Keystone Reports 1st Quarter 2009 Results
05/07/2009 - Keystone Consolidated Industries reports a net loss of $4.4 million on net sales of $60.5 million for the first quarter of 2009.
Keystone Consolidated Industries, Inc. reported a net loss of $4.4 million on net sales of $60.5 million for the first quarter of 2009
The $4.4 million net loss ($0.36 per diluted share) compares to net income of $13.6 million ($1.39 per diluted share) in the first quarter of 2008. The $60.5 million net sales compares to net sales of $134.1 million in the year-ago first quarter.
The company said the decrease in operating performance was due primarily to the lower shipment volumes that resulted from the current economic crisis. During the quarter, customers cancelled or postponed certain projects due to an inability to secure financing in the current credit markets, while some customers chose to conserve cash by liquidating their inventories and instituting a just-in-time order philosophy.
The company also experienced an unprecedented 90% increase in the cost of ferrous scrap between December 2007 and August 2008. This buildup was followed by a significant decline in ferrous scrap costs that has prompted customers to limit orders as they assumed lower ferrous scrap prices would result in lower selling prices in the near future.
Given the sharply reduced market demand, the company operated on a substantially reduced production schedule during the first quarter of 2009, which resulted in the inclusion of a much higher percentage of fixed costs in the cost of goods sold (since the costs could not be capitalized into inventory). Although Keystone experienced equipment breakdowns and start-up issues as idle production facilities were difficult to re-start during the cold winter months, the Company believes the reduced production schedules have allowed Keystone to somewhat temper the adverse impact of the current business downturn on the company's liquidity.
Results also reflect a $1.5 million defined benefit pension expense in the quarter, primarily due to a $510 million decrease in Keystone's pension plans' assets during 2008. The $1.5 million expense compares to a $19.0 million defined benefit pension credit in the first quarter of 2008.
The company’s operating performance before pension and OPEB (other postretirement benefit) for the first quarter of 2009 was significantly worse than 2008 primarily due to the net effects of a number of factors, including substantially lower shipment volumes; inclusion of higher-cost raw materials in cost of goods sold; and inventory impairment charges of $1.5 million. Reduced shipments led to substantially reduced production volumes and the inclusion of a much higher percentage of fixed costs in cost of goods sold. Variable production costs also increased as idle production facilities were difficult to re-start in the cold winter months.
Other factors that negatively impacted operating performance included a $949,000 allowance for bad debt; higher selling prices (as a result of price increases implemented due to higher ferrous scrap costs); decreased employee incentive compensation accruals during 2009 resulting from poor operating performance; and decreased worker compensation accruals.
The company also recorded a $4.5 million decrease in its LIFO reserve and cost of goods sold (primarily due to an estimated substantial deflation of raw material costs and inventory levels from December 2008 to December 2009). This decrease compares to a $928,000 increase in LIFO reserve and COGS during the first quarter of 2008.
Headquartered in Dallas, Texas, Keystone Consolidated Industries is a leading manufacturer of steel fabricated wire products, industrial wire, billets and wire rod. Keystone also manufactures wire mesh, coiled rebar and steel bar. The Company's products are used in the agricultural, industrial, cold drawn, construction, transportation, original equipment manufacturer and retail consumer markets.
