Stella-Jones Inc.

Stella-Jones Inc.

November 12, 2010 07:00 ET

Stella-Jones Reports Third Quarter Results

Solid organic growth in core product categories

MONTREAL, QUEBEC--(Marketwire - Nov. 12, 2010) - Stella-Jones Inc. (TSX:SJ)

  • Sales of $161.3 million compared with $104.7 million last year

  • Organic revenue growth of approximately 18.0%

  • Gross profit up 49.3% to $29.3 million

  • Net income of $12.2 million or $0.77 per share, fully diluted, up from $8.3 million a year ago

Stella-Jones Inc. (TSX:SJ) today announced financial results for its third quarter and nine-month period ended September 30, 2010. 

Financial highlights (unaudited)     
(in thousands of dollars, except per share data)        
   Quarters ended Sept. 30,  Nine months ended Sept. 30,
  2010 2009 2010 2009
Sales 161,298 104,671 427,975 345,729
Gross profit 29,324 19,636 76,378 66,055
Cash flow from operations 1 15,206 10,315 34,796 34,238
Net earnings for the period 12,218 8,320 23,642 27,028
  Per share - basic ($) 0.77 0.66 1.59 2.14
  Per share - diluted ($) 0.77 0.65 1.59 2.13
Weighted average shares outstanding (basic, in '000s) 15,901 12,679 14,840 12,623
1 Before changes in non-cash working capital components.


Sales were $161.3 million, an increase of $56.6 million, or 54.1% from last year's sales of $104.7 million. The acquisition of Tangent Rail Corporation ("Tangent"), effective April 1, 2010, contributed sales of approximately $41.2 million. Changes in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, decreased the value of U.S. dollar denominated sales by about $3.6 million when compared with the same period a year earlier. Adjusting for year-over-year currency fluctuations, sales excluding Tangent increased approximately 18.0% versus last year's third quarter, reflecting higher railway tie sales in the United States and greater utility pole sales in both the United States and Canada.

Railway tie sales increased $40.2 million, or 91.2%, to $84.3 million, as a result of a $27.1 million contribution from Tangent and increased market penetration. Excluding Tangent, year-over-year tie sales rose $13.1 million, net of a $1.8 million decrease due to currency translation effect. Sales of utility poles totalled $42.7 million, up 15.6% from $36.9 million a year ago. This increase mainly reflects higher sales of distribution poles, partially offset by lower sales of transmission poles as well as a $0.7 million decrease in sales from the year-over-year currency translation effect. Industrial product sales rose to $24.7 million, up from $12.4 million a year earlier, driven by the contribution of Tangent's coal tar distillation and used tie pickup and disposal operations. Further capitalizing on efficiencies from consolidation, all coal tar distillation is now being carried out at Stella-Jones' Memphis, Tennessee facility. Accordingly, Stella-Jones sold certain assets relating to its coal tar distillation business at the Terre Haute, Indiana facility at the end of October. Finally, consumer lumber sales decreased 15.4% to $9.5 million.

"Stella-Jones reported strong operating results in the third quarter with solid organic growth in our core product categories," said Brian McManus, President and Chief Executive Officer of Stella-Jones. "The integration of Tangent continues to further enhance our market penetration, as we leverage the strengths and competencies of our expanded North American network. Greater efficiencies from operational optimization initiatives and synergies are also driving profitability improvements throughout the organization."

Gross profit was $29.3 million or 18.2% of sales, up from $19.6 million or 18.8% of sales last year. The 49.3% increase in gross profit dollars essentially reflects the contribution of the Tangent operations partially offset by a lower average rate applied to convert gross profit from U.S. dollar denominated sales. The reduction in gross profit as a percentage of sales mainly stems from a different product mix more heavily weighted towards railway ties.

Net earnings for the period stood at $12.2 million or $0.77 per share, fully diluted, compared with $8.3 million or $0.65 per share, fully diluted, last year. Stella-Jones generated solid cash flow from operating activities before changes in non-cash working capital components of $15.2 million, up from $10.3 million in the same period a year ago.

Stella-Jones' balance sheet further improved as at September 30, 2010. Long-term debt, including the current portion, was $147.3 million, representing a ratio of total long-term debt to shareholders' equity of 0.53:1, down from 0.57:1 three months earlier.

"Further to the ongoing reduction in long-term debt, a strong cash flow generation and better working capital resulted in a substantial decrease in short-term bank indebtedness to $22.5 million as at September 30, 2010, from $47.6 million at the end of the previous quarter," said George Labelle, Senior Vice-President and Chief Financial Officer.


For the nine-month period ended September 30, 2010, sales were $428.0 million, up from $345.7 million in the first nine months of 2009. In addition to Tangent's six-month contribution of $83.3 million, sales increased organically by approximately 6.0%, while changes in the value of the Canadian dollar versus the U.S. dollar decreased the value of U.S. dollar denominated sales by about $21.8 million when compared with the same period a year earlier.

Gross profit reached $76.4 million, or 17.8% of sales, versus $66.1 million, or 19.1% last year. Net earnings for the period stood at $23.6 million, or $1.59 per share, fully diluted, versus $27.0 million, or $2.13 per share, fully diluted, in the corresponding period a year earlier. Cash flow from operating activities before changes in non-cash working capital components reached $34.8 million, compared with $34.2 million last year.

Year-to-date results include approximately $7.5 million in non-recurring expenses, mainly consisting of asset impairment charges for the Spencer, West Virginia facility and the Ripley, West Virginia U.S. corporate office, severance expenses, a provision for an unfavourable legal judgment, as well as general and administrative expenses directly related to the Tangent acquisition.


"We expect current trends to continue to benefit fourth quarter results. We are observing further signs of improvement in the core railway tie market resulting from increased freight volume. These positive developments could lead to greater investment in rail infrastructure as railway operators constantly seek to optimize efficiencies. Meanwhile, utility pole demand should hold with regular maintenance projects providing a stable business flow. Through our enlarged network, greater market penetration and stronger competitive position, we are strategically positioned to benefit from any opportunity that may arise," concluded Mr. McManus.


Stella-Jones will hold a conference call to discuss these results on Friday, November 12, 2010, at 10:00 AM Eastern Time. Interested parties can join the call by dialling 1-647-427-7450 (Toronto or overseas) or 1-888-231-8191 (elsewhere in North America). Parties unable to call in at this time may access a tape recording of the meeting by calling 1-800-642-1687 and entering the passcode 19292542. This tape recording will be available on Friday, November 12, 2010 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Friday, November 19, 2010.


Cash flow from operations is a financial measure not prescribed by Canadian generally accepted accounting principles ("GAAP") and is not likely to be comparable to similar measures presented by other issuers. Management considers it to be useful information to assist knowledgeable investors in evaluating the cash generating capabilities of the Company.


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, timbers and recycling services; and the continent's electrical utilities and telecommunications companies with utility poles. Stella-Jones also provides industrial products and services for construction and marine applications, as well as consumer lumber to retailers and wholesalers for outdoor 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: Complete unaudited third-quarter and nine-month financial statements are available on Stella-Jones' website at

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