Stella-Jones Inc.
TSX : SJ

Stella-Jones Inc.

August 09, 2005 14:46 ET

Stella-Jones Announces Solid Q2 Results

WESTMOUNT, QUEBEC--(CCNMatthews - Aug. 9, 2005) - Stella-Jones Inc. (TSX:SJ)



- Sales for utility poles and railway ties increase 20%
- Net earnings increase by 36% to $4.1 million, or $0.40 per share
- Company provides update on U.S. acquisition target


Stella-Jones Inc. (TSX:SJ) today announced solid second quarter results for the period ended June 30, 2005. The results were driven by a 20.0% increase in utility pole and railway tie sales, and by efforts to maximize plant specialization and control overhead costs.

Sales for the second quarter ended June 30, 2005 totaled $46.0 million, an increase of $4.1 million, or 9.8%, over last year's second quarter sales of $41.9 million. Net earnings were $4.1 million, or $0.40 per share, compared to $3.0 million, or $0.30 per share, for the corresponding period last year. After six months of 2005, net earnings now stand at $5.6 million, or $0.55 per share, compared to $4.0 million, or $0.40 per share earned in the first half of 2004.

All product categories, with the exception of overseas export pole sales and consumer lumber treatment services, saw increases in sales compared to the same period last year. Overseas export utility pole sales were down in the quarter, in line with Stella-Jones' strategic decision to concentrate on the higher margin domestic and US markets. Due to a wet spring in the East and a slower than usual start to the traditional summer renovation period, consumer lumber sales posted lower sales in the second quarter.

"Our two primary product categories-domestic utility poles and railway ties-posted a 20.0% increase compared to last year's sales for the same period," said Brian McManus, President and CEO of Stella-Jones Inc. "The railway tie market continues to provide solid growth opportunities in order to meet the infrastructure requirements of a strongly performing railway sector. And our domestic utility pole market is currently benefiting from a number of transmission projects as utilities expand their generating capabilities."

"We are seeing increased tendering activity in the industrial treated wood market and we are the best-positioned treated wood supplier to service this demand. Consumer lumber treatment services will continue to expand as more distribution outlets come on stream."

Gross margin increased to 21.0% of sales, compared to 18.9% for the second quarter last year. Selling and administrative expenses for the second quarter of 2005 compared to the second quarter of 2004 increased $380,000.

"Controlling overhead costs, maximizing plant specialization and a better domestic utility pole product mix versus last year were the primary reasons for the improvement in gross margin," said George Labelle, Senior Vice-President and Chief Financial Officer.

Stella-Jones also announced that in 2005 the Company is absorbing a higher amount of environmental expenses related to the audits of seven Stella-Jones treating plants by Environment Canada. During the year 2000, baseline assessments were carried out on all wood preserving plants in Canada by environmental consultants on behalf of Environment Canada. In conformity with this government initiative, the Company submitted plans of action to respond to all recommendations. The compliance deadline for completing the plans of action is December 31, 2005 and the Company is on-track to meet this deadline.

"While the majority of the compliance costs associated with this program have been capital in nature, there are one-time expenses that will be incurred in this final year," said Labelle. "Despite this increased administrative burden, we are confident that we can maintain a satisfactory ratio of selling and administrative expenses to sales. There has been no significant change to our administrative infrastructure."

During the quarter, Stella-Jones announced that it is considering the acquisition of the assets of Webster Wood Preserving Company of Bangor, Wisconsin ("Webster"). Webster specializes in the production and marketing of pressure treated wood railway ties. For the last fiscal year ended September 30, 2004, Webster reported sales of approximately US$25,000,000. It was originally anticipated that the proposed transaction would close by the end of July 2005. Negotiations continue and the Company now expects to close by August 31, 2005.



Q2 HIGHLIGHTS

- Sales for the second quarter ended June 30, 2005 totaled $46.0
million, an increase of $4.1 million, or 9.8%, over last year's
second quarter sales of $41.9 million.
- Industrial treated wood sales were below last year's levels for the
second quarter. Demand remains strong into the third quarter, and
on a year-to-date basis the segment is marginally ahead of last
year's sales.
- Due to a wet spring in the East and a slower than usual start to
the traditional summer renovation period, consumer lumber sales
posted lower sales in the second quarter.
- Overseas export utility pole sales were down $1.3 million in the
quarter compared to the same period last year, in line with Stella
-Jones' strategic decision to concentrate on the higher margin
domestic and US markets.


RECENT EVENTS

On July 29, 2005, in anticipation of the Webster acquisition, Stella-Jones entered into a subscription agreement with its majority shareholder, Stella Jones International S.A.("SJ International"), for a proposed private equity placement consisting of the issuance of 555,556 common shares of the Company at a price of $9.00 per common share. Following the private placement, SJ International will own 6,910,556 common shares of Stella-Jones' outstanding common shares, or 63.9%, on an undiluted basis. The private placement is conditional on the closing of the Webster transaction.

