Northwest Pipe Co. reported net income of $4.0 million on record sales of $86.8 million for the third quarter of 2005.

The $4.0 million net income ($0.56 per diluted share) compares to $3.9 million ($0.58 per diluted share) in the third quarter of 2004. Sales were a record $86.8 million compared to $75.3 million in the third quarter of 2004.

Sales reached a new high in spite of some storm-related issues that resulted in the temporary shutdown of the Company's Texas and Louisiana facilities and some disruption in raw material deliveries. Earnings were positively impacted by a change in the Company's effective tax rate due to federal and state legislative changes during the quarter. These changes will result in an expected effective tax rate of approximately 36.0% for the year.

Segment Results—Sales in the Water Transmission Group were $61.7 million, compared to $46.2 million for the third quarter last year and $60 million in the second quarter of this year. This is the highest sales ever recorded by the Water Transmission Group. Gross profit for this Group was $12.7 million (20.6% of sales) compared to $8.9 million (19.3% of sales) last year and compared to $12.5 million for the second quarter of this year.

"The Water Transmission Group continued to perform very well during the quarter," said Brian W. Dunham, president and CEO. "Revenues were not as strong as we had originally expected, but, overall, our facilities operated at very good production levels. Gross profit improved due to high capacity utilization during the quarter."

The Tubular Products Group's sales were $20.5 million in the third quarter of 2005. While this is down significantly compared to $26.1 million reported for the third quarter last year, it is generally consistent with sales last quarter and with our expectations. Gross profit was $1.1 million in the third quarter of 2005 compared to $5.0 million in the third quarter of 2004. Again, however, gross profit as a percent of sales improved over the results achieved last quarter.

"Last year was outstanding for tubular products, particularly during the second and third quarters," noted Dunham. "All current results will pale next to prior year comparisons. As we work to improve our Tubular Products business, the more relevant comparisons are sequential rather than year over year. Our sales for this quarter are nearly the same as last quarter and, importantly, our margin has improved from 3.8% to 5.3%. We believe we are on the right track as we continue to make cost improvements and fine tune our product mix. Eventually, we expect to be back to double-digit margins in this business."

Beginning this quarter, the company will report financial results for the Fabricated Products Group independently. This Group manufactures propane tanks and other fabricated metal parts in its Monterrey, Mexico, facility. This Group was previously reported as part of the Tubular Products Group.

Sales in the Fabricated Products Group were $4.5 million in the third quarter of 2005, compared to $2.9 million for the third quarter last year. The gross profit for this Group was $454,000, or 10.0% of sales, compared to $125,000, or 4.2% of sales, last year.

"The Fabricated Products Group's revenue and gross profit improvement is primarily the result of an improved market for our propane tanks. We have seen a slow improvement in pricing for this group that began late in the second quarter of 2005. Also, production efficiency improvements implemented early in 2005 are beginning to favorably impact this Group's results," concluded Dunham.

Outlook—Water transmission project bidding activity decreased significantly in the third quarter from the company’s expectations. Almost $100 million of projects were postponed into 2006. Accordingly, bookings in the quarter were much lower than expected and backlog was $126 million as of September 30, 2005. "We have seen a significant number of job delays," stated Dunham. "Postponements are a routine part of our business and, while this is an unwelcome development, the good news is that we still expect 2005 to be a strong market year and we still have a strong backlog. There are many projects yet to bid during the fourth quarter. Based on the anticipated level of market activity, our leading market share and current production schedules, we expect a solid fourth quarter and a backlog at the end of the year that is fairly close to our current backlog."

The company notes that tubular products markets have been slow all year, with the slowness expected to continue into the first quarter, although some signs of improvement have been noted in certain product lines. "We announced price increases for most of our products, beginning in September or October, which should help offset any steel cost increases and slowly rebuild our gross margin percentage in the coming quarters. We continue to make changes in our product offerings, inventory and production processes to improve the profitability of this segment, in spite of less than ideal volumes," continued Dunham. "We believe we will see a small amount of seasonal decline in sales in the fourth quarter, but continued improvement in margin."

The company expects its Fabricated Products Group to produce another strong quarter in the fourth quarter of 2005. "This business is seasonal and, unlike our other businesses, generally peaks in the fourth quarter. Strong market conditions, good pricing and increased productivity should lead to another solid quarter for this Group," indicated Dunham.

Northwest Pipe manufactures welded steel pipe in three business segments. Its Water Transmission Group is a leading supplier of large diameter, high-pressure steel pipe products that are used primarily for water transmission in the United States and Canada. Its Tubular Products Group manufactures smaller diameter steel pipe for a wide range of construction, agricultural, energy, industrial and mechanical applications. Its Fabricated Products Group manufactures propane tanks and other fabricated products. Headquartered in Portland, Ore., the company has nine manufacturing facilities across the United States and Mexico.