Olympic Steel Reports 2016 Second-Quarter Results

August 02, 2016 06:00 AM Eastern Time
Net Income Rebounds on Margin Expansion and Market Share Gains

Olympic Steel, Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced financial results for the second quarter and six months ended June 30, 2016.

Second-quarter net sales were $273.6 million, compared with $315.3 million in 2015’s second quarter. Net sales in the first half of 2016 were $532.0 million, versus $661.1 million in the same period last year. Higher sales volumes of specialty metals products and pipe and tubular products resulted in record-high total market share for Olympic Steel in 2016. These gains were offset by lower average selling prices resulting in the year-over-year sales declines.

Net income in the second quarter of 2016 improved sharply to $3.6 million, or $0.32 per diluted share, reversing the $22.3 million loss, or $1.99 per share, reported in last year’s comparable quarter. Net income in the second quarter of 2016 was negatively impacted by a $0.7 million state income tax valuation reserve that reduced diluted earnings per share $0.06 in the quarter. Last year’s second-quarter results reflected an impairment charge totaling $24.5 million.

“We continue to gain market share and improve profit margins, despite weak industry-wide shipments,” said Michael D. Siegal, Olympic Steel Chairman and Chief Executive Officer. “In response to market conditions, we reduced operating expenses, accelerated inventory turnover and paid down debt. These actions, combined with rebounding metal prices, resulted in our return to profitability in the quarter. The pre-tax income of $7.0 million that we generated in the second quarter was the highest in more than three years.”

For the first half of 2016, net income grew to $2.8 million, or $0.25 per diluted share. This is compared with a net loss of $21.2 million, or $1.89 on a per-share basis, reported in 2015’s first half.

“Domestic steel production remains controlled and import volumes have come down from record-highs, supporting higher prices. We will maintain our operating disciplines and any improvement in demand will help future results,” Siegal concluded.

Conference Call and Webcast

A simulcast of Olympic Steel’s 2016 second-quarter and first-half earnings conference call can be accessed via the investor relations section of the Company’s website at www.olysteel.com. The simulcast will begin at 10 a.m. ET today and a replay of the call will be available for 14 days thereafter.

Forward-Looking Statements

It is the Company’s policy not to endorse any analyst’s sales or earnings estimates. Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “anticipate,” “should,” “intend,” “expect,” “believe,” “estimate,” “project,” “plan,” “potential,” or “continue,” as well as the negative of these terms or other similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Such risks and uncertainties include, but are not limited to: general and global business, economic, financial and political conditions; competitive factors such as the availability, global production levels and pricing of metals, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; cyclicality and volatility within the metals industry; the strengthening of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the levels of imported steel in the United States; the availability and costs of transportation and logistical services; the successes of our strategic efforts and initiatives to increase sales volumes, maintain or improve working capital turnover and free cash flows, improve our customer service, and achieve cost savings, including our internal program to improve earnings; our ability to generate free cash flow through operations and limited future capital expenditures, reduce inventory and repay debt within anticipated time frames; events or circumstances that could impair or adversely impact the carrying value of any of our assets; risks and uncertainties associated with intangible assets, including additional impairment charges related to indefinite lived intangible assets; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including our business information system implementations; the successes of our operational excellence initiatives to improve our operating, cultural and management systems and reduce our costs; the ability to comply with the terms of our asset-based credit facility; the ability of our customers and third parties to honor their agreements related to derivative instruments; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; the impacts of union organizing activities and the success of union contract renewals; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income, especially during periods of declining market pricing; the ability of our customers (especially those that may be highly leveraged, and those with inadequate liquidity) to maintain their credit availability; the inflation or deflation existing within the metals industry, as well as our product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; the adequacy of our existing information technology and business system software, including duplication and security processes; the adequacy of our efforts to mitigate cyber security threats; access to capital and global credit markets; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase shares of our common stock and the amounts and timing of any repurchases, if any; and unanticipated developments that could occur with respect to contingencies such as litigation, arbitration, and environmental matters, including any developments that would require any increase in our costs for such contingencies.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The Company’s CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 33 facilities in North America.

For additional information, please visit the Company’s website at www.olysteel.com or www.b2i.us/profiles/investor/ContactUs.asp?BzID=2195

-Financial Tables Follow-

Olympic Steel, Inc.
Consolidated Statements of Operations

(in thousands, except per-share data)

Three Months Ended June 30, Six Months Ended June 30,
2016 2015 2016 2015
(unaudited) (unaudited)
Net sales $ 273,608 $ 315,251 $ 531,957 $ 661,116
Costs and expenses

Cost of materials sold (exclusive of items shown below)

205,688 255,838 405,508 535,777
Warehouse and processing 21,035 21,722 41,527 44,259
Administrative and general 16,011 16,014 32,051 33,343
Distribution 9,560 9,568 18,767 18,870
Selling 6,045 4,900 11,732 10,791
Occupancy 2,158 2,306 4,495 5,016
Depreciation 4,550 4,628 9,059 9,218
Amortization 222 222 444 444
Impairment 24,451 24,451
Total costs and expenses 265,269 339,649 523,583 682,169
Operating income (loss) 8,339 (24,398) 8,374) (21,053)
Other income (loss), net (58 (26 (63 (58

