Stella-Jones Inc.
TSX : SJ

Stella-Jones Inc.

March 16, 2016 07:00 ET

Stella-Jones Reports Record 2015 Fourth Quarter and Annual Results

Fifteenth consecutive year of growth in net income

MONTREAL, QUEBEC--(Marketwired - March 16, 2016) -

Fourth quarter highlights:

  • Sales of $357.5 million, up 23.3% from $289.9 million last year
  • Operating income of $48.3 million, or 13.5% of sales, versus 11.7% of sales, a year ago
  • 43.7% increase in net income to $33.0 million, compared to $23.0 million last year
  • Diluted EPS of $0.48, versus $0.33 in the prior year

2015 highlights:

  • Sales of $1.56 billion, up 24.8% from $1.25 billion last year
  • Operating income of $220.1 million, or 14.1% of sales, versus 12.5% of sales, in 2014
  • 36.1% increase in net income to $141.4 million, compared to $103.8 million last year
  • Diluted EPS of $2.04, versus $1.50 in 2014

Stella-Jones Inc. (TSX:SJ) ("Stella-Jones" or the "Company") today announced financial results for its fourth quarter and fiscal year ended December 31, 2015.

"In 2015, Stella-Jones earned the highest revenues and net income in its history while continuing to position itself for future growth. The Company's continental production network once again expanded through strategic acquisitions, thus enhancing its already well-established role as a leading source and reliable supplier of treated wood products. By rigorously adhering to its business model and maintaining a relentless focus on maximizing network efficiency, Stella-Jones continues to create value for its shareholders," said Brian McManus, President and Chief Executive Officer.

Financial highlights Quarters ended Dec. 31, Years ended Dec. 31,
(in millions of Canadian dollars, except per share data) 2015 2014 2015 2014
Sales 357.5 289.9 1,559.3 1,249.5
Operating income 48.3 33.9 220.1 155.7
Net income for the period 33.0 23.0 141.4 103.8
Per share - basic ($) 0.48 0.33 2.05 1.51
Per share - diluted ($) 0.48 0.33 2.04 1.50
Weighted average shares outstanding (basic, in '000s) 69,101 68,687 69,018 68,802

FOURTH QUARTER RESULTS

Sales reached $357.5 million, up 23.3% from $289.9 million a year ago. This increase primarily reflects the acquisition of Ram Forest Group Inc. and Ramfor Lumber Inc. (together "Ram") on October 1, 2015, which contributed sales of $14.8 million, while the conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, increased the value of U.S. dollar denominated sales by $41.6 million when compared with last year. Excluding these factors, sales increased approximately $11.2 million, or 3.9%.

Railway tie sales amounted to $147.5 million, up 12.5% from $131.1 million last year. Excluding the conversion effect from currency fluctuations, railway tie sales declined approximately $4.3 million, mainly due to the year-over-year timing difference for certain deliveries.

Sales of utility poles rose 13.8% to $129.5 million, versus $113.8 million last year. Excluding the conversion effect from currency fluctuations, sales increased approximately $1.4 million, as higher sales of distribution poles stemming from regular replacement programs was partially offset by lower sales of transmission poles due to decreased demand in special projects as a result of the weakness in the oil and gas as well as mining industries.

Residential lumber sales reached $40.1 million, up from $17.9 million last year, reflecting the Ram acquisition. Industrial product sales amounted to $23.6 million, up from $18.7 million a year ago, as a result of higher sales of treated wood for bridge structures. Log and lumber sales were $16.7 million, versus $8.4 million last year due to the purchase and resale of lumber, as well as the timing of timber harvesting.

In the last quarter of 2015, Stella-Jones enlarged its procurement department to support residential lumber requirements. In order to procure sufficient lumber at competitive pricing for this product category, the Company is engaged in purchasing greater volumes and, subsequently, reselling excess product into local home-building markets. Margins on resold lumber are nominal, as they are performed at a value close to cost of sales. These lumber sales, along with non-pole-quality log sales, make up the logs and lumber product category.

Gross profit amounted to $69.3 million, or 19.4% of sales, in the fourth quarter of 2015, versus $51.4 million, or 17.7% of sales, in the fourth quarter of 2014. The increase in absolute dollars reflects greater business activity, the contribution from the Ram acquisition, as well as the favourable impact of the conversion effect from currency fluctuations. The increase as a percentage of sales is attributable to adjusted pricing for railway ties and greater efficiencies throughout the Company's plant network.

