The Montreal-based company expects demand for railway ties will continue to grow as railways expand to handle increasing volumes.
"This facility located in a high growth area of the United States where rail transportation plays a key role, should make Stella-Jones a stronger supplier and an increasingly attractive option in the railroad industry," company CEO Brian McManus said Friday during a conference call.
The American Association of Railroads says rail traffic grew by 1.4 per cent in the first half of the year and McManus says that supports Stella-Jones' confidence about further investments by the industry.
Stella-Jones (TSX:SJ) missed expectations in the second quarter even though the treated wood products supplier's profit surged to $26.4 million on an acquisition-fuelled boost in revenues.
It earned $1.53 per diluted share in the three months ended June 30. That compared to $1.30 per share or $20.8 million a year earlier.
Revenues increased 34 per cent to $273.2 million, up from $203.9 million a year ago, helped by $75 million from McFarland Cascade Holdings which was acquired Nov. 30.
Excluding the acquisition and currency gains on U.S. sales, sales decreased about $7.5 million due to more traditional seasonal demand, lower sales of industrial products, and reduced railcar availability in Western Canada due to flooding in southern Alberta.
Stella-Jones was expected to earn $1.60 per share on $289.1 million of revenues during the quarter, according to analysts polled by Thomson Reuters.
Analyst Ben Vendittelli of Laurentian Bank Securities said the company's outlook continues to be positive, supporting his rating of the company as a top pick with a $110 per share target price.
Railway tie sales were stable at $119.8 million. Utility pole sales nearly doubled to $95.1 million, mainly resulting from $46 million of additional sales from the McFarland operations.
Sales of residential lumber reached $41.3 million, up from $14.0 million a year earlier as a result of $26 million in additional residential lumber sales from McFarland.
Industrial product sales dropped six per cent to $17.0 million, from $18.1 million a year earlier, due to a reduction in the tie recycling business and in rail projects requiring industrial products.
McManus said demand for Stella-Jones' core products should remain healthy for the remainder of the year. Longer term, demand for utility poles should grow by high single digits as new power lines are installed and older poles are replaced.
He said the company continues to look for acquisitions that can help more than double its annual revenues within three to five years to $1.3 billion to $1.5 billion from $717 million in 2012.
Stella-Jones shares closed down 26 cents at $98.75 on the Toronto Stock Exchange on Friday.Suggest a correction