Synalloy Reports 16% Adjusted EBITDA Gain for the First Quarter of 2015
04/29/2015 - Synalloy Corp., a growth-oriented company that engages in a number of diverse business activities including the production of stainless steel pipe, fiberglass and steel storage tanks, and specialty chemicals and the master distribution of seamless carbon pipe and tube, announced that the first quarter of 2015 produced net sales of $51,648,000, an increase of $1,852,000 or 4% when compared to net sales from continuing operations for the first quarter of 2014 of $49,796,000. For the first quarter of 2015 the Company recorded net income of $3,638,000, or $0.42 per share compared to net income from continuing operations of $2,249,000, or $0.26 per share for the same quarter in the prior year.
On June 27, 2014, the Company completed the planned closure of the Bristol Fabrication unit of Synalloy Fabrication, LLC ("Bristol Fab") and on August 29, 2014, the Company completed the sale of all of the issued and outstanding membership interests of its wholly-owned subsidiary, Ram-Fab, LLC, a South Carolina limited liability company ("Ram-Fab"), to a subsidiary of Primoris Services Corporation. All non-recurring costs associated with these dispositions have been included as discontinued operations in the 2014 financial statements as part of the Metals Segment.
On November 21, 2014, the Company entered into a Stock Purchase Agreement with The Davidson Corporation, a Delaware corporation, to purchase all of the issued and outstanding stock of Specialty Pipe & Tube, Inc., a Delaware corporation ("Specialty"). The financial results for Specialty are included in the first quarter's operating results of 2015 for the Company's Metals Segment.
The Company evaluates its financial performance by eliminating all non-recurring, non-operational items from net income and earnings per share. Adjusted Net Income, a non-GAAP financial measure, represents reported income before income taxes and eliminates discontinued operations, the effect of inventory gains and losses from changes in nickel prices, lower of cost or market inventory adjustment, Specialty's aged inventory adjustment, stock option / grant costs, acquisition costs, shelf registration costs, the Palmer earn-out adjustment and retention expense. In addition, recurring operating expenses that are in one period but not in the other are adjusted. Finally, a fixed 34% effective tax rate is applied to all periods to eliminate any income tax effect on operating results. The Company utilizes this non-GAAP measurement to present a more meaningful picture of core operations. The Adjusted Net Income for the first quarter of 2015 was $2,931,000, or $0.34 per share, compared to the first quarter of 2014 of $2,725,000, or $0.31 per share.
Earnings before discontinued operations, interest, change in fair value of interest rate swap, income taxes, depreciation, amortization, inventory loss from change in nickel prices, lower of cost or market inventory adjustment, Specialty's aged inventory adjustment, stock option / grant costs, acquisition costs, shelf registration costs, the Palmer earn-out adjustment and retention expense ("Adjusted EBITDA"), a non-GAAP financial measure, increased $945,000 or 16% to $6,752,000 in the first quarter of 2015, or $0.77 per share from $5,807,000, or $0.67 per share for the first quarter of the prior year.
Metals Segment
Sales for the first quarter of 2015 totaled $35,461,000, an increase of $2,100,000 or 6% from $33,361,000 for sales from continuing operations for the same quarter last year. The increase for the first quarter was entirely due to including Specialty's sales in the Metals Segment in 2015. Storage tank sales decreased 20% for the first quarter of 2015 when compared to the same period of the prior year. Pipe sales decreased 10% for the first quarter of 2015 when compared to sales from continuing operations for the prior year.
The shortfall in storage tank sales for the first quarter of 2015 when compared to 2014 resulted from severe weather experienced during January and February of 2015 where ice and heavy rain in west Texas prevented the delivery and installation of several tank batteries. The decrease in pipe sales for the first quarter resulted from a 1% increase in average unit volumes offset by an 11% decrease in average selling prices. In the first quarter, the Metals Segment experienced non-commodity pipe unit volume decreasing 13% while commodity unit pipe volume increased 9%. Selling prices for non-commodity pipe decreased approximately 20% while commodity pipe selling prices increased approximately 11%. The non-commodity price decrease was largely attributable to mix differences between the periods.