OUTLOOK

The railway tie market will continue to provide solid growth opportunities in order to meet the infrastructure requirements of a strongly performing railway sector. In the domestic utility pole market, the Company still believes that there is pent-up demand on the distribution side. Stella-Jones is seeing increased tendering activity in the industrial treated wood market and the Company is the best-positioned treated wood supplier to service this demand.
With the higher number of retail outlets Stella-Jones services this year compared to 2004, the Company expects to finish the year with higher consumer lumber revenues versus last year.

ABOUT STELLA-JONES

Stella-Jones Inc. (TSX:SJ) is a leading Canadian producer and marketer of industrial structures and support components produced with pressure treated wood products, specializing in the production of treated wood poles supplied to electrical utilities and telecommunications companies on both a national and international basis. Other principal products include railway ties, marine and foundation pilings, construction timbers, highway guardrail posts and treated wood for bridges. The Company also specializes in providing customized services to lumber companies and wholesalers for the treatment of consumer lumber products for outdoor applications. The Company's common shares are listed on the Toronto Stock Exchange.

Visit our website: www.stella-jones.com

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.



NOTICE

The interim unaudited consolidated financial statements of Stella-
Jones Inc. for the second quarter ended June 30, 2005 have not been
reviewed by the Company's external auditors.

(Signed)

George Labelle
Senior Vice-President and Chief Financial Officer

Westmount, Quebec
August 9, 2005



CONSOLIDATED BALANCE SHEETS

June 30, December 31,
2005 2004
($) ($)
as at June 30, 2005 and December 31, 2004 unaudited
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ASSETS
CURRENT ASSETS
Accounts receivable 24,760,924 13,205,649
Inventories 53,804,659 52,769,898
Prepaid expenses 655,344 857,582
Future income taxes 514,000 522,000
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79,734,927 67,355,129

PROPERTY, PLANT AND EQUIPMENT 31,873,404 30,543,495
FUTURE INCOME TAXES 319,000 301,000
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111,927,331 98,199,624
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---------------------------------------------------------------------

LIABILITIES
CURRENT LIABILITIES
Bank indebtedness 17,309,314 11,420,760
Accounts payable and accrued liabilities 19,215,050 13,878,043
Income taxes 1,027,140 1,774,917
Current portion of long-term debt 3,594,659 3,699,048
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41,146,163 30,772,768

LONG-TERM DEBT 10,668,712 12,485,436
FUTURE INCOME TAXES 4,657,000 4,784,000
EMPLOYEE FUTURE BENEFITS 947,380 872,380
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57,419,255 48,914,584
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SHAREHOLDERS' EQUITY
CAPITAL STOCK 21,054,517 20,954,892
RETAINED EARNINGS 33,453,559 28,330,148
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54,508,076 49,285,040
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111,927,331 98,199,624
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See accompanying Notes



CONSOLIDATED STATEMENTS OF EARNINGS
unaudited

three months six months
ended June 30, ended June 30,
2005 2004 2005 2004
($) ($) ($) ($)
---------------------------------------------------------------------
---------------------------------------------------------------------

SALES 46,016,496 41,894,006 76,919,979 66,840,783
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EXPENSES
Cost of sales 36,337,585 33,978,554 61,961,102 54,525,864
Selling and
administrative 2,388,860 2,008,795 4,250,524 3,624,650
Foreign exchange
gain (45,641) (57,847) (54,829) (37,801)
Amortization of
property, plant
and equipment 800,849 761,819 1,557,451 1,509,612
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39,481,653 36,691,321 67,714,248 59,622,325
---------------------------------------------------------------------

OPERATING EARNINGS 6,534,843 5,202,685 9,205,731 7,218,458
INTEREST ON
LONG-TERM DEBT 204,672 243,785 415,199 479,813
OTHER INTEREST 220,572 214,872 379,003 418,061
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EARNINGS BEFORE
INCOME TAXES 6,109,599 4,744,028 8,411,529 6,320,584
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PROVISION FOR
INCOME TAXES 2,017,000 1,706,000 2,776,000 2,274,000
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NET EARNINGS FOR
THE PERIOD 4,092,599 3,038,028 5,635,529 4,046,584
---------------------------------------------------------------------
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NET EARNINGS PER
COMMON SHARE 0.40 0.30 0.55 0.40

DILUTED NET
EARNINGS PER
COMMON SHARE 0.39 0.29 0.54 0.39
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See accompanying Notes



CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
unaudited

for the six months ended 2005 2004
June 30, 2005 and 2004 ($) ($)
---------------------------------------------------------------------
---------------------------------------------------------------------

