Stella-Jones' (STLJF) CEO Brian McManus on Q3 2017 Results - Earnings Call Transcript

|
About: Stella Jones Inc. (STLJF)
by: SA Transcripts

Stella-Jones Inc (OTC:STLJF) Q3 2017 Earnings Conference Call November 3, 2017 10:00 AM ET

Executives

Brian McManus – Chief Executive Officer

Eric Vachon – Chief Financial Officer

Analysts

Mark Neville – Scotia Bank

Mona Nazir – Laurentian Bank

Walter Spracklin – RBC

Leon Aghazarian – National Bank Financial

Michael Tupholme – TD Securities

Brian Pow – Acumen

Justin Keywood – GMP Securities

Benoit Poirier – Desjardins Capital Markets

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Stella-Jones' Q3, 2017 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Following the presentation we will conduct a question-and-answer session. [Operator Instructions].

Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Friday, November 3, 2017.

I will now turn the conference over to Brian McManus, President and CEO. Please go ahead.

Brian McManus

Thank you. Good morning, ladies and gentlemen. I'm here with Eric Vachon, Chief Financial Officer of Stella-Jones. And thank you for joining us for this discussion of the financial and operating results for the Company's third quarter ended September 30, 2017.

Our press release reporting Q3 results was published earlier this morning, our MD&A for the quarter has been posted on website at www.stella-jones.com and on SEDAR. Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated.

Stella-Jones’ growing reach in the utility pole and residential lumber market more than offset the effect of lower year-over-year pricing in the railway tie category. Additionally we significantly reduced our long-term debt as we generated a strong operating cash flow.

Total revenues for the quarter amounted $517.6 million, a 1% increase over the same period last year. The contribution from acquisitions was approximately $2.1 million, while fluctuations in the exchange value of the Canadian dollar had a negative impact of $9.9 million on our U.S. dollar denominated sales. If we exclude these factors, sales increased by $12.9 million, or 2.5%.

In a moment Eric will provide further details on our financial performance. Looking at our results by product category, railway tie revenues as I mentioned was negatively affected by lower year-over-year pricing. Sales amounted to $160.8 million, a decrease of $13.8% from last years third quarter. If we exclude the currency conversion effect, railway tie sales declined approximately $21.7 million, or 11.6%.

Utility pole sales reached $172.5 million, a 7.8% increase over the same period last year. If we exclude the sales from acquisitions and the currency conversion effect, revenue increased approximately $14.4 million, or 9%. This organic growth reflects our improved reach in the southeastern United States as well as a gradual return to historical maintenance demand.

Turning to the residential lumber category, sales reached $125.8 million during the quarter a 17.2% increase over last year. Excluding the currency conversion effect, revenue from residential lumber increased by approximately $20.2 million, or 18.8%. The improvement stems from higher selling prices due to increased untreated lumber costs and more favorable weather conditions in Canada during this years third quarter compared to those of last year, which led to increased outdoor renovation work by customers.

In the industrial product category sales amounted to $25.6 million a decrease of 6.9% from last year. The variation was principally due to lower sales of marine pilings in Canada, partially offset by higher sales of rail-related products in the United States.

Turning to logs and lumber, sales totaled $32.9 million, an increase of 5.1% over the third quarter of 2016. The difference will reflect the timing of lumber purchase and resale activities, the timing of timber harvesting, as well as higher selling prices due to increased lumber costs.

During the quarter we continued to progress in regard to optimizing plant operations and logistics while leveraging the efficiencies of our expanded network in the U.S. Southeast. Stella-Jones is increasingly well positioned in that region and we are seeking to capture additional sales synergies in our main product categories.

Eric will now take a more detailed look at the Company’s third quarter results and financial position. Eric?

Eric Vachon

Thank you, Brian. Gross profit for the third quarter of 2017 totaled $83.6 million or 16.1% of sales versus $93.3 million or 18.2% of sales a year ago. The decrease as a percentage of sales mainly reflects lower selling prices for railway ties and a less favorable geographical mix in the utility pole category.

