Stella-Jones Inc. (OTCPK:STLJF) Q3 2022 Earnings Conference Call November 9, 2022 10:00 AM ET
Company Participants
Eric Vachon – CEO, President & Director
Silvana Travaglini – SVP & CFO
Conference Call Participants
James McGarragle – RBC Capital Markets
Hamir Patel – CIBC Capital Markets
Benoit Poirier – Desjardins Capital Markets
Michael Tupholme – TD Securities
Maxim Sytchev – National Bank Financial
Operator
Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Stella-Jones’ Q3 2022 Earnings Conference Call. [Operator Instructions]. I would like to remind everyone that this conference call is being recorded on Wednesday, November 9th, 2022. I will now turn the conference over to Eric Vachon, President and CEO. Please go ahead.
Eric Vachon
Good morning, everyone. I’m here with Silvana Travaglini, Chief Financial Officer of Stella-Jones, and we thank you for joining us this morning for a discussion on the financial and operating results for Stella-Jones’s Third Quarter ended September 30th, 2022. Earlier this morning, we issued our press release reporting Q3 results. Along with our MD&A, it can be found in the Investor Relations section of our website at stella-jones.com and will be posted on SEDAR today as well. As a reminder, all figures expressed on today’s call are in Canadian dollars unless otherwise stated. I will first provide a business — I will first provide a business update and overview of our quarter before turning the call over to Silvana to review our results in greater detail. After which, we will open the floor to your questions.
So let’s get started. Headline in Q3 is Stella Jones’s delivery of another robust quarter and strong results, demonstrated chiefly by the growth in our infrastructure-related products, but also by the normalization of residential lumber sales. Our sales increased by 24%, driven by all product categories. We generated a significantly improved margin over last year’s comparable period and maintained a solid financial position.
This stellar performance is owed in large part to our networking team, and I want to thank them for their contribution to these results. In addition to these strong fundamentals, our contractual sales agreement structure continues to provide us with the ability to pass through cost increases and deliver steady margins, which is especially impactful in the current inflationary climate.
Demand for our products remains vigorous, particularly in the utility pole product category, which continues to see strong volume growth. The demand is magnified by utility companies investing heavily in their networks, not only in regular maintenance programs, but with increased infrastructure spend allocated to build new and stronger lines and from the expansion of broadband networks.
Our long-standing relationships with leading utilities across the continent, combined with our second-to-none procurement and logistics capabilities allows us to continuously ensure certainty of supply through timely shipment of high-quality products under a wide area of circumstances. For instance, in the aftermath of Hurricane Fiona touching down on Atlantic Canada, hundreds of thousands of homes were left without power. Our team in Truro, Nova Scotia was at the ready to support power restoration efforts.
They were aided by our crews in Quebec and Ontario, who lend the systems by shipping additional poles to meet demand via various logistic partners, including our new owned in-house transport provider, Timberland Express. This is a finding example of the strength, reliability, and rapid response of the Stella-Jones expansive network and how they can be mobilized to restore essential services to communities affected by emergency and natural disaster situations. In sum, ensuring certainty of supply builds trust.
As utility companies are increasingly looking for long-term supply commitments with reliable partners, we believe the breadth and strength of our continental network businesses Stella-Jones to be a preferred long-term supplier to North American utilities.
Moving on to railway ties. The market indicators are putting towards improving demand with projections from the Railway Tie Association calling for a 1.1% volume increase in 2023. Total rail traffic has been trending down lately in comparison to last year. We also observed that the ongoing use of the network over time will generate a need for maintenance and repair.
On the supply chain front, although we are still noting tightness in the procurement of untreated ties, I am pleased to report that year-over-year data shows improvement. Though not at historically high levels, the incoming trend has been positive in recent months.
We are still observing increased pricing in untreated ties, which combined to inflationary pressures will result in further price increases to our customers over the coming quarters. As a leading purchaser and manufacturer of railway ties across North America, we are grateful to be able to depend upon our team’s expertise as well as its ability to leverage well-established relationships with our sawmill partners.