BALANCE - BEGINNING OF YEAR 28,330,148 21,846,564
Net earnings for the period 5,635,529 4,046,584
Dividends on common shares (512,118) (400,820)
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BALANCE - END OF PERIOD 33,453,559 25,492,328
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---------------------------------------------------------------------

See accompanying Notes



CONSOLIDATED STATEMENTS OF CASH FLOWS
unaudited three months six months
ended June 30, ended June 30,
2005 2004 2005 2004
($) ($) ($) ($)
---------------------------------------------------------------------
---------------------------------------------------------------------
CASH FLOWS FROM
OPERATING ACTIVITIES
Net earnings for the
period 4,092,599 3,038,028 5,635,529 4,046,584
Adjustments for
Amortization of
property, plant
and equipment 800,849 761,819 1,557,451 1,509,612
Loss (gain) on
disposal of
property, plant
and equipment 29,120 (54,528) 29,120 (86,428)
Employee future
benefits 30,000 18,750 75,000 37,500
Stock-based
compensation 4,650 4,311 8,650 8,621
Future income
taxes 9,000 164,000 (137,000) 260,000
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4,966,218 3,932,380 7,168,750 5,775,889
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Change in non-cash
working capital
components
Decrease (increase)
in
Accounts
receivable (5,891,935) (4,851,568) (11,555,275) (9,530,745)
Inventories 717,313 1,635,466 (1,034,761) (3,046,939)
Prepaid expenses 68,140 337,598 202,238 (325,022)
Increase (decrease)
in
Accounts payable 4,400,372 1,616,059 5,337,007 2,842,007
and accrued
liabilities
Income taxes 862,480 910,506 (747,777) 984,449
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156,370 (351,939) (7,798,568) (9,076,250)
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5,122,588 3,580,441 (629,818) (3,300,361)
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FINANCING ACTIVITIES
(Decrease) increase
in bank
indebtedness (2,633,598) (848,200) 5,888,554 2,315,798
Increase in
long-term debt - - 15,000 4,759,889
Repayment of
long-term debt (867,041) (455,092) (1,933,056) (962,724)
Dividends (512,118) (400,820) (512,118) (400,820)
Proceeds from
issuance of common
shares 67,824 22,669 90,975 41,431
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(3,944,933) (1,681,443) 3,549,355 5,753,574
---------------------------------------------------------------------
INVESTING ACTIVITIES
Business acquisition - (1,906,652) - (1,906,652)
Purchase of
property, plant and
equipment (1,277,655) (320,830) (3,019,537) (906,945)
Proceeds from
disposal of
property, plant
and equipment 100,000 328,484 100,000 360,384
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(1,177,655) (1,898,998) (2,919,537) (2,453,213)
---------------------------------------------------------------------
NET CHANGE IN CASH
AND CASH
EQUIVALENTS DURING
THE PERIOD - - - -
---------------------------------------------------------------------
CASH AND CASH
EQUIVALENTS
- BEGINNING AND END
OF THE PERIOD - - - -
---------------------------------------------------------------------
---------------------------------------------------------------------
SUPPLEMENTAL
DISCLOSURE
Interest paid 368,191 456,172 684,279 796,708
Income taxes paid 1,146,520 639,760 3,653,277 1,029,550
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See accompanying Notes


NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS

unaudited

NOTE 1 - Accounting Policies

These unaudited interim consolidated financial statements have been prepared following the same accounting policies as the December 31, 2004 audited consolidated financial statements. These unaudited interim consolidated financial statements and notes should be read in conjunction with the Company's latest annual consolidated financial statements.

NOTE 2 - Employee Future Benefits

For the three months ended June 30, 2005, the benefit cost recognized for employee future benefits was $34,546 (2004 - $21,669). For the six months ended June 30, 2005, the benefit cost recognized for employee future benefits was $83,415 (2004 - $44,311).

NOTE 3- Share Information

As at August 8, 2005, the capital stock issued and outstanding consisted of 10,257,319 common shares (10,234,639 as at December 31, 2004).

NOTE 4- Seasonality

The Company's domestic operations follow a seasonal pattern, with pole, tie and industrial lumber shipments strongest in the second quarter to provide industrial end users with product for their summer maintenance projects. Consumer lumber treatment sales also follow the same seasonal pattern. Inventory levels of railway ties and utility poles are typically highest in the first quarter in advance of the summer shipping season. The first, third and fourth quarters usually generate similar sales.

Contact Information

  • Stella-Jones Inc.
    Head Office
    (514) 934-8666
    (514) 934-5327 (FAX)
    or
    Investor Relations
    George Labelle
    Senior Vice-President and Chief Financial Officer
    (514) 934-8665
    (514) 934-5327 (FAX)
    glabelle@stella-jones.com