Stella-Jones Inc.
TSX : SJ

Stella-Jones Inc.

August 13, 2009 08:30 ET

Stella-Jones Reports Solid Second Quarter Results

MONTREAL, QUEBEC--(Marketwire - Aug. 13, 2009) -

- Sales growth of 4.9% to $129.1 million

- Net earnings of $11.0 million compared with $10.0 million last year, up 9.7%

- Diluted EPS of $0.87, versus $0.80 in the second quarter of 2008

Stella-Jones Inc. (TSX:SJ) today announced financial results for its second quarter and six-month period ended June 30, 2009. This quarter is the first comparable period since acquiring The Burke-Parsons-Bowlby Corporation ("BPB") on April 1, 2008.



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Financial highlights
(in thousands of
dollars, except Quarters ended June 30, Six months ended June 30,
per share data) 2009 2008 2009 2008
-------------------------------------------------------------------------
Sales 129,104 123,081 241,058 189,263
Gross profit 23,900 25,312 46,419 39,168
Cash flow from
Operations(1) 12,602 12,445 23,923 19,773
Net earnings for the
period 11,021 10,047 18,708 15,370
Per share - basic ($) 0.87 0.81 1.49 1.24
Per share - diluted ($)0.87 0.80 1.48 1.21
Weighted-average
shares outstanding
(basic, in '000s) 12,624 12,459 12,595 12,403
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(1)Before changes in non-cash working capital components.


Sales in the second quarter reached $129.1 million, an increase of $6.0 million, or 4.9% over last year's sales of $123.1 million. The weaker Canadian dollar, Stella-Jones' reporting currency, positively impacted the value of U.S. dollar denominated sales by approximately $10.2 million compared with the same period last year. Factoring out the foreign exchange effect, sales decreased approximately 3.0%, reflecting reduced demand in the railway tie product category.

Railway tie sales reached $57.6 million, a decrease of 8.3% over last year, resulting primarily from a one-time export sale in 2008 as well as lower industry demand and competitive pricing. Sales of utility poles grew 19.5% to $44.2 million, reflecting solid demand for transmission poles in the United States and greater market penetration. Sales in the industrial lumber category reached $11.9 million, up from $10.3 million last year, due to strong demand for marine applications in Canada, while sales of consumer lumber increased 19.3% to $15.5 million as a result of an increase in retail points of sale compared with a year ago and robust demand partly driven by the home renovation tax credit program in Canada.

"Second quarter results reflect the beginning of decelerating activity in the railway tie market, as a weaker economy is reducing investments in special projects and track extensions," said Brian McManus, President and Chief Executive Officer of Stella-Jones. "This situation was particularly evident in the United States, where a more competitive landscape also led to moderate pricing pressures. Conversely, operational flexibility enabled Stella-Jones to capture opportunities in the utility pole market through its increasingly extensive coverage of the North American market."

Gross profit was $23.9 million or 18.5% of sales, compared with $25.3 million or 20.6% of sales last year. The decline in gross profit, both in dollars and as a percentage of sales, essentially stems from lower margins on railway tie sales as a result of competitive pricing in response to softer industry demand and, to a lesser extent, lower margins on U.S. utility pole sales. Excluding a provision for plant closure and workforce reductions (see Capacity Optimization Measures below), gross profit would have been $24.4 million, or 18.9% of sales.

Net earnings for the period increased to $11.0 million or $0.87 per share, fully diluted, in 2009, compared with $10.0 million or $0.80 per share, fully diluted, in 2008. Cash flow from operating activities before changes in non-cash working capital components rose 1.3% to $12.6 million.

As at June 30, 2009, the Company's long-term debt, including the current portion, amounted to $99.8 million, representing a ratio of total long-term debt to shareholders' equity of 0.57:1, down from 0.63:1 three months earlier. Working capital stood at $171.0 million, up from $163.8 million as the end of the previous quarter, reflecting the impact of seasonal demand pattern on accounts receivable offset by lower inventories.

"A solid cash flow generation enabled Stella-Jones to appreciably reduce its short- and long-term debt during the quarter," said George Labelle, Senior Vice-President and Chief Financial Officer. "We continue to proactively review operating costs and the optimization of capacity utilization across our continental plant network."

