Stelco Holdings Inc.

Stelco reported Q1 2024 adjusted EBITDA of CAD153 million, up 200% from the previous quarter, and adjusted EBITDA margin of 21%. Revenue increased 22% quarter over quarter, and adjusted EBITDA per net ton rose 187%. Shipping volume was 636,000 net tons, up 4% sequentially. The company ended the quarter with CAD645 million in cash and no borrowings on its revolving credit facility. For Q2, management guided shipping volume to 625,000 to 650,000 net tons and said lower coal and natural-gas costs should start to flow through in Q2 and Q3.

Alan Kestenbaum framed the quarter as evidence of Stelco’s ability to convert favorable pricing into bottom-line leverage while maintaining industry-leading margins. He emphasized a strategic push to increase utilization of downstream value-added capacity at Hamilton Works, calling it a “major and important shift” that could lift annualized output by over 15% this year. He also highlighted disciplined capital deployment, saying the company will keep prioritizing shareholder returns and only pursue organic growth or M&A with attractive valuations and synergies.

Paul Scherzer focused on the operating leverage in the quarter, noting that revenue was up 22% while the company’s low-cost structure and cost controls drove earnings through to the bottom line. He highlighted liquidity of CAD645 million in cash, no revolver borrowings, the recent dividend increase, and repurchases of approximately 162,000 shares. On capital allocation, he said Stelco plans to keep funding facility investment, buybacks, dividends, and opportunistic M&A, while maintaining a clean balance sheet.

Analysts pressed on whether lower steel prices would compress Q2 margins; management said recent softness was very recent, much of Q2 had already been sold, and any impact would likely be more noticeable in June, with the company expecting a similar-looking quarter overall. Questions also focused on product mix, and Alan said Stelco is underutilized by about 50% in cold mill, coating, and painting lines, with a three-phase plan to raise downstream volume by over 15% annualized this year. Later questions covered input costs, where management said lower natural gas and coal prices should begin helping in Q2 and Q3, as well as capital allocation, inventory monetization, and decarbonization updates, with Alan saying major advancements have been made and announcements are coming soon.