Universal Stainless Reports 2nd Quarter Results
07/25/2008 - Universal Stainless & Alloy Products reported net income of $5.3 million on sales of $63.5 million for the second quarter, and net income of $10.0 million on sales of $120.3 million for the first six months of 2008.
Universal Stainless & Alloy Products, Inc. reported net income of $5.3 million on sales of $63.5 million for the second quarter, and net income of $10.0 million on sales of $120.3 million for the first six months of 2008.
Second Quarter Results—The $5.3 million net income ($0.77 per diluted share) compares with net income of $5.9 million ($0.87 per diluted share) in the second quarter of 2007. Sales of $63.5 million compare with sales of $62.1 million in the second quarter of 2007. Results exceeded the company's sales forecast ($55 to $60 million) and diluted EPS forecast ($0.70 to $0.75).
Net income for the second quarters of both 2008 and 2007 included net inventory charges before tax of $1.5 million ($0.15 per diluted share) and $1.0 million ($0.10 per diluted share), respectively, for increased reserves related to nickel price declines at the end of each quarter. Last year’s second-quarter net income also included the effect of a pre-tax charge of $800,000 (equivalent to $0.08 per diluted share), related to a legal settlement
The company's tax rate was 33%, which compares to a tax rate of 35% in the second quarter of 2007. The benefit of this rate change was equivalent to $0.02 per diluted share in the current quarter.
Cash flow from operations was $4.7 million and capital expenditures were $2.3 million. Inventories were $72.4 million, an increase of $6.9 million from the 2008 first quarter, as a result of increased order entry activity. This increase was substantially offset by an increase in accounts payable. Accounts receivable remained level sequentially due to improved collections.
Six Month Results— ($1.47 per diluted share) compares with net income of $12.6 million ($1.87 per diluted share) in the same period of 2007. Sales rose 2% to $120.3 million.
Management Comments— “The record sales we achieved in the second quarter led to better than forecasted EPS,” commented President and CEO Dennis Oates. “Driving our results were higher sales to the power-generation market combined with record sales to the petrochemical market and tool steel to service centers. In fact, our sales of tool steel rose 28% from the strong first quarter, mainly due to high demand for heavy equipment to support global infrastructure investments and major metal fabrication markets. While aerospace demand remains strong, our sales to the aerospace market were 6% below the first quarter of 2008 as service centers and their customers moved to the sidelines in anticipation of a further reduction in the cost of nickel. Based on their current inventory levels, we continue to expect service center order entry will begin to pick up in the second half of the year."
"We remained focused on improving customer service levels and our operational efficiency in the second quarter,” continued Oates. “The relocation of our bar finishing equipment to Dunkirk is underway, the new high-temperature annealing equipment in Dunkirk is up and running with increased utilization expected, and the capital improvements to our meltshop are moving forward on schedule. We are also continuing to energize and strengthen our sales effort, which has contributed to the solid increase in our backlog. "
"We plan to continue our progress in the third quarter as we work towards further accelerating our growth," Mr. Oates concluded.
Segment Results—The Universal Stainless & Alloy Products segment had sales of $53.1 million and operating income of $5.6 million, yielding an operating margin of 11%. This compares with sales of $55.1 million and operating income of $5.8 million, or 11% of sales, in the second quarter of 2007. Results included a $1.2-million increase to its lower of cost or market reserve primarily related to the decline in nickel prices at the end of the quarter. The second quarter of 2007 also included an inventory adjustment as well as the pre-tax effect of a legal settlement aggregating $1.3 million. In the first quarter of 2008, sales were $48.2 million and operating income was $4.9 million, or 10% of sales.
Segment sales were down 4% from the second quarter of 2007 primarily due to an 8% decline in tons shipped partially offset by favorable shifts in the product mix. Specifically, higher shipments of tool steel plate to service centers partially offset lower shipments of semi-finished products to forgers and rerollers, including Dunkirk, and of bar products to service centers. The shift in product mix increased the second quarter 2008 operating margin, before the effect of the inventory adjustments, compared with the prior-year second quarter.
Segment sales increased 10% over the first quarter of 2008 even though tons shipped declined 7%. The company said this was due to increased shipments to forgers and of bar products and tool steel plate to service centers, offset by lower shipments to rerollers, including Dunkirk. The improved product mix led to the sequential improvement in the operating margin.
The company noted that it is negotiating a new collective bargaining agreement that covers the hourly employees at its Bridgeville facility. The current agreement expires on August 31, 2008.
The Dunkirk Specialty Steel segment reported sales of $21.2 million and operating income of $2.1 million, resulting in an operating margin of 10%, which included a $259,000 increase to its lower of cost or market reserve and no FIFO benefit. That compares with sales of $21.3 million and operating income of $3.7 million, or 17% of sales, in the second quarter of 2007, which included an estimated FIFO benefit of $1.2 million offset by $492,000 of costs related to the inventory adjustment attributable to the segment. In the first quarter of 2008, sales were $20.1 million and operating income was $2.8 million, or 14% of sales, and included a FIFO charge of $157,000.
Dunkirk's sales declined 1% while tons shipped increased 4% compared with the second quarter of 2007. Higher shipments of rod and wire products to service centers and OEMs, and of finished bar products to OEMs, offset lower shipments of vacuum-arc remelted finished bar products to service centers. Selling prices and operating margins declined from the second quarter of 2007 due to product mix and the effect of lower nickel prices on surcharges assessed.
Dunkirk's sales rose 6% and tons shipped increased 4% over the first quarter of 2008 due to increased shipments in all categories, except rod and wire products to service centers. The operating margin was lower than in the first quarter of 2008, mainly due to the effect of the inventory adjustment on the most recent period.
Business Outlook—The company estimates that sales for the third quarter of 2008 will range from $60 to $65 million, and that diluted EPS will range from $0.78 to $0.83. This does not include any expense related to the planned relocation of the round bar finishing facility from Bridgeville to Dunkirk. In the third quarter of 2007, sales were $62.0 million and diluted EPS was $0.81. Results in the prior year third quarter included a charge of $1.4 million, equivalent to $0.14 per diluted share, for an increase to the company's inventory reserve, mainly due to a continued decline in nickel prices in the quarter. This was offset by an estimated FIFO benefit of $1.5 million, equivalent to $0.15 per diluted share, at the Dunkirk segment.
Headquartered in Bridgeville, Pa., Universal Stainless & Alloy Products, Inc. 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.
