of 2010 included certain valuation writedowns and other adjustments made to year-end inventory which were not repeated in the current-year period. Management views 17% to 18% gross margins as appropriate given competitive conditions at this point in the business cycle.
Operating expenses for the three-month period increased to $10.7 million, from $8.3 million during the same period in 2010. The increase in expenses primarily reflects incremental expenses from the acquired Paxton operations.
Fourth quarter EBITDA of $0.9 million increased $1.3 million from an EBITDA loss of $0.3 million during the same period in 2010. This increase reflects higher gross profit, partially offset by increased expenses.
Loss for the period also improved, with a loss of $0.4 million in the three months ended December 31, 2011 compared to a loss of $1.0 million in the same period in the prior year. This improvement primarily reflects the higher EBITDA, partially offset by a $0.1 million increase in depreciation expense, a $0.1 million increase in net finance expense, and a $0.5 million increase in income tax expense.
Results from Operations - Year Ended December 31, 2011
For the year ended December 31, 2011, total sales increased by 16.4% to $230.0 million, from $197.7 million in 2010. The increase in sales reflects a 19.4% increase in underlying sales activity, partially offset by a 3.0% decrease in sales due to the negative effect of a stronger Canadian dollar. The improvement in underlying sales reflects $18.8 million in organic sales growth from Hardwoods' existing operations, together with $13.6 million of new sales generated by the acquired Paxton operations. Excluding the impact of the Paxton acquisition, sales in the United States, as measured in US dollars, increased by 17.5%. Sales in Canada, as measured in Canadian dollars, increased by 4.5%.
Full-year gross profit increased 18.2% to $40.6 million, from $34.4 million in 2010. This gain reflects the higher sales revenue, as well as a higher gross profit margin during 2011. Gross profit as a percentage of sales was 17.7% in 2011, compared to 17.4% in 2010.
Operating expenses increased to $35.7 million in 2011, compared to $30.8 million in 2010. This increase was anticipated and reflects $2.6 million in operating costs related to the new Paxton operations, an added $1.9 million in personnel and other costs incurred to support the Company's market expansion strategies, and $0.8 million in non-recurring transaction costs related to Hardwoods' conversion to a corporation and the acquisition of Paxton. The year-over-year change in operating expenses also reflects a $0.3 million litigation expense recovery that lowered 2010 operating expenses, but was not repeated in 2011. Partially offsetting the increase in 2011 operating expenses was the $0.8 million positive impact of a stronger Canadian dollar on conversion of expenses at Hardwoods' US operations.
EBITDA for the full year increased 27.4% to $6.0 million, from the $4.7 million generated during 2010. This increase reflects higher gross profits, partially offset by higher operating expense. Paxton contributed $0.2 million of EBITDA (net of $0.2 million of one-time transactions costs incurred to complete the acquisition) to our 2011 results. In addition to the incremental EBITDA provided by Paxton, comparison of our year-over-year EBITDA results is also impacted by one-time costs related to our conversion to a corporation in 2011, and the absence of a recovery from a lawsuit in the prior year period. Excluding these three items, the underlying improvement in Hardwoods business performance measured on an adjusted EBITDA basis is an increase of 46.3% year-over-year.
Profit for the 2011 year increased 547.3% to $6.1 million, from $0.9 million in 2010. This significant improvement reflects the $1.3 million increase in EBITDA, a $0.1 million decrease in depreciation, a $0.5 million decrease in net finance cost and a $3.3 million increase in income tax recovery.
Hardwoods anticipates that the North American economy will continue to experience a slow recovery with very gradual improvement in the US residential construction markets and moderately stronger gains in non-residential construction markets. In Canada, growth in the domestic economy shows signs of slowing as global economic events reduce consumer confidence and the stronger Canadian dollar negatively impacts secondary manufacturers. Accordingly, the Company anticipates only modest improvement from this market in 2012.
Given the expectation of continuing weak market conditions, Hardwoods will continue to rely on its market expansion strategy to achieve growth and enhance profits. Specifically it will seek to:
- Further strengthen its presence in the commercial and institutional construction markets, including leveraging Paxton's products and capabilities to make a broader range of products available to customers in these sectors.
- Leverage its successful import program by continuing to seek out attractive new products and introducing the Company's branded lines of import products to Paxton's base of customers.
- Solidify and further expand its presence in the large and promising new geographic markets the Company has entered via the Paxton acquisition, and target growth in additional existing markets which the Company has identified.
The Company anticipates that operating expenses will increase further in 2012 as it implements its market expansion strategies, supports increased sales activity and integrates the Paxton business. Key priorities for 2012 will be to complete the integration of the Paxton operations and to continue executing the Company's strategy, while tightly managing the business. The Company will also continue to seek out acquisition opportunities that further increase shareholder value.
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 twelve months ended December 31, 2011. The MD&A will be posted, along with the Company's audited consolidated financial statements and accompanying notes on SEDAR (www.sedar.com) and on the Fund's website http://www.hardwoods-inc.com.
Source: Hardwoods Distribution Inc.
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