As a result of the reduction in gross profit, operating income amounted to $63.1 million or 12.2% of sales compared with $67.3 million or 13.1% of sales last year. Net income for the quarter amounted to $42 million or $0.61 per diluted share versus $45.7 million or $0.66 per diluted share last year.

As Brian mentioned Stella-Jones generated a solid cash flow during the third quarter, driven by normal seasonal working capital variations cash flow from operating activities amounted to $175.5 million compared with $127.8 million last year.

This strong cash flow was mainly used to reduce long-term debt, which stood at $454.1 million including the current portion as at September 30, 2017 down from $615.8 million three month earlier. Since the beginning of 2017, Stella-Jones has reduced its long-term debt by $206.6 million.

As a result the ratio of total debt to total capitalization reached 0.30:1, as of September 30, 2017 down from 0.37:1 three months earlier and 0.40:1 at the beginning of the year.

Finally, the Board of Directors of Stella-Jones declared a quarterly dividend of $0.11 per common share payable on December 21, 2017 to shareholders of record at the close of business on December 4, 2017.

I turn the call back to Brian for the outlook.

Brian McManus

Thank you, Eric. Looking ahead Stella-Jones should conclude 2017 with slightly higher sales compared to the last year.

We also anticipate demand for our core products to remain healthy into the new year. In 2018, we expect relatively stable sales in the railway tie category. As traffic on North American railroads has grown in 2017, we anticipate continued investment on the part of operators, contract maintenance and upgrade. Our margins in this category will likely continue to be affected by softer market pricing during the first part of the year.

In the utility pole market, continued strength in distribution pole maintenance requirements and improved transmission pole demand should yield increased sales for this product category.

In the residential lumber category, we expect continued growth as our product offerings steadily gains recognition in this important market. Internally, management will continue to ensure efficient and cost effective operations. We’ll be investing in working capital in our existing network to support growth opportunities, while maintaining an optimal dividend policy.

In regards to our continental expansion plans, we remain on the lookout for appropriate acquisition. Supported by our strong cash flow generation, and a prudent of use of leverage We will continue to pursue our disciplined expansion strategy. We believe Stella-Jones track record in achieving maximum efficiency from its initiatives will create further value for its shareholders.

Eric and I will now be pleased to answer any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Mark Neville of Scotia Bank. Please go ahead.

Mark Neville

Hi good morning guys.

Brian McManus

Good morning Mark.

Eric Vachon

Good morning.

Mark Neville

Still a margin guidance, I believe last call for 2018, you were sort of loosely or roughly guiding to 15% to 15.5% EBITDA for 2018. I believe this year was 13% to 13.5%. The language now is slightly improved for next year. So I'm just trying to get a sense of – are you trying to talk us down a bit or maybe I am misreading too much into it or is those ranges are still what you're thinking.

Brian McManus

I think probably to the lower end of that range, Mark we would be more comfortable with. As we move in, I think we're still feeling a bit of pressure on the tie side I think. On the utility pole side we are seeing demand increase there.

I think the mix will shift a bit as we go into 2018, which will help improve things. So I would be more comfortable to the lower part of that range as we progress through 2018.

Mark Neville

Yeah, and I guess just on the pricing on the ties, it's been over four quarters now roughly. I’m just trying to get a sense of how many more quarters, you sort of faced pricing headwind roughly, is it another one or two or three or…

Brian McManus

I suspect probably about the first half of the year. And just to clarify, some of the pricing, the reason it's coming down is just totally reflective to the contractual agreements we have with our Class 1 rail roads, which is just lower input cost and we're working through our inventories to bring our cost coming down.

I think I am more referring to what we're seeing in the non-Class 1 markets and that's more regional. I think we're starting to see it slowly improve as inventories become more inter-balanced and that's why we're expecting that as we progress through 2018. That should start to improve.

A lot will depend also on procurement in the first half of 2018 in terms of what the availability out there and how does that reflect in terms is there going to be a tightening or will it be normal. So we're just being cautious.

Mark Neville

And I guess as you lap that and you get to the second half, do you see a benefit in pricing or is it sort of year-over-year it is just flattish.

