Stella-Jones Inc. (TSX: SJ) today announced financial results for
its second quarter ended June 30, 2011. These results reflect the
adoption, on January 1, 2011, of International Financial Reporting
Standards ("IFRS"). Results for the prior year have been restated.
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Financial highlights Quarters ended Six months ended
June 30, June 30,
(in thousands of Canadian dollars,
except per share data) 2011 2010 2011 2010
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Sales 180,331 167,317 310,816 266,677
Operating income 27,582 11,278 42,000 21,752
Net income for the period 17,271 5,563 25,771 11,351
Per share - basic ($) 1.08 0.35 1.62 0.79
Per share - diluted ($) 1.08 0.35 1.61 0.79
Cash flow from operations(1) 29,506 18,592 47,071 31,415
Weighted average shares outstanding
(basic, in '000s) 15,947 15,900 15,939 14,302
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(1) Before changes in non-cash working capital components and interest and
income tax paid.
SECOND-QUARTER RESULTS
Sales reached $180.3 million, an increase of $13.0 million, or
7.8% over last year's second-quarter sales of $167.3 million. The
conversion effect from fluctuations 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 $7.3
million when compared with the previous year. Sales, excluding this
conversion effect, increased approximately 12.0%, primarily
reflecting higher sales of railway ties and utility poles as the
Company benefitted from increased market demand on both maintenance
and special projects.
Railway tie sales amounted to $95.5 million, an increase of 8.0%
over last year, reflecting increased market demand. Adjusting for a
negative foreign exchange effect of $5.0 million due to a lower
average conversion rate on U.S. dollar denominated tie sales,
year-over-year comparable railway tie sales increased $12.1
million. Utility pole sales reached $52.4 million, up 35.2% from a
year ago. This increase was mainly due to solid demand for
transmission poles resulting from orders for special projects and
to partial recuperation of distribution pole sales postponed by
severe weather in the first quarter. A lower year-over-year
conversion rate reduced the value of U.S. dollar denominated pole
sales by $1.1 million. Industrial product sales decreased 22.7% to
$20.6 million due to reduced demand for marine applications in
Canada and to the timing of special projects in the U.S. that
favourably contributed to 2010 second quarter results. Finally,
sales of residential lumber declined 12.5% to $11.9 million,
primarily as a result of unfavourable weather compared with last
year.
Operating income was $27.6 million or 15.3% of sales, compared
with $11.3 million or 6.7% of sales last year. The increase as a
percentage of sales mainly reflects a different product mix, more
heavily weighted towards utility poles, as well as lower raw
material costs and greater efficiency from the integration of the
Tangent Rail Corporation ("Tangent") operations, acquired on April
1, 2010. Of note, last year's second-quarter results included
non-recurring expenses of approximately $3.0 million in connection
with severance expenses and a provision for an unfavourable legal
judgement. During that period, the Company also recorded asset
impairment charges of $2.4 million.
Net income for the period reached $17.3 million or $1.08 per
share, fully diluted, compared with $5.6 million or $0.35 per
share, fully diluted, in 2010. Cash flow from operating activities
before changes in non-cash working capital components and interest
and income tax paid rose 58.7% to $29.5 million.
"Solid demand for Stella-Jones' core products, greater market
penetration and the contribution from special projects in the
utility pole category allowed for a strong financial performance in
the second quarter," said Brian McManus, President and Chief
Executive Officer. "The advantages provided by our extensive range
of products and services, as well as by our continental network,
have grown increasingly attractive to utilities and railroad
operators. These customer benefits have enabled us to generate
increased revenues, while our network efficiency has further
improved operating profitability."
SIX-MONTHS RESULTS
For the six-month period ended June 30, 2011, sales reached
$310.8 million, up 16.6% from $266.7 million a year earlier.
Excluding the additional sales contribution of $37.7 million from
the Tangent operations in the first quarter of 2011, and net of a
$10.7 million conversion effect from fluctuations in the value of
the Canadian dollar versus the U.S. currency, sales increased
approximately 6.0%.
Operating income amounted to $42.0 million, or 13.5% of sales,
versus $21.8 million, or 8.2% of sales a year earlier.
