Universal Stainless Earnings Impacted by Lower Than Expected Demand and Volumes
07/31/2013 - As it reported its second quarterly earnings results, Universal Stainless & Alloy Products, Inc. said the longer-term outlook for its end markets remains strong and it is generally expected that demand will begin to gain traction in the fourth quarter.
Universal Stainless reported that net sales for the second quarter of 2013 were US$42.9 million compared with US$67.9 million in the second quarter of 2012 and US$49.1 million in the first quarter of 2013, primarily due to lower shipment volumes.
Compared with the first quarter of 2013, tons shipped to the aerospace market remained level, while tons shipped to the power generation, oil and gas, and heavy equipment markets were lower by 8%, 19%, and 5%, respectively, reflecting weaker demand in those end markets.
Operating income for the second quarter of 2013 was US$0.4 million compared with US$7.3 million in the second quarter of 2012 and US$0.2 million in the first quarter of 2013. The company's second quarter 2013 operating income was negatively impacted by a severance charge of US$0.4 million related to the departure of a senior executive.
Net income for the second quarter of 2013 was US$0.5 million compared with US$4.5 million in the second quarter of 2012, and US$0.04 million in the first quarter of 2013. The company's first and second quarter 2013 results were favorably impacted by tax benefits of US$0.6 million and US$0.8 million, respectively, as a result of favorable state tax apportionment factors as well as research and development tax credits. The tax benefit in the second quarter of 2013 represented approximately US$0.11 per diluted share, which favorably impacted the company's second quarter net income.
For the first six months of 2013, net sales were US$92.0 million and net income was US$0.5 million. That compares with net sales of US$142.5 million and net income of US$10.8 million in the first six months of 2012. Shipment volume for the first six months of 2013 decreased 33% from the first six months of 2012.
Chairman, president and CEO Dennis Oates commented: "Demand and volumes were lower than anticipated in the second quarter as supply channel destocking continued and declining nickel prices and short industry lead-times encouraged customers to delay new orders. While we saw a pick-up in order entry volume for the quarter and are encouraged that our backlog was up 5% from the end of the first quarter, normal channel demand has not yet returned, even adjusting for the slow summer months."
"Despite our lower shipment volume, our gross margin improved to 12.4% of sales in the second quarter from 9.5% of sales in the first quarter. With the lower volumes, management enacted aggressive cost control measures and flexed production levels to these market conditions. The margin improvement also reflects the fact that some of the major start-up costs at our North Jackson facility are now behind us."
"The addition of our North Jackson operation two years ago launched our strategic plan to move to higher margin premium alloys. We made further progress in that plan in the second quarter by achieving required heat treat accreditation for the balance of our facilities. This is essential for reaching our next objective, which is to win approvals of our processes and products from leading OEMs in aerospace and oil and gas, which also progressed in the quarter."
"Although it is difficult to pinpoint when channel demand will fully recover, the longer-term outlook for our end markets remains strong and it is generally expected that demand will begin to gain traction in the fourth quarter. In the meantime, we are continuing to move forward with our plan to position Universal to capture broader and higher margin opportunities in our end markets."
Despite these market conditions, during the second quarter and first six months of 2013, the company generated positive cash flow from operations of US$5.3 million and US$9.7 million, respectively, compared with a use of cash of US$0.5 million and US$4.3 million for the second quarter and first six months of 2012, respectively. Capital expenditures for the first six months of 2013 were US$7.0 million compared to US$20.1 million for the first six months of 2012. Backlog at June 30, 2013 was US$49.2 million compared with US$46.6 million at March 31, 2013 and US$51.7 million at December 31, 2012. At June 30, 2013, the company reduced its total debt by US$1.3 million to US$103.4 million from March 31, 2013.
Universal Stainless & Alloy Products, Inc., headquartered in Bridgeville, Pa., manufactures and markets semi-finished and finished specialty steels, including stainless steel, tool steel and certain other alloyed steels. The company's products are used in a variety of industries, including aerospace, power generation, oil and gas, and heavy equipment manufacturing. Established in 1994, the company, with its experience, technical expertise, and dedicated workforce, stands committed to providing the best quality, delivery, and service possible.
