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Olympic Steel Reports Second-Quarter Results

August 01, 2019 06:15 AM Eastern Time
Company Reports Strong Cash Flow Generation, with Focus on Working Capital Management and Operating Expense Reductions
Board Declares Regular Quarterly Cash Dividend

Olympic Steel, Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced financial results for the three months ended June 30, 2019.

Second-quarter 2019 net sales of $429 million were 5% lower compared with $453 million in the second quarter of 2018. Net sales were impacted by an industry-wide decline in shipping volumes, which was partially offset by year-over-year higher selling prices. Net income was $2.1 million, or $0.18 per diluted share, in the 2019 second quarter, compared with $15.8 million, or $1.39 per diluted share, in the same quarter of 2018. Both the specialty metals flat products segment and tubular and pipe products segment reported strong quarterly results. The 2019 second-quarter results also include $250,000 of LIFO income, as noted in the reconciliation below.

“The second quarter of 2019 ran contrary to the traditionally stronger seasonality of the steel market, as both industry sales volumes and steel pricing declined. The decrease in volume and pricing lead to margin compression, particularly in carbon flat products. While we cannot control the market price of steel or U.S. trade and tariff policies, we have taken action to best position us for future success,” said Chief Executive Officer Richard T. Marabito. “This includes improving cash flow generation by tightly managing our inventory levels and operating expenses, and reducing our debt by $49 million during the second quarter.”

“We are also growing and diversifying our business by investing in strategic acquisitions of metal-intensive branded companies and assets. In January, we completed the acquisition of McCullough Industries and we expect to announce a second, small acquisition of a metal-intensive manufacturer in the near term. In line with our long-term growth strategy, we continue to evaluate other acquisition opportunities in the metal-intensive branded products industry, which are countercyclical to the dynamics of steel pricing.”

“As we look ahead to the second half of the year, steel prices are rising after reaching a low in early July. We are focused on maintaining five inventory turns, continuing our cash flow generation, reducing our operating expenses and actively evaluating additional opportunities to grow our metal-intensive branded products portfolio,” Marabito said.

In the 2019 second quarter, the Company repurchased 105,534 shares or approximately 1% of its outstanding shares. In addition, its Board of Directors also approved a regular quarterly cash dividend of $0.02 per share, which is payable on September 17, 2019, to shareholders of record on September 3, 2019.

The table that follows provides a reconciliation of non-GAAP measures to measures prepared in accordance with GAAP.

Olympic Steel, Inc.
Reconciliation of Net Income Per Diluted Share to Adjusted Net Income Per Diluted Share
The following table reconciles adjusted net income per diluted share to the most directly comparable
GAAP financial measure:

Three Months Ended
June 30,

Six Months Ended
June 30,

2019

2018

2019

2018

Net income per diluted share (GAAP):

$

0.18

$

1.39

$

0.36

$

2.06

Excluding the following items:

LIFO (income) / expense

(0.02)

0.10

(0.02)

0.13

Adjusted net income per diluted share (non-GAAP):

$

0.16

$

1.49

$

0.34

$

2.19

Conference Call and Webcast

A simulcast of Olympic Steel’s 2019 second-quarter earnings conference call can be accessed via the Investor Relations section of the Company’s website at www.olysteel.com. The live simulcast will begin at 9 a.m. EST on August 1, 2019, and a replay will be available for approximately 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,” and “continue,” as well as the negative of these terms or 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: risks of falling metals prices and inventory devaluation; 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; the levels of imported steel in the United States and the tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 and imposed tariffs and duties on exported steel or other products, U.S. trade policy and its impact on the U.S. manufacturing industry; cyclicality and volatility within the metals industry; fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the successes of our efforts and initiatives to improve working capital turnover and cash flows, and achieve cost savings; our ability to generate free cash flow through operations and repay debt; the availability, and increased costs, of labor related to tighter employment markets; the availability and rising costs of transportation and logistical services; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; 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 risks and threats; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations; our ability to successfully integrate recent acquisitions into our business and risks inherent with the acquisitions in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; rising interest rates and their impacts on our variable interest rate debt; the impacts of union organizing activities and the success of union contract renewals; changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies; 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 impairment charges related to indefinite lived intangible assets; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income or expense; the inflation or deflation existing within the metals industry, as well as 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; 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 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.

In addition to financial information prepared in accordance with GAAP, this document also contains adjusted earnings per diluted share, which is a non-GAAP financial measure. Management’s view of the Company’s performance includes adjusted earnings per share, and management uses this non-GAAP financial measure internally for planning and forecasting purposes and to measure the performance of the Company. We believe this non-GAAP financial measure provides useful and meaningful information to us and investors because it enhances investors’ understanding of the continuing operating performance of our business and facilitates the comparison of performance between past and future periods. This non-GAAP financial measure should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure is provided above.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin plate, and metal-intensive branded 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 30 facilities in North America.

For additional information, please visit the Company’s website at www.olysteel.com or https://olysteel.irpass.com/Contact_Us?BzID=2195

Olympic Steel, Inc.

