SJ Stella Jones Inc

Stella-Jones Inc. (TSX: SJ)

--  Sales of $167.3 million compared with $129.1 million last year
--  Organic revenue growth of approximately 4.0%
--  Non-recurring expenses of $5.4 million, mainly to optimize production
    and maximize synergies
--  Semi-annual dividend increased 11.1% to $0.20 per share

Stella-Jones Inc. today announced financial results for its second quarter and six-month period ended June 30, 2010.

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Financial highlights (in
 thousands of dollars,
 except per share data)             Quarters ended        Six months ended
 (unaudited)                              June 30,                June 30,

                                  2010        2009        2010        2009
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Sales                          167,317     129,104     266,677     241,058
Gross profit                    28,891      23,900      47,054      46,419
Cash flow from operations
 (1)                            11,062      12,602      19,590      23,923
Net earnings for the
 period                          5,610      11,021      11,424      18,708
  Per share - basic ($)           0.35        0.87        0.80        1.49
  Per share - diluted ($)         0.35        0.87        0.80        1.48
Weighted average shares
 outstanding (basic, in
 '000s)                         15,896      12,624      14,302      12,595
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(1)Before changes in non-cash working capital components.

SECOND-QUARTER RESULTS

Sales were $167.3 million, an increase of $38.2 million, or 29.6% from last year's sales of $129.1 million. The acquisition of Tangent Rail Corporation ("Tangent"), effective April 1, 2010, contributed sales of approximately $42.1 million. Changes in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, decreased the value of U.S. dollar denominated sales by about $9.4 million when compared with the same period a year earlier. Adjusting for year-over-year currency fluctuations, sales increased approximately 4.0% versus last year's second quarter, reflecting higher railway tie sales in both the United States and Canada.

Railway tie sales amounted to $88.4 million, up $30.8 million, or 53.6% from last year, as a result of a $29.3 million contribution from Tangent. Excluding Tangent, and adjusting for a $7.2 million decrease due to a year-over-year currency translation effect, sales rose approximately 15.0%. Sales of utility poles totalled $38.7 million, a decrease of 12.4% from a year ago. This decrease mainly reflects lower sales of transmission poles in the U.S. as well as a $1.9 million decrease in sales from the year-over-year currency translation effect. Industrial product sales rose to $26.6 million, up from $11.9 million a year earlier, driven by the contribution of Tangent's coal tar distillation and used tie pickup and disposal operations as well as solid demand for marine applications in Canada. Finally, sales of consumer lumber decreased 12.5% to $13.5 million.

"The acquisition of Tangent had an immediate positive effect on our top line," said Brian McManus, President and Chief Executive Officer of Stella-Jones. "As evidenced by solid organic growth, the railway tie market is gradually improving. Tangent significantly enhances our presence in this core market and favourably positions Stella-Jones to capture additional opportunities by leveraging the strengths of our newly expanded network. Meanwhile, the utility pole market remains soft with lingering pricing pressures in the U.S."

Gross profit was $28.9 million or 17.3% of sales, compared with $23.9 million or 18.5% of sales last year. The increase in gross profit dollar essentially reflects the contribution of the Tangent operations partially offset by a lower average rate applied to convert gross profit from U.S. dollar denominated sales. The reduction in gross profit as a percentage of sales mainly stems from a highly competitive environment in the rail contractor and transit markets, softer utility pole pricing and slightly lower margins from the Tangent operations.

Second-quarter results include non-recurring expenses of approximately $5.4 million, mainly consisting of asset impairment charges for the Spencer, West Virginia facility and the Ripley, West Virginia U.S. corporate office, severance expenses, as well as a provision for an unfavourable legal judgment. Most of these expenses will help reduce future costs and solidify consolidation synergies.

"Stella-Jones remains constantly focused on network optimization and cost control. Consequently, pursuant to the Tangent acquisition, optimization of production capacity decreased the need for railway tie capacity at our Spencer facility, while the Company's current U.S. corporate office will be consolidated with Tangent's and relocated to Pittsburgh, Pennsylvania," said George Labelle, Senior Vice-President and Chief Financial Officer.

Net earnings for the period stood at $5.6 million or $0.35 per share, fully diluted, compared with $11.0 million or $0.87 per share, fully diluted, last year. Reflecting the non-cash nature of the majority of the non-recurring expenses, cash flow from operating activities before changes in non-cash working capital components remained solid at $11.1 million, versus $12.6 million in the same period a year ago.

