Features Remanufacturing
Stella-Jones continues positive growth

“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.

Fourth quarter results
In the fourth quarter of 2015, sales reached $357.5 million, up 23.3 per cent 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 per cent.

Railway tie sales amounted to $147.5 million, up 12.5 per cent 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 per cent 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 per cent of sales, in the fourth quarter of 2015, versus $51.4 million, or 17.7 per cent 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 per cent of sales, in the fourth quarter of 2015, versus $33.9 million, or 11.7 per cent of sales, in the fourth quarter of 2014.

Year-end results
Sales for the year ended December 31, 2015 reached $1,559.3 million, up 24.8 per cent 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 per cent.

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

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.