Samuel Manu-Tech Reports Loss for 1st Quarter of 2009
04/30/2009 - Samuel Manu-Tech reports a net loss of $9.1 million on sales of $193.8 million for the three months ended March 31, 2009.
Samuel Manu-Tech Inc. reported a net loss of $9.1 million on sales of $193.8 million for the three months ended March 31, 2009.
The $9.1 million net loss ($0.28 per share) compares to net income of $3.1 million ($0.10 per share) for the year-ago first quarter. Results included a $0.7 million ($0.01 per share) pre-tax restructuring gain comprising the balance of the gain on sale of equipment at the Scarborough, Ont., strapping manufacturing facility. Last year's first quarter results included a pre-tax restructuring charge of $0.5 million ($0.01 per share).
Sales of $193.8 million reflect a $34.0-million (14.9%) decrease from sales of $227.8 million in the year-ago first quarter. The company said the decrease resulted primarily from lower volumes and selling prices. Volumes have declined with continued deterioration in the North American economic and market conditions and the ongoing lack of demand for most manufactured products, which ultimately led to falling commodity prices.
Lower sales in the quarter were offset in part by the contributions from the recent acquisitions of Tubular Products and Omega Joists, which the company acquired during the year-ago first quarter.
"We are experiencing extremely negative conditions in all of our served markets. In response to these depressed market dynamics, our businesses continue to focus on cost reduction," commented Mark C. Samuel, Chairman and CEO. "In addition, the Company is actively pursuing all opportunities that may be available in the recent economic stimulus packages in both Canada and the U.S.," he added.
Operating Performance—The company reported a $13.1 million loss from operations before restructuring, interest and income taxes, which compares to an operating profit of $6.9 million in the year-ago first quarter. The company said the loss reflects weak operating performance in the company's plants due to lower volumes and the impact of lower selling prices; these effects led to significant margin contraction for many products.
The company’s Packaging segment generated an $8.0 million operating loss, which compares to a $1.8 million operating profit in the year-ago first quarter. The company said the decreased profitability reflects ongoing contraction of the North American forestry, metals and construction sectors, as well as compressed margins. It also reflects the liquidation of higher-cost inventories and reduced production levels. In addition, the Unalloy-IWRC division incurred a loss of approximately $2.0 million on the bulk sales of its stainless and tool steel inventories as the company made the strategic decision to exit these two product lines.
The company’s Metal Processing segment reported a $2.5 million operating loss, which compares to a $6.8 million operating profit in the year-ago first quarter. Only the roll form, steel pressure vessel and carbon tubular operations posted operating profits in the quarter. Stainless steel tubular operations generated an operating loss reflecting a less-favorable product mix, lower volumes and slowdowns at the company's U.S. and Mexican operations. A loss in the segment’s steel pickling group reflected lower overall volumes due to the slow down in the North American manufacturing and automotive sectors as well as further downsizing at the company’s Canadian pickling location.
Overall, the company reported a total operating loss of $13.1 million in the first quarter, including corporate costs of $2.6 million.
Financial Position—The company generated $78.7 million cash flow from operating activities, a significant increase from $7.0 million in the year-ago first quarter. The company said the increase was due primarily to decreased requirements for non-cash working capital offset in part by lower levels of profitability.
Working capital declined to $221.7 million, representing a $78.4 million decrease from working capital of $300.1 million at December 31, 2008. The company initiated an aggressive working capital reduction program at the beginning of the year that has resulted in a significant reduction in both receivables and inventories in the first quarter. As a result, net borrowings declined to $142.0 million (vs. $207.9 million at December 31, 2008), reflecting the lower investment in working capital, offset in part by the cash used in operations during the first three months due to the net loss. Funded-debt-to-capitalization remained a conservative 30.2% compared to the year-end position of 37.8%.
The company is continuing to maintain credit facilities with various banks and at March 31, 2009 had unused credit facilities of approximately $157 million, of which approximately $40 million was available. As a result of its current earnings decline, combined with existing bank financial covenants, the company is now restricted in the amount of its total borrowings, despite the size of the existing committed bank term facilities.
The company is now in the process of renegotiating the terms of its various credit agreements in order to be able to access a greater portion of its committed bank term facilities without being in breach of existing bank financial covenants. The company is hopeful in concluding these negotiations, including the execution of definitive documentation, in the second quarter of 2009. Assuming successful conclusion of these negotiations, the company will have access to additional unused credit facilities.
Outlook—Looking ahead, the company noted that deteriorating economic and market conditions that started in the fourth quarter of 2008 have continued into the first quarter of 2009, with demand for most manufactured products remaining soft. The current economic downturn—including low automobile and home sales, weakness in commercial construction and a lack of manufacturing investment—has been primarily responsible for the low demand. In addition, the lack of steel demand resulted in carbon and stainless steel prices continuing to decrease in the first quarter to very low levels.
The company said that all of these conditions have led to further production cutbacks and plant closures by a number of North American manufacturers and steelmakers in an effort to better balance supply and demand. The outlook is for both carbon and stainless steel prices to remain at these relatively low levels for the short to medium term.
The company generated first-quarter losses at most of its operating divisions as a result of these negative conditions, which were exacerbated by the liquidation of higher-cost inventories and continued reduction of production levels. The ongoing economic downturn also forced the company to announce both temporary and permanent layoffs, plant shutdowns, and consolidation of certain manufacturing facilities. Efforts also continue with regard to improving productivity at all manufacturing operations.
"We are disappointed with our results in the first quarter, which reflect the severely negative manufacturing environment in North America," said Mark Samuel. "Going forward we will continue to focus on maximizing liquidity, restricting capital expenditures and reducing our cost structure to deal with these negative market conditions, while still maintaining our focus on long-term viability and success," he concluded.
the company said that, based on the current economic forecast, it expects to perform better in the second quarter, although additional losses are anticipated. No material improvement is expected before late 2009.
Samuel Manu-Tech is a leading North American industrial products and technology company that produces and distributes a wide range of steel, plastic and related industrial products and services from locations in Canada, United States and Mexico.