This helps us navigate through these challenging procurement conditions. Industrial Products is a third product category in our infrastructure portfolio and is [ very ] deserving of acknowledgment and its steady contribution to our business.
Currently, we see good demand for new infrastructure projects, maintenance for rail bridges and crossing as well as marine pilings. Not only do industrial products deliver additional value to our rail customers, but they also make alternate logs obtained in our procurement process for utility poles to support the construction industry. As such, this category is a fully integrated addition to Stella-Jones’s infrastructure offering.
With regards to residential lumber, we are pleased with the solid market demand for our products during the third quarter, which allowed us here again to deliver strong results. More importantly, for residential lumber, we managed our inventory position, procurement and sales in an efficient and proactive manner.
This enabled us to capitalize on market conditions and make certain purchases when costs were advantageous. We concluded the seasonally strong period in a much better inventory position this year compared to last. So far in the year, the performance of our residential lumber business has exceeded the expectations set forth in our 3-year plan as it benefited from above-normalized pricing levels in the first half of the year. Subsequent to quarter end, we completed the acquisition of the wood pole manufacturing business of Texas Electric Cooperatives Inc., or TEC in Jasper, Texas.
This acquisition adds a 43rd facility to our North American network and enhances our product offering in Southern Yellow Pine while expanding our capacity to meet the growing needs of the utility pole industry. I would like to welcome all TEC employees to the Stella-Jones family and look forward to continuing to build on TEC’s long-standard partnerships as we begin supplying the cooperative utility customers with pulls for the infrastructure and maintenance projects.
As a business, Stella-Jones understands the impact of its activities on the world and recognizes that integrating environmental, social, and governance best practices into all facets of its operation is crucial in maintaining our planet’s health and our long-term success as a company.
With this, I’m pleased to say that we issued our 2021 ESG report on October 26 and is now available in the Investor Relations section of our website. The report highlights the advances we made as an organization on our commitments to continuous improvement across our 4 ESG pillars, which are our people, environmental commitment, product stewardship, and governance principles.
We are dedicated to continuously improving our sustainability and health and safety practices through learning, training and data collection. This increased focus on knowledge will allow us to know better and do better as a business. We are pleased with our performance so far in 2022. And looking forward, we are confident in our ability to obtain the financial objectives set forth in our 3-year plan at the start of the year, including our commitment to continue to return capital to shareholders as evidenced by this morning’s announcement of our new 2022, 2023 normal course issuer business.
We remain confident in our ability to sustain strong free cash flow generation and maintain a solid financial position that will allow us to continue investing in our network with capital expenditure projects to increase capacity for utility poles and enhance operational efficiency through automation, all while seeking strategic acquisitions. In summary, the power of our business model and extensive network is reasserted by our enduring resilience in the face of an inflationary climate and challenging supply chain conditions. This, in addition to our proven ability to meet customer demand, favorably positions Stella-Jones to create value for shareholders. In closing,
Stella-Jones is more than ever building on its strong fundamentals, and we look to the future with confidence. Our robust performance is a testament to our business strategy and a rigorous execution has positioned us as a leading North American provider of infrastructure-related treated wood products and a strategic supplier of residential lumber to big box stores and retailers desiring a strong value-added partnership. I look forward to providing the status of the progress made in the achievement of the company’s financial objectives next March, once we will have completed the first year of our 3-year plan.
I will now turn the call over to Silvana for a review of our financial results.
Silvana Travaglini
Thank you, Eric, and good morning, everyone. During the quarter, Stella-Jones generated sales of $842 million compared with $679 million for the same period in 2021. Excluding the contribution from the acquisition of Cahaba Pressure and Cahaba timber and the favorable effects from currency conversion, together totaling $34 million, pressure-treated wood sales increased by 20% compared to last year driven by all product categories. Sales attributable to infrastructure-related businesses, namely utility poles, railway tie, and industrial products grew by 15% and residential lumber sales increased by over 30% compared to the lower sales experienced in the same period last year.
