Universal Stainless & Alloy Products, Inc. reported that sales for the third quarter of 2012 were $62.3 million, which was 7% below the third quarter of 2011. The company previously reported that lower order entry would impact 2012 third quarter sales.

Operating income for the third quarter of 2012 was $5.5 million, or 8.8% of sales, including $0.6 million of ramp-up expense for the company’s North Jackson operation due primarily to a production outage necessary to make modifications to its vacuum induction melting furnace (VIM). This compares with operating income of $7.2 million, or 10.7% of sales in the third quarter of 2011, which included $1.7 million of expense for the acquisition and start-up of North Jackson acquired by the company in August 2011. Excluding the effect of North Jackson in both periods, operating income was 10.1% of sales in the third quarter of 2012 and 13.2% of sales in the third quarter of 2011.

Net income for the third quarter of 2012 was $3.3 million, or $0.45 per diluted share, including $0.06 per diluted share of North Jackson ramp-up expense. In the third quarter of 2011, net income was $3.9 million, or $0.55 per diluted share, including $0.14 per diluted share of after-tax acquisition and start-up expense related to North Jackson.

For the first nine months of 2012, sales increased 8% to $204.8 million from the same period of 2011. Net income for the first nine months of 2012 was $14.1 million, or $1.93 per diluted share, compared with $13.9 million, or $1.97 per diluted share, reported for the prior year period. Net income for the first nine months of 2012 included after-tax operating expense for the North Jackson ramp-up of $0.07 per diluted share compared to $0.22 per diluted share of North Jackson-related expense in the first nine months of 2011.

For the third quarter of 2012, the company had positive cash flow from operations of $12.4 million despite continued investment in the ramp-up of North Jackson, including $3.5 million of increased inventory to support VIM product and equipment development. Capital expenditures were $10.7 million in the third quarter of 2012, including $6.8 million for the North Jackson operation. At 30 September 2012, the company had total debt of $113.4 million, or 36.6% of total capitalization.

Shipment volume for the third quarter of 2012 decreased 9% from the third quarter of 2011. This reflected a 13% increase in tons shipped to the aerospace market, offset by decreases of 16%, 30% and 7% in shipments to the petrochemical, power generation and service center plate markets, respectively.

Executive Comments
Chairman, President and CEO Dennis Oates commented, "Our third quarter results were in line with continued inventory adjustment by service centers, our largest customer category. While we are encouraged by the continued expansion of our aerospace-related business fueled by the North Jackson investment, other industries have been moving cautiously through the second half of the year because of global economic conditions and uncertainty. This is evidenced in our sales as well as in our lower order entry and backlog. Declining nickel prices and shorter lead times also had a depressing effect on customer purchasing patterns.

"The reduction in our shipment volume in the third quarter continued to restrain our consolidated operating margin. So did our ongoing investment in the ramp-up of our North Jackson facility, where we are only in the early stages of realizing its full benefits. Most recently, the two newly installed vacuum-arc remelt furnaces were commissioned. As a result, we have increased our internal VAR capacity to 11 furnaces and by 60% this year in support of our aerospace customers.

"Both the current usage or ‘chew-up’ rate of specialty metals and the growth prospects for our end markets remain strong. Therefore, channel demand is expected to return to more normal levels as we move through 2013. During the course of 2013, we also expect to complete the ramp-up of North Jackson as well as achieve many of the product certifications and approvals from customers that we have been working towards. The certifications and approvals will position us to capture more market opportunity in new higher-margin product categories while improving our operating profitability – in line with our strategic plan."

Segment Review
For the third quarter of 2012, the Universal Stainless & Alloy Products segment, which includes the North Jackson operation, had sales of $54.2 million and operating income of $2.0 million, yielding an operating margin of 3.7% of sales. In the third quarter of 2011, sales were $60.6 million and operating income was $4.8 million, or 7.9% of sales, including start-up and acquisition-related costs for North Jackson.

Segment sales decreased 10% from the third quarter of 2011 on 3% lower tons shipped mainly due to decreased shipments to service centers as well as to forgers and rerollers of products mainly destined for service centers.

Sales for the Dunkirk Specialty Steel segment were $24.8 million for the third quarter of 2012 and operating income was $2.3 million, yielding an operating margin of 9.4% of sales. This compares with sales in the third quarter of 2011 of $25.3 million and operating income of $2.5 million, or 9.9% of sales.

Dunkirk’s sales decreased 2% from the third quarter of 2011 on a 4% decrease in tons shipped. Tons shipped to service centers were up 2% from the third quarter of 2011.