SIX-MONTH RESULTS

For the six-month period ended June 30, 2009, sales were $241.1 million, up from $189.3 million in the first six months of 2008. This increase includes the contribution of $37.3 million from the BPB operations, while the weaker Canadian dollar increased the value of U.S. dollar denominated sales by approximately $16.9 million. Gross profit was $46.4 million, or 19.3% of sales, compared with $39.2 million, or 20.7% of sales, in the prior year. Net earnings totalled $18.7 million, or $1.48 per share, fully diluted, versus net earnings of $15.4 million, or $1.21 per share, fully diluted, last year. Cash flow from operating activities before changes in non-cash working capital components was $23.9 million, up 21.0% from a year earlier.

CAPACITY OPTIMIZATION MEASURES

As part of its continuous monitoring of operating cost efficiency and optimization of capacity utilization, the Company has decided to close its Stanton, Kentucky facility at the end of business on September 4, 2009. This will result in the termination of ten employees. Production, consisting essentially of treated wood for custom log homes and highway timbers, will be transferred to the Company's Spencer, West Virginia facility. Furthermore, the workforce at the Spencer facility will be reduced by 29 employees effective August 13, 2009 as the Company will be shifting the majority of Spencer's railway tie production to its other plants.

To cover the costs related to the closure and employee reductions, the Company has taken a provision of $511,600 (US$468,600) included in cost of sales for the three- and six-month periods ended June 30, 2009.

SEMI-ANNUAL DIVIDEND OF $0.18 PER SHARE

The Board of Directors declared a semi-annual dividend of $0.18 per share on the outstanding common shares of Stella-Jones, payable on October 9, 2009 to shareholders of record at the close of business on September 4, 2009.

OUTLOOK

Stella-Jones' products remain a vital component of basic transportation and utility infrastructure and are integral to capital infrastructure projects that governments often initiate during times of economic slowdown. Such initiatives would drive demand, as they would potentially involve, in both maintenance and new installation endeavours, many of the Company's clients in the railway and electrical transmission and distribution industries. However, in the absence of such government driven infrastructure projects, Management believes that sales will soften in the upcoming quarters until such time as general economic conditions improve. The Company's railway tie product category is the most susceptible to a prolonged economic downturn as its key customers in this category may reduce capital spending on special projects and track extensions as a result of lower traffic volumes.

"The global economic situation calls for caution, as evidenced by short-term challenges caused by softer demand and price competition, which have slightly reduced Stella-Jones' organic sales growth and profitability. In the short-term, we remain focused on cash generation and debt reduction, although Stella-Jones' long-term strategic vision, focused on continental expansion and consolidation, remains intact," concluded Mr. McManus.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on Thursday, August 13, 2009, at 1:30 PM Eastern Time. Interested parties can join the call by dialling 1- 416-644-3418 (Toronto or overseas) or 1-800-589-8577 (elsewhere in North America). Parties unable to call in at this time may access a tape recording of the meeting by calling 1-877-289-8525 and entering the passcode 21311612#. This tape recording will be available on Thursday, August 13, 2009 as of 3:30 PM Eastern Time until 11:59 PM Eastern Time on Thursday, August 20, 2009.

ABOUT STELLA-JONES

Stella-Jones Inc. (TSX:SJ) is a leading North American producer and marketer of industrial pressure treated wood products, specializing in the production of railway ties and timbers as well as wood poles supplied to electrical utilities and telecommunications companies. The Company also provides treated consumer lumber products and customized services to lumber retailers and wholesalers for outdoor applications. Other products include marine and foundation pilings, construction timbers, highway guardrail posts and treated wood for bridges. 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, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.

Note to readers: Complete unaudited interim consolidated financial statements and Management's Discussion & Analysis are available on Stella-Jones' website at www.stella-jones.com



HEAD OFFICE

3100 de la Cote-Vertu Blvd.
Suite 300
Saint-Laurent, Quebec
H4R 2J8
Tel.: (514) 934-8666
Fax: (514) 934-5327

EXCHANGE LISTINGS

The Toronto Stock Exchange
Stock Symbol (TSX): SJ

TRANSFER AGENT AND REGISTRAR

Computershare Investor Services Inc.

INVESTOR RELATIONS

George Labelle
Senior Vice-President and
Chief Financial Officer
Tel.: (514) 934-8665
Fax: (514) 934-5327
glabelle@stella-jones.com

Contact Information