Looking at results by product category. Sales of utility poles amounted to $331 million in the third quarter, up from $256 million last year. Sales rose organically by 19%, driven by higher pricing in response to cost increases. The continued growth in maintenance and project-related demand was largely offset this quarter by lower volumes for fire-resistant drop poles compared to the same quarter last year.
Railway tie sales reached $199 million this year versus $179 million in 2021. Excluding the currency conversion effect, sales increased by 8%, mostly due to favorable selling price adjustments to cover higher fiber costs. This growth was partially offset by reduced maintenance demand of certain current line customers. Residential lumber sales totaled $226 million, up from $170 million last year.
Excluding the currency conversion effect, sales increased $54 million or 32% due to higher sales volume compared to a weak demand quarter last year. Industrial Products sales were $40 million, up from $32 million in 2021, largely due to higher volumes related to bridge and crossing projects as well as marine pilings. Finally, logs and lumber sales amounted to $46 million, up slightly from $42 million a year ago, reflecting variations in lumber trading activity.
Turning to profitability. Gross profit was $139 million in the third quarter of 2022 versus $82 million in the corresponding period of last year. As a percentage of sales, gross profit margin was 16.5% this year compared to 12.1% last year. The increase in gross profit dollars and margin reflects higher results across all pressure-treated wood product categories.
The improvement in gross profit margin was more significant in residential lumber as last year’s performance was affected by higher fiber costs, a significant market-driven price decline, and lower demand led by the strong growth of our infrastructure-related sales as well as the higher residential lumber sales compared to the third quarter of 2021, Stella-Jones generated EBITDA of $119 million or a margin of 14.1% this quarter, up $50 million compared to EBITDA of $69 million or a margin of 10.2% last year.
The net income for the quarter was $65 million or $1.07 per share compared to $34 million or $0.52 per share last year. Earnings per share was positively impacted by the company’s ongoing repurchase of shares through its normal course issuer bid. Turning to cash flows. Operating activities generated $193 million this quarter versus $225 million last year. During the quarter, we used the cash generated from operations to repay the remaining indebtedness related to the seasonal investment in working capital in the first quarter, invest $23 million in capital expenditures, acquired transportation assets for $8 million, paid $12 million in dividends and repurchased shares for $59 million.
As of September 30th, the net debt-to-EBITDA ratio was 2.3x, and we had $338 million of liquidity available under our credit facilities. Subsequent to the end of the quarter, we amended our syndicated revolving credit agreement under which the amount available was increased from $325 million to $400 million, demonstrating our lenders’ confidence in our ability to execute our plan and grow the business. We are pleased with our strategy to minimize the impact of rising interest rates on our financing costs.
As of September 30th, 80% of our debt was at a fixed rate, which provides the company additional cash flow stability. Yesterday, the TSX accepted our notice of intention to proceed with the new NCIB program. By virtue of this program, Stella-Jones is authorized to repurchase up to 5 million common shares, representing approximately 10% of the public float.
These repurchases will take place over a 12-month period ending November 13, 2023. Considering the shares repurchase up to this day, Stella-Jones has bought back all 5 million shares under its 2021-2022 normal course issuer bid at an average price of $38.26 per share for a total consideration of $191 million.
On November 01, we concluded the acquisition of substantially all the assets of the wood utility pole manufacturing business of Texas Electric Cooperatives for a total consideration of $28 million plus inventories of approximately $4 million. TEC’s wood pole sales for the year ended December 31st, 2021 totaled $28 million. Finally, the Board of Directors declared a quarterly dividend of $0.20 per share payable on December 16th, 2022, to shareholders of reference at the close of business on December 1st. This end — this marks the end of our prepared remarks.
I will now turn the call back to the operator for Q&A.
Question-and-Answer Session
Operator
[Operator Instructions]. Your first question comes from Walter Spracklin from RBC Capital Markets.
James McGarragle
This is James McGarragle on I’m up for Walter this morning. Congrats on the fourth quarter. I just wanted to ask a question on the outlook for utility poles. Obviously, there’s been some very strong performance year-to-date. Now I was listening to your peers’ conference call last week, and they noted that pull demand has never been stronger. Do they expect this to continue into 2023. And with that $120 billion that’s earmarked from the infrastructure bill, what upside could we see to your pull guidance into 2024?
