Features Remanufacturing
Stella-Jones reports Q2 2015 results

August 10, 2015 - Stella-Jones Inc. announced its financial results for its second quarter ended June 30, 2015.

“Stella-Jones produced solid operating results in the second quarter driven by healthy demand in its core markets and a wider reach in the residential lumber category,” said Brian McManus, president and CEO. “Margins benefited from further selling price adjustments in response to evolving market conditions in the untreated railway tie market and from greater network efficiency. Finally, our significant operating cash flow was mainly invested in working capital to support expected growth.” 



Second quarter results
Sales reached $428.1 million, up 24.2 per cent from $344.8 million a year ago. The wood treating facilities acquired from Boatright Railroad Products, Inc. (Boatright) on May 22, 2014 generated additional sales of $27.3 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 $38.1 million when compared with last year. Excluding these factors, sales increased approximately $17.9 million, or 5.2 per cent.

Railway tie sales amounted to $194.8 million, up 37.7 per cent from $141.5 million last year. Excluding sales from Boatright and the foreign currency conversion effect, railway tie sales rose approximately 6.8 per cent, primarily as a result of adjusted selling prices.

Sales of utility poles reached $136.7 million, an increase of 12.4 per cent compared with $121.6 million last year. Factoring out the foreign currency conversion effect, sales increased 2.2 per cent, as a steady rise in sales of distribution poles stemming from regular maintenance projects was partially offset by lower sales of transmission poles due to a decrease in demand for special projects as a result of the weakness in the oil and gas as well as mining industries.

Sales of residential lumber totalled $60.9 million, up from $49.4 million last year, reflecting higher sales in the United States due to a healthy economy as well as in Western Canada, mostly as a result of the Company's increasing reach into British Columbia. Industrial product sales were $25.4 million, compared with $25.1 million a year ago, mainly due to the additional contribution of the Boatright assets and the foreign currency conversion effect. Finally, non-pole-quality log sales were $10.4 million, versus $7.2 million last year, due to the timing of timber harvesting.

Gross profit reached $84.1 million, or 19.7 per cent of sales, up from $60.1 million, or 17.4 per cent 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 increased mainly as a result of adjusted pricing for railway ties and greater efficiencies throughout the Company's network. As a result of higher gross profit, operating income increased 46.9 per cent to $61.1 million, or 14.3 per cent of sales, versus $41.6 million, or 12.1 per cent of sales, last year.

Net income for the second quarter of 2015 increased 35.1 per cent to $38.9 million or $0.56 per share, fully diluted, compared with $28.8 million or $0.42 per share, fully diluted, in the second quarter of 2014.

Six-month results
For the six-month period ended June 30, 2015, sales amounted to $768.8 million, versus $602.3 million for the corresponding period a year earlier. The Boatright facilities contributed additional sales of approximately $48.4 million, while the conversion effect from fluctuations in the value of the Canadian dollar versus the U.S. dollar had a positive impact of $67.5 million on the value of U.S. dollar denominated sales. Excluding these factors, sales increased approximately $50.6 million, or 8.4 per cent.

Operating income reached $108.8 million, or 14.2 per cent of sales, up from $76.4 million, or 12.7% of sales, a year ago. Net income totalled $69.0 million, or $1.00 per share, fully diluted, compared with $51.3 million, or $0.74 per share, fully diluted, last year.

Financial position
As at June 30, 2015, the Company's long-term debt, including the current portion, stood at $538.1 million compared with $517.2 million three months earlier. The increase essentially reflects higher working capital requirements and the effect of local currency translation on U.S. dollar denominated long-term debt. As at June 30, 2015 Stella-Jones' total debt to total capitalization ratio was 0.41:1, versus 0.40:1 as at March 31, 2015.

Working capital requirements included the normal seasonal increase in accounts receivable as well as higher inventory in anticipation of higher sales going forward and the gradual rebuilding of inventory due to untreated railway tie availability returning to customary levels.

Quarterly dividend of $0.08 per share
On August 7, 2015, the board of directors declared a quarterly dividend of $0.08 per common share, payable on September 25, 2015 to shareholders of record at the close of business on September 4, 2015.

Outlook
“Railway tie demand is expected to remain healthy for the remainder of 2015. With untreated tie availability returning to more appropriate levels, our strong procurement network should continue to provide consistent supply to support inventory rebuilding. In the utility pole market, regular maintenance demand should continue to grow at a steady pace, but lower resource prices have resulted in decreased demand for special projects. Over the mid-term, utility pole demand should improve, as an increasing number of poles are approaching the end of their service life and will need to be replaced. Stella-Jones remains focused on creating shareholder value by optimizing network efficiency and capturing accretive opportunities to further expand its reach in the wood treating industry,” concluded Mr. McManus.

Conference call
Stella-Jones will hold a conference call to discuss these results on August 7, 2015, at 3:00 p.m., EST. 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 80946196. This tape recording will be available on Friday, August 7, 2015 as of 6:00 PM Eastern Time until 11:59 p.m. EST on Friday, August 14, 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. 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 second quarter ended June 30, 2015 are available on Stella-Jones' website at www.stella-jones.com

August 10, 2015  By Stella-Jones Inc.