Universal Stainless & Alloy Products, Inc. reported net income of $2.6 million on record sales of $37.0 million for the fourth quarter and net income of $7.1 million on record sales of $120.6 million for the full year 2004.

Fourth Quarter Results—Net income of $2.6 million ($0.40 per diluted share) compares to a net loss of $273,000 ($0.04 per diluted share) in the 2003 fourth quarter. Record sales of $37.0 million compare to sales of $18.8 million for the fourth quarter of 2003.

Fourth quarter results were in line with the company's forecast of sales of $32 to $37 million and EPS of $0.32 to $0.37 before including the other income from import duties. In addition, fourth quarter earnings were reduced by a bad debt charge of $282,000, equivalent to $0.03 per diluted share, due to a financially distressed customer's inability to pay its outstanding receivable balance.

Full Year Results—Net income of $7.1 million ($1.12 per diluted share) compares to a net loss of $1.4 million ($0.23 per diluted share) for 2003. Net income included a total of $1.1 million ($0.11 per diluted share) of other income from import duties received in 2004. Of that amount, $507,000 ($0.05 per diluted share) was received in the fourth quarter, as previously announced.

Record sales of $120.6 million compare to sales of $69.0 million in 2003.

Comments—Commenting on the results, President and CEO Mac McAninch stated: "Our solid sales momentum allowed us to reach new company sales milestones in 2004. In the fourth quarter, sales to the power generation market climbed 22% and tool steel sales rose 38% compared with the prior quarter. Demand from all of our markets remained strong."

Mr. McAninch continued: "Our cost recovery pricing initiatives in the fourth quarter helped to offset a 17% sequential increase in material costs and substantially higher electricity prices. Our recently announced base price increases are intended to offset higher energy and manufacturing costs, as well as support our capital investment program aimed at increasing throughput and efficiency."

Mr. McAninch added: "Our immediate priority is to increase our shipment levels in response to the growth in customer demand that has raised our backlog to a record $72 million. Our capital investments in 2004, which are in place, have rectified production bottlenecks at Bridgeville. We are now turning our attention to improved scheduling and have added a production planning manager to take us to the next step."

Segment Review—In the fourth quarter of 2004, the Universal Stainless & Alloy Products segment had sales of $32.7 million and operating income of $2.3 million. This compares with sales of $16.5 million and operating income of $226,000 in the fourth quarter of 2003 and sales of $31.2 million and operating income of $2.9 million in the third quarter of 2004.

The 98% increase in sales compared with the 2003 fourth quarter reflected substantial growth in all customer categories. Fourth quarter 2004 sales increased 5% over the prior quarter, but higher electricity costs and increased S&A expenses caused by the bad debt charge resulted in a lower operating income compared with the prior quarter.

The Dunkirk Specialty Steel segment reported record sales of $10.5 million and operating income of $1.2 million. This compares with sales of $4.5 million and an operating loss of $428,000 in the fourth quarter of 2003 and sales of $9.5 million and operating income of $1.2 million in the prior quarter.

Dunkirk's sales rose 134% over the fourth quarter of 2003, as it continued its ramp-up in 2004. The 10% increase in fourth quarter sales over the prior quarter is primarily due to increased selling prices and surcharges to offset higher material costs. The operating income only improved slightly over the prior quarter due to a 22% increase in raw material costs.

Business Outlook—The company estimates that first quarter 2005 sales will range from $35 to $40 million and that diluted EPS will range from $0.35 to $0.40. This compares with sales of $21.3 million and diluted EPS of $0.04 in the first quarter of 2004.

The following factors were considered in developing these estimates:

• Total backlog at December 31, 2004 approximated $72 million compared to $60 million at September 30, 2004, reflecting continued strength in all of the company's markets.
• Implementation of recent price increases will allow the company to offset continuing manufacturing cost increases as well as support future capital improvements designed to increase production levels and efficiency.
• Sales from the Dunkirk Specialty Steel segment are expected to approximate $12 million as service center demand remains very strong.

Mr. McAninch concluded: "We are entering 2005 with a high level of optimism. Recovery in the aerospace market continues, demand for our power generation products is increasing rapidly, and the petrochemical market remains firm. At the same time, tool steel demand continues to be strong, which should bode well for the economy in the coming year."