Wood Business

Features Operation Reports Remanufacturing
Stella-Jones reports solid Q1

May 1, 2014, Montreal - Stella-Jones announced 17.1% growth in operating income versus last year in its financial results for its first quarter ended March 31, 2014.

"We are pleased with Stella-Jones' solid operating results in the first quarter of 2014. Demand for our core products remained healthy despite unfavourable weather conditions across North America. Moreover, operating income as a percentage of sales rose further, as greater efficiencies achieved throughout our network more than offset higher costs stemming from a tighter procurement market for untreated railway ties and utility poles," said Brian McManus, President and Chief Executive Officer.

Sales reached $257.5 million, up 15.7% from $222.6 million in the same period last year. The operating assets acquired from The Pacific Wood Preserving Companies ("PWP") on November 15, 2013 contributed sales of $13.2 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 $16.2 million when compared with the previous year. Excluding these factors, sales increased approximately $5.5 million, or 2.5%.

Railway tie sales amounted to $108.6 million, up 12.6% from $96.5 million a year earlier. Excluding sales from the PWP assets and the conversion effect, railway tie sales rose approximately $1.9 million, or 1.9%, reflecting solid market demand, partially offset by unfavourable weather conditions that limited railcar availability. Sales of utility poles reached $107.5 million, up from $90.8 million last year. Excluding sales from the PWP assets and the conversion effect, utility pole sales increased $3.1 million, or 3.5%, as a result of higher customer orders for both distribution and transmission poles. Sales in the residential lumber category totalled $17.3 million, versus $17.9 million a year ago, mainly reflecting less favourable weather in Canada. Industrial product sales reached $15.8 million, compared with $11.9 million last year due to the contribution of the PWP assets. Finally, non-pole-quality log sales amounted to $8.3 million, up from $5.5 million a year ago, as a result of the timing of timber harvesting.

Operating income rose 17.1% to $34.7 million, or 13.5% of sales, versus $29.7 million, or 13.3% of sales, last year. While the increase in monetary terms partially reflects the contribution of the PWP assets, the increase as a percentage of sales stems from greater efficiencies throughout the company's plant network, partially offset by higher year-over-year costs for untreated railway ties and utility poles. Of note, margins from non-pole-quality log sales are nominal as they are sold close to cost of sales. Net income for the first quarter of 2014 increased 20.1% to $22.5 million or $0.33 per share, fully diluted, compared with $18.8 million or $0.27 per share, fully diluted, in the first quarter of 2013.

FINANCIAL POSITION

As at March 31, 2014, the Company's long-term debt, including the current portion, stood at $407.0 million compared with $372.9 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 a result of this higher debt, Stella-Jones' total debt to total capitalization ratio was 0.40:1 as at March 31, 2014, versus 0.39:1 three months earlier.

OUTLOOK

"As we look ahead to the remainder of 2014, we expect demand for our core products to remain healthy, driven by a stronger economy and sound fundamentals in our main sectors of activity. However, the procurement market for untreated railway ties and utility poles remains tight and our margins may be slightly impacted in the short term. Still, we believe that our current inventory position and the strength of our procurement network should allow Stella-Jones to meet demand at an optimal cost. We remain focused on integrating the PWP assets and pursuing the proposed acquisition of two wood treating facilities from Boatright Railroad Products, Inc. expected to close, if the transaction is finalized, in the latter part of the second quarter," concluded Mr. McManus.