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Stella-Jones reports 2015 first quarter results

April 29, 2015 - Stella-Jones Inc. today announced financial results for its first quarter ended March 31, 2015.

"We are pleased with these results that show healthy demand in our core markets as well as the strong contribution of our recent acquisition. Furthermore, adjustments in our selling prices in response to higher input costs for untreated railway ties helped us to improve our gross profit margin when compared to recent quarters," said Brian McManus, President and Chief Executive Officer. 

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Financial highlights  
(in millions of Canadian dollars, except per share data)                                                                                                        Quarters ended March 31, 2015        2014
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Sales                                                        340.7       257.5

Operating income                                       47.6        34.7

Net income for the period                            30.1        22.5

  Per share - basic ($)                                 0.44        0.33

  Per share - diluted ($)                               0.43        0.33

Weighted average shares outstanding 

(basic, in '000s)                                      68,953      68,737

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First quarter results
Sales reached $340.7 million, up 32.3 per cent from $257.5 million a year ago. The wood treating facilities acquired from Boatright Railroad Products, Inc. ("Boatright") on May 22, 2014 generated sales of $21.1 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 $29.4 million when compared with last year. Excluding these factors, sales increased approximately $32.7 million, or 12.7 per cent.

Railway tie sales amounted to $166.8 million, up 53.5 per cent from $108.6 million last year. Excluding sales from Boatright and the foreign currency conversion effect, railway tie sales rose approximately 21.7 per cent, primarily as a result of adjusted selling prices. 

Sales of utility poles reached $119.2 million, an increase of 10.9 per cent compared with $107.5 million last year. Factoring out the foreign currency conversion effect, sales increased 1.9 per cent, as a steady rise in sales of distribution poles stemming from regular maintenance projects, was partially offset by slightly lower sales of transmission poles due to the timing of orders for special projects. 

Sales of residential lumber totalled $28.4 million, up from $17.3 million last year, reflecting higher sales in the United States due to a strong economy as well as in Western Canada where the Company increased its market reach in British Columbia. Industrial product sales increased to $19.9 million, compared with $15.8 million a year ago, mainly due to the contribution of the Boatright assets and the foreign currency conversion effect. Finally, non-pole-quality log sales were $6.4 million, versus $8.3 million last year, due to the timing of timber harvesting. 

Gross profit reached $66.4 million, or 19.5 per cent of sales, up from $50.3 million, or 19.5% of sales, last year. The increase in absolute dollars essentially stems from higher business activity, the addition of the Boatright assets and the effect of currency translation. As a percentage of sales, gross profit was stable year-over-year, as adjusted pricing for railway has matched the 2014 cost increases of untreated railway ties. As a result of higher gross profit, operating income increased 37.2 per cent to $47.6 million, or 14.0 per cent of sales, versus $34.7 million, or 13.5 per cent of sales, last year. 

Net income for the first quarter of 2015 increased 33.7 per cent to $30.1 million or $0.43 per share, fully diluted, compared with $22.5 million or $0.33 per share, fully diluted, in the first quarter of 2014. 

Solid financial position
As at March 31, 2015, the Company's long-term debt, including the current portion, stood at $517.2 million compared with $444.6 million three months earlier. The increase essentially reflects higher working capital requirements, as per normal seasonal demand patterns, and the effect of local currency translation on U.S. dollar denominated long-term debt. As at March 31, 2015 Stella-Jones, total debt to total capitalization ratio was 0.40:1, compared with 0.39:1 as at December 31, 2014.

Working capital requirements included the normal seasonal inventory build-up ahead of peak demand in the second and third quarters. The seasonal inventory build-up was more accentuated in the first quarter of 2015 due to untreated railway tie availability returning to normal levels, which enabled Stella-Jones to start rebuilding inventory levels. As a result, the value of inventories stood at $611.5 million as at March 31, 2015, versus $487.7 million as at December 31, 2014.

Letter of intent to acquire Ram Forest Group Inc. and Ramfor Lumber Inc.
During the quarter, the Company signed a non-binding letter of intent to purchase the shares of Ram Forest Group Inc. and Ramfor Lumber Inc. Through its wholly-owned subsidiaries, Ram Forest Products Inc. and Trent Timber Treating Ltd., Ram Forest Group manufactures and sells pressure treated wood products and accessories to the retail building materials industry. Ramfor Lumber is a lumber purchasing entity serving Ram Forest Products and Trent Timber Treating. 

Ram Forest Products operates a wood treating facility in Gormley, Ontario and Trent Timber Treating operates a wood treating facility in Peterborough, Ontario. The wood milling plant operated by Ram Forest Products in Uxbridge, Ontario is not part of the transaction, and existing Ram Forest Group shareholders will continue to own this plant. Consolidated sales of the acquired facilities for the fiscal year ended September 30, 2014 reached approximately $90.2 million.

The transaction, if finalized, is expected to close in October 2015 and is subject to customary conditions, including satisfactory due diligence, signature of a definitive share purchase agreement and regulatory clearance. Stella-Jones plans to finance the transaction through its existing revolving credit facility.

"This transaction will expand Stella-Jones' wood treating capabilities in the residential lumber market and allow us to build upon Ram Forest Group's longstanding relationships with key customers. The proposed timetable for the transaction has been carefully designed to minimize disruption of Ram Forest Group's operations and ensure a seamless transition for its customers, suppliers and employees," added Mr. McManus.

Quarterly dividend of $0.08 per share
On April 28, 2015, the Board of Directors declared a quarterly dividend of $0.08 per common share, payable on June 26, 2015 to shareholders of record at the close of business on June 2, 2015.

Outlook
"As we believe the momentum in the North American economy will continue, demand for our core products should remain solid in 2015. Stella-Jones remains focussed on enhancing shareholder value by optimizing the efficiency of its continental network, while seeking selective and accretive opportunities to further expand its presence in the wood treating industry, as evidenced by the proposed acquisition in Ontario," concluded Mr. McManus.

Conference call
Stella-Jones will hold a conference call to discuss these results on April 29, 2015, at 1:30 PM Eastern Time. Interested parties can join the call by dialing 647-788-4922 (Toronto or overseas) or 1-877-223-4471 (elsewhere in North America). Parties unable to call in at this time may access a tape recording of the meeting by calling 1-800-585-8367 and entering the passcode 17072554. This tape recording will be available on Wednesday, April 29, 2015 as of 5:30 PM Eastern Time until 11:59 PM Eastern Time on Wednesday, May 6, 2015. 

Non-IFRS financial measures
Operating income and cash flow from operating activities before changes in non-cash working capital components and interest and income tax paid are financial measures not prescribed by IFRS and are not likely to be comparable to similar measures presented by other issuers. Management considers these non-IFRS measures to be useful information to assist knowledgeable investors regarding the Company's financial condition and results of operations as they provide additional measures of its performance. 

About Stella-Jones
Stella-Jones Inc. (TSX:SJ) is a leading producer and marketer of pressure treated wood products. The Company supplies North America's railroad operators with railway ties and timbers, and the continent's electrical utilities and telecommunication companies with utility poles. Stella-Jones also provides residential lumber to retailers and wholesalers for outdoor applications, as well as industrial products for construction and marine applications. The Company's common shares are listed on the Toronto Stock Exchange.

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, the ability of the Company to raise the capital required for acquisitions, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results. 

Note to readers: Condensed interim unaudited consolidated financial statements for the first quarter ended March 31, 2015 are available on Stella-Jones' website at www.stella-jones.com


April 29, 2015
By Stella-Jones Inc.

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