Stella-Jones Inc.
TSX : SJ

Stella-Jones Inc.

November 06, 2015 07:00 ET

Stella-Jones Reports 2015 Third Quarter Results

- Sales of $433.1 million, up 21.2% from $357.3 million last year

- Operating income increased 38.4% to $62.9 million, or 14.5% of sales, up from 12.7% of sales, a year ago

- Net income up 33.2% to $39.3 million, compared to $29.5 million last year

- Diluted EPS of $0.57, versus $0.43 in the prior year

MONTREAL, QUEBEC--(Marketwired - Nov. 6, 2015) - Stella-Jones Inc. (TSX:SJ) ("Stella-Jones" or the "Company") today announced financial results for its third quarter ended September 30, 2015.

"Stella-Jones' solid performance in the third quarter was driven by our ability to respond to healthy demand in the railway tie and residential lumber categories. Our growing profitability reflects evolving market conditions in the untreated railway tie market and efficiency gains throughout our continental network. Moreover, we further expanded our reach through a strategic acquisition in Arkansas on September 1, 2015 and the conclusion of the Ram Forest Group Inc. and Ramfor Lumber Inc. ("Ram") acquisition on October 1, 2015," said Brian McManus, President and Chief Executive Officer.

Financial highlights Quarters ended Sept. 30, Nine months ended Sept. 30,
(in millions of Canadian dollars, except per share data) 2015 2014 2015 2014
Sales 433.1 357.3 1,201.8 959.6
Operating income 62.9 45.5 171.8 121.8
Net income for the period 39.3 29.5 108.4 80.9
Per share - basic ($) 0.57 0.43 1.57 1.18
Per share - diluted ($) 0.57 0.43 1.57 1.17
Weighted average shares outstanding (basic, in '000s) 69,025 68,829 68,989 68,780

THIRD QUARTER RESULTS

Sales reached $433.1 million, up 21.2% from $357.3 million a year ago. The conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, had a positive impact of $57.2 million on the value of U.S. dollar denominated sales when compared with last year. Excluding this factor, sales increased approximately $18.6 million, or 5.2%.

Railway tie sales amounted to $200.6 million, up 34.8% from $148.8 million last year. Excluding the foreign currency conversion effect, railway tie sales rose approximately 14.7% as a result of selling price adjustments and healthy industry demand.

Sales of utility poles reached $142.3 million, representing an increase of 11.6% over sales of $127.6 million last year. Factoring out the foreign currency conversion effect, sales decreased approximately 1.5% reflecting lower sales of transmission poles due to a decrease in demand for special projects as a result of the weakness in the oil and gas as well as mining industries, partially offset by a steady rise in sales of distribution poles stemming from regular maintenance projects.

Sales of residential lumber totalled $53.2 million, up from $43.5 million last year, reflecting higher sales in the United States due to a healthier economy in certain sectors, as well as in Western Canada, reflecting the Company's increasing reach in British Columbia. Industrial product sales were $28.4 million, compared with $29.7 million a year ago, mainly due to lower sales of laminated poles, as demand for this product is mainly project driven. Non-pole-quality log sales were $8.5 million, versus $7.7 million last year, mainly due to the timing of timber harvesting.

Gross profit reached $87.5 million, or 20.2% of sales, up from $62.4 million, or 17.5% of sales, last year. The increase in absolute dollars essentially stems from higher business activity and the effect of currency translation. As a percentage of sales, gross profit increased mainly as a result of adjusted pricing for railway ties and greater efficiencies throughout the Company's network. As a result of higher gross profit, operating income increased 38.4% to $62.9 million, or 14.5% of sales, versus $45.5 million, or 12.7% of sales, last year.

Net income for the third quarter of 2015 increased 33.2% to $39.3 million or $0.57 per share, fully diluted, compared with $29.5 million or $0.43 per share, fully diluted, in the third quarter of 2014.

