Universal Stainless & Alloy Products, Inc. reported net income of $2.9 million on record sales of $43.0 million for the first quarter of 2005.

Results exceeded the company's forecast of sales in the range of $35 to $40 million and diluted EPS of $0.35 to $0.40. The $2.9 million net income ($0.45 per diluted share) compares to net income of $227,000 ($0.04 per diluted share) reported in the first quarter of 2004. Record sales of $43.0 million compares with sales of $21.3 million in the first quarter of 2004.

Commenting on the results, President and CEO Mac McAninch stated: "Our record first quarter sales were driven by the strength of our niche markets and by our investment in manufacturing capacity to respond to the continuing needs of our customers. Sales to our aerospace, power generation, petrochemical, and tool steel markets rose 20%, 5%, 56% and 2%, respectively, over the strong fourth quarter. Demand from those markets remains strong as reflected in our backlog, which has reached a record $88 million, and is comprised mainly of the remelted steel grades used by those markets. With our new capital equipment fully operational and improved process scheduling in place, we achieved an 11% increase in tons shipped over the prior quarter."

Mr. McAninch continued: "Sales at our Dunkirk facility reached a record $13.7 million and generated a record 14% operating margin. Capacity and process improvements in our Bridgeville and Titusville facilities enabled us to significantly increase the production of reroll billet feedstock shipped to Dunkirk, which is essential to Dunkirk's growth. Our customers have rewarded our progress in Dunkirk by placing a record $16 million in new orders during the 2005 first quarter."

Mr. McAninch added: "The increased first quarter volume company-wide, combined with the continuation of our cost recovery pricing initiatives, led to a 32% sequential improvement in operating income. Although some raw material costs have moderated, they remain volatile. Our surcharge pricing mechanism is in place to protect both our company and our customers as the year progresses. In 2005, we plan to judiciously implement additional base price increases necessary to offset higher manufacturing and energy costs and to support our capital investment program as we continue to focus on improving customer satisfaction."

Mr. McAninch concluded: "We had a very good start to 2005 due to strong market demand, hard-earned improvements in our operating processes, and the payback from our capital investment and price recovery initiatives. Our niche markets of aerospace, power generation and petrochemical, upon which we have built this Company, are showing positive growth trends for the balance of this year and beyond. We will continue to focus on better serving our customers during this period of high demand, while remaining focused on improving our efficiency."

Segment Review—In the first quarter of 2005, the Universal Stainless & Alloy Products segment had sales of $38.4 million and operating income of $2.7 million. First quarter results include the write-off of $342,000 of fixed assets in Bridgeville mainly for flat bar processing equipment resulting from the company's decision to move all of its small flat bar production to the Dunkirk facility. This compares with sales of $18.8 million and operating income of $401,000 in the first quarter of 2004 and sales of $32.7 million and operating income of $2.3 million in the fourth quarter of 2004.

The doubling in sales compared with the 2004 first quarter reflected continued substantial growth in all customer categories. First quarter 2005 sales increased 17% over the prior quarter and operating income increased 17%, although a bad debt charge of $282,000 in the prior quarter lowered operating income for that period. A total of $110,000 of that debt was repaid in the first quarter and the reserve for it was reduced accordingly.

The Dunkirk Specialty Steel segment reported sales of $13.7 million and operating income of $1.9 million, which included a $184,000 write-off of an office building that was part of the original purchase of the Dunkirk assets from New York JDA. Efforts to sell the building have not materialized and there are no prospective buyers pursuing a purchase at this time. These results compare with sales of $6.7 million and operating income of $34,000 in the first quarter of 2004 and sales of $10.5 million and operating income of $1.2 million in the prior quarter.

Dunkirk's sales also doubled and its operating income dramatically improved over the first quarter of 2004. The 31% increase in first quarter sales over the prior quarter reflects a 24% increase in sales to services centers and a 73% increase in sales to wire redrawers. Operating income improved 50% over the prior quarter due to the higher sales volume and the benefit of increased selling prices and surcharges to offset higher material costs.

Business Outlook—The company estimates that second quarter 2005 sales will range from $40 to $45 million and that diluted EPS will range from $0.40 to $0.45. This compares with sales of $29.0 million and diluted EPS of $0.25 in the second quarter of 2004.

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 original equipment manufacturers, service centers, forgers, rerollers and wire redrawers.