Brian McManus

I think where the pricing will return to more normalized levels will be in the non-Class 1 business. And the back-end of the year is really where we're expecting to see some improvements.

Mark Neville

Okay, but again sort of normal it is not like you getting a big bumps in the back half from pricing on a year-over-year basis.

Brian McManus

I wouldn’t say that at this point in time. I don't really see that.

Mark Neville

Right and then just lastly I guess on the residential, I'm just trying to get a rough idea of the split between volume and pricing in the quarter. It is some pretty impressive growth.

Brian McManus

I would say roughly about 60% pricing and 40% volume.

Mark Neville

Okay, and so it is still, I guess some pretty healthy volumes

Eric Vachon

No, it was definitely healthy volumes, that is for sure.

Mark Neville

Okay, I will leave it. I will get back in queue. Thanks.

Brian McManus

Thanks Mark.

Operator

Your next question comes from the line of Mona Nazir from Laurentian Bank. Please go ahead.

Mona Nazir

Hi, good morning and thank you for taking my questions. I just wanted to clarify on the last question when you sad that you would be at the lower end of the range for margins was that expectation 15% potentially exiting 2018.

Brian McManus

Correct.

Mona Nazir

Okay. And I just wanted to turn to leverage. We saw significant step down in leverage on a sequential basis. I know that some seasonality may play into it but I'm just wondering if you could comment on the M&A outlook, area that look attractive, if multiples aren't keeping with historic levels or there is any change there? Thank you.

Brian McManus

We would certainly continue to be disciplined in our approach and I would say we are starting to see some opportunities queue up maybe it is the right way to put it. So I would say we do, we're constantly looking for opportunities but I would say that there are some that are getting closer to the happening. So we're pleased with our cash position and our ability to certainly act of them without having to take on too much leverage.

Mona Nazir

Okay. And I think on the last call or maybe the call before you had touched on potential target in the pole segment that still remains fragmented for you. And also some additions on the tie side potentially, does that still hold through?

Brian McManus

Yes, it would have hold through across all of our product categories actually we are patiently waiting for the right opportunity and we are looking at all categories.

Mona Nazir

Okay, perfect. Thank you, I’ll step back.

Brian McManus

Thanks, Mona.

Operator

Your next question comes from the line of Walter Spracklin of RBC. Please go ahead.

Walter Spracklin

Thanks very much, good morning everyone.

Brian McManus

Hey, Walter.

Eric Vachon

Good morning.

Walter Spracklin

So starting on the Boatright, lastly with Norfolk Southern I know this is an acquisition of asset, acquisition of yours back in 2014 in the ties and question are for the time prior to that. So my question is just to confirm, I didn’t see you named at all in the lawsuit or anything like that but this is a very separate case in that by acquiring these assets, you don’t have any real, legal risk or liability and just kind of a crawler to that do you think you have any reputational liability or are you fairly divorced from the way things were run before you bought it in the way it was run afterwards?

Brian McManus

Well, I would say it's definitely, I can't comment on how it would run before but I would say since the date we took over it is certainly been run under the Stella-Jones way of running facilities. And we definitely stand by the quality of the product that we produced at all of our facilities. So I think are you asking me, am I happy about the alleged practices that took place, certainly not it may leave a bit of a stain on that particular facility. But we hope that our clients recognize that Stella-Jones does not operate that way and since acquiring the assets I can guarantee you we certainly would not engage in any type of behavior.

Walter Spracklin

I did speak to Norfolk Southern on that may confirm that so just want to make sure though on the – in the dealings with them since then there's been no carryover reputational impact on your – they're not holding that against you at all in any way with regards to using those facilities going forward, is that fair?

Eric Vachon

They're still purchasing from those facilities I guess is that that's the way to answer that and I can’t speak entirely for Norfolk Southern, we certainly feel for them I think it’s not good for our industry and we’ll stand by to help them any way we can.

