Universal Stainless Reports 3rd Quarter Results
10/24/2008 - Universal Stainless & Alloy Products reports net income of $2.7 million on sales of $57.6 million for the third quarter, and net income of $12.7 million on sales of $178.0 million for the first nine months of 2008.
Universal Stainless & Alloy Products, Inc. reported net income of $2.7 million on sales of $57.6 million for the third quarter, and net income of $12.7 million on sales of $178.0 million for the first nine months of 2008.
Third Quarter Results—The $2.7-million net income ($0.40 per diluted share) compares to net income of $5.5 million ($0.81 per diluted share). The $57.6 million sales compares to sales of $62.0 million in the third quarter of 2007.
Results included a $586,000 charge ($0.06 per diluted share) for relocation of the company's round bar finishing line from its Bridgeville facility to its Dunkirk facility. Results were in line with the Company's revised forecast of sales in the range of $57 to $58 million and diluted EPS in the range of $0.35 to $0.40.
Cash flow from operations was $6.9 million for the third quarter of 2008, a $2.2 million increase from the 2008 second quarter, as the Company continues to manage working capital aggressively. Capital expenditures for the third quarter of 2008 were $4.2 million, and included completion of a new high temperature annealing facility as well as certain planned infrastructure investments and equipment upgrades related to the round bar finishing line in Dunkirk.
Nine Month Results—The $12.7 million net income ($1.87 per diluted share) compares with net income of $18.1 million ($2.67 per diluted share) in the same period of 2007. Sales of $178.0 million compare with sales of $180.3 million in the first nine months last year.
The company's estimated annual effective income tax rate for 2008 was adjusted to 32% at September 30 from 33% at June 30 as a result of current income expectations for the year. The benefit of this rate change was equivalent to $0.03 per diluted share in the 2008 third quarter.
Management Comments—"As we previously reported, our third-quarter performance was impeded by reduced demand for aerospace grades of steel due to the Boeing labor situation, by conservative service center purchasing in anticipation of lower surcharges due to falling commodity prices, and by production inefficiencies at our Bridgeville facility during labor negotiations,” commented President and CEO Dennis Oates. “The resulting lower shipment volume combined with a 20% decline in raw material prices that decreased margins on finished products shipped reduced our third quarter earnings.
“With our success in reaching a five-year collective bargaining agreement with our Bridgeville hourly employees on October 8th, we are ready to face the challenges that continue in the specialty steel supply chain as well as new ones created by the recent shocks to our economy.”
"The diversity of our end markets is an important asset that will help us offset the issues in aerospace demand that are expected to continue at least through the end of the year,” continued Oates. “Our backlog confirms that our most immediate opportunities are in power generation and in tool steel where we have a strong market position. We also plan to build upon the inroads we have made into the oil and gas markets and on the international relationships we have begun to establish.”
"In this time of heightened uncertainty,” Oates concluded, “we will remain fully focused on executing our plan, with our highest priority on improving customer service levels and our operating efficiency.”
Segment Review—The company’s Universal Stainless & Alloy Products segment reported sales of $52.2 million and operating income of $3.3 million, for an operating margin of 6%, which compares to sales of $53.1 million and operating income of $5.6 million (11% of sales) in the previous quarter, and sales of $55.9 million and operating income of $4.3 million (8% of sales) in the year-ago third quarter.
In the third quarter, favorable product-mix shifts in inventory more than offset further declines in nickel and other commodity prices in the quarter and resulted in a net decrease in the lower-of-cost-or-market (LCM) reserve of $300,000. Second quarter 2008 results included a $1.2 million charge to the LCM reserve (primarily related to the decline in nickel prices at the end of the quarter), while year-ago results included a $772,000 increase to the LCM reserve.
The company said the 7% decrease in segment sales (vs. the year-ago third quarter) was primarily due to a 6% decline in tons shipped and lower surcharges. Higher shipments of tool steel plate to service centers were offset by lower shipments of aerospace-related vacuum-arc remelted (VAR) products to service centers and to Dunkirk. This mix shift, as well as an increase in material costs as a percentage of sales, reduced the operating margin compared with the year-ago third quarter.
Segment sales decreased 2% vs. the second quarter of 2008, even though tons shipped were level. This was due to lower shipments of aerospace-related VAR products and of tool steel plate to service centers offset by higher shipments to forgers. The resulting shift in product mix and higher material costs as a percentage of sales reduced the operating margin sequentially.
The company’s Dunkirk Specialty Steel segment reported sales of $16.9 million and an operating loss of $172,000 for the quarter, including the $586,000 charge for the relocation of the round bar finishing line. Before giving effect to the relocation charge, Dunkirk's operating income was $414,000, resulting in an operating margin of 2%. Operating results for the quarter also include a $416,000 increase to the segment's LCM reserve. Results compare to sales of $21.2 million and operating income of $2.1 million (10% of sales) in the previous quarter, and sales of $21.3 million and operating income of $3.0 million (14% of sales) in the third quarter of 2007. Second quarter results included a $259,000 charge to the LCM reserve, while year-ago results included a $635,000 increase to the LCM reserve, which was more than offset by an estimated FIFO benefit of $1.5 million from the timing of surcharges and the changing price of nickel.
Dunkirk's sales declined 20% while tons shipped decreased 16% compared with the year-ago quarter, which the company says is mainly due to lower shipments of aerospace-related VAR-finished bar products to service centers and lower surcharges. The lower shipment volume, shift in product mix and the effect of the inventory charge led to the operating margin decline in the third quarter of 2008.
Dunkirk's sales decreased 20% and tons shipped decreased 21% compared with the second quarter of 2008 due to lower shipments of aerospace-related VAR-finished bar products to both service centers and OEMs.
Business Outlook—The company currently estimates that sales for the fourth quarter of 2008 will range from $45 to $55 million and that diluted EPS will range from $0.20 to $0.35, which includes the remaining expense (equivalent to $0.02 per diluted share) for the relocation of the round bar finishing facility. In the fourth quarter of 2007, sales were $49.6 million and diluted EPS was $0.65, and included other income from the receipt of import duties equivalent to $0.06 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.
