Stella-Jones Reports Fourth Quarter and Year-End Results

MONTREAL, QUEBEC--(Marketwire - March 11, 2011) - Stella-Jones Inc. (TSX:SJ)

• Sales of $561.0 million, up 36.5% from $411.1 million last year

• Gross profit of $103.6 million versus $76.7 million in 2009

• Net earnings of $34.4 million compared with $30.1 million last year, up 14.4%

• Significant debt reduction resulting from solid cash flow generation

Stella-Jones Inc. (TSX:SJ) today announced financial results for its fourth quarter and fiscal year ended December 31, 2010. 

Financial highlights		Quarters ended		Years ended
(in thousands of dollars, except		Dec. 31,		Dec. 31,
per share data)		2010	2009	2010	2009
Sales		133,071	65,390	561,046	411,119
Gross profit		27,240	10,614	103,618	76,669
Cash flow from operations1		15,296	6,698	50,092	40,936
Net earnings for the period		10,753	3,041	34,395	30,069
	Per share - basic ($)	0.68	0.24	2.27	2.38
	Per share - diluted ($)	0.67	0.24	2.26	2.37
Weighted average shares outstanding (basic, in '000s)		15,912	12,682	15,163	12,638

1 Before changes in non-cash working capital components.

2010 RESULTS

Sales reached $561.0 million, an increase of $149.9 million, or 36.5% over last year's sales of $411.1 million. The acquisition of Tangent Rail Corporation ("Tangent"), effective April 1, 2010, contributed sales of approximately $120.5 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 $23.8 million when compared with the prior year. Adjusting for year-over-year currency fluctuations, sales excluding Tangent increased approximately 13.0%, reflecting higher railway tie sales in the United States and Canada as well as improved utility pole sales in Canada.

Railway tie sales for 2010 amounted to $283.2 million, an increase of 53.0% over 2009, reflecting tie sales of approximately $83.0 million from Tangent as well as increased market penetration. Excluding Tangent's sales and adjusting for a negative foreign exchange effect of $16.5 million due to a lower average conversion rate on U.S. dollar denominated tie sales, year-over-year comparable railway tie sales increased $31.7 million. Utility pole sales amounted to $166.7 million in 2010, an increase of 11.4% over 2009, due to higher sales of distribution poles in both Canada and the United States stemming from solid maintenance demand and greater market penetration. Industrial product sales rose 81.7% to $81.4 million, an increase essentially attributable to Tangent's coal tar distillation and used tie pickup and disposal operations. Finally, sales of residential lumber declined 5.6% to $29.8 million.

Gross profit was $103.6 million or 18.5% of sales, compared with $76.7 million or 18.6% of sales last year. The increase in gross profit dollars 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 marginal reduction in gross profit as a percentage of sales mainly stems from a different product mix, more heavily weighted towards railway ties.

Net earnings for 2010 increased 14.4% to $34.4 million or $2.26 per share, fully diluted, compared with $30.1 million or $2.37 per share, fully diluted, in 2009. Cash flow from operating activities before changes in non-cash working capital components rose 22.4% to $50.1 million.

"Stella-Jones achieved its tenth consecutive year of sales and net earnings growth, as recessionary pressures eased in our core markets and we completed the largest acquisition in the Company's history," said Brian McManus, President and Chief Executive Officer of Stella-Jones. "Stella-Jones is now widely recognized as one of the largest suppliers of treated wood products on the continent. This has positioned the Company to pursue a larger share of the business of existing customers, and has strengthened our approach to new customers. As a full-service provider to the railway tie market, our competitive position has unquestionably improved, as the Company can confidently bid on larger and broader projects."

FOURTH-QUARTER RESULTS

Sales for the fourth quarter of 2010 reached $133.1 million, up from $65.4 million reported for the same period in 2009. This $67.7 million increase is attributable to a $37.1 million contribution from the Tangent operations, solid demand for the Company's core products and strong advanced deliveries of railway ties. The stronger year-over-year value of the Canadian dollar decreased the value of U.S. dollar denominated sales by approximately $2.1 million.