Walter Spracklin

And on that helping them, 4.9 million ties is a lot of ties and I don't know how – I know that you are saying the degradation is a lot quicker than – than what they were hoping. Does that mean that we could see a kind of I guess my question is how quickly do you think you – how bad is it and how quickly do you think they're going to need to replace that those ties if it is as bad as they as feared?

Brian McManus

I really couldn't answer that Walter, I'm not sure I would say that's more a question for Norfolk Southern and they operate a very safe railroad so I'm sure they'll change them out as required. But I really can't speak to it…

Walter Spracklin

So it could be like an additional lift to your overall maintenance requirements in the tie purchases for you guys for enrolling?

Brian McManus

It's a possibility depending whether they increase their program it's difficult for me to answer that question. And certainly would not want to look like we are benefiting from the pains of one of our customers.

Walter Spracklin

Right, right, understand. That makes sense. Just switching over to poles obviously, there's good momentum you use the word, further momentum, you've had a good growth rate in poles here this year, if you look at what you did on an organic basis in poles. When you say further momentum, do you mean you think growth is going to accelerate or stay the same or still be high but maybe not as high as it has been in 2017 just want to understand what further momentum means?

Brian McManus

I think I would go with your term of maintaining the growth that we’ve seen.

Walter Spracklin

Okay, and how much is that weather-related, is this an extra lift you're getting from kind of some of the weather and hurricanes that we saw or is this just the replacement programs are picking up speed and that's what's really a play here?

Brian McManus

There’s a couple combinations that play, I think the first is certainly our growth that we've seen in the Southern U.S. where our acquisitions and our expanded network has benefited us from capturing more of that market. I think on top of that, you also have we're starting to see more maintenance demand happening across really all of North America, which is positively impacting us. In terms of the storms at this point in time, it's been really not material effect on aspect at this point, there may be some replacement to come in the months ahead. But I would say most of it's just related around both our growth and some industry group.

Walter Spracklin

Okay, all right. That’s all my questions. Thanks for the time.

Brian McManus

Thanks, Walter.

Operator

And your next question comes from the line of Leon Aghazarian of National Bank Financial. Please go ahead.

Leon Aghazarian

Hey, good morning, guys.

Brian McManus

Hey, Leon.

Eric Vachon

Good morning.

Leon Aghazarian

So just a follow-up on the poles question, how big of a component was in the transmission business, I mean we've seen that there's a pickup there. I think you've mentioned that in the past as well in the transmission side of the businesses is doing well. So just want to kind of get your view on the outlook on that segment and if that was one of the main drivers from poles?

Eric Vachon

Well, it was – it was definitely one of the drivers we saw both of them being seen an uptick, we don't normally divide it up by distribution and transmission except I can guide that both were up and pretty close actually.

Leon Aghazarian

Okay, and can you give us a bit of a color on the margin profile whether or not I mean you said the Southern side of the business which you spent some cash on and some time on in terms of developing that. Is the margin profile different in the Southeast as it is – as it and also for example from the transmission side and what would be the kind of the way to look at that?

Brian McManus

It is slightly softer in the Southeast and we've always said our transmission poles tend to be on the higher margin products. We're not talking enormous differences between the two, right. Yes, the Southeast would be the one that’s a little lower.

Leon Aghazarian

Okay, that’s great. And one question on the inventory side, I mean we did see quite a significant variation in the inventory levels, I understand that some of that’s obviously seasonal. But what would be your comfort in terms of the level of inventory you’d like for example at the end of the year and then on a going forward basis?

Brian McManus

Couple of things that play, of course in our inventories, one currency is definitely reduced the value of the inventory. We've also seen our wood cost come down on railway ties. So as we're replacing the ties that are going out, they are coming in, in a lower cost. That’s having a positive effect on – well, positive. It's bringing down inventory values. I would also say, we're probably a little low, right now and really that’s just to do with a strong pole on the residential side. We're seeing continued demand throughout the third quarter and we're going to be building that up as we move towards the end of the year.

Leon Aghazarian

So directionally I mean would you end – for example in 2016 versus 2017, you still expect that – I mean do you expect that to be a lower amount I guess is what, I’m just trying to gauge what…

Brian McManus

Yes, yes. We'll finish the year lower than we did last year. We expect it.