Non-recurring expenses and asset impairment charges totalled
approximately $7.4 million in the first half of 2010. Net income
for the period stood at $25.8 million, or $1.61 per share, fully
diluted, versus $11.4 million, or $0.79 per share, fully diluted,
last year. Finally, cash flow from operating activities before
changes in non-cash working capital components and interest and
income tax paid grew 49.8% to $47.1 million.
SOLID FINANCIAL POSITION AND AMENDED CREDIT FACILITY
As at June 30, 2011, the Company's long-term debt, including the
current portion, amounted to $101.9 million, down from $118.7
million as at March 31, 2011. The ratio of total long-term debt to
shareholders' equity was 0.34:1 as at June 30, 2011, down from
0.42:1 three months earlier. During the quarter, Stella-Jones
proceeded with the accelerated repayment of a capital amount of
US$15.0 million on a debenture of US$25.0 million.
"Strong seasonal demand for our core products increased working
capital requirements in the second quarter. As such needs typically
decline in the second half of the year, Stella-Jones should
generate a robust cash flow and further reduce its debt, while
preserving sufficient flexibility to consider strategic growth
initiatives," added George Labelle, Senior Vice-President and Chief
Financial Officer.
Subsequent to the end of the second quarter, on July 28, 2011,
the Company entered into an agreement to further amend and restate
in its entirety, but without novation, its existing revolving
credit agreement. The new facility, to be used to repay existing
bank indebtedness and for working capital and general corporate
purposes, consists of a $170.0 million committed revolving facility
made available for a five-year term.
SEMI-ANNUAL DIVIDEND INCREASED TO $0.26 PER SHARE
The Board of Directors declared a semi-annual dividend of $0.26
per share on the outstanding common shares of Stella-Jones, payable
on October 7, 2011 to shareholders of record at the close of
business on September 2, 2011. This represents an increase of 8.3%
over the previous semi-annual dividend.
OUTLOOK
"Through its reputation for reliability and entrenched
continental position as a key supplier of value-added products and
services in the wood-treating industry, Stella-Jones is well
positioned to benefit from any additional opportunities that may
arise. Sound fundamentals in our core railway tie and utility pole
markets should enable us to maintain our market momentum and
produce solid sales growth in coming quarters. In parallel, we will
continue to realize advantages from the ongoing optimization of our
expanded network. Finally, our strategic vision remains intact and
with a healthy cash flow and strong financial position, we are
carefully studying opportunities for additional network growth,"
concluded Mr. McManus.
CONFERENCE CALL
Stella-Jones will hold a conference call to discuss these
results on Thursday, August 11, 2011, at 10:00 AM Eastern Time.
Interested parties can join the call by dialling 416-644-3424
(Toronto or overseas) or 1-877-974-0447 (elsewhere in North
America). Parties unable to call in at this time may access a tape
recording of the meeting by calling 1-877-289-8525 and entering the
passcode 4459248#. This tape recording will be available on
Thursday, August 11, 2011 as of 1:00 PM Eastern Time until 11:59 PM
Eastern Time on Thursday, August 18, 2011.
NON-IFRS FINANCIAL MEASURES
Operating income and cash flow from operations are financial
measures not prescribed by IFRS and are not likely to be comparable
to similar measures presented by other issuers. Management
considers these measures 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 leading producer and marketer
of pressure treated wood products. The Company supplies North
America's railroad operators with railway ties, timbers and
recycling services; and the continent's electrical utilities and
telecommunications companies with utility poles. Stella-Jones also
provides industrial products and services for construction and
marine applications, as well as residential lumber to retailers and
wholesalers for outdoor 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: Complete unaudited second-quarter financial
statements are available on Stella-Jones' website at
www.stella-jones.com
Contacts: Stella-Jones Inc. George T. Labelle, CA Senior
Vice-President and Chief Financial Officer (514) 934-8665 (514)
934-5327 (FAX) glabelle@stella-jones.com Martin Goulet, CFA
MaisonBrison (514) 731-0000 martin@maisonbrison.com
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