Stella-Jones Reports Strong 2016 Second Quarter Results

MONTREAL, QUEBEC--(Marketwired - Aug. 10, 2016) - Stella-Jones Inc. (TSX:SJ) ("Stella-Jones" or the "Company") today announced financial results for its second quarter ended June 30, 2016.

"Stella-Jones' strong sales growth in the second quarter stems from its greater reach in the residential lumber category and sustained demand in the railway tie category. Further improvement in operating profitability reflects economies of scale generated by higher volumes as well as our ongoing focus on optimizing network efficiencies," said Brian McManus, President and Chief Executive Officer.

Financial highlights		Quarters ended June 30,		Six-months ended June 30,
(in millions of Canadian dollars, except per share data)		2016	2015	2016	2015
Sales		563.1	428.1	984.0	768.8
Operating income		83.2	61.1	137.8	108.8
Net income for the period		54.7	38.9	89.7	69.0
	Per share - basic ($)	0.79	0.56	1.30	1.00
	Per share - diluted ($)	0.79	0.56	1.30	1.00
Weighted average shares outstanding (basic, in '000s)		69,185	68,987	69,162	68,970

SECOND QUARTER RESULTS

Sales reached $563.1 million, up 31.5% from $428.1 million a year ago. The acquisition of Ram Forest Group Inc. and Ramfor Lumber Inc. (collectively, "Ram") on October 1, 2015, contributed sales of approximately $51.7 million. The acquisitions of Lufkin Creosoting Co., Inc. ("Lufkin Creosoting") and of 440 Investments, LLC, the parent company of Kisatchie Treating, LLC, Kisatchie Pole & Piling, LLC, Kisatchie Trucking, LLC and Kisatchie Midnight Express, LLC (collectively, "Kisatchie"), both completed on June 3, 2016, added combined sales of $5.6 million, while acquisitions in the southeastern United States completed in the second half of 2015 added sales of approximately $7.4 million. 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 $13.2 million on the value of U.S. dollar denominated sales when compared with last year's second quarter. Excluding these factors, organic growth was approximately $57.2 million, or 13.4%.

Railway tie sales amounted to $216.3 million, up 11.1% from $194.8 million last year. Excluding the currency conversion effect, railway tie sales rose approximately 7.3%, primarily as a result of healthy industry demand.

Sales of utility poles reached $142.8 million, compared with $136.7 million last year. Excluding the currency conversion effect and the contribution from acquisitions, sales declined approximately 6.7%. During the quarter, sales of distribution poles softened as a result of reduced maintenance demand in certain regions, while sales of transmission poles held steady versus last year.

Sales of residential lumber totalled $152.1 million, up from $60.9 million last year. This strong increase reflects sales of $51.7 million from the Ram acquisition, increased market demand as well as the impact of the transition from treating services only for wholesalers to a value-added full service direct offering for retailers.

Industrial product sales amounted to $27.0 million, compared with $25.4 million a year ago, as the currency conversion effect more than offset a decline related to the timing of orders for rail related products in the United States. Logs and lumber sales were $24.8 million, versus $10.4 million last year, due to procurement efforts to support residential lumber requirements and the timing of timber harvesting.

Operating income reached $83.2 million, or 14.8% of sales, versus $61.1 million, or 14.3% of sales, last year. The increase in absolute dollars stems from increased business activity, the contribution from acquisitions and the effect of currency translation. As a percentage of sales, the increase is mainly attributable to economies of scale generated by higher volumes in the residential lumber category, greater efficiencies throughout the Company's plant network and the year-over-year variation in other net losses and gains. These factors were partially offset by the greater logs and lumber sales, which are performed at a value close to their cost of sales.

Net income for the second quarter of 2016 increased 40.4% to $54.7 million, or $0.79 per diluted share, compared with $38.9 million, or $0.56 per diluted share, in the second quarter of 2015.

SIX-MONTH RESULTS

For the six-month period ended June 30, 2016, sales amounted to $984.0 million, versus $768.8 million for the corresponding period a year earlier. Acquisitions contributed sales of approximately $79.6 million, while the currency conversion effect had a positive impact of $49.0 million on the value of U.S. dollar denominated sales. Excluding these factors, sales increased approximately $86.6 million, or 11.3%.

Operating income stood at $137.8 million, or 14.0% of sales, compared with $108.8 million, or 14.2% of sales, a year earlier. Net income for the first six months of 2016 increased 29.9% to $89.7 million, or $1.30 per diluted share, up from $69.0 million, or $1.00 per diluted share, in the first six months of 2015.

SOLID FINANCIAL POSITION

As at June 30, 2016, the Company's long-term debt, including the current portion, stood at $731.7 million compared with $628.1 million three months earlier. The increase mainly reflects larger borrowings to finance the acquisitions of Lufkin Creosoting and Kisatchie and larger working capital requirements, partially offset by the effect of local currency translation on U.S. dollar denominated long-term debt. Working capital requirements include the normal seasonal increase in accounts receivable resulting from greater second quarter business activity. As at June 30, 2016, Stella-Jones' total debt to total capitalization ratio was 0.44:1, compared with 0.41:1 as at March 31, 2016.

QUARTERLY DIVIDEND OF $0.10 PER SHARE

On August 9, 2016, the Board of Directors declared a quarterly dividend of $0.10 per common share, payable on September 23, 2016 to shareholders of record at the close of business on September 2, 2016.

OUTLOOK

"Market demand for our products should remain healthy for the remainder of 2016. With respect to railway ties, we expect second-half demand for 2016 to be down on a year-over-year basis following a strong first half of the year. In the utility pole market, regular maintenance demand is expected to remain relatively steady for the balance of the year, despite a slight softening in the first half of 2016, while transmission pole sales should hold following the stabilization in resource prices. Stella-Jones' broader reach in the residential lumber category will allow us to further benefit from continued demand for new construction and outdoor renovation projects in the North American residential and commercial markets. As for the short-term, our priority is to integrate recent acquisitions into our network by leveraging best practices to enhance network efficiencies and create lasting value for our shareholders," concluded Mr. McManus.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on August 10, 2016, at 10:00 AM Eastern Time. Interested parties can join the call by dialing 1-647-788-4922 (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 37729120. This recording will be available on Wednesday, August 10, 2016 as of 10:00 PM Eastern Time until 11:59 PM Eastern Time on Wednesday, August 17, 2016.

NON-IFRS FINANCIAL MEASURES

Operating income is a financial measure not prescribed by IFRS and is not likely to be comparable to similar measures presented by other issuers. Management considers this non-IFRS measure to be useful information to assist knowledgeable investors regarding the Company's financial condition and results of operations as it provides an additional measure 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 manufactures and distributes residential lumber and accessories to retailers 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 second quarter ended June 30, 2016 are available on Stella-Jones' website at www.stella-jones.com.