Leon Aghazarian

Okay. And a final one from me on the lumber side, I mean you did mention in the past, about the Home Depot USA pilot program, can you give us a bit more color on that in terms of where that is and what potential that could have? Thanks.

Brian McManus

It's progressing well. I can tell you that. We’ve started I think now it's probably going on six weeks to two months programs when its plan it well. We really see the benefits of that next year for Tacoma facilities location. And beyond that it's hard to say at this point in time. I think we'll see how that works out and if it opens up further avenues of growth for us.

Leon Aghazarian

Thank you.

Brian McManus

Thanks, Leon.

Operator

Your next question comes from the line of Michael Tupholme of TD Securities. Please go ahead.

Michael Tupholme

Thanks, good morning.

Brian McManus

Hi, Michael.

Michael Tupholme

Brian, just back on the residential lumber, the split you gave in terms of the drivers to growth there 60% price, 40% volume. At what point do you start to face tougher comps with respect to pricing? So how many more quarters will you expect to be able to get some of the pricing benefits that you saw this quarter?

Brian McManus

I guess it really we started to see it mid-year of this year is where we started to see the uplift on the pricing side. So again it's really going to depend what happens in the first part of 2018, but I suspect it'll probably hold, so at least for the first part of the year.

Michael Tupholme

Assuming things hold at these levels.

Brian McManus

These type of, yes.

Michael Tupholme

Okay. That's helpful, thank you. And then on railway ties, Brian there have been some industry reports that I've come across that have suggested that due to the hurricanes in the U.S. that there was some flooding that may have made it difficult to access some of the hardwood forests for the sawmills on the tie side. Is that something that you've heard much better that, that you can talk to?

Brian McManus

I think that was sort of my bit of a question, Michael, out there when I was saying it will depend on how procurement goes in the first half of 2018 and there is a possibility that into certain regions we're going to see a tightening of the availability of logs. So that was really kind of what I was hinting at and for the reasons that you said there. But I think we'll have to see what happens in the coming months in terms of areas being able to dry out and whether access to – will be there in the months ahead.

Michael Tupholme

But right now there are possibly some access issues, just a function of how that evolves?

Brian McManus

Exactly.

Michael Tupholme

Okay. And then certainly go back to this, but it's been asked a couple of times, but I just want to be clear. On the EBITDA margin discussion for 2018, what I understood is you suggested to be more comfortable to lower end of the 15% to 15.5% range. I just want to clarify. Is that range for the full year 2018 or is that where you would expect to be exiting the year?

Brian McManus

Exiting the year.

Unidentified Analyst

Okay. That’s all I’ve got. Thank you.

Brian McManus

Super. Thank you.

Operator

Your next question comes from the line of Brian Pow of Acumen. Please go ahead.

Brian Pow

Good morning.

Brian McManus

Hi, Brian.

Brian Pow

Just a couple of things that sort of favorable weather that benefited residential in Q3. Is it fair to say some of that may have carried over in the Q4?

Brian McManus

That’s probably fair to say.

Brian Pow

Okay. Just looking at sort of your CapEx plans, I mean, you cleaned up your debt and have excess capacity there I’d say. But is there any reasonably you might look at greenfield opportunities versus doing any acquisitions?

Brian McManus

You know, our number one choice is usually to acquire before we build. And we don’t really have anything right now in the works we’re doing some expansion at one of our facilities in the Southern U.S. that would – I would say it’s qualified as almost a new plant, but it’s really just adding a cylinder at one of our facilities down in the South. But I’d say, there’s some opportunities out on the acquisition front that we’re purposely looking at and moving along.

Brian Pow

Okay. So now when we look out to 2018, what sort of CapEx number would you be guiding to?

Brian McManus

I think we’re going to be probably similar to where we are this year, maybe just a bit lower, I’d say somewhere between $30 million and $35 million.

Brian Pow

Okay, great. That’s all I’ve got. Thanks so much.

