Universal Stainless Reports 2007 Results
01/25/2008 - Universal Stainless & Alloy Products, Inc. reported net income of $4.4 million on sales of $49.6 million for the fourth quarter, and record net income of $22.5 million on record sales of $229.9 million for the full year 2007.
Universal Stainless & Alloy Products, Inc. reported net income of $4.4 million on sales of $49.6 million for the fourth quarter, and record net income of $22.5 million on record sales of $229.9 million for the full year 2007.
Fourth Quarter Results—Net income of $4.4 million ($0.65 per diluted share) compares with net income of $6.3 million ($0.94 per diluted share) in the fourth quarter of 2006. Sales of $49.6 million compare with sales of $55.8 million in the fourth quarter of 2006.
Results included $586,000 of other income ($0.06 per diluted share) from the receipt of import duties, compared with $465,000 of other income ($0.05 per diluted share) in the 2006 fourth quarter.
Nickel costs continued to decline through the quarter. The impact from the change in nickel costs on the Company's Dunkirk segment reduced gross margins by an estimated $53,000 (FIFO charge) compared with an increase (FIFO benefit) of $1.1 million ($0.11 per diluted share) in the fourth quarter of 2006. The swing in the FIFO effect combined with lower total shipment volume reduced company-wide gross margin dollars in the fourth quarter of 2007 compared with the same period of 2006.
Full Year Results—Record net income of $22.5 million ($3.32 per diluted share) compares to net income of $20.6 million ($3.11 per diluted share) in 2006. Record sales of $229.9 million compare sales of $203.9 million in 2006.
The company's tax rate for 2007 was 32.7% compared to 35.2% in 2006 due to adjustments to state income tax provisions. The impact of this rate change in comparison to the 2006 fourth quarter and full year was equivalent to $0.05 and $0.12 per diluted share, respectively. Net income for the 2006 fourth quarter has been adjusted for the retrospective application of an accounting pronouncement.
Cash flow from operations reached a record $33.6 million and free cash flow (cash from operations minus capital expenditures) rose to $24.8 million ($3.67 per diluted share). The strong cash flow, which is attributed to lower levels of receivables and inventories, enabled the company to retire the $7.5 million outstanding balance on its PNC term loan.
Management Comments—"Our fourth-quarter sales reached the high end of our forecast, which recognized volatile raw material costs and economic uncertainty as well as normal conservative year-end order patterns,” commented President and CEO Dennis Oates. “While we expected nickel to be the most volatile of our costs, the magnitude of its decline in December impacted our profitability for the quarter. Nickel prices have moved higher since then, and we expect their volatility to continue.
"While there is caution in our marketplace due to ongoing concern about the U.S. economy, the end markets we serve are global in scope and have solid backlogs going out for several years,” continued Oates. “Although our direct customers will continue to make periodic inventory adjustments, we expect to see improving trends through the balance of the year. We also expect our cash flow to remain strong.
"We have entered 2008 with a high level of optimism about our prospects,” added Oates. “To generate further growth, we are focused on quickly developing new business opportunities. Additionally, we are accelerating efforts to eliminate waste in our operations and enhance customer satisfaction.”
Segment Results—In the fourth quarter of 2007, the Universal Stainless & Alloy Products segment had sales of $43.4 million and operating income of $3.2 million, yielding an operating margin of 7%. That compares with sales of $47.1 million and operating income of $4.6 million (10% of sales) in the fourth quarter of 2006. In the third quarter of 2007, sales were $55.9 million and operating income was $4.3 million (8% of sales), and included a charge of $772,000 to the LCM (Lower of Cost or Market) reserve attributable to the segment.
Segment sales declined 8% compared with the fourth quarter of 2006 despite a 50% increase in sales of tool steel plate to service centers and a 12% increase in reroll product sales to the Dunkirk operation and other customers. These sales increases did not fully offset a 43% decrease in sales to forgers and a 22% decrease in sales of bar products to service centers, which continued to restrain orders due in part to volatile nickel pricing and excess inventories. Operating margins were lower due to a 15% decrease in shipment volume as well as product mix.
The Dunkirk Specialty Steel segment reported sales of $18.7 million and operating income of $2.2 million for the fourth quarter of 2007, resulting in an operating margin of 12%; results included the FIFO charge of $53,000. That compares with sales of $20.3 million and operating income of $3.9 million (19% of sales) in the fourth quarter of 2006, which included the estimated $1.1 million FIFO benefit. In the third quarter of 2007, sales were $21.3 million and operating income was $3.0 million (14% of sales) and included a charge of $635,000 to the LCM reserve attributable to the segment, offset by an estimated $1.5 million FIFO benefit due to the timing of surcharges and the changing price of nickel.
The 8% decline in Dunkirk's sales over the 2006 fourth quarter reflected a 46% decrease in sales of rod and wire products, which was partially offset by a 9% increase in sales of bar products to OEMs and service centers. The decline in the operating margin over the fourth quarter of 2006 mainly reflected a 15% decrease in shipment volume and the swing in the FIFO effect resulting from the impact of nickel price changes in the applicable periods.
Business Outlook—The company estimates that first quarter 2008 sales will range from $50 to $55 million and that diluted EPS will range from $0.60 to $0.65. This compares with sales of $56.2 million and diluted EPS of $1.00, in the first quarter of 2007, which included a FIFO benefit estimated at approximately $1.2 million ($0.12 per diluted share).
Headquartered in Bridgeville, Pa., Universal Stainless & Alloy Products manufactures and markets a broad line of semi-finished and finished specialty steels, including stainless steel, tool steel and certain other alloyed steels. The company's products are sold to rerollers, forgers, service centers, original equipment manufacturers and wire redrawers.
