Stella-Jones Reports 2018 Fourth Quarter and Annual Results

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MONTREAL, March 15, 2019 (GLOBE NEWSWIRE) -- Stella-Jones Inc. (TSX: SJ) (“Stella-Jones” or the “Company”) today announced financial results for its fourth quarter and fiscal year ended December 31, 2018.

“We finished the year with very solid results. Sales for the quarter increased 14.7% to $432.8 million and EBITDA increased 10.0% to $41.8 million, despite a $7.9 million non-cash mark-to-market loss on derivative commodity contracts. For the year, sales amounted to $2.1 billion and increased in all product categories, driven by a combination of sales price increases, market demand and acquisitions. Our EBITDA was up marginally for the year, while our net income was down primarily due to a one-off non-cash tax benefit resulting from the U.S. tax reform in 2017. Stella-Jones remains in a very healthy financial position and today announced a dividend increase, for the fifteenth consecutive year.

Looking to 2019, based on current market conditions, currencies and lumber prices, we expect Stella-Jones to generate higher year-over-year sales and margin improvement. As always, we will continue to remain focused on optimizing our operations across the organization while diligently seeking market opportunities in all product categories,” said Brian McManus, President and Chief Executive Officer.

Railway tie sales for 2018 amounted to $662.4 million, representing an increase of 1.7%, from sales of $651.5 million in 2017. The currency conversion effect decreased sales by about $6.9 million. Excluding the currency conversion effect, railway tie sales increased approximately $17.8 million, or 2.7%, primarily as a result of price increases in the second half of the year, partially offset by the Company supporting the transition of a Class 1 railroad customer from a “treating services only” program to a full service “black-tie” program in the first half of the year.

Utility pole sales reached $725.0 million in 2018, up 10.9% from sales of $654.0 million in 2017. Acquisitions contributed sales of $1.4 million, while the currency conversion effect decreased sales by about $3.4 million. Excluding the contribution from acquisitions and the currency conversion effect, utility pole sales increased approximately $73.0 million, or 11.2%, primarily driven by increased sales in the U.S. Southeast, increased projects related to transmission poles, healthy demand for replacement programs and increased sales prices.

Sales in the residential lumber category totalled $474.7 million in 2018, up 29.6% from sales of $366.2 million in 2017. Acquisitions contributed sales of approximately $43.9 million, while the currency conversion effect decreased sales by about $1.7 million when compared with 2017. Excluding these factors, residential lumber sales increased approximately $66.3 million, or 18.1%. This favourable variance is primarily explained by higher selling prices as a result of higher lumber costs passed through to customers and to increased volume due to the Company’s expanding market presence.

Industrial product sales reached $109.0 million in 2018, compared with $94.5 million last year. Acquisitions contributed sales of approximately $14.4 million, while the currency conversion effect decreased sales by about $0.9 million when compared with 2017. Excluding the contribution from acquisitions and the currency conversion effect, sales increased 1.1%, explained in most part by demand for rail-related products and projects requiring laminated products, partially offset by lower demand for bridges and timbers.

Sales in the logs and lumber product category totalled $152.8 million in 2018, compared with $119.9 million in 2017. Excluding the contribution from acquisitions, sales for this product category increased 26.8%. This significant variance reflects higher selling prices due to higher lumber costs coupled with increased harvesting activities to procure raw material to support strong pole sales.

Operating income was $206.3 million, or 9.7% of sales, compared with $207.4 million, or 11.0% of sales, in 2017. While operating income in absolute dollars is in line with last year, it is lower on a percentage of sales basis. The decrease as a percentage of sales is mainly attributable to the Company supporting the transition of a Class 1 railroad customer from a “treating services only” program to a full service “black-tie” program in the first half of the year. To accelerate this transition, the Company acquired untreated railway ties from the Class 1 railroad customer which increased cost of sales once these ties were treated and sold. Operating income was also negatively impacted by the increasing cost of untreated railway ties and certain untreated species of poles combined with the lag effect of passing these increases to customers. In addition, the higher lumber costs for the year, which were passed through to customers via higher selling prices, have contributed to increased cost of sales in the residential product category but have also put downward pressure on margins as a percentage of sales.

Net income for 2018 decreased 18.0% to $137.6 million, or $1.98 per diluted share, down from $167.9 million, or $2.42 per diluted share, in 2017. The year-over-year decrease is primarily explained by a one-off non-cash tax benefit of $30.0 million, recorded in the fourth quarter of 2017, resulting from the remeasurement of deferred tax liabilities following a reduction in the U.S. top federal corporate income tax rate.

Sales of railway ties reached $127.0 million, versus $118.0 million last year. Excluding the currency conversion effect, railway tie sales rose 4.8%, driven by price increases. Utility pole sales amounted to $192.0 million, up 17.9% from $162.9 million last year. Excluding the contribution from acquisitions and the currency conversion effect, sales grew 15.0% as a result of greater market reach in the U.S. Southeast, increased project activity requiring transmission poles, healthy demand for replacement programs and requirements following the California wildfires in late 2018. Residential lumber sales reached $60.3 million, up from $48.6 million last year. Excluding the contribution from acquisitions and the currency conversion effect, sales grew 8.0%, reflecting stronger volume in Canada, partially offset by lower selling prices in the U.S. Industrial product sales amounted to $23.1 million, up from $20.0 million a year ago. Excluding acquisitions and the currency conversion effect, sales decreased 6.0% as a result of lower bridge and timber demand. Finally, logs and lumber sales stood at $30.4 million, versus $27.9 million last year. Excluding the currency conversion effect, sales grew 7.9%, driven, in most part, by heightened pole procurement efforts to support the utility pole product category, partially offset by lower selling prices on lumber.

Gross profit amounted to $67.0 million, or 15.5% of sales, in the fourth quarter of 2018, versus $53.5 million, or 14.2% of sales, in the fourth quarter of 2017. The increase as a percentage of sales mainly reflects better year-over-year overhead absorption driven by greater production activity while product margins were comparable to the previous year. Operating income totalled $31.8 million, or 7.4% of sales, in the fourth quarter of 2018, versus $29.0 million, or 7.7% of sales, last year and was impacted by a non-cash loss of $7.9 million related to the mark-to-market fair value of diesel and petroleum derivative commodity contracts.

Net income for the period reached $20.6 million, or $0.30 per diluted share, compared with $51.1 million, or $0.74 per diluted share, in the prior year. The year-over-year decrease is attributable to a one-off non-cash tax benefit in the fourth quarter of 2017, stemming from the remeasurement of deferred tax liabilities following a reduction in the U.S. top federal corporate income tax rate.

For additional details per product category, please refer to the Management’s Discussion and Analysis for the years ended December 31, 2018 and 2017.

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.

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Globe Newswire: 11:00 GMT Friday 15th March 2019

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