This article first appeared on GuruFocus .
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Revenue:Second quarter sales of CAD1,042 million, up CAD8 million year-over-year.
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Adjusted EBITDA:CAD167 million, or 16% margin, down from CAD189 million (18.3%) in the prior year quarter.
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Utility Product Sales:CAD510 million in Q2, up 7% from CAD476 million, driven by a CAD29 million contribution from Cross Arms and modest organic growth in wood utility poles.
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Railway Tie Sales:CAD235 million in Q2, down from CAD240 million, with volumes down 1% and slightly lower pricing due to a higher proportion of TSO volumes.
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Residential Lumber Sales:CAD234 million in Q2, down 5% from CAD246 million, with pricing down 4% and volumes down 1%.
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Cash from Operations:CAD192 million in Q2, down from CAD224 million in the prior year period.
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Leverage Ratio:2.5 times at quarter-end, with CAD759 million of available liquidity.
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One-Time Charges:CAD32 million recorded in Q2 related to railway ties optimization, including CAD24 million of noncash asset write-downs.
Release Date: August 06, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Utility products showed strength with positive volume momentum in wood utility poles and a solid contribution from the Cross Arms acquisition, driving a 7% sales increase in the segment.
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The company is advancing growth initiatives, including the steel structure capacity expansion in Candiac, which is on track to double capacity by Q3 2026, with demand already allocated through 2027.
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Railway ties commercial business growth offset a significant portion of lower Class 1 volumes, and a Class 1 contract renewal includes volume growth, with potential upside from bridge timbers.
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The company generated strong cash flow of CAD192 million in Q2, reduced net debt by over CAD100 million in the first half, and maintains a solid balance sheet with CAD759 million in liquidity.
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Management remains confident in achieving its three-year adjusted EBITDA margin target of 17.5%-18.5%, supported by optimization initiatives and a more favorable business mix, with margin performance expected to improve in the second half of 2026.
Negative Points
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Adjusted EBITDA margin declined to 16% in Q2, down from 18.3% in the prior year, due to near-term cost headwinds including higher environmental, maintenance, and fuel costs.
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Residential lumber sales were down 5% in Q2, with both pricing and volumes lower, reflecting softer demand and adverse weather conditions.
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Railway ties volumes declined 1% in Q2, with Class 1 volumes lower, and the company is tracking below its flat sales guidance for the year.
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The steel structures business experienced temporary production losses and lower throughput due to equipment changeover, impacting sales and profitability in the quarter.
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The company faces a lag in recovering cost increases through pricing, particularly in utility poles and railway ties, which may not be fully offset until contract anniversaries in 2027.
Q & A Highlights
Q: Can you provide visibility and a timeline for the major cost pressures (environmental/maintenance costs, fuel, steel structure inefficiencies) and how they will improve in the back half of the year? A: Eric Vachon (President and CEO) explained that the steel structure inefficiencies from the Candiac facility's equipment changeover are largely behind them, with the plant expected to ramp up to roughly 14,000 tons of annualized capacity in the back half. Fuel costs are a lagging item that will be recovered through contract anniversaries, mostly starting next year. The environmental and unplanned maintenance costs were one-time in nature, related to permit renewals and boiler/kiln repairs, and are not expected to recur.
Q: How will the pricing recovery mechanisms flow through, and will they be primarily in the utility pole or railway tie business? A: Eric Vachon (President and CEO) stated the pricing adjustments are heavily weighted to utility poles due to oil-borne preservatives, but also affect railway ties and residential lumber. For residential lumber, pricing adjustments for fuel costs are being implemented in Q3. For utility poles, the recovery is driven by annual contract resets, with some customers opting to address increases early to avoid a larger impact at the anniversary date.
Q: Are you still aiming for flat railway tie sales this year, and what is the status of the Class 1 contract renewals? A: Eric Vachon (President and CEO) noted that while they had guided to flat sales, they are trending at minus 2%, with the final result likely between flat and minus 2%. One Class 1 contract was renewed with volume growth starting in 2027, and negotiations for bridge timbers are underway. A second contract is well underway with secured extra volumes, and a third is in early discussions. Silvana Travaglini (CFO) added that TSO volumes could represent 5% to 10% of total tie sales in the second half and going forward.
Q: Given the contract renewals, should we expect a greater transition to TSO, and what does that suggest for 2027 tie revenue? A: Eric Vachon (President and CEO) confirmed that TSO is attractive due to lower working capital requirements and better margin percentages, and they expect a greater proportion going forward. Silvana Travaglini (CFO) clarified that TSO volumes could represent up to 10% of total volumes going forward, which will impact overall sales figures but improve profitability.
Q: Do you still see potential M&A opportunities to augment your position in wooden utility poles or railway ties? A: Eric Vachon (President and CEO) confirmed there are potential targets on the railway tie side, particularly in light of potential Class 1 mergers. On the utility pole side, there are a couple of family-owned businesses in the Southeast US that could be of interest, though timing depends on their exit strategies. He also emphasized continued organic growth expectations for utility poles, with the network being adjusted to support that growth.
Q: Can you break down the 1% organic growth in utility poles between volume and pricing? A: Silvana Travaglini (CFO) stated that wood utility pole volumes were up 2% while pricing declined 1%. Eric Vachon (President and CEO) added that unusually wet spring weather in Texas delayed project execution, which depressed volumes in the quarter, but they expect to catch up on some of that activity later in the year.
Q: How is July shaping up on the utility pole side, and have you been able to ramp up following the heavy rain events? A: Eric Vachon (President and CEO) noted that spot pricing has been stable for four consecutive quarters, and they are seeing positive momentum in customer forecasting and activity. While it may be difficult to catch up all the lost time in Texas, they are seeing positive activity and remain confident in the mid-single-digit organic growth outlook for the full year.
Q: What would utility pole organic growth have looked like in Q2 without the weather headwinds in Texas? A: Silvana Travaglini (CFO) estimated that growth would have been closer to the lower end of the mid-single-digit range, around 4% to 5%, if activity had been as expected. Eric Vachon (President and CEO) confirmed that the Q2 dynamic does not materially change their full-year mid-single-digit growth target for wood utility poles.
Q: When will the CAD10 million to CAD12 million of targeted annual profitability improvements from the utility pole network optimization start to come through? A: Silvana Travaglini (CFO) stated that most of the work will be undertaken in Q3 and Q4 of 2026, with the expectation that the benefits will begin to materialize in 2027. The full benefit is expected to be realized starting in the first quarter of 2027.
Q: Will the steel structure headwinds impact Q3, and does the mid-single-digit organic growth target for poles include steel structures? A: Eric Vachon (President and CEO) clarified that the mid-single-digit growth target is only for wood utility poles, not steel structures. The equipment changeover at Candiac is essentially complete, with only minor tidying up left in August. The slowdown is behind them, and they will resume regular activity with enhanced capacity. He also noted that the learnings from the Candiac changeover will benefit the Fayetteville, Tennessee facility's smoother startup.
Q: Were the operational improvement initiatives already factored into the 17.5% to 18.5% three-year margin target, or could they push you to the higher end? A: Eric Vachon (President and CEO) confirmed that the operational improvement initiatives were not included in the initial guidance. These actions are what would be needed to achieve the higher end of the three-year adjusted EBITDA margin target range of 17.5% to 18.5%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
