MONTREAL, QUEBEC–(Marketwired – Nov. 8, 2016) – Stella-Jones Inc. (TSX:SJ) (“Stella-Jones” or the “Company”) today announced financial results for its third quarter ended September 30, 2016.
“Stella-Jones’ sales and net income growth in the third quarter reflects the contribution from acquisitions and our greater reach in the residential lumber product category. As anticipated, year-over-year railway tie sales were lower following strong demand in the previous twelve months, while market conditions remained relatively soft in the utility pole category. Still, improved working capital resulted in a solid cash flow generation that we directed towards reducing our debt,” said Brian McManus, President and Chief Executive Officer.
| Financial highlights (in millions of Canadian dollars, except per share data) |
Quarters ended Sept. 30, | Nine-months ended Sept. 30, | |||
| 2016 | 2015 | 2016 | 2015 | ||
| Sales | 512.6 | 433.1 | 1,496.6 | 1,201.8 | |
| Operating income | 67.3 | 62.9 | 205.1 | 171.8 | |
| Net income for the period | 45.7 | 39.3 | 135.4 | 108.4 | |
| Per share – basic ($) | 0.66 | 0.57 | 1.96 | 1.57 | |
| Per share – diluted ($) | 0.66 | 0.57 | 1.96 | 1.57 | |
| Weighted average shares outstanding (basic, in ‘000s) | 69,255 | 69,025 | 69,200 | 68,989 | |
THIRD QUARTER RESULTS
Sales reached $512.6 million, up 18.4% from $433.1 million a year ago. The acquisition of Ram Forest Group Inc. and Ramfor Lumber Inc. (together, “Ram”) on October 1, 2015, contributed sales of approximately $30.5 million. The acquisitions of Lufkin Creosoting Co., Inc. (“Lufkin Creosoting”) and of 440 Investments, LLC, the parent company of Kisatchie Treating, LLC, Kisatchie Pole & Piling, LLC, Kisatchie Trucking, LLC and Kisatchie Midnight Express, LLC (collectively, “Kisatchie”), both completed on June 3, 2016, added combined sales of $20.6 million, while acquisitions in the southeastern United States completed in the second half of 2015 added sales of approximately $6.5 million. The conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones’ reporting currency, versus the U.S. dollar, had a positive impact of $3.0 million on the value of U.S. dollar denominated sales when compared with last year’s third quarter. Excluding these factors, organic growth was approximately $18.9 million, or 4.4%.
Railway tie sales amounted to $186.6 million, down 7.0% from $200.6 million last year, primarily as a result of lower industry demand in the third quarter following a strong first half in 2016.
Sales of utility poles reached $160.0 million, compared with $142.3 million last year. Excluding the currency conversion effect and the contribution from acquisitions, sales declined approximately 6.2%. During the quarter, year-over-year sales of distribution poles were lower as a result of reduced maintenance demand in certain regions, while sales of transmission poles increased slightly versus last year.
Sales of residential lumber totalled $107.3 million, up from $53.2 million last year. This strong increase reflects sales of $30.5 million from the Ram acquisition, as well as the impact of the transition from treating services only for wholesalers to a value-added full service direct offering for retailers.
Industrial product sales declined to $27.5 million, from $28.4 million a year ago, due to the timing of orders for rail-related products in the United States. Logs and lumber sales reached $31.3 million, versus $8.5 million last year, due to procurement efforts to support residential lumber requirements and the timing of timber harvesting.
Operating income amounted to $67.3 million, or 13.1% of sales, versus $62.9 million, or 14.5% of sales, last year. The increase in absolute dollars reflects the contribution from acquisitions and the effect of currency translation. As a percentage of sales, the decrease is mainly attributable to greater logs and lumber sales, which are made at a value close to their cost of sales, a less favourable product mix this year compared to 2015 and softness in selling prices for certain regions.
Net income for the third quarter of 2016 increased 16.1% to $45.7 million, or $0.66 per diluted share, compared with $39.3 million, or $0.57 per diluted share, in the third quarter of 2015.
NINE-MONTH RESULTS
For the nine-month period ended September 30, 2016, sales amounted to $1.50 billion, versus $1.20 billion for the corresponding period a year earlier. Acquisitions contributed sales of approximately $137.2 million, while the currency conversion effect had a positive impact of $52.0 million on the value of U.S. dollar denominated sales. Excluding these factors, sales increased approximately $105.5 million, or 8.8%.
Operating income stood at $205.1 million, or 13.7% of sales, compared with $171.8 million, or 14.3% of sales, a year earlier. Net income for the first nine months of 2016 increased 24.9% to $135.4 million, or $1.96 per diluted share, up from $108.4 million, or $1.57 per diluted share, in the first nine months of 2015.
SOLID FINANCIAL POSITION
As at September 30, 2016, the Company’s long-term debt, including the current portion, stood at $639.2 million compared with $731.7 million three months earlier. This significant reduction of $92.5 million mainly stems from a strong cash flow generation. This cash flow resulted from reduced working capital requirements, including the seasonal inventory reduction in the residential lumber category. As at September 30, 2016, Stella-Jones’ total debt to total capitalization ratio was 0.39:1, compared with 0.44:1 as at June 30, 2016.
QUARTERLY DIVIDEND OF $0.10 PER SHARE
On November 7, 2016, the Board of Directors declared a quarterly dividend of $0.10 per common share, payable on December 21, 2016 to shareholders of record at the close of business on December 2, 2016.
OUTLOOK
“In the short-term, we expect lower year-over-year railway tie demand through the early stages of 2017 following a strong first half in 2016. In the utility pole category, regular maintenance demand is expected to gradually return to normal patterns in 2017, while transmission pole sales should improve with more stable resource prices. We are also confident that we will sustain our momentum in the residential lumber category and further benefit from solid demand for new construction and outdoor renovation projects in the North American residential and commercial markets. With its stronger financial position, Stella-Jones has greater flexibility to pursue its proven business strategy. We will seek opportunities to further grow our presence in core businesses by expanding our continental network, while ensuring an optimal dividend policy,” concluded Mr. McManus.
CONFERENCE CALL
Stella-Jones will hold a conference call to discuss these results on November 8, 2016, 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 of the meeting by calling 1-800-585-8367 and entering the passcode 77159002. This recording will be available on Tuesday, November 8, 2016 as of 1:00 PM Eastern Time until 11:59 PM Eastern Time on Tuesday, November 15, 2016.
NON-IFRS FINANCIAL MEASURES
Operating income is a financial measure not prescribed by IFRS and is not likely to be comparable to similar measures presented by other issuers. Management considers this non-IFRS measure 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: Condensed interim unaudited consolidated financial statements for the third quarter ended September 30, 2016 are available on Stella-Jones’ website at www.stella-jones.com
Source: Stella-Jones Inc.
Eric Vachon, CPA, CA
Senior Vice-President and Chief Financial Officer
Tel.: (514) 940-3903
evachon@stella-jones.com
MaisonBrison Communications
Martin Goulet, CFA
Tel.: (514) 731-0000
martin@maisonbrison.com