Eric Vachon
So James, well, thank you for the question. When you think about our 3-year guidance, we had indicated to the market a high single-digit growth. And obviously, we’re going to be exceeding that this year. It’s been a great start to our 3-year plan in achieving our goals, where we’re more or less in the 20% range at this point in time. Looking into coming years, I would say that our high single-digit growth would continue to apply and what we will be achieving this year. As a reminder, our initial guidance did not include any aspects or impacts, if you want, of the infrastructure build.
James McGarragle
Okay. And another question. There’s been some issues with certain companies. And again, you had alluded to this in your prepared remarks, accessing untreated ties, which has been a challenge across the industry. I guess do you see any advantages from your scale and your procurement capabilities to drive above-industry growth? I know your peers guiding to growth above industry trends in 2023. Due to this market dynamic, and I was just wondering if your team is expecting something similar into 2023.
Eric Vachon
Yes. So our guidance is in the low single digits. So I guess would be comparable to what you just stated. I have a very high level of confidence in our procurement team and their ability to find their products in the market. We have a network that spans North America, and we deal with a very large number of sawmills across the continent. So if there are ties for sale, we’re looking at them, and we’ll have the opportunity to procure them. So to answer your question, if we do see the continued inflow that we’re seeing right now with [ TIDAL ], we will be able to set up our inventory and be able to take advantage of market opportunities.
James McGarragle
Okay. That’s it for me. Congrats on a great quarter, and I’ll turn the line over.
Operator
Your next question comes from Hamir Patel from CIBC Capital Markets.
Hamir Patel
I think you mentioned a figure of a 1.1% volume increase expected for next year on the rail side. Are you able to provide any more visibility on what the rail — some of the specific rails were saying at the RTA conference about volumes for next year and maybe any differences between Class 1 and Shorelines?
Eric Vachon
Yes, certainly. So the 1.1% was quoting the Reality Association data, which you would probably don’t have access to. At the RTA conference itself from recollection, 4 Class 1s presented and there was an indication about 1 million additional ties in the plan for next year. With regards to the commercial business, we’re still seeing some healthy demand and request for bids on an ongoing basis at this point and we’re quoting into next year. So definitely some nice opportunities there. And it will all come back to the availability of untreated ties to be able to address those demands.
Hamir Patel
Great. And just on the res lumber business, what potential implications do you see from Lowe’s selling Lowe’s Canada? I know that’s not a direct partner for you, but do you see any maybe opportunities as some of that dealer network migrates elsewhere?
Eric Vachon
So you’re exactly right that we’re not exposed to the relationship with Lowe’s Canada. So for now, I see it pretty neutral. My understanding is that Sycamore partners who acquired Lowe’s Canada has the intention of operating the business. It’s going to be headquartered here in Quebec out of Boucherville. And my understanding is that they’re going to run the business and keep growing it.
So for me, it’s pretty much neutral. I think we’ve — if I look at our customer list in residential lumber, I think we’ve got the right partner that appreciate the value-added service that we bring them and the continued supply of the product mix. So I’m still very optimistic about our relationships with our customers and our ability to grow market share in the future.
Operator
Your next question comes from Benoit Poirier from Desjardins Capital Markets.
Benoit Poirier
Yes. Congratulations for the strong quarter. Yes. Just with respect to the strong organic growth we achieved for railway tie and utility pole, how much of the organic growth was driven by price increases?
Eric Vachon
So obviously, for 2 parts of the answer. So for utility poles, price increases, the trend is about for about 70% on pricing. And for railway ties, it all on pricing, but our volumes are actually slightly below last year.
Benoit Poirier
Okay. Perfect. And related to utility pole due to the damages caused by the Hurricane Fiona, you mentioned the opportunity to replace poles in Nova Scotia. How much of the boost did it represent in Q3? And any potential impact for Q4?
