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Northwest Pipe Reports Record 2008 Results, Cautious Outlook

02/26/2009 - Northwest Pipe reports net income of $8.6 million on revenues of $110.2 million for the fourth quarter, and net income of $32.3 million on record revenues of $439.7 million for the full year 2008.

Northwest Pipe Co. reported net income of $8.6 million on revenues of $110.2 million for the fourth quarter, and net income of $32.3 million on record revenues of $439.7 million for the full year 2008.
 
Fourth Quarter Results—The $8.6 million net income ($0.92 per diluted share) compares to net income of $5.6 million ($0.60 per diluted share) in the year-ago fourth quarter. The $110.2 million in revenue compares to revenues of $98.2 million in the year-ago quarter.
 
Full Year Results—The $32.3 million net income compares to net income of $20.8 million in 2007. Diluted earnings per share were $3.46, which compares to $2.26 per share in 2007. Revenue of $439.7 million compares to revenue of $382.8 million in 2007.
 
The company reported backlog entering 2009 of approximately $190 million.
 
Water Transmission Results— The company’s Water Transmission Group reported revenue of $55.7 million for the fourth quarter, which compares to revenue of $80.3 million in the fourth quarter of 2007. Gross profit was $11.0 million (19.7% of sales) in the fourth quarter, which compares to gross profit of $17.0 million (21.2% of sales) in the same quarter of 2007.
 
The Water Transmission Group’s revenue was $271.9 million for 2008, which compares to revenue of $287.8 million in 2007. Gross profit in 2008 was $54.5 million (20.0% of sales), which compares to gross profit of $60.2 million (20.9% of sales) in 2007.
 
“Water Transmission revenue was down in the fourth quarter of 2008 for three reasons which were all previously disclosed,” said Brian W. Dunham, Northwest Pipe’s President and CEO. “First, and most importantly, a major project was postponed so late that we had no opportunity to replace this volume. Secondly, we shut down our highest-volume production line during the quarter to install a new spiral weld mill; and finally, weather issues impacted production in all but two of our facilities.”
 
Tubular Products Results— The company’s Tubular Products Group reported record-high fourth-quarter revenue of $54.5 million, which compares to revenue of $17.9 million in the fourth quarter of last year. Fourth quarter gross profit was $13.5 million (24.7% of sales), up from $1.0 million (5.5% of sales), in the fourth quarter of 2007.
 
The Tubular Products Group reported record full-year revenue of $167.8 million in 2008, compared to $95.0 million in 2007. Full-year gross profit was $39.2 million (23.4% of sales), compared to $10.0 million (10.5% of sales) for 2007.
 
“The record results in the Tubular Products Group for the year were driven primarily by strong energy pipe sales with solid performance in our other products as well,” said Dunham. “Late in the fourth quarter, bookings declined dramatically as the recession deepened. However, through the end of the year, we continued to ship orders that had been placed earlier in the year. Shipping out of backlog kept our revenue at a high level throughout the fourth quarter.”
 
Outlook—“As we look ahead, we are focused on the impact of the recession and financial issues on our markets,” said Dunham. “Clearly, there is a strong correlation between our tubular products business outlook and general economic factors, including natural gas exploration, non-residential construction, agricultural spending, and highway spending. At this time, we are expecting decreases in all these areas. Our selling prices will also come down as our markets adjust to lower raw material costs. These issues will result in a pronounced impact in the first two quarters of 2009. We expect to see improving market conditions and results in the second half of the year.”
 
“Our water transmission business doesn't necessarily move in patterns consistent with the economic cycle,” continued Dunham. “This market is driven by large municipal projects that are planned and developed over the course of several years and are primarily motivated by long term population growth and migration projections, Funding is typically provided by the sale of revenue bonds that are backed by connection fees or usage fees. While there have been short-term delays in project timing, we have not seen significant delays or cancellations due to funding issues on projects in our backlog or projects we expect to bid in the near future."
 
“We are anticipating a stronger water transmission market in 2009,” stated Dunham. “Due to the timing on specific projects, weather delays and the installation of our new mill, the first quarter is expected to be the slowest of the year.”
 
The company recently announced the formation of Northwest Pipe Asia and the acquisition of Byard Ltd., an equipment manufacturer. Dunham acknowledged that the acquisition might not provide a significant impact in the short term, but noted that it could later lead to additional international sales of products made in the United States, or even further investment overseas.
 
The company continues to work toward the reopening its Bossier City, La., facility. "The Louisiana facility will produce pipe primarily for the natural gas exploration market, and we expect it to be in production in July,” noted Dunham. “However, given the significant downturn in drilling activity and the glut of imported product that has recently arrived, we will postpone completion of the downstream manufacturing processes. We will be able to participate in the market by shipping product to processors for completion in the near term and will be able to quickly complete the project when market conditions warrant the additional investment,” added Dunham.
 
Northwest Pipe also announced a temporary shutdown of one facility. "We have seven water transmission plants," said Dunham. "At this time, we are temporarily closing our Pleasant Grove, Utah, facility. This facility and its people have performed well and have been very successful for us, but we do not currently see sufficient upcoming work located nearby to justify its operation. We are going to maintain the equipment at this location and closely monitor the project opportunities in and around Utah. We hope to be able to start this up again.”
 
“This is a challenging time,” concluded Dunham. “We are adjusting our strategies and managing our costs in order to work through this period as effectively as possible while, at the same time, staying poised to take advantage of improving conditions when they come.”
 
Northwest Pipe manufactures welded steel pipe and other products in two business groups. Its Water Transmission Group is a leading supplier of large diameter, high-pressure steel pipe products that are used primarily for water infrastructure in North America. Its Tubular Products Group manufactures smaller diameter steel pipe for a wide range of applications including construction, agricultural, energy, traffic and other commercial and industrial uses. Headquartered in Vancouver, Wash., the company has ten manufacturing facilities across the United States and Mexico.