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Ipsco Reports First Quarter Earnings
04/24/2007 - Ipsco announced net income of $109.4 million on record sales of $1.03 billion for the first quarter of 2007.
Ipsco Inc. announced net income of $109.4 million on record sales of $1.03 billion for the first quarter of 2007.
First Quarter Results—The $109.4 million net income ($2.30 per diluted share) compares to net income of $150.7 million ($3.12 per diluted share) for the first quarter of 2006 and net income of $139.0 million ($2.92 per diluted share) in the fourth quarter of 2006.
Earnings per diluted share on an adjusted basis were $2.65, including the amortization of the fair value increment allocated to NS Group inventory ($0.33 per diluted share), foreign exchange losses ($0.01 per diluted share), the impact of share price appreciation on stock-based compensation valuations ($0.10 per diluted share) and effective tax rate changes (($0.09) per diluted share).
Sales reflected the addition of a full quarter of NS Group sales. At a record $1.03 billion, sales reflect a 14.3% increase ($128.8 million) over the same quarter last year and a 5.0% increase ($49.4 million) over the prior quarter. Total shipments were 1,073,000 tons, a new quarterly record for Ipsco and an increase of 68,000 tons compared to last year and 53,000 tons higher than the prior quarter.
Steel mill product shipments of 649,000 tons were relatively flat, decreasing 1.4% from the first quarter of last year and 2.2% from the prior quarter. Tubular shipments, 424,000 tons, reflect a 22.3% increase over the prior year and an 18.8% increase over the prior quarter, primarily due to the addition of NS Group tubular volumes and greater large-diameter shipments. Ipsco's composite first quarter product price of $961 per ton was up $63 per ton from a year ago, and was within $2 per ton of the record set in the prior quarter.
Gross income, $228.2 million, was down from $279.5 million in the first quarter of last year. The decline in gross income is attributed to amortization of the remaining $24-million fair-value increment allocated to NS Group inventory, higher scrap costs, expenses related to the Mobile maintenance outage, and higher tubular product costs.
Operating income of $167 per ton compare to operating income of $246 per ton in the first quarter of last year as amortization expense of fair value increments relating to the tangible and intangible assets acquired in the NS Group acquisition reduced operating income by $42 per ton, increased cost of scrap was $23 per ton, and costs related to the Mobile maintenance outage were $13 per ton.
Comments—"I am pleased with our first quarter," said David Sutherland, Ipsco President and CEO. "End-user demand was strong for plate, and while demand for small diameter energy tubular products was lower than last quarter, we expect shipments will improve as inventories at service centers and distributors reach desired levels. Operating highlights of the first quarter include: significant progress in our inventory reduction program; successful completion of the Mobile maintenance outage, where the upgrades installed are showing immediate benefits, and the award of 530,000 tons of large diameter pipe orders."
Outlook—The company says that solid end user demand for its steel mill products is continuing while service centers returned to a buying mode late in the first quarter. Ipsco's steel mill capacity is fully committed through the second quarter, and there are no outages scheduled for the second quarter. The company says that although the pricing environment has improved on plate and wide coil, higher scrap costs will impact margins.
The company expects high oil and gas prices to continue to drive high U.S. rig counts. However, due to spring break up, Ipsco expects second-quarter OCTG sales volumes in Canada will be seasonally weaker than the first quarter, with improvement in the last half of the year. In addition, the company’s spiral pipe facilities are now booked at full capacity through May 2009.
Excluding foreign exchange gains or losses and share price volatility, and assuming an effective tax rate of 33.5%, Ipsco forecasts second quarter earnings to be in the range of $2.60 to $2.80 per diluted share.