Eric Vachon
So we — Stella was pleased to be able to support those efforts. There was Nova Scotia. It was [ Telenav ], it was it a [indiscernible]. So several regions got impacted by the storm. I can’t say that there’s a very strong positive impact, Benoit, because when these events happen, the regular maintenance doesn’t occur. And on top of it, you usually have neighboring utility companies sending their crews over to support the rebuild of the infrastructure so that even depresses a bit the maintenance in those areas. So there might be a slight advantage.
But I think as far as revenues, and it’s not worth necessarily having a long discussion about, but what it does do is demonstrate to our customers and utilities across North America, the ability for Stella-Jones to be able to step up in these situations. And that’s — it’s our word. It’s our commitment to our customers, and it’s what makes Stella-Jones the great name that it is.
Benoit Poirier
Okay. And just for you to people, hike we’ve seen a lot of projects for broadband network. We’ve been talking about Ontario. Any color about the size of those projects and maybe the timing? Have we started to see some impact? Or is it more skewed towards 2023 and beyond?
Eric Vachon
So the great growth we’ve seen in utility pole this year is definitely helped by the demand for broadband projects. So we are seeing products being initiated. We have some sales that are related to that, that have started this year, and we’ll be going on for the next several years from what I can see. We’re also starting to see some infrastructure spend coming through our customers talking about it, which is very positive news. Difficult to quantify, Benoit, because it’s often intermingled with the maintenance piece of it. So we do know that there’s bigger demand because we need to at polls in certain regions.
But in other cases, the broadband expansion goes through the existing networks, and then there’s hardening of the grid with a change out of certain bullets just to make the infrastructure more stronger because of all the loads that the polls hold. So we — right now, it’s difficult for us to quantify. Maybe over time, we’ll be able to give more precise guidance. But for now, I guess all I can guide you to is that it is contributing to this 20% growth organic growth that we’re seeing in utility poles.
Benoit Poirier
Okay. That’s great color. And any color on what drove the lower volume for fire-resistant wrap poles during the quarter?
Eric Vachon
That’s essentially timing, Benoit. Our West Coast customers are currently doing some maintenance in areas that don’t necessarily require them. And when you compare to last year, which is the comparison, we had one customer spike up their demand as they were ramping up on the installation of those products. So the year-over-year a bit of a compression, if you want. But for the full year, there’s no change in that 10% of our total sales, if you want.
Benoit Poirier
Okay. And last one for me, just in terms of free cash flow, any color [ now ] on the typical working cap build-up, we might see in Q4? Last year, there was about $38 million working capital changes. So any color on the working cap and maybe an update on the CapEx expectation for ’22, ’23, whether there’s any changes?
Silvana Travaglini
Yes. So in terms of the working capital, so we would — we’re pretty much forecasting in Q4 modest investment in inventory. So I would say pretty consistent what you saw — what you noted in terms of last year, I think is a good estimate. In terms of the CapEx, we mentioned that with the growth CapEx that we would be closer to $100 million this year, we might be a little bit shy of that this year. There are some of those investments that might get pushed out into the earlier into next year, so in Q1. So that might be just a lag there in terms of the investments this year. But overall, in line, as we have mentioned, pretty much front-loaded that additional growth CapEx in the first 2 years, so end of this year and most of it into next year.
Operator
[Operator Instructions]. Your next question comes from Michael Tupholme from TD Securities.
Michael Tupholme
First off, Eric, just a clarification. The multiyear guidance you had given and the growth that you talked about over that multiyear period for poles and ties, did that include assumptions around pricing gains?
Eric Vachon
Yes, it was a combination, Michael, on pricing and volume.
Michael Tupholme
Okay. So if we look at poles, for example, I think you mentioned — we can see in the results and you mentioned earlier in the call, up 20%, and that’s obviously in excess of the high single-digit growth you were calling for. So is this just a situation where early on in that multiyear period, the pricing gains are stronger than you were forecasting in that multiyear guidance?
Eric Vachon
Yes. That’s exactly it.