Despite the Tangent transaction, Stella-Jones' balance sheet as at June 30, 2010 remains healthy. Long-term debt, including the current portion, was $154.2 million, representing a ratio of total long-term debt to shareholders' equity of 0.57:1, stable compared with three months earlier. In addition, a solid cash flow generation and better working capital resulted in a further $2.3 million decrease in short-term bank indebtedness during the second quarter, to $47.6 million as at June 30, 2010.

SIX-MONTH RESULTS

For the six-month period ended June 30, 2010, sales were $266.7 million, up from $241.1 million in the first six months of 2009. In addition to Tangent's three-month contribution in 2010, sales increased organically by approximately 1.0%, while changes in the value of the Canadian dollar versus the U.S. dollar, decreased the value of U.S. dollar denominated sales by about $18.2 million when compared with the same period a year earlier. Gross profit reached $47.1 million, or 17.6% of sales, versus $46.4 million, or 19.3% a year earlier. In addition to the aforementioned non-recurring expenses, year-to-date results also included $2.0 million in general and administrative expenses directly related to the Tangent acquisition.

Net earnings for the period stood at $11.4 million, or $0.80 per share, fully diluted, versus $18.7 million, or $1.48 per share, fully diluted, in the corresponding period a year earlier. Cash flow from operating activities before changes in non-cash working capital components reached $19.6 million, compared with $23.9 million last year.

SEMI-ANNUAL DIVIDEND INCREASED TO $0.20 PER SHARE

The Board of Directors declared a semi-annual dividend of $0.20 per share on the outstanding common shares of Stella-Jones, payable on October 8, 2010 to shareholders of record at the close of business on September 3, 2010. This represents an 11.1% increase over the previous semi-annual dividend.

OUTLOOK

"Tangent's successful integration will be a major performance driver in 2010 and beyond, as we gradually reap all the benefits that our newly enlarged network can provide. Proactive measures to optimize operating and administrative efficiency are well underway and should rapidly enable Stella-Jones to achieve all potential synergies and increase its margins. The gradual recovery in the railway tie market is supported by signs of improvement in global economic conditions, which in turn are driving rail freight volumes higher across North America. Stella-Jones should further benefit from this momentum, and we expect current trends to positively reflect on our second half results," concluded Mr. McManus.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on Thursday, August 12, 2010, at 10:00 AM Eastern Time. Interested parties can join the call by dialling 647-427-7452 (Toronto or overseas) or 1-888-231-8191 (elsewhere in North America). Parties unable to call in at this time may access a tape recording of the meeting by calling 1-800-642-1687 and entering the passcode 87260963. This tape recording will be available on Thursday, August 12, 2010 as of 12:00 PM Eastern Time until 11:59 PM Eastern Time on Thursday, August 19, 2010.

NON-GAAP MEASURE

Cash flow from operations is a financial measure not prescribed by Canadian generally accepted accounting principles ("GAAP") and is not likely to be comparable to similar measures presented by other issuers. Management considers it to be useful information to assist knowledgeable investors in evaluating the cash generating capabilities of the Company.

ABOUT STELLA-JONES

Stella-Jones Inc. (TSX: SJ) is a North American producer and marketer of industrial treated wood products, specializing in the production of railway ties and timbers as well as wood poles supplied to electrical utilities and telecommunication companies. The Company manufactures the wood preservative creosote and other coal tar based products and provides the railroad industry with used tie pickup and disposal services. Switching, locomotive and railcar maintenance services are also offered, as is tie-derived boiler fuel. The Company also provides treated consumer lumber products and customized services to lumber retailers and wholesalers for outdoor applications. Other treated wood products include marine and foundation pilings, construction timbers, highway guardrail posts and treated wood for bridges. 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: Complete unaudited interim consolidated financial statements and Management's Discussion & Analysis are available on Stella-Jones' website at www.stella-jones.com

Contacts: Source: Stella-Jones Inc. George T. Labelle, CA Senior Vice-President and Chief Financial Officer 514-934-8665 glabelle@stella-jones.com MaisonBrison Martin Goulet, CFA 514-731-0000 martin@maisonbrison.com