Stella-Jones Reports Record Second Quarter Results

MONTREAL, QUEBEC--(Marketwire - Aug. 11, 2011) - 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.

Financial highlights		Quarters ended June 30,		Six months ended June 30,
(in thousands of Canadian dollars, except per share data)		2011	2010	2011	2010
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 operations1		29,506	18,592	47,071	31,415
Weighted average shares outstanding (basic, in '000s)		15,947	15,900	15,939	14,302
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