Consolidated Statements of Net Income

(in thousands, except per-share data)

Three months ended

Six months ended

June 30

June 30

2019

2018

2019

2018

Net sales

$

429,151

$

452,917

$

875,070

$

828,515

Costs and expenses

Cost of materials sold (excludes items shown separately below)

351,494

356,061

717,876

650,838

Warehouse and processing

25,123

23,813

50,734

47,249

Administrative and general

19,396

21,523

39,525

40,396

Distribution

12,495

13,386

25,330

25,525

Selling

7,420

7,107

14,760

14,335

Occupancy

2,466

2,297

5,264

4,852

Depreciation

4,488

4,164

8,919

8,187

Amortization

329

247

648

469

Total costs and expenses

423,211

428,598

863,056

791,851

Operating income

5,940

24,319

12,014

36,664

Other income (loss), net

(59)

(93)

(45)

(139)

Income before financing costs and income taxes

5,881

24,226

11,969

36,525

Interest and other expense on debt

3,174

2,670

6,416

4,656

Income before income taxes

2,707

21,556

5,553

31,869

Income tax provision

626

5,708

1,398

8,392

Net income

$

2,081

$

15,848

$

4,155

$

23,477

Earnings per share:

Net income per share – basic

$

0.18

$

1.39

$

0.36

$

2.06

Weighted average shares outstanding – basic

11,415

11,435

11,482

11,419

Net income per share – diluted

$

0.18

$

1.39

$

0.36

$

2.06

Weighted average shares outstanding – diluted

11,415

11,435

11,482

11,419

Olympic Steel, Inc.

Consolidated Balance Sheets

(in thousands)

At June 30, 2019

At Dec. 31, 2018

Assets

Cash and cash equivalents

$

6,373

$

9,319

Accounts receivable, net

185,048

175,252

Inventories, net (includes LIFO credit of $2,821 as of June 30, 2019 and $3,071 as of December 31, 2018)

288,183

368,738

Prepaid expenses and other

9,973

9,460

Total current assets

489,577

562,769

Property and equipment, at cost

410,995

403,785

Accumulated depreciation

(251,784)

(244,176)

Net property and equipment

159,211

159,609

Goodwill

3,256

2,358

Intangible assets, net

29,873

24,914

Other long-term assets

13,416

11,090

Right of use asset, net

29,072

Total assets

$

724,405

$

760,740

Liabilities

Accounts payable

$

70,457

$

95,367

Accrued payroll

11,375

19,665

Other accrued liabilities

15,496

13,395

Current portion of lease liabilities

5,793

Total current liabilities

103,121

128,427

Credit facility revolver

264,649

302,530

Other long-term liabilities

11,775

9,327

Deferred income taxes

13,055

13,465

Lease liabilities

23,342

Total liabilities

415,942

453,749

Shareholders’ Equity

Preferred stock

Common stock

132,420

130,778

Treasury stock

(1,653)

(132)

Accumulated other comprehensive loss

(2,365)

Retained earnings

180,061

176,345

Total shareholders’ equity

308,463

306,991

Total liabilities and shareholders’ equity

$

724,405

$

760,740

Olympic Steel, Inc.

Segment Financial Information

(In thousands, except tonnage and per-ton data. Figures may not foot to consolidated totals due to Corporate expenses.)

Three months ended June 30

Carbon Flat Products

Specialty Metals Flat
Products

Tubular and Pipe
Products

2019

2018

2019

2018

2019

2018

Tons sold1

267,202

304,361

37,392

38,806

N/A

N/A

Net sales

$

255,870

$

279,292

$

96,058

$

97,354

$

77,223

$

76,271

Average selling price per ton

958

918

2,569

2,509

N/A

N/A

Cost of materials sold2

212,784

217,143

82,195

82,667

56,515

56,251

Gross profit3

43,086

62,149

13,863

14,687

20,708

20,020

Operating expenses4

42,614

43,845

9,895

9,163

16,232

15,470

Operating income

$

472

$

18,304

$

3,968

$

5,524

$

4,476

$

4,550

Depreciation and amortization

2,960

2,580

436

337

1,379

1,469

Six months ended June 30

Carbon Flat Products

Specialty Metals Flat
Products

Tubular and Pipe
Products

2019

2018

2019

2018

2019

2018

Tons sold1

540,373

601,965

73,176

63,669

N/A

N/A

Net sales

$

534,406

$

520,185

$

184,155

$

162,884

$

156,509

$

145,446

Average selling price per ton

989

864

2,517

2,558

N/A

N/A

Cost of materials sold5

446,100

406,917

158,440

138,799

113,336

105,122

Gross profit3

88,306

113,268

25,715

24,085

43,173

40,324

Operating expenses4

86,608

86,859

19,503

15,548

33,082

31,508

Operating income

$

1,698

$

26,409

$

6,212

$

8,537

$

10,091

$

8,816

Depreciation and amortization

5,774

5,140

962

540

2,747

2,925

At June 30,
2019

At Dec. 31,
2018

Assets

Flat-products

$

509,068

$

560,116

Tubular and pipe products

214,004

200,016

Corporate

1,333

608

Total assets

$

724,405

$

760,740

1

Tonnage is less meaningful for the Tubular and Pipe Products segment and, therefore, is not reported.

2

Includes $0.25 million of LIFO income and $1.5 million of LIFO expense for the three months ended June 30, 2019 and June 30, 2018, respectively.

3

Gross profit is calculated as net sales less the cost of materials sold.

4

Operating expenses are calculated as total costs and expenses less the cost of materials sold from the Consolidated Statements of Net Income.

5

Includes $0.25 million of LIFO income and $2.0 million of LIFO expense for the six months ended June 30, 2019 and  June 30, 2018, respectively.

Other Information

(In thousands except per-share data)

At June 30,
2019

At Dec. 31,
2018

Shareholders’ equity per share

$

28.30

$

27.89

Debt to equity ratio

0.86 to 1

0.99 to 1

Six Months Ended June 30,

2019

2018

Net cash from (used for) operating activities

52,187

(61,883)

Cash dividends per share

$

0.04

$

0.04

View source version on businesswire.com: http://www.businesswire.com/news/home/20170803005170/en/

Richard A. Manson
Chief Financial Officer
(216) 672-0522
ir@olysteel.com

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