Stella-Jones, the quiet giant of the North American lumber industry, just released its Q1 2024 earnings, and something is stirring in the usually predictable world of treated wood products. While the company reiterated its confidence in a 15% CAGR for its utility pole business over the next two years, a closer look at the transcript reveals a subtle shift in tone, a whisper of potential change that could signal a massive surge in lumber demand.

The catalyst? New, long-term utility pole sales agreements that extend far beyond the company's current three-year strategic plan. These agreements, inked with both existing and new customers, hint at a wave of infrastructure spending that could dwarf even the most optimistic projections.

While analysts have been fixated on the potential pricing pressures in the utility pole spot market, a smaller and less predictable part of Stella-Jones' business, a more profound story is unfolding in the contract market. This long-term visibility, coupled with Stella-Jones' aggressive capacity expansion and inventory build, suggests the company is bracing for a demand tsunami.

The numbers themselves paint a compelling picture. In Q1 2024, Stella-Jones experienced a 5% decline in utility pole volumes compared to the same period last year. Yet, the company confidently predicts a 15% CAGR for pole sales over the next two years, fueled primarily by volume growth.

To achieve this growth, Stella-Jones needs to see a substantial acceleration in pole volumes over the coming quarters. Assuming a flat Q2 2024 compared to Q2 2023, the remaining three quarters would need to witness an average volume increase exceeding 20% year-over-year to reach the 15% CAGR target.

This aggressive growth trajectory strongly suggests that the long-term agreements signed by Stella-Jones involve significant volume commitments. Utilities are clearly planning for substantial infrastructure expansions, signaling a long-term upswing in demand for treated wood poles.

Projected Utility Pole Volume Growth

The following chart illustrates the projected volume growth needed for Stella-Jones to achieve its 15% CAGR target.

But why would utilities be so bullish on infrastructure spending, particularly at a time of higher interest rates and economic uncertainty? The answer lies in a confluence of factors, all pointing towards a sustained, long-term increase in electricity demand.

Factors Driving Increased Electricity Demand:

Aging Grid Modernization: The North American electrical grid requires urgent upgrades to improve reliability and resilience. (Source: US Department of Energy) Transportation Electrification: The rise of electric vehicles is set to significantly increase electricity demand. (Source: US Energy Information Administration) Data Center Growth: The expansion of data centers, particularly for AI, is placing a strain on the grid, driving further infrastructure investment. (Source: Data Center Knowledge)

Stella-Jones, with its vast network of treating facilities, strategic acquisitions, and ample wood supply, is perfectly positioned to capitalize on this surge in demand. The company's long-term vision and proactive approach have positioned it as the partner of choice for utilities embarking on these massive infrastructure projects.

While the exact timing and magnitude of this lumber tsunami remain uncertain, the whispers in the Stella-Jones transcript are undeniable. The company is preparing for a period of sustained growth, driven by long-term trends that will reshape the North American lumber landscape for years to come.

"Fun Fact: Did you know that Stella-Jones treats over 2 million utility poles annually, enough to stretch from New York City to Los Angeles and back? And with the coming infrastructure boom, that number is only going to grow."