Features Maintenance Sawmilling
Stella-Jones’ sales up 37%

“Stella-Jones’ focus on improving operating efficiency across its network produced solid operating results in the third quarter. A strong performance by the McFarland Cascade Holdings operations led to greater penetration of the utility pole market in the United States. Meanwhile, the transition of a Class 1 railroad customer from a “treating services only” program to a “black-tie” program, whereby the customer purchases an integrated product and service offering from Stella-Jones, created a lag in shipments resulting in lower year-over-year railway tie sales. Finally, we are pleased with the on-schedule start of wood treatment operations at our new facility in Cordele, Georgia, which contributed sales of approximately $2.3 million,” said Brian McManus, President and Chief Executive Officer.

Railway tie sales reached $99.4 million, compared with $114.7 million last year, mainly reflecting the aforementioned transition of a Class 1 railroad customer to a “black-tie” program. Sales of utility poles amounted to $112.8 million, up from $53.1 million in the corresponding period in 2012. This increase is mainly attributable to utility pole sales of $59.9 million from the McFarland operations. Sales of residential lumber reached $39.3 million, up from $12.3 million a year earlier as a result of additional residential lumber sales of $25.0 million from the McFarland operations and unexpected strong demand in southern Alberta subsequent to flooding earlier in the year. Finally, industrial product sales totaled $16.5 million, compared with $15.4 million a year earlier, mainly reflecting a $1.3 million contribution from the McFarland operations.

Operating income rose 21.2% to $38.6 million, or 14.4% of sales, versus $31.8 million, or 16.3% of sales, last year. While the increase in monetary terms mainly reflects the addition of the McFarland operations, the reduction as a percentage of sales stems from a less favourable product mix and higher shipping cost due to the unexpected strong demand for residential lumber in southern Alberta, as greater shipments were made from Stella-Jones’ eastern Canada facilities to adequately meet customer requirements.

Net income for the period increased 33.7% to $27.7 million or $0.40 per share, fully diluted, compared with $20.7 million or $0.32 per share, fully diluted, in the third quarter of 2012. Cash flow from operating activities before changes in non-cash working capital components and interest and income taxes paid rose 23.3% to $43.5 million.

Nine-month results

For the nine-month period ended September 30, 2013, sales reached $758.3 million, up 35.9% from the same period a year earlier. The McFarland operations contributed sales of approximately $226.1 million while the year-over-year 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 $7.1 million.

Operating income was $109.2 million or 14.4% of sales, compared with $88.5 million or 15.9% of sales last year. Net income for the period reached $72.8 million or $1.05 per share, fully diluted, up 28.9% from $56.5 million or $0.88 per share, fully diluted, a year earlier. Cash flow from operating activities before changes in non-cash working capital components and interest and income taxes paid rose 28.0% to $126.0 million.

Long-term debt reduction of $55.3 million

As of September 30, 2013, the Company’s long-term debt, including the current portion, stood at $318.4 million, down $55.3 million from $373.7 million three months ago. The decrease essentially reflects lower working capital requirements in the third quarter of 2013. As a result, the ratio of total debt to total capitalization was 0.37:1 as at September 30, 2013, down from 0.41:1 three months earlier.

During the third quarter of 2013, Stella-Jones invested $6.9 million in purchases of property, plant and equipment, primarily for the addition of various equipment upgrades and incremental capacity in anticipation of strong demand. This amount includes $2.0 million to complete the construction of the Cordele, Georgia facility and an amount of $0.9 million for a new treating cylinder at the New Westminster, British Columbia facility.

Quarterly dividend of $0.05 per share

On November 7, 2013, the Board of Directors declared a quarterly dividend of $0.05 per common share payable on December 20, 2013 to shareholders of record at the close of business on December 2, 2013.

Outlook

“Demand for Stella-Jones’ products and services should remain healthy for the upcoming quarters, as fundamentals in our core markets remain favourable. While the transition to a “black tie” program will create a short-term lag effect on sales to one of our customers until the first quarter of 2014, we are pleased with this opportunity to demonstrate our ability to provide this customer with a comprehensive product and service offering. Over the long-term, our strategy focused on continental expansion remains intact, as evidenced by the proposed acquisition of three wood treating facilities in Oregon, Nevada and Arizona. Should this transaction be completed, Stella-Jones would benefit from greater market penetration, synergies and additional operating efficiencies from a larger network,” concluded Mr. McManus.