The Metals Segment's operating income was $3,116,000 for the first quarter of 2015 compared to operating income from continuing operations of $3,041,000 for the first quarter of 2014. Operating income was impacted by the following factors:
a) Specialty's operating income was included in the first quarter of 2015;
b) As mentioned earlier, the ice and rain in west Texas resulted in several lost shipping days. The weather also slowed drill site development, causing several customers to delay their shipments;
c) As mentioned above, BRISMET's product mix changed significantly in 2015; and
d) As a result of fluctuations in nickel prices, the Company experienced an inventory loss of approximately $1,030,000 at BRISMET for the first quarter of 2015 compared to an inventory loss of approximately $649,000 for the first quarter of 2014. Nickel decreased 13% during the first quarter of 2015 compared to a 13% increase during the first quarter of 2014.
Outlook
The two main factors that affect the Company's outlook for the remainder of 2015 are low nickel and oil prices.
Nickel prices, which result in stainless steel surcharges, peaked during mid-May of 2014, with an increase of approximately 50% from the end of 2013. Since then, nickel prices have fallen significantly with nickel decreasing an additional 13% during the first quarter of 2015. Our inventory gains and losses are determined by a number of factors including sales mix and the holding period of particular products. As a consequence, there may not be a direct correlation between the direction of stainless steel surcharges and inventory profits or losses at a particular point in time. Our experience has been that over the course of a business cycle, this volatility has tended towards zero. Nickel prices are currently extremely low and it is management's opinion that they should be near the bottom of the cycle. If this prolonged drop in nickel prices turns in 2015, we will see a favorable effect on sales and profitability at BRISMET.
Lower oil prices affect our storage tank and a portion of our carbon pipe distribution facilities. Should oil prices remain at or fall below their current levels, sales for storage tanks and carbon pipe will be negatively affected in the second quarter of 2015. Palmer and Specialty introduced new product lines which may help to mitigate any declining sales in existing product lines.
The Metals Segment's business continues to be highly dependent on its customers' capital expenditures. Special project and overall backlog is strong at BRISMET, with many large diameter and special alloy projects in the pipeline. International inquiries, which are comprised mainly of special alloy products, are on the rise. We believe we are the largest and most capable domestic producer of non-commodity stainless steel pipe and an effective producer of commodity stainless steel pipe. Our market position remains strong in the commodity pipe market, and we continue to see strong order activity in special alloys. Gulf coast activity remains vigorous for chemical, petro-chem and fertilizer end-user applications.
The storage tank backlog was $10,792,000 at April 4, 2015 and $12,229,000 at January 3, 2015.
For more information about Synalloy Corp., and for the full financial report, visit www.synalloy.com.
On November 21, 2014, the Company entered into a Stock Purchase Agreement with The Davidson Corporation, a Delaware corporation, to purchase all of the issued and outstanding stock of Specialty Pipe & Tube, Inc., a Delaware corporation ("Specialty"). The financial results for Specialty are included in the first quarter's operating results of 2015 for the Company's Metals Segment.
The Company evaluates its financial performance by eliminating all non-recurring, non-operational items from net income and earnings per share. Adjusted Net Income, a non-GAAP financial measure, represents reported income before income taxes and eliminates discontinued operations, the effect of inventory gains and losses from changes in nickel prices, lower of cost or market inventory adjustment, Specialty's aged inventory adjustment, stock option / grant costs, acquisition costs, shelf registration costs, the Palmer earn-out adjustment and retention expense. In addition, recurring operating expenses that are in one period but not in the other are adjusted. Finally, a fixed 34% effective tax rate is applied to all periods to eliminate any income tax effect on operating results. The Company utilizes this non-GAAP measurement to present a more meaningful picture of core operations. The Adjusted Net Income for the first quarter of 2015 was $2,931,000, or $0.34 per share, compared to the first quarter of 2014 of $2,725,000, or $0.31 per share.
