Universal Stainless Reports Strong Third Quarter 2011 Results
10/27/2011 - Universal Stainless & Alloy Products reported net income of $3.9 million on record sales of $67.3 million for the third quarter, and net income of $13.9 million on sales of $190.4 million for the first nine months of 2011.
Universal Stainless & Alloy Products, Inc. reported net income of $3.9 million on record sales of $67.3 million for the third quarter, and net income of $13.9 million on sales of $190.4 million for the first nine months of 2011.
Third Quarter Results — Net income of $3.9 million ($0.55 per diluted share) compares to net income of $4.1 million ($0.60 per diluted share) in the year-ago third quarter, and net income of $5.5 million ($0.79 per diluted share) in the previous quarter (2Q-2011) Results included $1.9 million (after-tax) in expenses related to North Jackson that reduced EPS by $0.28. Results in the previous quarter included $0.3 million (after-tax) of expense (equivalent to $0.04 per diluted share) related to the acquisition of North Jackson.
Record third-quarter sales of $67.3 million reflect a 30% increase from the year-ago third quarter and a 6% increase from the previous quarter.
Operating income of $7.2 million included $1.7 million of operating expense related to the acquisition and start-up of the company's North Jackson operation, a substantially completed Greenfield facility acquired on August 18, 2011. Operating income was $6.3 million in the year-ago third quarter and $8.5 million in the previous quarter (2Q-2011).
The company anticipates that its 2011 tax rate will increase to 37% (from 35%) as a result of the North Jackson acquisition. The increased rate is due to accelerated deductions that will result from commissioning of the North Jackson assets. These deductions will enable the company to recover cash taxes paid earlier this year and in 2010 but also will result in the loss of certain tax deductions that will increase the tax rate. The after-tax expense related to North Jackson in the third quarter includes $0.06 per diluted share for the effect of the increased tax rate.
Cash flow from operations was $1.9 million. The total consideration for the acquisition of the North Jackson assets acquired from Patriot Special Metals, Inc. was $115.8 million, and third-quarter capital expenditures were $3.2 million, including $0.3 million for the North Jackson operation. At September 30, 2011, the company had cash of $0.3 million and total debt of $95.6 million, or 35.3% of total capitalization.
Shipment volume for the third quarter increased 9% from the third quarter of 2010 and 2% from the second quarter of 2011. Compared with the previous quarter, volume shipped to the power generation and aerospace markets increased 14% and 7%, respectively, while volume shipped to the petrochemical and service center plate markets was down 2% and 5%, respectively.
Nine Month Results — Net income of $13.9 million ($1.97 per diluted share) reflects a 43% increase compared with the same period of 2010, while sales of $190.4 million reflect a 38% increase over the comparable year-ago period. Results included after-tax expense of $0.37 per diluted share related to the acquisition of the North Jackson operation.
Management Comments — "Business remained unusually strong in the summer months and backlog stayed at a healthy level of $92 million, despite the negative economic headlines,” commented Chairman, President and CEO Dennis Oates. “In addition to strong sales growth, the consolidated operating margin on our base business was 13.2% in the third quarter, before acquisition-related costs.
“The company's operating margins in the last two quarters are at the highest levels achieved in the past 15 quarters and reflect increased earnings power resulting from our focus on a higher-value sales mix and cost reductions,” continued Oates. “The addition of North Jackson will enable us to expand our product range in higher-value, higher-margin products as well as reduce costs and better utilize our meltshop and other capacity, which will further drive profitability.
“Construction projects and equipment commissioning in North Jackson are on schedule,” said Oates. “Our state-of-the-art radial forge has begun processing internal material and doing conversion work for customers. Construction of the Vacuum Induction Melting furnace and installation of two Vacuum Arc Remelt furnaces are underway.
“Our Board recently approved the purchase of two additional VAR furnaces for North Jackson,” added Oates. “This decision was based on the current level of business and the continued favorable outlook for all our end markets.”
Segment Review — The company’s Universal Stainless & Alloy Products segment (including the North Jackson operation) reported third-quarter sales of $60.6 million and operating income of $4.8 million, yielding an operating margin of 7.9% of sales. Before including the North Jackson operation and acquisition-related costs, segment operating income was $6.5 million (10.7% of sales). Results compare to sales of $46.2 million and operating income of $4.4 million (9.4% of sales) in the year-ago third quarter and sales of $60.5 million and operating income of $6.4 million (10.7% of sales) for the previous quarter (2Q-2011).
Segment sales rose 31% from the third quarter of 2010 on an 11% increase in tons shipped mainly due to higher shipments to forgers and to Dunkirk for finished product production. Segment sales were in line with the second quarter of 2011 on 5% lower volume due to lower shipments of service center plate products and lower shipments to Dunkirk.
The company’s Dunkirk Specialty Steel segment reported third quarter sales of $25.3 million and operating income of $2.5 million, yielding an operating margin of 9.9% of sales. This compares with sales in the third quarter of 2010 of $16.1 million and operating income of $1.4 million, or 8.4% of sales. In the second quarter of 2011, sales were $25.6 million, and operating income was $3.0 million, or 11.6% of sales.
Dunkirk's sales increased 57% from the third quarter of 2010 on a 46% increase in tons shipped, mainly due to increased shipments to service centers. Dunkirk's sales decreased 1% from their record level in the second quarter of 2011 on 2% lower tons shipped, mainly due to lower shipments to service centers.
The company noted that while the newly-acquired North Jackson operation was reported in the results of the Universal Stainless & Alloy Products segment for the third quarter of 2011, it is finalizing a new organizational structure for the inclusion of North Jackson, which may change its externally reported segments in the future.
Headquartered in Bridgeville, Pa., Universal Stainless & Alloy Products manufactures and markets semi-finished and finished specialty steels, including stainless steel, tool steel and certain other alloyed steels. The company's products are used in a variety of industries, including aerospace, power generation, petrochemical and heavy equipment manufacturing. Established in 1994, the company stands committed to providing the best possible quality, delivery, and service.
