Stella-Jones posts solid first quarter
April 28, 2016 - Stella-Jones Inc. announced strong financial results for the first quarter ended March 31, 2016 thanks to solid growth in sales in the railway tie market.
By Andrew Macklin
“Stella-Jones generated solid operating results in the first quarter. This performance reflects healthy demand from regular replacement and maintenance programs in our core railway tie and utility pole markets, our expanded reach in the residential lumber category, as well as our focus on optimizing network efficiency,” said Brian McManus, president and chief executive officer.
First Quarter Results
Sales reached $421.0 million, up 23.6 per cent from $340.7 million a year ago. The acquisition of Ram Forest Group Inc. and Ramfor Lumber Inc. (collectively “Ram”) on October 1, 2015, contributed sales of approximately $9.3 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 about $35.9 million when compared with last year. Excluding these factors, organic growth represented approximately $35.1 million, or 10.3 per cent due to solid demand for the Company’s core products and the addition of the purchase and resale of lumber component to support residential lumber requirements.
Railway tie sales amounted to $200.3 million, up 20.1 per cent from $166.8 million last year. Excluding the currency conversion effect, railway tie sales rose approximately 8.1 per cent, primarily as a result of healthy industry demand and the timing of certain deliveries that had been pushed from the fourth quarter of 2015 into the first quarter of 2016.
Sales of utility poles reached $131.8 million, compared with $119.2 million last year. Excluding the currency conversion effect, and the contribution from acquisitions in the southeastern United States completed in the second half of 2015, sales were relatively stable. During the quarter, a steady rise in sales of distribution poles stemming from regular maintenance programs was offset by lower sales of transmission poles due to decreased demand in special projects resulting from weakness in the oil and gas as well as mining industries.
Sales of residential lumber totaled $41.9 million, up from $28.4 million last year, reflecting sales of $9.3 million from the Ram acquisition, as well as the impact of the transition from treating services only for wholesalers to a value-added full service direct offering for retailers. Industrial product sales increased to $26.7 million, compared with $19.9 million a year ago, mainly as a result of increased demand for marine timbers in Eastern Canada. Finally, logs and lumber sales were $20.2 million, versus $6.4 million last year, due to procurement efforts to support residential lumber requirements and the timing of timber harvesting.
Operating income reached $54.6 million, or 13.0 per cent of sales, versus $47.6 million, or 14.0 per cent of sales, last year. The increase in absolute dollars essentially stems from higher business activity, the Ram acquisition and the effect of currency translation. As a percentage of sales, the decrease is mainly attributable to higher logs and lumber sales, which are performed at a value close to cost of sales, and additional selling expenses related to an expanded presence in the residential lumber category, partially offset by greater efficiencies throughout the Company’s plant network.
Net income for the first quarter of 2016 increased 16.3 per cent to $35.0 million, compared with $30.1 million in the first quarter of 2015.
Solid Financial Position
As at March 31, 2016, the Company’s long-term debt, including the current portion, stood at $628.1 million compared with $669.9 million three months earlier. The decrease mainly reflects the effect of local currency translation on U.S. dollar denominated long-term debt, partially offset by higher working capital requirements, as per normal seasonal demand patterns.
Working capital requirements include the normal seasonal inventory build-up ahead of peak demand in the second and third quarters. The year-over-year inventory build-up is also higher as a result of the addition of Ram’s business and the direct sales to retailers of residential lumber.
“As we enter peak season for most of our products, we expect demand to remain healthy for the remainder of 2016. Supporting this confidence, Stella-Jones is moving forward with the construction of a new wood treating facility in Cameron, Wisconsin, which will primarily be used to service the utility pole market. We expect the facility to be ready for production in the first quarter of 2017. In the meantime, we continue to integrate recent acquisitions into our network by leveraging best practices and anticipate completing, in the second quarter of 2016, the acquisitions of Lufkin Creosoting Co., Inc. and 440 Investments, LLC. Our strategy remains committed on enhancing network efficiencies and methodically expanding through acquisitions. This focus has contributed in building lasting value for our shareholders,” concluded Mr. McManus.