Features Operation Reports Remanufacturing
Stella-Jones posts sales increase, net income decrease in Q2

“Stella-Jones generated solid operating results in the second quarter. This performance was driven by higher railway tie volume stemming from earlier than expected deliveries for certain orders, partially offsetting the impact of lower year-over-year pricing in this product category. In addition, healthy demand in the utility pole category reflects sales synergies stemming from Stella-Jones’ expansion in the southeastern United States over the past two years,” said Brian McManus, president and chief executive officer.

Sales reached $594.2 million, up 5.5 per cent from $563.1 million last year. Acquisitions contributed sales of approximately $16.0 million, while 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 $16.9 million on the value of U.S. dollar denominated sales. Excluding these factors, sales decreased marginally by $1.8 million, or 0.3 per cent.

Railway tie sales amounted to $214.2 million, compared with sales of $216.3 million in last year’s second quarter. Excluding the conversion effect, railway tie sales decreased approximately $10.4 million, or 4.8 per cent, as lower pricing was partially offset by increased volume due to the early delivery of certain tie orders.

Utility pole sales reached $167.5 million in the second quarter of 2017, representing an increase of 17.3 per cent over sales of $142.8 million a year ago. Excluding the contribution from acquisitions and the currency conversion effect, sales increased approximately $3.7 million, or 2.6 per cent, reflecting organic sales growth in the southeastern United States.

Sales in the residential lumber category remained relatively stable, reaching $153.2 million in the second quarter of 2017, versus $152.1 million a year earlier. This stability reflects higher selling prices due to increased untreated lumber costs, offset by lower volumes as a result of less favourable weather in Canada during the second quarter of 2017 compared to the same period last year.

Industrial product sales reached $27.1 million, essentially stable in comparison with $27.0 million a year ago. Excluding the contribution from acquisitions and the currency conversion effect, sales decreased 5.0 per cent mainly due to lower sales of marine pilings in Canada and lower sales of rail-related products. Logs and lumber sales amounted to $32.2 million, versus $24.8 million in the second quarter of last year. The variation reflects the timing of lumber purchase and resale activities as well as the timing of timber harvesting.

Operating income stood at $74.5 million, or 12.5 per cent of sales, compared with $83.2 million, or 14.8% of sales in the second quarter of the previous year. The decrease in absolute dollars and as a percentage of sales essentially reflects lower selling prices for railway ties and a less favourable geographical mix in the utility pole category.

Net income for the second quarter of 2017 was $48.9 million, or $0.71 per diluted share, versus $54.7 million, or $0.79 per diluted share, in the second quarter of 2016.

Six-month results
For the six-month period ended June 30, 2017, sales amounted to $991.2 million, versus $984.0 million for the corresponding period a year earlier. Acquisitions contributed sales of $38.8 million, while the currency conversion effect had a positive impact of $5.6 million on the value of U.S. dollar denominated sales. Excluding these factors, sales decreased approximately $37.3 million, or 3.8 per cent.

Operating income reached $115.3 million, or 11.6 per cent of sales, compared with $137.8 million, or 14.0 per cent of sales, last year. Net income totalled $74.8 million, or $1.08 per diluted share, versus $89.7 million, or $1.30 per diluted share, in the prior year.

Solid financial position
As at June 30, 2017, the company’s long-term debt, including the current portion, stood at $615.8 million compared with $698.5 million three months earlier. The decrease mainly reflects a solid cash flow generation during the quarter as well as the effect of local currency translation on U.S. dollar denominated long-term debt. As at June 30, 2017, Stella-Jones’ total debt to total capitalization ratio was 0.37:1, down from 0.40:1 three months earlier.

On Aug. 8, 2017, the board of directors declared a quarterly dividend of $0.11 per common share payable on Sept. 22, 2017 to shareholders of record at the close of business on Sept. 1, 2017.

Outlook
“As previously anticipated, we expect higher year-over-year sales in the second half of 2017 when compared to the previous year. While higher railway tie volume will be offset by lower pricing, a return to normal maintenance demand patterns and improving demand for special projects should result in higher year-over-year sales in the utility pole category. However, overall operating margins will remain affected by soft railway tie pricing and a less favourable geographical sales mix for utility poles. Stella-Jones remains committed to maximizing operating efficiencies and minimizing costs throughout the organization, while continuing to study any expansion opportunity that offers strategic value in our main product categories to the benefit of our shareholders,” concluded Mr. McManus.