Michael Tupholme
Okay. And so as we look forward, how should we think about future pricing gains, I guess 2 parts to that. One, maybe you can talk about what’s happening with the underlying input costs and whether you’ve continued to see escalation if you forecast further escalation, which will obviously necessitate additional pricing gains? And then there’s usually a catch-up here as well. So even if the input costs have stopped rising, you’re going to continue to see gains for a little while, while you get that catch-up. So can you just talk about where you’re at, what’s happening with input costs and how much longer we should expect to see these kinds of pricing gains going forward?
Eric Vachon
Yes. So as you mentioned, this year was quite exceptional with inflationary pressures and costs on fiber, and that drove a lot of — or drove a big part of the price increases. We continue to see inflationary pressures, but I think it’s stabilizing to some extent. So that high single-digit that we’re guiding again over this year’s growth would have that mix of what we’re expecting for volume and pricing.
Michael Tupholme
Okay. So the expectation would be going forward into next year, we get back in the ballpark of what that original guidance was looking for.
Eric Vachon
Yes. That’s where our guidance is for now.
Michael Tupholme
And same thing with ties, Eric?
Eric Vachon
Correct.
Michael Tupholme
Okay. And then can you talk a little bit about the margin expectation? I know you reiterated the multiyear guidance, but obviously, you want to capture these price increases to offset rising costs, but there is some pressure on the percentage margin as that continues to occur. So how do you feel about the multiyear guidance of 15% margins given all of the pricing increases to offset these rising costs?
Eric Vachon
It’s a good question. We remain focused on that 15% target, Michael. There’s no reason why we can’t achieve it. Different product categories have — and different customers have different contract features. So there’s some opportunities there. Sales that are not under contract, so we have them in ties and poles, which are just contractor or request for bids, does give us the opportunity to command better margins, I would say, simply because of the railway tasks, for example, the tightness of supplies enables us to ensure that we preserve the margin. So we’re confident and have not changed our views on that margin percentage.
Michael Tupholme
Okay. Maybe 2 more here. On the poles front, in the quarter, it sounded like most of the gains were pricing driven with the fire-resistant decline offsetting whatever volume growth you would have seen in other parts of the poles business, but you did sound pretty constructive on the outlook for demand and volume growth in poles. It seems like a fairly meaningful drag, I guess, from the fire resistant, but that’s purely a timing issue. And you think going forward, we should see volume growth contributing to the overall organic growth in poles as well?
Eric Vachon
Yes. Our assumption in our guidance was a 50-50. If I — if I recall, I know it was a 50-50. That mix can swing obviously, it could be 40-60, but definitely volume is part of the business growth as we’re seeing customer demand for next year being set up. Customers are looking for long-term relationships as well, as I mentioned in my prepared comments, we’re seeing a lot of our utility customers looking with long-term outlooks as they’re willing to secure our supply capabilities to be able to execute on their infrastructure projects.
Michael Tupholme
Okay. Perfect. And then just lastly, the acquisition you announced, any more details around what you’d expect that to contribute in terms of revenue and maybe capacity at this particular facility?
Eric Vachon
Yes. We — I think we mentioned in our prepared notes and as well in our documentation. Canadian dollars, is, call it, CAD 35 million. That’s our starting point. There’s obviously opportunities for us to go out in that market and seize other opportunities. Each time we get a new production facility, we look at the orders in the books. We shift things around.
We try to optimize capacity and try to go out in that market and then see more opportunities. So that’s the challenge for my team is to go out and exceed, I guess, the prior owner’s performance. But let’s say our starting point is at CAD 35 million. And well, we have it out in MD&A. So you’ll be able to see it in the coming quarters how we were doing off of that benchmark.
Operator
Your next question comes from Maxim Sytchev from National Bank Financial.
Maxim Sytchev
I had a quick question in terms of — I know that you’re spending time right now thinking strategically in terms of potential additional services to be added conversations with clients. I’m just wondering if you had any progress and if anything, you could share [ to public ].