Brian McManus

Excellent. Thanks, Brian.

Operator

Your next question comes from the line of Justin Keywood of GMP Securities. Please go ahead.

Justin Keywood

Good morning. Thanks for taking my questions. I had a follow-up question on the acquisition opportunities. You mentioned seeing possibilities across all segments. Are you able to provide any additional colors on what type or geographic regions you could see these possibly on the residential size and if you're able to quantify these opportunities and all?

Brian McManus

I prefer not to at this time, Justin, until we’re sure that they're moving along. I can tell or quantify that they are going to be below $50 million in terms of the size right now on a couple of that we’re working. I prefer not to give more details at this time.

Justin Keywood

Okay, that's helpful. And then on the utility poles there’s been some increased chatter around – increased rates proposed, maybe in the higher risk wildfire regions. Are you able to comment if you're seeing any of this translates to increase the utility pole demand?

Brian McManus

We have seen a bit increased demand from a standpoint in that area just responding to poles that did go down on through our clients in that area, but not directly related to those increased rates yet. I think that would more flow into 2018.

Justin Keywood

Okay. And then just finally given the U.S. tax reform progress, are you able to qualify the impact if at all at Stella Jones? And maybe what income tax rate we should expect going into 2018?

Brian McManus

Well, for now I think I’ll hold it as its current rate that we've seen through 2017, but clearly with 75% of our business generated in the U.S., a lower corporate tax rate would definitely be beneficial to us.

Justin Keywood

Okay. And to remind us, the tax rate in the U.S. is around 40% for you guys right now.

Brian McManus

On the federal level it’s 35%. That would be the part that would come down to 20%. And there's still other aspects that are getting discussed. So whether or not they’re impacted, could be impacted, that’s why the net effect is not entirely clear just yet. I think we'll have to see what finally comes out and if it does come out we're hoping for it.

Justin Keywood

Okay. All right, thanks for taking my questions.

Brian McManus

You’re welcome. Thanks, Justin.

Operator

Your next question comes from the line of Benoit Poirier of Desjardins Capital Markets. Please go ahead.

Benoit Poirier

Yes. Good morning, Brian. Good morning, Eric. Just to clarify the previous comment about the acquisition the $50 million. Are you talking more in terms of revenue or cash outlay and is it U.S. dollar or Canadian, Brian?

Brian McManus

I don’t want to give an exact number, Benoit, and I’m referring to – would be more a top line number, I wasn’t discussing purchase price. I said, less then. So I just wanted to give a – so nobody is anticipating the merge acquisition, I just wanted to guide more to that.

Benoit Poirier

Okay. Perfect. So when we look at your balance sheet obviously 1 time debt EBITDA very strong, it’s seems that the threshold is closer to 2 times. So assuming even taking into account that M&A will not jeopardize the balance sheet for sure. So how close are you to look at some cash deployment opportunities outside of M&A?

Brian McManus

I think we still have some M&A opportunities ahead of us. So we’re going to – it will be looked at as we advance – I think it’s the best answer to that, Benoit. We’re not always the ones who control the timing one when a seller maybe interested in selling. So I think we are in a good position to take advantage of opportunities that are out there. We’ll also be refinancing some of our working capital requirement as we go forward. So we’ll be careful, we’ll keep a good balance on our leverage, but you’re right, it does provide some opportunities for us.

Benoit Poirier

Okay. Does it also depend on the results coming from your trail with Home Depot U.S.?

Brian McManus

Sorry, I’m not clear on that question. You mean, in terms of other acquisition opportunities or?

Benoit Poirier

Are you also waiting results from the testing with Home Depot U.S. whether it could involve significant cash deployment overtime for that particular opportunity Brian?

Brian McManus

I would say, it’s too early there, Benoit. I think we’ll be focused more on our other product categories in terms of the acquisition opportunities that are out there for the immediate future.

Benoit Poirier

Okay. And when we look at 2018 Brian, if we assume kind of a more modest growth environment, how should we be thinking in terms of working capital requirement as oppose to the previous year.

