Stella-Jones is a leading manufacturer of industrial pressure treated wood products in North America. The company manufactures and sells railway sleepers, power poles, lumber and industrial wood products across the continent.

By product, power poles account for 35% of the company’s sales in 2020, followed by railroad ties (29%), residential timber (26%), logs and sawn timber (6%), and industrial products (4%). The US accounts for 68% of Stella-Jones’s total sales, while Canada accounts for the remaining 32%. The company also has a small presence in the Latin American and South American markets.

The company operates 40 wood processing plants, finished goods yards, 12 pile peeling operations and an extensive distribution network across North America. These facilities are located in six Canadian provinces and nineteen American states. It offers retailers a wide range of lumber and accessories for outdoor use and special wood products for industrial applications.

Stella-Jones is known for its premium products and services, agile processes, secure supply chains and fast delivery anywhere on the continent.

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Investment data

Sales growth and market presence

Stella-Jones has come a long way from humble beginnings as a four plant wood treatment facility in 1992 to a leading North American timber and stake supplier that now operates 40 plants. North America’s largest railways, telecommunications providers, electric utilities and the residential retail market are Stella-Jones’ leading customers. The company also serves residential and industrial marketplaces. Last year was the 20th consecutive year of sales growth.

Stella-Jones is a leading provider of critical components of the physical infrastructure of the economy. Stella-Jones poles are made from a variety of high quality woods to suit different climates and unique customer specifications across the continent.

The company is expanding its geographic presence, increasing its capacity, strengthening its networks and investing in high-quality acquisitions. The acquisitions of McFarland in 2012, Tangent Rail in 2010, and Ram Forest Group and Ramfor Lumber in 2015 were transformative acquisitions for Stella-Jones.

Sales in the US now represent 68% of total sales, compared to 64% in 2011. Residential lumber also increased from 10% in 2014 to 26% in 2020. EBITDA growth last year was on volume – and price increases in the three core areas are attributable to product categories. Stella-Jones also posted organic sales growth of 10%. The last quarter was characterized by high market prices for sawn timber, strong demand for sawn timber for private households and operational efficiency gains.

Stella-Jones could also benefit from cross-selling opportunities in its core markets. The company expects organic sales growth of between 15% and 20%, with residential wood sales expected to grow 45% to 65% and electricity pole sales in the mid to high single digits in 2021.

Dividends

Stella-Jones is a dividend aristocrat who has returned $ 384 million to shareholders over the past decade. It has an average annual return of 1.45% and a very low payout ratio of 20%. The company most recently increased its dividend 20% for the 16th consecutive year and has increased its dividend growth by 20% + CAGR over the past decade. The payout ratio is between 20% and 30% of the EPS of the previous year.

Strong cash flows have helped the company grow its business both organically and through acquisitions and provide solid returns for shareholders. Stella-Jones is also focused on network expansion to improve efficiency and increase capacity. As of 2010, $ 628 million has been spent on acquisitions and $ 404 million on cost of capital. Stella-Jones is aiming for an annual CapEx of 50 to 60 million US dollars.

The company has a solid reputation for reliable and consistent service. This has resulted in sticky customer relationships. A large part of Stella-Jones’ sales of electricity pylons takes place through multi-year contracts and public tenders, which ensure transparency and stability of payment flows. The company also benefits from continued demand for its core products in the form of regular maintenance of railroad ties and product categories for power poles, which are an integral part of North American ground transportation and utility infrastructure.

Stella-Jones is expected to benefit from improved margins across all product categories. Trends such as additional infrastructure investments for the expansion of the 5G network, the availability of large stocks of untreated railway sleepers and the growing demand for new construction and exterior renovation projects on the North American residential and commercial market act as a strong tailwind for the company.

Historical earnings from Stella Jones (SJ)
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competition

West Fraser Timber, Canfor Corp., Norbord Inc., Interfor Corp. and Western Forest Products Inc. are Stella-Jones’ top competitors. Stella-Jones’s strong focus on customer satisfaction, core products and key markets gives Stella-Jones a competitive advantage.

A strong balance sheet, extensive sales and manufacturing network across North America, a stable source of wood supply, and strategically located wood treatment facilities are key competitive advantages.

Bottom line

Stella-Jones is in a good position to benefit from its leading position as a manufacturer of basic components for North American industrial infrastructure. The company expects growth in all core product categories and should also benefit from growing investments and infrastructure improvements.

A robust business model, a leadership position in product categories, a comprehensive network for service customers and a solid financial position are important growth factors for the company.

SJ versus TSX versus SP500 2021
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Stella Jones (SJ) historical pe
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