Eric Vachon
So our discussions with the Board are presently focused on expanding our products and services for our rail and utility customers. We’re privileged to have this world-class list of customers that acknowledge this particular case [ Stella-Jone’s ] ability to be able to service and provide products. Ongoing discussions with them demonstrate that there would be some interest for us to be able to support them further. So it’s an ongoing discussion with the Board. Now it’s really for us to identify what are those opportunities that fit well with our business model, our distribution networks and what efficiencies or synergies or new business or new business that [ Stella-Jones ] could bring to a new business.
Maxim Sytchev
Okay. And I guess is there a time frame or it’s more trying to find the right opportunity more than just trying to accelerate the growth?
Eric Vachon
So there’s no set time frame. We’re very cautious and thoughtful about how we’re — what targets we want to approach. And don’t lose sight of the fact that we’ve got a very strong organic growth in our core businesses right now, and we should not lose focus on it. The growth that we’re forecasting, for example, in utility pole, but I would argue also for railway in the coming years is demanding obviously more logistics, more CapEx investments that we’ve announced.
The team is like fully focused on it. So I don’t want us chasing shiny things right now if we have a good business to operate and ensure that we maintain our leadership position. But that being said, still very interested in expanding our offering to our customers because I think there’s a strong opportunity there.
Maxim Sytchev
Right. Yes. Makes a lot of sense. And I’m just wondering, as a lot of companies talk about supply chain, labor issues. I was wondering if there’s an update on that situation if we’re over the hump on that side. It certainly feels like this.
Eric Vachon
So on the labor front, it still remains — it still remains a day-to-day challenge to define new employees with proper qualifications and understanding of concepts of health and safety and how to operate in an industrial environment. Then there’s also the retention aspect as employers in the geographies where we’re located are feeling the same stress. So there’s a bit of competition here on base wages for employees.
So we’re always mindful of that. We’re very relatively well, I would say, but we’re also compensating with over time, for example. So that’s on the employee front. On the product front, we discussed the railway tie a few minutes ago. So that’s were a function of market dynamics, and we — but it is trending in a positive way. And so there’s no such stress, I guess, on utility poles other than the fact that we’re growing our business year over year over year.
And every year, our procurement team is challenged to get so many more millions of cubic feet to be able to sell into the network. But that has been the case for the last 5, 6 years as we’ve been growing volumes. But to say there’s breakage in the supply chain, I would disagree with that.
Maxim Sytchev
Okay. That’s great. And then my last question, just in terms of the residential lumber. Maybe do you mind providing a bit of color on contractors versus DIY their approach? And maybe just a quick comment in terms of your comfort around your inventory position in that business.
Eric Vachon
Yes. Our volumes through the third quarter were very good, actually. And it is demand from the contractors and the do-it-yourselfers or the homeowners. So from my understanding, contractors are still busy and are quoting into the first part of next year. So there is ongoing demand. That demand is obviously by R&R, restoration and renovation. A lot of homeowners wanting to enhance the outdoor experience or try to expand their — the paths of the 3 seasons instead of the summer season. So we’re still seeing in talking to our customers, a lot of interest from the homeowner standpoint. So I think that is a good indication.
There’s also a potential tailwind or sustained demand from housing starts that we saw in the last 18, 24 months. The brand-new houses usually come with smaller barbecue decks. And after a few years, the homeowners will turn to the outside and think about defensing in the ticking. So I think the dynamic is still healthy there. As far as the inventory position, we’re sitting very well today.
We weathered another cycle in the first half of this year on market lumber prices very well. Our average costs are exactly where they need to be, and they have most of most of the year. The team has done an exceptional job managing it. So we’re now building for the season next year. Market prices are relatively attractive compared to the previous years. And we’re following our customers’ guidance there as far as how to build next year’s season, but I’m relatively optimistic of another good season for 2023.
Operator
Mr. Vachon, there are no further questions at this to. Please proceed.
Eric Vachon
Well, thank you very much, operator, for your assistance today. And thanks, everyone, for joining us this morning. We look forward to speaking with you again at our year-end call in March. Have a great day.
Operator
Ladies and gentlemen, this concludes your conference for today. We thank you for joining and ask that you please disconnect your lines. Thank you.
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