MONTREAL, P.Q. - Stella-Jones Inc. said growth in telephone poles and residential construction lumber sales led to growth in the latest quarter, offsetting declines in its railroad ties business.
"Stella-Jones' growing reach in the utility pole and residential lumber markets led to solid sales growth in these product categories during the third quarter, more than offsetting the effect of lower year-over-year pricing in the railway tie product category," said Brian McManus, Chief Executive Officer.
Sales reached $517.6 million, up one percent. Acquisitions contributed sales of approximately $2.1 million, while the conversion effect from fluctuations in the value of the Canadian dollar, Stella-Jones' reporting currency, versus the U.S. dollar, had a negative impact of $9.9 million on the value of U.S. dollar denominated sales. Excluding these factors, sales increased by $12.9 million, or 2.5 percent.
Railway tie sales amounted to $160.8 million, down more than $20 million from last year's third quarter. Excluding the currency conversion effect, railway tie sales declined approximately $21.7 million, or 11.6 percent, mainly due to lower pricing, Stella-Jones reported. The company's Boatright Railroad Products operation was hit with a lawsuit by Northfolk Southern Railroad which claims it received millions of defective railroad ties.
Utility pole sales reached $172.5 million in the third quarter of 2017, representing a 7.8% increase over sales of $160.0 million a year ago. Excluding the contribution from acquisitions and the currency conversion effect, sales increased approximately $14.4 million, or 9.0%, reflecting organic sales growth in the southeastern United States and a gradual return to historical maintenance demand.
Sales in the residential lumber category reached $125.8 million in the third quarter of 2017, up from $107.3 million a year earlier. Excluding the currency conversion effect, residential lumber sales increased approximately $20.2 million, or 18.8%, mainly reflecting higher selling prices due to increased untreated lumber costs and more favourable weather in Canada during the third quarter of 2017 compared to the same period last year.
Industrial product sales reached $25.6 million in the third quarter of 2017, down from $27.5 million in the third quarter of 2016. This variation is mainly due to lower sales of marine pilings in Canada, partially offset by higher sales of rail-related products in the United States. Logs and lumber sales totaled $32.9 million, versus $31.3 million in the third quarter of 2016. This variation reflects the timing of lumber purchase and resale activities, the timing of timber harvesting, as well as higher selling prices due to increased lumber costs.
Operating income stood at $63.1 million, or 12.2% of sales, compared with $67.3 million, or 13.1% of sales in the third quarter of the previous year. The decrease as a percentage of sales essentially reflects lower selling prices for railway ties and a less favourable geographical mix in the utility pole category.
Net income for the third quarter of 2017 was $42.0 million, or $0.61 per diluted share, versus $45.7 million, or $0.66 per diluted share, in the third quarter of 2016.
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