MONTREAL, QB -- Stella-Jones Inc. today announced financial results for its third quarter and nine-month period ended September 30, 2010.

THIRD-QUARTER RESULTS

Sales were $161.3 million, an increase of $56.6 million, or 54.1% from last year's sales of $104.7 million. The acquisition of Tangent Rail Corporation ("Tangent"), effective April 1, 2010, contributed sales of approximately $41.2 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 $3.6 million when compared with the same period a year earlier. Adjusting for year-over-year currency fluctuations, sales excluding Tangent increased approximately 18.0% versus last year's third quarter, reflecting higher railway tie sales in the United States and greater utility pole sales in both the United States and Canada.

Railway tie sales increased $40.2 million, or 91.2%, to $84.3 million, as a result of a $27.1 million contribution from Tangent and increased market penetration. Excluding Tangent, year-over-year tie sales rose $13.1 million, net of a $1.8 million decrease due to currency translation effect. Sales of utility poles totalled $42.7 million, up 15.6% from $36.9 million a year ago. This increase mainly reflects higher sales of distribution poles, partially offset by lower sales of transmission poles as well as a $0.7 million decrease in sales from the year-over-year currency translation effect. Industrial product sales rose to $24.7 million, up from $12.4 million a year earlier, driven by the contribution of Tangent's coal tar distillation and used tie pickup and disposal operations. Further capitalizing on efficiencies from consolidation, all coal tar distillation is now being carried out at Stella-Jones' Memphis, Tennessee facility. Accordingly, Stella-Jones sold certain assets relating to its coal tar distillation business at the Terre Haute, Indiana facility at the end of October. Finally, consumer lumber sales decreased 15.4% to $9.5 million.

"Stella-Jones reported strong operating results in the third quarter with solid organic growth in our core product categories," said Brian McManus, President and Chief Executive Officer of Stella-Jones. "The integration of Tangent continues to further enhance our market penetration, as we leverage the strengths and competencies of our expanded North American network. Greater efficiencies from operational optimization initiatives and synergies are also driving profitability improvements throughout the organization."

Gross profit was $29.3 million or 18.2% of sales, up from $19.6 million or 18.8% of sales last year. The 49.3% 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 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 the period stood at $12.2 million or $0.77 per share, fully diluted, compared with $8.3 million or $0.65 per share, fully diluted, last year. Stella-Jones generated solid cash flow from operating activities before changes in non-cash working capital components of $15.2 million, up from $10.3 million in the same period a year ago.

Stella-Jones' balance sheet further improved as at September 30, 2010. Long-term debt, including the current portion, was $147.3 million, representing a ratio of total long-term debt to shareholders' equity of 0.53:1, down from 0.57:1 three months earlier.

"Further to the ongoing reduction in long-term debt, a strong cash flow generation and better working capital resulted in a substantial decrease in short-term bank indebtedness to $22.5 million as at September 30, 2010, from $47.6 million at the end of the previous quarter," said George Labelle, Senior Vice-President and Chief Financial Officer.

NINE-MONTH RESULTS

For the nine-month period ended September 30, 2010, sales were $428.0 million, up from $345.7 million in the first nine months of 2009. In addition to Tangent's six-month contribution of $83.3 million, sales increased organically by approximately 6.0%, while changes in the value of the Canadian dollar versus the U.S. dollar decreased the value of U.S. dollar denominated sales by about $21.8 million when compared with the same period a year earlier.

Gross profit reached $76.4 million, or 17.8% of sales, versus $66.1 million, or 19.1% last year. Net earnings for the period stood at $23.6 million, or $1.59 per share, fully diluted, versus $27.0 million, or $2.13 per share, fully diluted, in the corresponding period a year earlier. Cash flow from operating activities before changes in non-cash working capital components reached $34.8 million, compared with $34.2 million last year.

Year-to-date results include approximately $7.5 million in non-recurring expenses, mainly consisting of asset impairment charges for the Spencer, West Virginia facility and the Ripley, West Virginia U.S. corporate office, severance expenses, a provision for an unfavourable legal judgment, as well as general and administrative expenses directly related to the Tangent acquisition.

OUTLOOK

"We expect current trends to continue to benefit fourth quarter results. We are observing further signs of improvement in the core railway tie market resulting from increased freight volume. These positive developments could lead to greater investment in rail infrastructure as railway operators constantly seek to optimize efficiencies. Meanwhile, utility pole demand should hold with regular maintenance projects providing a stable business flow. Through our enlarged network, greater market penetration and stronger competitive position, we are strategically positioned to benefit from any opportunity that may arise," concluded Mr. McManus.

ABOUT STELLA-JONES

Stella-Jones Inc. 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 consumer lumber to retailers and wholesalers for outdoor applications. The Company's common shares are listed on the Toronto Stock Exchange.

SOURCE: Stella-Jones Inc.

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