MONTREAL, QUEBEC–(Marketwired – March 14, 2018) –

• Sales of .89 billion in 2017, up 2.6% from .84 billion in 2016
• 9.1% increase in net income in 2017 to 7.9 million, versus 3.9 million a year ago
• 2017 diluted EPS of .42, up from .22 last year
• Solid cash flow from operating activities of 1.1 million, versus 1.8 million in 2016
• Over 0 million of debt repayment in 2017, reflecting a healthy financial position

Stella-Jones Inc. (TSX:SJ) (“Stella-Jones” or the “Company”) today announced financial results for its fourth quarter and fiscal year ended December 31, 2017.

“2017 marked the seventeenth consecutive year of sales and net income growth for Stella-Jones. This performance was driven by the continental reach of our network, the productivity of our people, and the confidence of our clients. It is important to highlight that net income was favourably impacted by a one-off non-cash tax benefit following the December 22, 2017 U.S. tax reform. Demand remained generally healthy for our treated wood products, as Stella-Jones’ enhanced presence in the utility pole and residential lumber markets mitigated negative pricing pressures in the railway tie category and a less favourable year-over-year product mix. Our solid cash flow also led to steady debt reduction, enabling us to conclude the year with a strong financial position from which we can continue to invest in value-creating initiatives,” said Brian McManus, President and Chief Executive Officer.

2017 RESULTS

Sales reached .89 billion, up 2.6% from last year’s sales of .84 billion. Acquisitions completed in 2016 contributed additional sales of .0 million throughout 2017. 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 .0 million when compared with the previous year. Excluding these factors, sales increased approximately .8 million, or 1.1%.

Railway tie sales for 2017 amounted to 1.5 million, versus sales of 6.3 million in 2016. Excluding the conversion effect, railway tie sales decreased approximately .0 million, or 8.1%, mainly due to lower year-over-year pricing.
Utility pole sales reached 4.0 million in 2017, representing an increase of 12.9%, from sales of 9.2 million in 2016. Excluding the additional contribution from acquisitions completed in 2016 and the currency conversion effect, sales increased by about .0 million, or 6.9%. This improvement essentially reflects organic sales growth in the southeastern United States and a return to historical maintenance demand in 2017.

Sales in the residential lumber category totalled 6.2 million in 2017, up from 5.7 million in 2016. Excluding the currency conversion effect, sales increased .5 million, or 6.2%, mainly reflecting higher year-over-year selling prices explained by untreated lumber cost increases.

Industrial product sales were .5 million in 2017, compared with .3 million in 2016. Excluding the additional contribution from acquisitions completed in 2016 and the currency conversion effect, sales decreased 2.3%, mainly due to lower sales of marine pilings in Canada. Logs and lumber sales amounted to 9.9 million in 2017, up from 0.8 million in 2016. This increase reflects the timing of lumber purchase and resale activities, the timing of timber harvesting and the higher selling prices due to increased lumber costs.

Operating income was 7.4 million, or 11.0% of sales, compared with 3.2 million, or 12.7% of sales, in 2016. The decrease as a percentage of sales is mainly attributable to lower selling prices for railway ties, a less favourable geographical mix in the utility pole category and increased untreated lumber costs in the residential lumber category. These factors were partially offset by a reduction in selling and administrative expenses, as well as favourable year-over-year variations in certain provisions and in foreign exchange gains and losses.

Net income for 2017 increased 9.1% to 7.9 million, or .42 per diluted share, up from 3.9 million, or .22 per diluted share, in 2016. The year-over-year increase reflects a one-off non-cash tax benefit of .0 million recorded in the fourth quarter resulting from the remeasurement of deferred tax liabilities following a reduction in the U.S. top federal corporate income tax rate.

FOURTH QUARTER RESULTS

Sales amounted to 7.4 million, representing an increase of 10.4% from 1.7 million a year ago. Excluding the conversion effect from fluctuations in the value of the Canadian dollar, versus the U.S. dollar, sales increased approximately .3 million, or 14.1%.

Railway tie sales reached 8.0 million, versus 3.1 million last year. Excluding the currency conversion effect, sales rose 8.7% driven by higher year-over-year volume. Utility pole sales amounted to 2.9 million, up 12.7% from 4.6 million last year. Excluding the contribution from acquisitions and the currency conversion effect, sales grew 14.5% as a result of organic sales growth in the southeastern United States and healthy maintenance demand. Residential lumber sales totalled .6 million, up from .5 million last year, reflecting solid market demand. Industrial product sales stood at .0 million, up from .0 million a year ago, due to higher sales of rail-related products. Finally, logs and lumber sales were .9 million, versus .5 million last year, driven in most part by the passthrough of higher lumber costs to customers.

