Hardwoods Announces First Quarter 2015 Results and Increases Quarterly Dividend

TRADING SYMBOL: Toronto Stock Exchange – HWD

LANGLEY, BC, May 14, 2015 /CNW/ - Hardwoods Distribution Inc. ("Hardwoods" or the "Company") today announced financial results for the three months ended March 31, 2015. Hardwoods is one of North America's largest wholesale distributors of hardwood lumber and related sheet good products, operating a network of 32 distribution centres across North America, as well as a hardwood sawmill and kiln drying operation in the United States.

Highlights
(For the three months ended March 31, 2015)

• The Company achieved record revenue this quarter of $135.1 million, an increase of 33.9% from $100.9 million in the same period in 2014.
• First quarter gross profit increased 26.3% period-over-period to $23.1 million.
• First quarter EBITDA increased 49.8% to $7.6 million
• Profit for the period increased 59.0% to $4.7 million.
• Hardwoods strengthened our distribution network, relocating to larger hub facilities in Ontario and Texas to support our growth strategies.
• Hardwoods' Board of Directors declared a quarterly dividend of $0.055 per share, payable on July 31, 2015 to shareholders of record as of July 20, 2015.
• On March 18, 2015, Hardwoods announced that Lance Blanco was resuming his duties as the President and Chief Executive Officer of the Company.
• On March 18, 2015, Hardwoods announced an expansion of its executive capacity. Rob Brown, formerly Chief Financial Officer, was appointed to the newly created position of Chief Operating Officer. Faiz Karmaly, formerly Hardwoods' Corporate Controller, succeeded Rob Brown as Chief Financial Officer.

"Hardwoods enjoyed an outstanding start to the 2015 year with record first quarter sales revenue and sharply higher EBITDA and profit results," said Hardwoods' CEO Lance Blanco. 

The strong results reflect a combination of organic growth, including increased import and commercial product sales, together with acquisition-based growth following the April 28, 2014 purchase of Hardwoods of Michigan ("HMI"), an integrated, high-quality hardwood lumber producer and exporter.

Hardwoods' results also benefited from an increase in the value of the US dollar relative to the Canadian dollar. A stronger US dollar benefits the Company by: i) increasing the value of sales and profits earned in the US operations when translated into Canadian dollars for financial reporting purposes; ii) increasing the selling price of US dollar-denominated products sold to Hardwoods' Canadian customers; and iii) improving the export competitiveness of the Company's Canadian industrial customers, many of whom have the capability to sell their manufactured products in the US. 

On average US housing starts rose slightly in the first quarter of 2015. According to the US Census Bureau the average seasonally adjusted rate of US housing starts increased 4.8% to 969,000 from 925,000 in the first quarter of 2014. Given that hardwood products are typically applied at the final stages of home construction, 9-12 months after housing starts commence, Hardwoods continued to benefit from the market growth experienced in fiscal 2014 when housing starts were up 8.2% compared to the previous year.  Longer term, the US housing market is expected to continue its recovery and Hardwoods anticipates continued demand from the US residential construction market.

Expenses were well controlled across the organization during the first quarter, with operating expenses continuing to decline as a percentage of revenue.

"We are doing a good job of growing our business with our existing infrastructure and overheads," said Mr. Blanco. "In addition, we reduced bad debts to just 0.1% of sales in Q1 2015, compared to our long-term historical average of closer to 0.5% of sales."

Hardwoods ended the first quarter with a strong balance sheet. As at March 31, 2015, net debt-to-EBITDA ratio was a conservative 1.8 times, debt-to-capital ratio was just 29.7% and the Company had $43.5 million of unused borrowing capacity.

"Hardwoods is in excellent shape financially and positioned for further growth in 2015," added Mr. Blanco. "Our winning strategies are driving steady organic growth in our business and our strong balance sheet enables us to pursue acquisition opportunities in a highly fragmented industry.  Our outlook remains positive and we are pleased to declare a quarterly dividend of $0.055 per share."

Summary of Results

Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars except where noted)
						3 months ended		3 months ended
							March 31		March 31
							2015		2014
Total sales						$	135,116	$	100,934
				Sales in the US (US$)			86,433		69,541
				Sales in Canada			27,836		24,189
Gross profit							23,063		18,263
				Gross profit %			17.1%		18.1%
Operating expenses							(15,988)		(13,598)
Profit from operating activities							7,075		4,665
Add: Depreciation							571		438
Earnings before interest, taxes, depreciation and amortization ("EBITDA")							7,646		5,103
				Add (deduct):
					Depreciation		(571)		(438)
					Net finance cost		236		65
					Income tax expense		(2,598)		(1,765)
Profit for the period						$	4,713	$	2,965
Basic and fully diluted profit per share						$	0.28	$	0.18
Average Canadian dollar exchange rate for one US dollar							1.241		1.104

Results from Operations – Three Months Ended March 31, 2015

For the three months ended March 31, 2015, total sales increased by 33.9% to $135.1 million, from $100.9 million in Q1 2014. Hardwoods' US operations increased sales by US $16.9 million, or 24.3%, to US $86.4 million. Organic growth accounted for US $8.1 million, or 11.6%, of the increase and the addition of the HMI manufacturing business contributed US $8.8 million, or 12.7%.

First quarter sales in Canada grew by $3.6 million to $27.8 million, a year-over-year increase of 15.1%.  The improvement reflects successes in winning new business in all regions, as well as overall stronger product prices and the positive impact of a stronger US dollar. 