NINE-MONTH RESULTS

For the nine-month period ended September 30, 2015, sales totalled $1,201.8 million, versus $959.6 million for the corresponding period a year earlier. The wood treating facilities acquired from Boatright Railroad Products, Inc. on May 22, 2014 contributed additional sales of $48.4 million, while the conversion effect from fluctuations in the value of the Canadian dollar versus the U.S. dollar increased the value of U.S. dollar denominated sales by $124.7 million. Excluding these factors, sales increased approximately $69.1 million, or 7.2%.

Operating income reached $171.8 million, or 14.3% of sales, up from $121.8 million, or 12.7% of sales, a year ago. Net income amounted to $108.4 million, or $1.57 per share, fully diluted, compared with $80.9 million, or $1.17 per share, fully diluted, last year.

FINANCIAL POSITION

As at September 30, 2015, the Company's long-term debt, including the current portion, stood at $536.9 million compared with $538.1 million three months earlier. This reduction reflects a solid cash flow generation, partially offset by the effect of local currency translation on U.S. dollar denominated long-term debt. As at September 30, 2015, Stella-Jones' total debt to total capitalization ratio was 0.38:1, versus 0.41:1 as at June 30, 2015.

ACQUISITION OF TREATED MATERIALS CO., INC.

During the third quarter, on September 1, 2015, Stella-Jones completed, through its wholly owned U.S. subsidiary, the acquisition of substantially all the operating assets employed in the wood treating facility of Treated Materials Co., Inc. located in Rison, Arkansas. This facility manufactures, sells and distributes treated utility poles and was acquired for synergistic reasons. Total cash outlay associated with the acquisition was approximately $5.4 million (US$4.1 million).

QUARTERLY DIVIDEND OF $0.08 PER SHARE

On November 5, 2015, the Board of Directors declared a quarterly dividend of $0.08 per common share, payable on December 21, 2015 to shareholders of record at the close of business on December 2, 2015.

OUTLOOK

"Looking ahead to the remainder of 2015 and into 2016, railway tie demand is expected to remain healthy, driven by solid fundamental factors. With respect to utility poles, lower resource prices continue to create headwinds, mainly through a decrease in demand for special projects, while regular maintenance demand should hold. Over the mid-term, we believe that utility pole demand should improve, as an increasing number of poles are approaching the end of their service life and will have to be replaced. In addition, the Ram acquisition will allow Stella-Jones to leverage its reach in the residential lumber category. Our ability to methodically expand our presence in the wood treating industry by capturing accretive and synergistic opportunities underlines our commitment to create shareholder value," concluded Mr. McManus.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on Friday, November 6, 2015, at 10:00 AM Eastern Time. Interested parties can join the call by dialing 647-788-4922 (Toronto or overseas) or 1-877-223-4471 (elsewhere in North America). Parties unable to call in at this time may access a recording of the meeting by calling 1-800-585-8367 and entering the passcode 56328938. This tape recording will be available on Friday, November 6, 2015 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Friday, November 13, 2015.

NON-IFRS FINANCIAL MEASURES

Operating income and cash flow from operating activities before changes in non-cash working capital components and interest and income tax paid are financial measures not prescribed by IFRS and are not likely to be comparable to similar measures presented by other issuers. Management considers these non-IFRS measures to be useful information to assist knowledgeable investors regarding the Company's financial condition and results of operations as they provide additional measures of its performance.

ABOUT STELLA-JONES

Stella-Jones Inc. (TSX:SJ) is a leading producer and marketer of pressure treated wood products. The Company supplies North America's railroad operators with railway ties and timbers, and the continent's electrical utilities and telecommunication companies with utility poles. Stella-Jones also provides residential lumber to retailers and wholesalers for outdoor applications, as well as industrial products for construction and marine applications. The Company's common shares are listed on the Toronto Stock Exchange.

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, the ability of the Company to raise the capital required for acquisitions, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.

Note to readers: Condensed interim unaudited consolidated financial statements for the third quarter ended September 30, 2015 are available on Stella-Jones' website at www.stella-jones.com

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