Income (loss) before interest and income taxes

8,281 (24,424) 8,311 (21,111)
Interest and other expense on debt 1,274 1,471 2,559 3,033
Income (loss) before income taxes 7,007 (25,895) 5,752 (24,144)
Income tax provision (benefit) 3,457 (3,635) 2,969 (2,953)
Net income (loss) $ 3,550 $ (22,260) $ 2,783 $ (21,191)
Earnings per share:
Net income (loss) per share-basic $ 0.32 $ (1.99) $ 0.25 $ (1.89)

Weighted average shares outstanding – basic

11,216 11,201 11,199 11,198
Net income (loss) per share-diluted $ 0.32 $ (1.99) $ 0.25 $ (1.89)

Weighted average shares outstanding – diluted

11,216 11,201 11,199 11,198
Olympic Steel, Inc.
Consolidated Balance Sheets

(in thousands)

At June 30, 2016 At Dec. 31, 2015
(unaudited) (audited)
Assets
Cash and cash equivalents $ 3,990 $ 1,604
Accounts receivable, net 113,400 92,877

Inventories, net (includes LIFO debit of $6,555 as of June 30, 2016 and Dec. 31, 2015)

210,784 206,645
Prepaid expenses and other 7,237 7,819
Total current assets 335,411 308,945
Property and equipment, at cost 374,031 372,129
Accumulated depreciation (212,955) (205,591)
Net property and equipment 161,076 166,538
Intangible assets, net 24,313 24,757
Other long-term assets 17,335 13,230
Total assets $ 538,135 $ 513,470
Liabilities
Current portion of long-term debt $ 1,825 $ 2,690
Accounts payable 71,230 55,685
Accrued payroll 10,118 6,884
Other accrued liabilities 14,149 11,801
Total current liabilities 97,322 77,060
Credit facility revolver 142,484 145,800
Other long-term liabilities 15,250 11,419
Deferred income taxes 25,711 24,496
Total liabilities 280,767 258,775
Shareholders’ equity
Preferred stock
Common stock 128,387 128,128
Treasury stock (699) (699)
Accumulated other comprehensive loss (70)
Retained earnings 129,680 127,336
Total shareholders’ equity 257,368 254,695
Total liabilities and shareholders’ equity $ 538,135 $ 513,470
Olympic Steel, Inc.
Segment Financial Information

(in thousands)

Three Months Ended Six Months Ended
June 30, June 30,
(unaudited) (unaudited)
2016 2015 2016 2015
Net sales
Carbon flat products $ 173,122 $ 209,207 $ 334,556 $ 437,752
Specialty metals flat products 49,529 52,715 95,359 105,346
Tubular and pipe products 50,957 53,329 102,042 118,018
Total net sales $ 273,608 $ 315,251 $ 531,957 $ 661,116
Depreciation and amortization
Carbon flat products $ 2,988 $ 3,147 $ 5,942 $ 6,308
Specialty metals flat products 190 190 383 350
Tubular and pipe products 1,568 1,488 3,127 2,953
Corporate 26 25 51 51
Total depreciation and amortization $ 4,772 $ 4,850 $ 9,503 $ 9,662
Operating income (loss)
Carbon flat products $ 5,669 $ (298) $ 3,491 $ 173
Specialty metals flat products 2,567 (574) 4,323 16
Tubular and pipe products 2,133 2,504 4,376 6,758
Corporate (2,030 (1,579) (3,816) (3,549)
Impairment (24,451) (24,451)
Total operating income (loss) $ 8,339 $ (24,398) $ 8,374 $ (21,053)
Other income (loss), net (58) (26) (63) (58)
Income (loss) before interest and income taxes 8,281 (24,424) 8,311 (21,111)
Interest and other expense on debt 1,274 1,471 2,559 3,033
Income (loss) before income taxes $ 7,007 $ (25,895) $ 5,725 $ (24,144)
Capital expenditures
Flat products $ 1,551 $ 918 $ 2,785 $ 2,106
Tubular and pipe products 650 1,624 812 2,127
Total capital expenditures $ 2,201 $ 2,542 $ 3,597 $ 4,233
Olympic Steel, Inc.
Segment Financial Information

(in thousands)

At June 30, At Dec. 31,
2016 2015
Total assets
Flat products $ 343,168 $ 329,885
Tubular and pipe products 194,562 183,129
Corporate 405 456
Total assets $ 538,135 $ 513,470

Other information:

(in thousands, except per-share data) At June 30, At Dec. 31,
2016 2015
Shareholders’ equity per share $ 23.48 $ 23.25
Debt-to-equity ratio 0.56 to 1 0.58 to 1
Six Months Ended
June 30,
2016 2015
Net cash from operating activities $ 10,533 $ 44,879
Cash dividends per share $ 0.04 $ 0.04

View source version on businesswire.com: http://www.businesswire.com/news/home/20151105005186/en/

Olympic Steel Investor Relations
Matthew J. Dennis, CFA, 216-672-0522

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