First quarter gross profit increased to $23.1 million, up 26.3% from $18.3 million during the same period in 2014. This improvement reflects the higher sales revenue, partially offset by a lower gross profit margin. As a percentage of sales, first quarter gross profit margin was 17.1%, compared to 18.1% in Q1 2014. The year-over-year reduction reflects competitive conditions, as well as the impact of the acquired HMI manufacturing business, which generates a slightly lower gross profit percentage than does Hardwoods' traditional distribution business. Entry into targeted commercial market segments also affected margins with the Company offering competitive introductory pricing to some of its new accounts.

Operating expenses for the three months ended March 31, 2015 were $16.0 million, compared to $13.6 million in Q1 2014.  This increase primarily reflects $0.7 million of incremental costs from the acquired HMI business, $1.3 million of higher expenses due to the impact of a stronger US dollar on translation of US operating expenses, and $0.4 million of costs to support growth. As a percentage of sales, operating expenses improved to 11.8% of sales from 13.5% in Q1 2014.

First quarter 2015 EBITDA increased 49.8% to $7.7 million, from $5.1 million in Q1 2014. The EBITDA gain primarily reflects the increase in gross profit, partially offset by higher operating expenses, net of depreciation and amortization.  Profit for the period increased 59.0% to $4.7 million, from $3.0 million in the same period last year. The year-over-year increase reflects the higher EBITDA partially offset by a $0.8 million increase in income tax expense.

Outlook

Economic forecasters continue to predict a multi-year strengthening of the US residential construction market.  With a strong base of business in the US, growing import and commercial sales, and the positive foreign exchange impact of a stronger US dollar, Hardwoods expects to achieve continued sales growth through the balance of 2015.

Product prices are expected to be somewhat weaker in 2015 for hardwood lumber as increased supply works its way through the market. Prices for hardwood plywood are expected to remain steady and prices for some composite panel products are expected to increase modestly.

Hardwoods' focus in 2015 will be on further expanding its US market share. The Company is actively pursuing its "leverage imports" and "strengthen commercial" strategies which focus on:

• growing sales of Hardwoods' high-quality, proprietary import lines, supported both by the Company's established quality assurance team in Asia and ongoing international sourcing initiatives designed to bring world-wide product solutions to Hardwoods' customers; and
• capitalizing on significant opportunities in the commercial market. In particular, Hardwoods is actively growing its supply of first-tier products for commercial customers and capitalizing on its import capabilities to offer commercial customers an attractive and differentiated line-up of products. 

Hardwoods will also continue to pursue well-priced acquisition opportunities that support its objectives.

Hardwoods' Board of Directors will continue to review financial performance and assess distribution levels on a regular basis; however the primary focus in 2015 will be on retaining the cash necessary to finance the significant market growth opportunity in the US and to keep the Company's balance sheet strong to support strategic acquisitions. 

A more detailed discussion of the Company's financial performance can be found in Hardwoods' Management's Discussion and Analysis (MD&A) for the three months ended March 31, 2015. The MD&A will be posted, along with the Company's audited financial statements, on SEDAR (www.sedar.com) and on the Company's website (www.hardwoods-inc.com) on or before May 21, 2015.

About Hardwoods Distribution Inc.

Hardwoods is one of North America's largest wholesale distributors of high-grade hardwood lumber, sheet goods and architectural millwork to the cabinet, moulding, millwork, furniture and specialty wood products industries. The Company also creates custom moulding and  millwork packages for customers and produces and exports high quality lumber through its HMI business. Hardwoods operates 33 facilities located across the United States and Canada. 

Non-GAAP Measures

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.  References to "debt-to-EBITDA" and "debt-to-capital" are defined as debt divided by EBITDA and debt divided by shareholders' equity respectively.   In addition to profit or loss, the Company considers EBITDA, debt-to-EBITDA and debt-to-capital and comparisons of these measures to other measures to be a useful supplemental measure of the Company's ability to meet debt service and capital expenditure requirements, and the Company interprets trends in EBITDA, debt-to-EBITDA and debt-to-capital as an indicator of relative operating performance and financial leverage. 

EBITDA, debt-to-EBITDA and debt-to-capital are not earnings measures recognized by IFRS and they do 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.  Investors are also cautioned that debt-to-EBITDA and debt-to-capital should not replace debt, shareholder's equity or cash flows as an indicator of our performance.  The Company's method of calculating EBITDA, debt-to-EBITDA and debt-to-capital may differ from the methods used by other issuers. Therefore, the Company's EBITDA, debt-to-EBITDA and debt-to-capital may not be comparable to similar measures presented by other issuers. For a reconciliation between EBITDA, debt-to-EBITDA and debt-to-capital to profit or loss, debt and shareholders' equity respectively as determined in accordance with IFRS,  please refer to the discussion of Results of Operations described in section 3.0 and section 5.3 of Management's Discussion and Analysis (MD&A) for the three-month period ended March 31, 2015.  

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: longer term, the US housing market is expected to continue its recovery and the Company anticipates continued demand from the US residential construction market; economic forecasters continue to predict a multi-year strengthening of the US residential construction market; the Company expects to achieve continued sales growth through the balance of 2015; product prices are expected to be somewhat weaker in 2015 for hardwood lumber as increased supply works its way through the market; and prices for hardwood plywood are expected to remain steady and prices for some composite panel products are expected to increase modestly.   

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.

Faiz Karmally, Chief Financial Officer, Phone: [phone], Email: [email protected], Website: http://www.hardwoods-inc.com