Operating income totalled .0 million, or 7.7% of sales, in the fourth quarter of 2017, versus .2 million, or 8.2% of sales, last year. The increase in absolute dollars reflects higher business activity, while the decrease as a percentage of sales is mainly attributable to the sales mix within each product category and softer pricing in certain regions.

Net income was .1 million, or {$content}.74 per diluted share, up from .5 million, or {$content}.27 per diluted share, in the prior year. The increase reflects the aforementioned tax benefit.

ACQUISITION OF WOOD PRODUCTS INDUSTRIES AND PRAIRIE FOREST PRODUCTS

On December 19, 2017, the Company completed the acquisition of substantially all the operating assets employed in the businesses of Wood Products Industries Inc. (“WPI”) located in South River, Ontario. The Company plans on using these assets to treat residential lumber. Total cash outlay associated with the acquisition was approximately .2 million, excluding acquisition costs of approximately 4,000, recognized in the consolidated statement of income under selling and administrative expenses. The Company financed the acquisition through its existing syndicated credit facilities.

Subsequent to the end of the year, on February 9, 2018, the Company completed the acquisition of substantially all the operating assets employed in the business of Prairie Forest Products (“PFP”), a division of Prendiville Industries Ltd. located at its wood treating facility in Neepawa, Manitoba, as well as at its peeling facility in Birch River, Manitoba. The location of the treating facility provides the Company with access to new clients and market opportunities. PFP manufactures, sells and distributes utility poles and residential lumber and sales for the twelve month period ending October 31, 2017 were approximately .1 million. Total cash outlay associated with the acquisition was .5 million which was financed through the Company’s existing syndicated credit facilities.

STRONG CASH FLOW GENERATION AND SOLID FINANCIAL POSITION

In 2017, Stella-Jones generated a cash flow from operating activities of 1.1 million, up significantly from 1.8 million in 2016. This increase essentially reflects favourable working capital variations stemming from a reduction in inventories.

This strong cash flow was used to reduce the Company’s long-term debt, which stood at 5.6 million as at December 31, 2017, including the current portion, compared with 4.0 million at the end of 2016. As at December 31, 2017, Stella-Jones’ total debt to total capitalization ratio was 0.29:1, compared with 0.40:1 twelve months earlier.

QUARTERLY DIVIDEND OF {$content}.12 PER SHARE

On March 13, 2018, the Board of Directors declared a quarterly dividend of {$content}.12 per common share, representing an increase of 9.1% over the previous quarterly dividend, payable on April 27, 2018 to shareholders of record at the close of business on April 6, 2018.

OUTLOOK

“While operating margins will remain softer in the first half of 2018, we anticipate sales and operating margins to improve progressively in 2018 when compared to 2017. Railway tie sales should be relatively stable and softer pricing may further impact margins in the first half of the year, which should gradually return to historical levels by the end of the year. In the utility pole category, while we anticipate a better sales mix in 2018, we expect it will be offset by slight cost increases for certain wood species and the timing of price adjustments. As for residential lumber, we expect to further benefit from continued demand for new construction and outdoor renovation projects in North America, while sales should also rise as pricing reflects higher wood costs. Stella-Jones will also benefit from an overall lower effective tax rate of about 26.0%. In keeping with our proven capital allocation strategy, cash flow will be used to reduce debt, invest in working capital and our existing network, while sustaining an optimal dividend policy and exploring expansion opportunities that create lasting shareholder value,” concluded Mr. McManus.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on March 14, 2018, at 10:00 AM Eastern Time. Interested parties can join the call by dialing 1-647-788-4922 (Toronto or overseas) or 1-877-223-4471 (elsewhere in North America). Parties unable to call in at this time may access a recording by calling 1-800-585-8367 and entering the passcode 9979709. This recording will be available on Wednesday, March 14, 2018 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Wednesday, March 21, 2018.

NON-IFRS FINANCIAL MEASURES

Operating income and the total debt to total capitalization ratio 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 it provides an additional measure of its performance.

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 and timbers, and the continent’s electrical utilities and telecommunication companies with utility poles. Stella-Jones also manufactures and distributes residential lumber and accessories to retailers 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: The audited consolidated financial statements for the year ended December 31, 2017 and the condensed interim unaudited consolidated financial statements for the fourth quarter ended December 31, 2017 as well as management’s discussion and analysis are available on Stella-Jones’ website at www.stella-jones.com