Brian McManus

I think it will be similar to what – the similar seasonal trends that we saw in 2017, we’re probably finishing the year – we’ll see between now and the end of the year but I would say we’re probably going to be a little lower than we’d like to be in a couple of product categories. So we’ll see that continue in Q1 to strengthen up. But I think we’re going to have another positive year of cash generation in 2018 for sure.

Benoit Poirier

Okay. And looking at Q4 can you talk a little bit, you mentioned the guidance of 13%, 13.5% for the full year. But typically Q4, am I right to say that the EBITDA margin is typically declining by about 1% or are we going to see that typical pattern or is there something that will make the EBITDA margin a little bit stronger than the typical trend we see from seasonal standpoint.

Brian McManus

I think we’re going to see – at this point I’ll be conservative and say we’ll see the typical trend. We may have a bit more positive mix in Q4, that’s yet to be seen. But just based on the economics of scale from a – the amount of volume that we would normally put through in Q4, that usually puts a bit of pressure on the EBITDA margin as you pointed out that we see year-over-year.

Benoit Poirier

Okay. And could you talk a little bit about your – the ramp up of your new facility in Wisconsin. How much it has grown since the insertion, and then how many opportunities are there? Or any color on the ramp up?

Brian McManus

It’s going very well. Especially, in the back half of this year, we have seen it now. We’re operating near capacity. In fact or even on discussion on whether we should be looking in 2018 to put an additional cylinder in that facility. But those are – discussions going on right now internally to see what are going to be our requirement.

Benoit Poirier

Okay. Is it fair that you’re not only growing that facility but also gaining market share? Did that facility allow you to gain some market share on the region, Brian?

Brian McManus

Yes, yes, it certainly did, Benoit. It’s a combination of two things; one, we get systems volume from one of our facilities in Quebec. And additionally, we captured additional market share in that area.

Benoit Poirier

Okay. And adding another cylinder, what would be kind of the CapEx requirement versus the revenue opportunity. Would it double basically the capacity? What would be kind of the CapEx requirement for that additional cylinder?

Brian McManus

Wouldn’t just be the cylinder, it would be some additional tankage and as well as ensuring proper yard space. So I would say, you're going to be looking between $5 million and $7 million of additional spend to get that capacity. And you would – yes, to your question, we would double the capacity of that facility.

Benoit Poirier

Okay. Perfect. Thank you very much for the time, Brian.

Operator

[Operator Instructions] Your next question comes from the line of Mona Nazir of Laurentian Bank. Please go ahead.

Mona Nazir

Hi. Good morning. This is more for you. But you’ve kind of been with the company for 14 years, you’ve seen through tremendous growth cycles and execution of a strong M&A history. Looking forward though, I'm just wondering if you could comment on how you see the next chapter of Stella evolving. Is there a potential for a new segments like we saw in residential? Is the focus for you guys on continued consolidation on the poles or is that geographic expansion potentially outside of North America. And just to confirm or clarify; once M&A growth winds down, is the plan is to still fund dividend growth? So I know there's a lot in there. But anything would be great.

Brian McManus

This is notable questions, but it’s like you almost answered your own question with many of the points. But I think we're certainly focused in the near future on our continued expansion both on the pole and I think there's a couple of potential opportunities in the future on the tie side as well. And on the lumber side or the consumer lumber side, I think that will be a little bit further out and really based on when we have the opportunity to properly look at it and ensure that it would bring to us a return on our capital that we’ve experienced so far from all our product categories.

In terms of – as we start to level off further out in the future, I think, yes, would certainly be normal but we would look to deploy the capital or returning capital to shareholders is the part of our thought at that point in time. Of course, that will be a lot to do with the thoughts of the board as well at that time.

Mona Nazir

Okay. Thank you.

Brian McManus

Thanks, Mona.

Operator

There are no further questions at this time. I'll turn the call back over to the presenters.

Brian McManus

Well, thank you everybody for joining us on this call. And we look forward to speaking with you, again, at our year-end quarterly call. Have a great day.

Operator

This concludes today's conference call. You may now disconnect.