Earnings before discontinued operations, interest, change in fair value of interest rate swap, income taxes, depreciation, amortization, inventory loss from change in nickel prices, lower of cost or market inventory adjustment, Specialty's aged inventory adjustment, stock option / grant costs, acquisition costs, shelf registration costs, the Palmer earn-out adjustment and retention expense ("Adjusted EBITDA"), a non-GAAP financial measure, increased $945,000 or 16% to $6,752,000 in the first quarter of 2015, or $0.77 per share from $5,807,000, or $0.67 per share for the first quarter of the prior year.
Metals Segment
Sales for the first quarter of 2015 totaled $35,461,000, an increase of $2,100,000 or 6% from $33,361,000 for sales from continuing operations for the same quarter last year. The increase for the first quarter was entirely due to including Specialty's sales in the Metals Segment in 2015. Storage tank sales decreased 20% for the first quarter of 2015 when compared to the same period of the prior year. Pipe sales decreased 10% for the first quarter of 2015 when compared to sales from continuing operations for the prior year.
The shortfall in storage tank sales for the first quarter of 2015 when compared to 2014 resulted from severe weather experienced during January and February of 2015 where ice and heavy rain in west Texas prevented the delivery and installation of several tank batteries. The decrease in pipe sales for the first quarter resulted from a 1% increase in average unit volumes offset by an 11% decrease in average selling prices. In the first quarter, the Metals Segment experienced non-commodity pipe unit volume decreasing 13% while commodity unit pipe volume increased 9%. Selling prices for non-commodity pipe decreased approximately 20% while commodity pipe selling prices increased approximately 11%. The non-commodity price decrease was largely attributable to mix differences between the periods.
The Metals Segment's operating income was $3,116,000 for the first quarter of 2015 compared to operating income from continuing operations of $3,041,000 for the first quarter of 2014. Operating income was impacted by the following factors:
a) Specialty's operating income was included in the first quarter of 2015;
b) As mentioned earlier, the ice and rain in west Texas resulted in several lost shipping days. The weather also slowed drill site development, causing several customers to delay their shipments;
c) As mentioned above, BRISMET's product mix changed significantly in 2015; and
d) As a result of fluctuations in nickel prices, the Company experienced an inventory loss of approximately $1,030,000 at BRISMET for the first quarter of 2015 compared to an inventory loss of approximately $649,000 for the first quarter of 2014. Nickel decreased 13% during the first quarter of 2015 compared to a 13% increase during the first quarter of 2014.
Outlook
The two main factors that affect the Company's outlook for the remainder of 2015 are low nickel and oil prices.
Nickel prices, which result in stainless steel surcharges, peaked during mid-May of 2014, with an increase of approximately 50% from the end of 2013. Since then, nickel prices have fallen significantly with nickel decreasing an additional 13% during the first quarter of 2015. Our inventory gains and losses are determined by a number of factors including sales mix and the holding period of particular products. As a consequence, there may not be a direct correlation between the direction of stainless steel surcharges and inventory profits or losses at a particular point in time. Our experience has been that over the course of a business cycle, this volatility has tended towards zero. Nickel prices are currently extremely low and it is management's opinion that they should be near the bottom of the cycle. If this prolonged drop in nickel prices turns in 2015, we will see a favorable effect on sales and profitability at BRISMET.
Lower oil prices affect our storage tank and a portion of our carbon pipe distribution facilities. Should oil prices remain at or fall below their current levels, sales for storage tanks and carbon pipe will be negatively affected in the second quarter of 2015. Palmer and Specialty introduced new product lines which may help to mitigate any declining sales in existing product lines.
The Metals Segment's business continues to be highly dependent on its customers' capital expenditures. Special project and overall backlog is strong at BRISMET, with many large diameter and special alloy projects in the pipeline. International inquiries, which are comprised mainly of special alloy products, are on the rise. We believe we are the largest and most capable domestic producer of non-commodity stainless steel pipe and an effective producer of commodity stainless steel pipe. Our market position remains strong in the commodity pipe market, and we continue to see strong order activity in special alloys. Gulf coast activity remains vigorous for chemical, petro-chem and fertilizer end-user applications.
The storage tank backlog was $10,792,000 at April 4, 2015 and $12,229,000 at January 3, 2015.
For more information about Synalloy Corp., and for the full financial report, visit www.synalloy.com.
