Stella-Jones boosts dividend on record 2012 results; Q4 misses analyst forecasts

MONTREAL – Stella-Jones slightly missed analyst expectations in the fourth quarter but the Quebec-based wood products manufacturer is increasing its dividend 25 per cent following record annual sales and profits last year and the prospects of benefiting from a North American recovery in 2013.

“In the year ahead, we believe Stella-Jones will continue to experience solid demand for its core products and that revenues should continue to grow,” president and CEO Brian McManus said Friday during a conference call.

“The recovery of the North American economy appears to be gaining momentum. We therefore anticipate increased opportunities to build shareholder value.”

The company, which makes railway ties, utility poles and other pressure-treated wood products, said Friday that it will boost its quarterly dividend by four cents to 20 cents per share, effective with the April 30 payout.

The shares (TSX:SJ) were down 47 cents at $80.25 near midday Friday on the Toronto Stock Exchange.

Based on recent market prices, the dividend would yield just under one per cent annually. The stock has traded between $41.80 and $82.01 over the past year.

For the fourth quarter, Stella-Jones said net earnings were $16.5 million or $1 per diluted share on sales of $159.3 million. That was up from $13.4 million or 83 cents per diluted share of net income on sales of $147.5 million in the final three months of 2011.

The earnings in the last quarter of 2012 included tax benefits associated with land donated to local development authorities and costs related to the McFarland Cascade acquisition.

Meanwhile, for 2012 as a whole, the company says net profit was $73.1 million or $4.53 per diluted share on sales of $717.5 million. That was up from a net profit of $55.7 million or $3.48 per diluted share on sales of $640.1 million in 2011.

Last year marked the company’s 12th consecutive year growing profits, driven by constant efforts to enhance operating efficiency and “a methodical execution of our continental expansion strategy,” McManus said.

He said demand for its core products should remain strong as North American railway operators upgrade and expand their infrastructure while demand is expected to hold in the utility pole market.

“We may see a bit of a slowdown in terms of new projects getting developed in the mining sector. . . . The offset of that is we’re certainly seeing some new developments on the pole side for special projects that may be happening on a lot of green energy initiatives,” he told analysts.

Pierre Lacroix of Desjardins Capital Markets said the fourth-quarter results were slightly below expectations on slowing organic growth.

Excluding the one-time costs, he estimated earnings were 80 to 85 cents per share, below the 93 cents per share average forecast by analysts.

Pre-tax operating earnings were $24.1 million, including $2.4 million in acquisition costs. That’s below the $27 million expected by analysts.

Stella-Jones’ existing business decreased about nine per cent due to lower advanced delivery of railway ties in the quarter and a planned reduction in the tie recycling business.

“We believe the slightly weaker-than-expected results could weigh on the stock price in the near term, especially as investors have built relatively strong expectations into forecasts and stock valuation,” he wrote in a report.

But Ben Vendittelli of Laurentian Bank Securities said the “slight miss in revenues was offset by continued strong margins.”

He said strong growth in poles drove the continued strong margins, which were 16.6 per cent in the quarter.

In the short-term, the company’s main priority will be to integrate the operating facilities acquired from McFarland Cascade Holdings at the end of November, reduce debt, enhance its network and look for new acquisition opportunities, McManus said.

The company is spending about US$11 million to a new railway wood treating facility in Georgia that will serve railways in the fast-growing Florida and Atlanta, Ga., areas.

“The new plant will be primarily devoted to the production of railway ties and will enhance our presence and capacity in an important core market.”