Features Operation Reports Remanufacturing
Stella-Jones sales up 23%

Aug. 11, 2014, Montreal - Stella-Jones announced financial results for its second quarter ended June 30, 2014. Sales reached $344.8 million, up 22.7% from $280.9 million in the same period last year.

"Solid industry demand for Stella-Jones' core products and the contribution from recent acquisitions led to a strong sales growth in the second quarter of 2014. As railway tie and utility pole replacement programs continue to gain momentum, our proven ability to respond to product and service requirements enables us to further penetrate our markets. As anticipated, higher costs for untreated railway ties had a negative effect on profitability. However, strong sales growth and our continued focus on optimizing our plant network resulted in a year-over-year increase in net income," said Brian McManus, President and Chief Executive Officer.

SECOND QUARTER RESULTS

Sales reached $344.8 million, up 22.7% from $280.9 million in the same period last year. The operating assets acquired from The Pacific Wood Preserving Companies ("PWP") on November 15, 2013 and from Boatright Railroad Products, Inc. ("Boatright") on May 22, 2014 contributed sales of $12.0 million and $3.7 million, respectively. 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 about $18.0 million when compared with the previous year. Excluding these factors, sales increased approximately $30.2 million, or 10.8%.

Railway tie sales amounted to $141.5 million, up 18.1% from $119.8 million a year earlier. Excluding sales from the PWP and Boatright assets, as well as the conversion effect, railway tie sales rose approximately $7.7 million, or 6.4%, reflecting solid market demand from replacement programs. Sales of utility poles reached $121.6 million, up from $95.1 million last year. Excluding sales from the PWP assets and the conversion effect, utility pole sales increased $14.0 million, or 14.7%, as a result of larger customer orders for distribution and transmission poles stemming from increased demand from replacement programs and certain special projects. Sales in the residential lumber category totalled $49.4 million, versus $41.3 million a year ago, mainly reflecting solid demand in Western Canada and the United States. Industrial product sales reached $25.1 million, up from $17.0 million last year due to the contribution of the PWP and Boatright assets as well as increased sales of rail-related products. Finally, non-pole-quality log sales amounted to $7.2 million, versus $7.7 million a year ago, as a result of the timing of timber harvesting.

Operating income stood at $41.6 million, or 12.1% of sales, versus $41.0 million, or 14.6% of sales, last year. The decrease as a percentage of sales is mainly due to higher year-over-year costs for untreated railway ties, partially offset by greater efficiencies throughout the company's plant network. Results for the second quarter of 2014 also include a $1.6 million write-off of certain property, plant and equipment in the United States and acquisition-related costs of $616,000 in connection with the Boatright transaction.

Net income for the second quarter of 2014 increased 9.1% to $28.8 million or $0.42 per share, fully diluted, compared with $26.4 million or $0.38 per share, fully diluted, in the second quarter of 2013.

SIX-MONTH RESULTS
For the six-month period ended June 30, 2014, sales amounted to $602.3 million, versus $503.5 million for the same period in 2013. Acquisitions accounted for total sales of $28.9 million, while the conversion effect from fluctuations in the value of the Canadian dollar versus the U.S. dollar had a positive year-over-year impact of $34.3 million on the value of U.S. dollar denominated sales. Excluding these factors, sales increased approximately $35.7 million, or 7.1%.

Operating income was $76.4 million, or 12.7% of sales, up from $70.6 million, or 14.0% of sales, last year. Net income reached $51.3 million, or $0.74 per share, fully diluted, compared with $45.2 million, or $0.65 per share, fully diluted, a year ago.

FINANCIAL POSITION
As at June 30, 2014, the company's long-term debt, including the current portion, stood at $456.8 million compared with $407.0 million three months earlier. The variation essentially reflects working capital requirements and the acquisition of Boatright. To partially finance this acquisition, the company's committed revolving credit facility was increased from $400.0 million to $450.0 million. As at June 30, 2014, an amount of $391.7 million had been drawn against this facility. As a result of this higher debt, Stella-Jones' total debt to total capitalization ratio was 0.43:1 as at June 30, 2014, versus 0.40:1 three months earlier.

OUTLOOK
"We expect healthy demand for our core products for the remainder of the year driven by a better economy and sound fundamentals in our main sectors of activity. With regards to higher cost for untreated railway ties, margins will be impacted in the short term, until we are able to adjust selling prices as per provisions in most of Stella-Jones' multi-year contracts. Further profitability improvements will also be driven by sustained initiatives to optimize efficiency across our expanded North American network following recent acquisitions," concluded Mr. McManus.

August 11, 2014  By CNW Telbec