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Stella-Jones forecasting growth despite uncertainty

David H. Lewis/iStockphoto/David H. Lewis/iStockphoto

Utility pole and railway tie maker Stella-Jones Inc. will continue hitching a ride on growing investments by North American railroads and power transmission companies despite "fogginess" about the economic outlook.

"Although global economic conditions have recently been volatile, the markets we serve in North America should continue to provide Stella Jones with a steady demand for its core products," president and chief executive officer Brian McManus said in a conference call Friday.

The Montreal-based treated lumber company said it continues to benefit from investments of the continent's railways in track upgrades, along with regular maintenance and special projects requiring utility poles.

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The Association of American Railroads said North American intermodal volumes increased 5.3 per cent in the first nine months of the year and regular carloads were up 2.1 per cent.

Stella-Jones beat expectations when it reported that its profit grew in the third-quarter with the help of stronger revenue.

Profit was up more than 33 per cent to $16.6-million, or $1.03 a share for the period ended Sept. 30.

That's an increase from $12.4-million, or 78 cents, a year ago.

Analysts had forecast earnings of 94 cents a share for the period.

Sales rose 12.7 per cent to $181.8-million from $161.3-million.

Navigating through current U.S. economic conditions is like "driving through a heavy fog patch," Mr. McManus told analysts.

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"For the first half of the year, the visibility is fairly good ... [but] beyond that while we expect to continue to see the solid demand the visibility is not quite as clear."

Mr. McManus said the company's short-term priority is to close and integrate the acquisition of Thompson Industries, which will strengthen its appeal to the railroad industry.

The $41-million (U.S.) deal to acquire the Arkansas-based treated wood company that had $49-million revenue last year is expected to close in December.

The stronger value of the Canadian dollar reduced the value of Stella-Jones's U.S. sales by about $10.2-million in the quarter, the company said. Excluding this conversion effect, sales increased about 19 per cent.

In its divisions, railway tie sales were up 9.7 per cent to $92.3-million, while utility pole sales rose 31.6 per cent to $56.2-million.

Industrial product sales decreased 9.4 per cent to $22.6-million, affected by the sale of some assets last year at a facility in Indiana, and the effects of a stronger Canadian dollar, which whittled results down by $1.4-million.

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Ben Vendittelli of Laurentian Bank Securities said Stella-Jones's improved results reflect a more favourable product mix with increased sales of transmission poles and market share gains.

"We believe that Stella-Jones should continue exhibiting solid growth," he wrote in a report.

"We believe rail tie demand was at trough levels during 2009 and the first half of 2010. This has led to a strong recovery late in 2010, which should continue throughout 2011."

Meanwhile, Mr. McManus said Stella-Jones expects to eventually benefit from Quebec's Plan Nord economic activities, but the impact won't likely be felt in 2012 or 2013.

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