As a result of higher gross profit, operating income was $48.3 million, or 13.5% of sales, in the fourth quarter of 2015, versus $33.9 million, or 11.7% of sales, in the fourth quarter of 2014. Net income for the period reached $33.0 million, or $0.48 per diluted share, compared with $23.0 million, or $0.33 per diluted share, last year. This represents a year-over-year increase in net income of 43.7%.

2015 RESULTS

Sales for the year ended December 31, 2015 reached $1,559.3 million, up 24.8% from last year's sales of $1,249.5 million. The Ram acquisition generated sales of $14.8 million, while the wood treating facilities acquired from Boatright Railroad Products, Inc. on May 22, 2014 contributed additional sales of $48.4 million. 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 about $166.3 million when compared with the previous year. Excluding these factors, sales increased approximately $80.4 million, or 6.4%.

Gross profit reached $307.3 million or 19.7% of sales in 2015, up from $224.2 million or 17.9% of sales in 2014. Operating income amounted to $220.1 million, or 14.1% of sales, compared with $155.7 million, or 12.5% of sales, last year. Net income rose 36.1% to $141.4 million, or $2.04 per diluted share, up from $103.8 million, or $1.50 per diluted share, in the prior year.

FINANCIAL POSITION

As at December 31, 2015, the Company's long-term debt, including the current portion, stood at $669.9 million compared with $444.6 million at the end of 2014. The increase essentially reflects higher borrowings following the Ram acquisition, increased working capital requirements due to higher business activity and the effect of local currency translation on U.S. dollar denominated long-term debt. As at December 31, 2015, Stella-Jones' total debt to total capitalization ratio was 0.42:1, versus 0.39:1 twelve months earlier.

MODIFIED CREDIT AGREEMENTS

On February 26, 2016, the Company entered into an agreement to amend and restate the current credit agreement dated March 3, 2015. The amended agreement will make available a committed revolving credit facility for a period of five years and will be increased from US$450.0 million to US$500.0 million for the first two years. Subsequently, the committed revolving credit facility will be reduced to US$450.0 million in the third year and finally be reduced to US$350.0 million for the fourth and fifth years. The amended agreement also includes an accordion option allowing the request of an increase of up to US$200.0 million to the committed revolving credit facility, subject to customary conditions.

On February 26, 2016, the Company entered into demand loan agreements with two banks participating in the committed revolving credit facility syndication. The demand loans make available financing up to US$50.0 million under the same conditions as the amended and restated committed revolving credit facility.

ACQUISITION OF UNITED WOOD TREATING COMPANY, INC.

During the fourth quarter, on December 4, 2015, Stella-Jones completed, through its wholly-owned U.S. subsidiary, the acquisition of substantially all the operating assets employed at the wood treating facility of United Wood Treating Company, Inc. located in Whitmire, South Carolina. This facility manufactures, sells and distributes treated utility poles, as well as marine pilings, and was acquired for synergistic reasons. Total cash outlay associated with the acquisition was approximately $12.0 million (US$9.0 million).

QUARTERLY DIVIDEND OF $0.10 PER SHARE

On March 15, 2016, the Board of Directors declared a quarterly dividend of $0.10 per common share, payable on April 29, 2016 to shareholders of record at the close of business on April 1, 2016.

OUTLOOK

"Despite a softening in certain sectors of the North American economy, we expect demand for the Company's core products to remain healthy in 2016. In the railway tie market, North American railroads will continue to maintain the continental rail network, as operators constantly seek optimal line efficiency. As for utility poles, lower resource prices continue to create headwinds, mainly through a decrease in demand for special projects, while regular maintenance demand is expected to hold. Meanwhile, the Ram acquisition will allow Stella-Jones to broaden its reach and its product offering in the residential lumber category. In the short-term, we will focus on completing the proposed acquisitions of Lufkin Creosoting Co., Inc. and 440 Investments, LLC during the second quarter of 2016, while continuing to identify further means to enhance network productivity," concluded Mr. McManus.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on Wednesday, March 16, 2016, 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 26006718. This tape recording will be available on Wednesday, March 16, 2016 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Wednesday, March 23, 2016.

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 fourth quarter and year ended December 31, 2015 are available on Stella-Jones' website at www.stella-jones.com.

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