August 13, 2009 / 6:05 PM / 9 years ago

UPDATE 2-Stella-Jones Q2 profit tops Street; sees weak sales

* Q2 EPS C$0.87 vs est C$0.83

* Sales up 5 pct

* Sees sales to soften in upcoming quarters

* Shares fall 7 pct (Recasts; Adds analyst comments, updates share movement)

By Bhaswati Mukhopadhyay

BANGALORE, Aug 13 (Reuters) - Wood utility poles maker Stella-Jones Inc (SJ.TO) reported quarterly profit that beat market estimates, but expects the railway tie business to be a drag on its sales in the upcoming quarters, sending its shares down 7 percent.

“Second quarter results reflect the beginning of decelerating activity in the railway tie market, as a weaker economy is reducing investments in special projects and track extensions,” Chief Executive Brian McManus said in a statement.

The company is getting hurt as the U.S. stimulus funding has not yet trickled down to the actual projects.

The company said it will close its facility in Stanton, Kentucky, resulting in the termination of 10 employees, and also cut 29 jobs at its Spencer, West Virginia facility.

The railway tie business, which accounts for about 40 percent to 45 percent of Stella-Jones’ sales, is taking a beating as carloads of Class I railroads are under pressure, analyst Pierre Lacroix of Desjardins Securities said.

Stella-Jones, which makes poles and railroad ties by treating wood it buys from sawmills, reported second-quarter net income of C$11 million ($10.12 million), or 87 Canadian cents a share, compared with C$10 million, or 80 Canadian cents a share, a year ago.

Three analysts on average expected earnings of 83 Canadian cents a share, before special items, according to Reuters Estimates.

Total sales rose 5 percent to C$129.1 million, as sales at its utility poles and consumer lumber businesses were up almost 20 percent each.

“Some of the stimulus funding is being allocated to renewable energy and that should drive demand for utility poles as North America starts building transmission lines for wind and solar farms, which are often quite a distance away from the end user,” analyst Ben Vendittelli of Laurentian Bank Securities said.

Vendittelli also said part of the Canada stimulus funding that has gone into expansion of Amtrak and Canada’s passenger rail company, Via Rail, is likely to benefit Stella-Jones.

The consumer lumber business is being driven by the store expansion of Canada’s Home Depot Inc (HD.N), for which Stella-Jones provides treated lumber, said Vendittelli, who has a “buy” rating on the stock.

Shares of the company were down nearly 5 percent at C$23.85 in afternoon trade on the Toronto Stock Exchange. ($1=1.087 Canadian dollar) (Editing by Unnikrishnan Nair and Anil D’Silva)

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