Northwest Pipe Expects Low Margins as High Import Levels Impact Line Pipe Market
08/11/2014 - Northwest Pipe Company announced its financial results for the quarter ended 30 June 2014.
Second Quarter 2014 Results
Net sales from continuing operations for the quarter ended 30 June 2014 increased 16.0% to US$102.0 million compared to US$87.9 million for the quarter ended 30 June 2013. Gross profit was US$11.3 million (11.1% of net sales from continuing operations) in the second quarter of 2014, a decrease from US$15.2 million (17.3% of net sales from continuing operations) in the second quarter of 2013. Income from continuing operations for the second quarter of 2014 was US$3.2 million or US$0.33 per diluted share compared to income from continuing operations of US$5.5 million or US$0.59 per diluted share for the second quarter of 2013.
Water Transmission sales increased 7.0% to US$62.2 million in the second quarter of 2014 from US$58.1 million in the second quarter of 2013. The increase in net sales was due to higher volumes primarily attributed to the Integrated Pipeline (IPL) Project, which started production in mid-May. Water Transmission gross profit decreased to US$11.5 million (18.5% of segment net sales) in the second quarter of 2014 from US$12.1 million (20.9% of segment net sales) in the same quarter of 2013. Water Transmission gross profit decreased in total and as a percent of net sales due to the mix of projects as compared to the same period a year ago. In addition, increased competition has compressed margins on projects that were produced in the second quarter and bid during the recent Water Transmission market slowdown.
Tubular Products sales from continuing operations increased 33.5% to US$39.8 million in the second quarter of 2014 from US$29.8 million in the second quarter of 2013, driven by a 37% increase in tons sold partially offset by a 3% decrease in sales prices. Sales volumes increased from 29,800 tons in the second quarter of 2013 to 40,900 tons in the second quarter of 2014. Tubular Products gross profit from continuing operations decreased by 105.6% to a US$0.2 million gross loss (negative 0.4% of segment net sales from continuing operations) in the second quarter of 2014 from US$3.1 million gross profit (10.4% of segment net sales from continuing operations) in the second quarter of 2013. Gross profit was negatively impacted by higher steel costs in relation to the lower sales prices coupled with a US$1.6 million lower of cost or market adjustment in the second quarter.
As of 30 June 2014, the backlog of orders in the Water Transmission segment was approximately US$143 million compared to a backlog of orders of US$115 million as of 30 June 2013. The backlog includes confirmed orders, including the balance of projects in process, and projects for which the Company has been notified that it was the successful bidder even though a binding agreement has not been executed.
Outlook
The company's financial performance is expected to improve in the third quarter with the higher levels of production in the Water Transmission segment. "The IPL and other projects are expected to push third quarter Water Transmission margins into the high teens," said Scott Montross, president and chief executive officer of the company. "We have recently completed the modernization project at our Atchison facility and are seeing improving volumes and enhanced product mix, but high levels of imports continue to have a negative impact on the line pipe market. In the near term we expect margins in the low single digits for the Tubular Products segment."
Net sales from continuing operations for the quarter ended 30 June 2014 increased 16.0% to US$102.0 million compared to US$87.9 million for the quarter ended 30 June 2013. Gross profit was US$11.3 million (11.1% of net sales from continuing operations) in the second quarter of 2014, a decrease from US$15.2 million (17.3% of net sales from continuing operations) in the second quarter of 2013. Income from continuing operations for the second quarter of 2014 was US$3.2 million or US$0.33 per diluted share compared to income from continuing operations of US$5.5 million or US$0.59 per diluted share for the second quarter of 2013.
Water Transmission sales increased 7.0% to US$62.2 million in the second quarter of 2014 from US$58.1 million in the second quarter of 2013. The increase in net sales was due to higher volumes primarily attributed to the Integrated Pipeline (IPL) Project, which started production in mid-May. Water Transmission gross profit decreased to US$11.5 million (18.5% of segment net sales) in the second quarter of 2014 from US$12.1 million (20.9% of segment net sales) in the same quarter of 2013. Water Transmission gross profit decreased in total and as a percent of net sales due to the mix of projects as compared to the same period a year ago. In addition, increased competition has compressed margins on projects that were produced in the second quarter and bid during the recent Water Transmission market slowdown.
Tubular Products sales from continuing operations increased 33.5% to US$39.8 million in the second quarter of 2014 from US$29.8 million in the second quarter of 2013, driven by a 37% increase in tons sold partially offset by a 3% decrease in sales prices. Sales volumes increased from 29,800 tons in the second quarter of 2013 to 40,900 tons in the second quarter of 2014. Tubular Products gross profit from continuing operations decreased by 105.6% to a US$0.2 million gross loss (negative 0.4% of segment net sales from continuing operations) in the second quarter of 2014 from US$3.1 million gross profit (10.4% of segment net sales from continuing operations) in the second quarter of 2013. Gross profit was negatively impacted by higher steel costs in relation to the lower sales prices coupled with a US$1.6 million lower of cost or market adjustment in the second quarter.
As of 30 June 2014, the backlog of orders in the Water Transmission segment was approximately US$143 million compared to a backlog of orders of US$115 million as of 30 June 2013. The backlog includes confirmed orders, including the balance of projects in process, and projects for which the Company has been notified that it was the successful bidder even though a binding agreement has not been executed.
Outlook
The company's financial performance is expected to improve in the third quarter with the higher levels of production in the Water Transmission segment. "The IPL and other projects are expected to push third quarter Water Transmission margins into the high teens," said Scott Montross, president and chief executive officer of the company. "We have recently completed the modernization project at our Atchison facility and are seeing improving volumes and enhanced product mix, but high levels of imports continue to have a negative impact on the line pipe market. In the near term we expect margins in the low single digits for the Tubular Products segment."
