TRADING SYMBOL: Toronto Stock Exchange - HWD
LANGLEY, B.C., May 7, 2012 /CNW/ - Hardwoods Distribution Inc. ("Hardwoods" or the "Company") today announced strong financial results for the three months ended March 31, 2012, with revenues, gross profit, EBITDA and profit all up significantly over 2011 levels. 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 months ended March 31, 2012)
- First quarter consolidated sales increased $20.9 million, or 40.2%, compared to the first quarter of 2011, reflecting acquisition-related growth of $14.1 million and organic growth of $6.8 million.
- Gross profit increased by 44.1%, with gross profit margin increasing to 18.0% from 17.5% in the same period last year.
- EBITDA increased to $2.6 million, compared to $0.6 million in the first quarter of 2011.
- Profit increased to $1.2 million, from a loss of $0.7 million in the first quarter last year.
- In recognition of improvements to the Company's financial performance, the Board of Directors announced an increase in the quarterly dividend to $0.03 per share, from $0.02 previously. The next quarterly dividend will be paid on July 31, 2012 to shareholders of record on July 20, 2012.
"Our 2012 year is off to an excellent start with strong operating results and significant improvement in our profitability," said Lance Blanco, President and CEO of Hardwoods. "Our acquisition of the Frank Paxton Lumber Company, which we completed last September, has strengthened our presence in five key US geographic markets. Meanwhile our strategy of diversifying into non-residential construction markets and leveraging our import program helped us achieve solid organic growth across our existing operations."
"On a consolidated basis, we grew first quarter revenue by 40.2%, gross profit by 44.1% and EBITDA by 359.1%, compared to the same period last year. We also achieved a gross profit margin of 18.0% compared to 17.5% last year, reflecting the addition of higher value products to our sales mix," said Mr. Blanco.
The Company's gains were achieved against a backdrop of challenging market conditions. While the US Census Bureau reported a 10.3% year-over-year increase in new housing starts at the end of March 2012, the annualized rate of housing starts remains at about half of what is generally considered to be a healthy market. The broader US economy also remains challenged by high government debt and unemployment levels. Average product prices remained comparable to the same period a year ago, but started to strengthen towards the end of the first quarter.
"As we anticipated, our growth continues to be primarily driven by our strategic initiatives," said Mr. Blanco. "We're having good success entering the markets we've identified as growth opportunities, and we've achieved a rapid integration of the Paxton business. Overall we are encouraged by our progress and very pleased to be sharing our gains with shareholders through an increased quarterly dividend. Going forward, we will continue to pursue opportunities that help to strengthen our financial results, including evaluating promising acquisition opportunities that could further increase shareholder value."
Summary of Results
|Selected Unaudited Consolidated Financial Information (in thousands of Canadian dollars)|
|For the three months||For the three months|
|Ended March 31,||Ended March 31,||$ Increase||% Increase|
|Sales in the US (US$)||51,100||31,840||19,260||60.5%|
|Sales in Canada||21,788||20,642||1,146||5.6%|
|Gross profit %||18.0%||17.5%|
|Profit from operating activities||2,260||327||1,933||591.1%|
|Add: Depreciation and amortization||302||231||71||30.7%|
| Earnings before interest, taxes,depreciation and
amortization and non-controlling interest ("EBITDA")
|Depreciation and amortization||(302)||(231)||71||30.7%|
|Net finance expense||(340)||(735)||(395)||-53.7%|
|Income tax expense||(695)||(293)||402||137.2%|
|Profit for the period||$||1,225||$||(701)||$||1,926||274.8%|
|Basic profit per share/unit||$||0.08||$||(0.05)|
|Fully diluted profit per share/unit||0.07||(0.05)|
|Average Canadian dollar exchange rate for one US dollar||1.001||0.986|
Results from Operations - Three Months Ended March 31, 2012
For the three months ended March 31, 2012, total sales increased by 40.2% to $72.9 million, from $52.0 million in the same period in 2011. Incremental sales from the Paxton operations, acquired in September 2011, contributed $14.1 million, or approximately two-thirds of the increase, while organic growth from existing operations accounted for $6.8 million, or approximately one-third of the sales increase. Results for the first quarter of 2012 included one extra business day compared to the same period last year.
Sales in the United States, as measured in US dollars, increased by $19.3 million, or 60.5%, to $51.1 million. Included in this increase is $14.1 million of revenue generated by the Paxton branches. The remaining $5.2 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 and is not affected by the Paxton acquisition, increased by a more modest $1.1 million, or 5.6%, to $21.8 million.
First quarter gross profit increased to $13.1 million, up 44.1% from $9.1 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 18.0% in the first quarter of 2012, from 17.5% in the same period last year. The improved margin reflects Paxton's in-house remanufacturing capability, which adds value to the products it sells. As a result, Paxton's product mix generates a higher average gross profit margin than Hardwoods' other product lines.
Operating expenses for the three-month period increased to $10.9 million, from $8.8 million in the first quarter of 2011. This increase primarily reflects incremental expenses from the acquired Paxton operations, partially offset by the absence of $0.3 million in corporate conversion costs that were incurred in the first quarter of 2011, but were not repeated in the 2012 period. As a percentage of sales, first quarter 2012 operating expenses were 14.9% of sales, compared to 16.9% in 2011.
First quarter EBITDA increased $2.6 million, from $0.6 million during the same period in 2011. This reflects the $4.0 million increase in gross profit, partially offset by $2.1 million in increased expenses. Profit for the period also strengthened, increasing to $1.2 million from a loss of $0.7 million in the first quarter of 2011. The $1.9 million year-over-year improvement reflects the higher EBITDA and the $0.4 million decrease in net finance cost, partially offset by the $0.4 million increase in income tax expense.
Hardwoods anticipates that the North American economy will continue to experience a slow recovery, with very gradual improvement in the US residential construction markets, steady demand in Canadian housing markets and moderately stronger gains in non-residential construction markets.
Given the modest expectations for market demand, Hardwoods will continue to rely on its market share 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 new geographic markets the Company has entered as a result of the Paxton acquisition, while targeting additional growth in selected existing markets.
Key priorities for 2012 will be to build on the business platform from the acquired Paxton operations and to continue executing the Company's growth and operating strategies, while tightly managing the business. Hardwoods will also continue to evaluate 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 months ended March 31, 2012. The MD&A will be posted, along with the Company's condensed consolidated interim financial statements on SEDAR (www.sedar.com) and on the Company's website http://www.hardwoods-inc.com.
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 months ended March 31, 2012 and 2011.
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: that Hardwoods anticipates the North American economy will continue to experience a slow recovery, with very gradual improvement in the US residential construction markets, steady demand in Canadian housing markets and moderately stronger gains in non-residential construction markets; that given the Company's modest expectations for market demand, Hardwoods will continue to rely on its market share strategy to achieve growth and enhance profits; that the Company intends 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; that Hardwoods intends to 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; that the Company intends to solidify and further expand its presence in new geographic markets the Company has entered as a result of the Paxton acquisition, while targeting additional growth in selected existing markets; that key priorities for 2012 will be to build on the business platform from the acquired Paxton operations and to continue executing the Company's growth and operating strategies, while tightly managing the business; and that Hardwoods will also continue to evaluate acquisition opportunities that further increase shareholder value.
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, the Company 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.
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