An unexpected changing of the guard at Stella-Jones Inc. is stoking concern among investors as Brian McManus gets set to leave the Canadian wood-products manufacturer after an 18-year run as chief executive.
Montreal-based Stella-Jones, which produces pressure-treated railway ties and utility poles for rail freight carriers and power companies in Canada and the United States and also supplies residential lumber for big-box retailers, said Monday that Mr. McManus made the decision to step down and will leave the company Oct. 11.
Current chief financial officer Eric Vachon, who has been with Stella-Jones for 12 years, will take over as interim CEO in three months while the board searches for a permanent replacement, the company said. It reaffirmed financial projections for the year, including higher year-over-year sales and profit margins.
“I don’t think there’s ever necessarily a good time” to leave, Mr. McManus said in an interview with The Globe and Mail. “I felt that if I was going to have another chapter [in my life], personal or career-wise, it had to eventually happen.”
Mr. McManus, 51, said he is stepping aside of his own accord and not as a result of any disagreement with the board or shareholders. He said he plans to take a short break but has no definitive plans for his future.
Stella shares fell 6 per cent to close at $44.03 on the Toronto Stock Exchange Monday.
The CEO’s departure doesn’t signal any concerns about the company’s profitability this year, but his decision to move on at a relatively young age “may be interpreted by some investors as a sign that the long-term growth prospects for Stella-Jones are dimming,” CIBC Capital Markets analyst Hamir Patel said in a research note. Since Mr. McManus joined Stella in 2001, the company’s share price has increased from $0.55 to $46.87, he noted.
Mr. McManus has led growth of Stella’s net income in nine of the past 10 years and the boosting of top-line sales for 18 consecutive years through acquisitions and improving existing operations. The company pushed past $2-billion in annual revenue for the first time in 2018 but it has faced headwinds over the past two years in particular, such as higher costs and softer pricing.
“My name’s become associated with Stella-Jones so there’s probably a little bit of nervousness out there” among investors given the length of the leadership, Mr. McManus said. He emphasized the management team he has assembled, with three key highly regarded vice-presidents including Mr. Vachon, and he rejected the suggestion that Stella’s best days are behind it.
“We will get to a point where the acquisition opportunities will start to level off but we’re still not there,” Mr. McManus said. “Things will continue to be positive and move forward.”
The story of how Mr. McManus became Stella’s CEO is now part of Quebec business legend.
A mechanic by training, he studied business at the University of Western Ontario, doing a case study on Stella-Jones. Degree in hand, he joined a boutique investment bank that had Stella as a client and, at the age of 33, quit to steer the same company he had studied less than two years earlier.
Can a new CEO keep up the track record of long-term growth? Analysts such as Brian Pow, who recently retired as head of research for investment dealer Acumen Capital Partners in Calgary, has said the biggest risk to Stella as an investment may simply be that Mr. McManus could eventually leave the company. The firm has a current market capitalization of $3-billion.
As CEO of the same company for 18 years, Mr. McManus has defied the longevity trends of corporate leaders in North America. CEO tenure has risen during a record bull market following the 2008 recession and the typical S&P 500 company CEO departing in 2017 lasted about 11 years in their job, according to the Conference Board Inc.’s latest annual report on CEO succession.