Railway tie sales amounted to $62.4 million, up from $22.1 million a year earlier. This increase reflects a $26.6 million contribution from the Tangent operations and stronger industry demand. Utility pole sales reached $48.7 million, compared with $31.1 million last year. This increase is for the most part attributable to higher sales of distribution and transmission poles in Canada. Industrial product sales amounted to $19.8 million, up from $10.1 million a year earlier, due essentially to a $10.6 million contribution from the Tangent operations. Finally, residential lumber sales rose 5.6% to $2.2 million.

Gross profit in the fourth quarter of 2010 totalled $27.2 million, or 20.5% of sales, compared with $10.6 million, or 16.2% of sales, in the corresponding period in 2009. While higher gross profit dollars essentially result from the contribution of the Tangent operations and the strong increase in organic sales, the increase in gross profit as a percentage of sales principally reflects higher volume and resulting efficiencies, overall cost savings and higher selling prices. Net earnings for the period totalled $10.8 million, or $0.67 per share, fully diluted, compared with $3.0 million, or $0.24 per share, fully diluted, in the fourth quarter of 2009. Cash flow from operating activities before changes in non-cash working capital components was $15.3 million, up from $6.7 million a year earlier.

SOLID BALANCE SHEET

As at December 31, 2010, the Company's long-term debt, including the current portion, amounted to $125.8 million, representing a ratio of total long-term debt to shareholders' equity of 0.45:1, down from 0.53:1 three months earlier and 0.48:1 at the end of 2009. In addition, a strong cash flow generation and improved working capital resulted in a $24.2 million decrease in short-term bank indebtedness, which stood at $31.9 million at the end of 2010.

"These factors enabled Stella-Jones to reduce its total debt by $44.1 million during the second half of 2010. Of note, the Company proceeded with the accelerated repayment of more than $15.0 million in various financial obligations during the fourth quarter," added George Labelle, Senior Vice-President and Chief Financial Officer.

SEMI-ANNUAL DIVIDEND OF $0.24 PER SHARE

The Board of Directors declared a semi-annual dividend of $0.24 per share on the outstanding common shares of Stella-Jones, payable on May 13, 2011 to shareholders of record at the close of business on April 1, 2011.

OUTLOOK

As global economic conditions continue to improve, Management expects demand for the Company's core products to further accelerate in the upcoming year. However, the strong deliveries in the latter part of the fourth quarter are expected to slightly soften first quarter results. In the railway tie market, increased freight volume on North American railroads should lead to greater investments in the continental rail network, as operators constantly seek optimal line efficiency. Meanwhile, demand is expected to steadily progress in utility poles, as regular maintenance projects provide a stable business flow for distribution poles, while the vigour of the transmission pole market is more correlated to the timing of orders, mostly for special projects.

"Leveraging the Tangent acquisition remains a priority in 2011 as we fully take advantage of synergies in our expanded network. The efficiencies we continue to implement should further contribute to margin improvement and shareholder value. While remaining committed to our traditional business, we will also continue to pursue our strategic vision in a methodical fashion. A solid financial position and growing cash flow are key attributes of our readiness to study acquisition opportunities in core markets, as Stella-Jones seeks to further its continental expansion and industry consolidation," concluded Mr. McManus.

CONFERENCE CALL

Stella-Jones will hold a conference call to discuss these results on Friday, March 11, 2011, at 10:00 AM Eastern Time. Interested parties can join the call by dialing 416-644-3426 (Toronto or overseas) or 1-800-731-5319 (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 4404802#. This tape recording will be available on Friday, March 11, 2011 as of 12:00 PM Eastern Time until 11:59 PM Eastern Time on Friday, March 18, 2011.

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 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 fourth-quarter and year-end financial statements are available on Stella-Jones' website at www.stella-jones.com