Stella-Jones: Weathering Cost Headwinds While Building the Grid
Q2 adjusted EBITDA margin slips to 16% but one-time items and a confident back-half view keep the 17.5–18.5% target alive.
SJ.TO · Earnings Call · 2026-08-06
Cost Pressures Capped the Quarter, but the Narrative Is Unchanged
Stella-Jones reported second-quarter sales of $1.042 billion, up just slightly year-over-year, but the adjusted EBITDA margin fell to 16% from 18% last year. The company was quick to separate the cyclical from the structural: “Excluding items that are not expected to repeat, margin performance in the quarter would have been closer to 17.5%.” — Eric Vachon, Chief Executive Officer (CEO) · 2026-08-06 The main culprits were site-specific environmental and maintenance costs, higher fuel costs, and the temporary inefficiencies from the Candiac steel structure capacity expansion. CFO Silvana Travaglini reiterated the view that the second half should improve: “We expect margin performance in the second half of the year to improve as some of these pressures ease.” — Silvana Travaglini, Chief Financial Officer (CFO) · 2026-08-06 In the Q&A, Eric Vachon was even more definitive about the steel structure changeover: “That is behind us. We should be ramping up here towards higher volumes than last year.” — Eric Vachon, Chief Executive Officer (CEO) · 2026-08-06 This is consistent with the prior tone. In the third quarter of 2025, management had said “we have much of the pricing headwinds now behind us.” — Eric Vachon, President and CEO · 2025-08-08 Indeed, spot pricing for utility poles has stabilized for roughly four quarters, and the company is guiding to mid-single-digit organic growth for the full year despite a soft Q2 weighed down by Texas weather.Steel Structures: The Grid Build-Out Is the Real Growth Engine
Beyond the temporary margin squeeze, the more important story is the continued build-out of the steel structures business. The Candiac plant modernization is on track to double capacity to 20,000 tons by Q3 of 2026, and the U.S. facility in Fayetteville, Tennessee is progressing toward commissioning in late 2027. Eric Vachon linked this directly to the transmission investment cycle: “there's also all the pressure that's being put on our customers by data centers requiring more energy” — Eric Vachon, President and Chief Executive Officer · 2025-05-11 — a theme that connects Stella-Jones to the broader AI infrastructure boom, albeit indirectly. The demand for lattice towers is robust; management noted that capacity is substantially allocated through 2027 and that one customer has already signed a 10-year contract for roughly a third of the Candiac output. The company is also planning the next phase of network optimization for its wood utility poles facilities, expecting $10–12 million of incremental annual profitability by 2027. These initiatives, combined with a stronger steel structure contribution, underpin the confidence in reaching the 17.5–18.5% margin target over three years.Railway Ties: A Mix Shift Toward Treating Services
Railway tie sales declined 2% in the quarter, but the company highlighted a growing mix of TSO (treating services) volumes, which are lower-priced but higher-margin on a percentage basis and do not tie up working capital. Silvana noted that TSO could represent up to 10% of total tie volumes going forward. Class 1 volumes remain under pressure, but commercial demand has largely offset the decline. Contract renewals are progressing; one Class 1 renewal has been finalized with volume growth, and another negotiation is targeted for Q4.The company is not chasing tariff-related refunds like many others across the market; its near-term challenges are more operational, centered on fuel costs and margin performance rather than trade policy. This sets it apart from the broader market's focus on IEEPA refunds. That divergence is worth noting. While the global keyword list is dominated by “IEEPA refund” and “tariff refund,” Stella-Jones is insulated from those dynamics, instead dealing with cost pass-through lags and its own capacity expansions. The next phase of productivity, including the continuous improvement and footprint consolidation initiatives, is expected to deliver benefits beginning in 2027. In summary, the quarter itself was messy, but the long-term infrastructure spending thesis remains intact. The company's focus has shifted to TSO volumes and a stronger steel structure contribution. The fuel cost headwinds are real but temporary, and the pricing mechanics are understood. As the Candiac changeover concludes and the Tennessee plant comes online, Stella-Jones is positioning itself to benefit from the multi-decade grid build-out.While quarterly profitability was affected by near-term cost pressures, the margin shortfall was largely driven by site-specific nonrecurring items and temporary inefficiencies in steel structures.