Stella-Jones reports Q4 2014 and annual results
March 26, 2015 — Stella-Jones Inc. (TSX:SJ) ("Stella-Jones" or the "Company") today announced financial results for its fourth quarter and fiscal year ended December 31, 2014.
“Driven by healthy demand for its core products and a strong market reach, 2014 marked the fourteenth consecutive year of growth for Stella-Jones. Moreover, a relentless focus on improving the efficiency of our growing network partially mitigated headwinds from the tighter market for untreated railway ties that affected the industry for most of the year. We are pleased with these results which once again confirm Stella-Jones’ solid reputation as a leading supplier to its core markets and as an enduring source of value creation for its shareholders,” said Brian McManus, president and CEO.
Financial highlights Quarters ended Dec. 31, Years ended Dec. 31,
(in millions of Canadian
dollars, except per share
data) 2014 2013 2014 2013
Sales 289.9 222.5 1,249.5 1,011.3
Operating income 33.9 29.5 155.7 138.7
Net income for the period 23.0 19.7 103.8 92.5
Per share – basic ($) 0.33 0.29 1.51 1.35
Per share – diluted ($) 0.33 0.29 1.50 1.34
Weighted average shares
outstanding (basic, in
‘000s) 68,687 68,693 68,802 68,681
Sales reached $1.25 billion, up 23.6% over last year’s sales of $1.01 billion. The assets acquired from The Pacific Wood Preserving Companiesa (“PWP”) on November 15, 2013 contributed additional sales of $43.3 million over a ten-and-a-half-month period in 2014, while the wood treating facilities acquired from Boatright Railroad Products, Inc. (“Boatright”) on May 22, 2014 generated sales of $33.4 million. 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 $59.2 million when compared with the previous year. Excluding these factors, sales increased approximately $102.3 million, or 10.1%.
Railway tie sales amounted to $530.0 million, up 34.5% from $394.0 million last year. Excluding sales from acquisitions and the foreign currency conversion effect, railway tie sales rose approximately 18.1%. Further adjusting for a negative timing effect of about $30.9 million on last year’s sales resulting from the transition of a Class 1 railroad customer from a “treating services only” program to a “black-tie” program, year-over-year railway tie sales increased $40.3 million, or 10.2%, as a result of solid market demand from tie replacement programs and increased pricing.
Sales of utility poles reached $470.5 million in 2014, up 15.9% from $405.8 million in 2013. Excluding sales from acquisitions and the conversion effect, sales rose approximately $17.0 million, or 4.0%, reflecting sustained demand from replacement programs for distribution poles and from special projects for transmission poles.
Sales of residential lumber totalled $128.0 million, up from $112.3 million a year earlier, driven by solid demand in Western Canada and the United States due to the general improvement in the North American economy. Industrial product sales stood at $89.4 million, compared with $58.1 million last year, reflecting the contribution from acquisitions and increased sales of rail-related industrial products. Finally, non-pole-quality log sales were $31.6 million, down from $41.1 million a year ago due to the timing of timber harvesting.
Operating income rose 12.3% to $155.7 million, or 12.5% of sales, versus $138.7 million, or 13.7% of sales, last year. The reduction as a percentage of sales stems primarily from higher year-over-year costs for untreated railway ties. These factors were partially offset by greater efficiencies throughout the Company’s plant network.
Net income for the year increased 12.2% to $103.8 million or $1.50 per share, fully diluted, compared with $92.5 million or $1.34 per share, fully diluted, in 2013.
FOURTH QUARTER RESULTS
Sales amounted to $289.9 million, up 30.3% from $222.5 million for the same period last year. The Boatright facilities contributed sales of $17.7 million, while assets acquired from PWP generated additional sales of $7.0 million over a 45-day period. The conversion effect from fluctuations in the value of the Canadian dollar, versus the U.S. dollar, increased the value of U.S. dollar denominated sales by $16.1 million when compared with last year. Excluding these factors, sales increased approximately $26.6 million, or 12.0%.
Sales of railway ties reached $131.1 million, versus $78.3 million last year. Excluding sales from acquisitions and the conversion effect, sales rose $27.1 million, or 34.7%. Further adjusting for a negative timing effect of approximately $13.4 million on last year’s railway tie sales resulting from the program transition of a Class 1 railroad customer, year-over-year railway tie sales increased $13.7 million, or 17.5% as a result of solid market demand and price increases. Utility pole sales rose $6.7 million, or 6.2% to $113.8 million. Excluding sales from acquisitions and the conversion effect, sales declined by approximately $4.1 million due to the year-over-year timing difference for certain orders. Residential lumber sales reached $17.9 million, up from $13.8 million last year, driven by solid demand in most markets. Industrial product sales were $18.7 million, versus $12.7 million a year ago, as a result of acquisitions and higher sales of rail-related products. Finally, non-pole-quality log sales stood at $8.4 million, down from $10.6 million last year due to the timing of timber harvesting.
Operating income was $33.9 million, or 11.7% of sales, versus $29.5 million, or 13.3% of sales, last year. The variation as a percentage of sales reflects a less favourable year-over-year product mix, more heavily weighted towards railway ties in 2014, partially offset by greater efficiencies throughout the Company’s plant network. During the fourth quarter, the Company has continued to adjust its railway tie selling prices, as permitted in most of the multi-year contracts.
Net income for the period rose 16.6% to $23.0 million, or $0.33 per share, fully diluted, compared with $19.7 million, or $0.29 per share, fully diluted, last year.
SOLID FINANCIAL POSITION
As at December 31, 2014, the Company’s long-term debt, including the current portion, stood at $444.6 million compared with $372.9 million at the end of 2013. The increase essentially reflects additional long-term debt to finance the acquisition of Boatright and the effect of local currency translation on U.S. dollar denominated long-term debt. Despite this acquisition, Stella-Jones total debt to total capitalization ratio of 0.39:1 as at December 31, 2014 was stable from a year earlier.
Subsequent to year end, on March 3, 2015, the existing revolving credit agreement was amended and restated to make available a committed revolving credit facility in the amount of US$450.0 million, versus Cdn$450.0 million previously. Conditions and the maturity date of December 13, 2018 remain unchanged.
QUARTERLY DIVIDEND OF $0.08 PER SHARE
On March 12, 2015, the Board of Directors approved a quarterly dividend of $0.08 per common share payable on April 30, 2015 to shareholders of record at the close of business on April 2, 2015.
“As economic activity remains healthy in most of our markets, we expect solid demand for our core products in 2015 and we are planning further capacity additions to our network to meet future demand. We believe that lower oil prices will have a slightly favourable effect on Stella-Jones’ overall business, as a reduction in the cost of certain raw materials should more than offset potential delays on certain projects requiring our core products. As conditions in the untreated railway tie market stabilized in late 2014, product availability has returned to more appropriate levels. Therefore, consistent supply in the coming months will be an important factor in rebuilding inventory. We believe the strength of our procurement network should allow Stella-Jones to meet demand at the most optimal cost,” concluded Mr. McManus.
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.
Stella-Jones Inc. (TSX:SJ) is a 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 fourth quarter and year ended December 31, 2014 are available on Stella-Jones’ website at www.stella-jones.com