Jump to main content

News Releases

<< Back

Universal Stainless Reports 2007 Fourth Quarter, Full Year Results

Jan 22, 2008
Universal Stainless Reports 2007 Fourth Quarter, Full Year Results

Universal Stainless Reports 2007 Fourth Quarter, Full Year Results

Fourth Quarter Diluted EPS is $0.65 On Sales of $50 Million Full Year Sales of $230 Million and EPS of $3.32 Set New Company Records Cash Flow From Operations Reaches Record $33.6 Million

BRIDGEVILLE, Pa., Jan. 22, 2008 -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that sales for the fourth quarter of 2007 were $49.6 million compared with $55.8 million in the fourth quarter of 2006. Net income for the 2007 fourth quarter was $4.4 million, or $0.65 per diluted share, compared with $6.3 million, or $0.94 per diluted share, in the fourth quarter of 2006. For the full year 2007, sales rose to a record $229.9 million and net income increased to a record $22.5 million, or $3.32 per diluted share, compared to sales of $203.9 million and net income of $20.6 million, or $3.11 per diluted share in 2006.

The Company had forecasted sales in the range of $45 to $50 million and diluted EPS in the range of $0.60 to $0.65 for the fourth quarter of 2007.

Results for the fourth quarter of 2007 included $586,000 of other income, equivalent to $0.06 per diluted share, from the receipt of import duties, compared with $465,000, equivalent to $0.05 per diluted share, in the 2006 fourth quarter.

Nickel costs continued to decline in the fourth quarter of 2007. The impact from the change in nickel costs on the Company's Dunkirk segment reduced gross margins by an estimated $53,000 (FIFO charge) compared with an increase (FIFO benefit) of $1.1 million, equivalent to $0.11 per diluted share, in the fourth quarter of 2006. The swing in the FIFO effect combined with lower total shipment volume reduced company-wide gross margin dollars in the fourth quarter of 2007 compared with the same period of 2006.

The Company's tax rate for 2007 was 32.7% compared to 35.2% in 2006 due to adjustments to state income tax provisions. The impact of this rate change in comparison to the 2006 fourth quarter and full year was equivalent to $0.05 and $0.12 per diluted share, respectively. Net income for the 2006 fourth quarter has been adjusted for the retrospective application of an accounting pronouncement as detailed in the financial tables.

For the full-year 2007, cash flow from operations reached a record $33.6 million and free cash flow (cash from operations minus capital expenditures) rose to $24.8 million, equivalent to $3.67 per diluted share. This was due to lower levels of receivables and inventories. The strong cash flow enabled the Company to retire the $7.5 million outstanding balance on its PNC term loan.

President and CEO Dennis Oates commented: "Our fourth quarter sales reached the high end of our forecast which recognized volatile raw material costs and economic uncertainty as well as normal conservative year-end order patterns. While we expected nickel to be the most volatile of our costs, the magnitude of its decline in December impacted our profitability for the quarter. Nickel prices have moved higher since then and we expect their volatility to continue.

"While there is caution in our marketplace due to ongoing concern about the U.S. economy, the end markets we serve are global in scope and have solid backlogs going out for several years. Although our direct customers will continue to make periodic inventory adjustments, we expect to see improving trends through the balance of the year. We also expect our cash flow to remain strong."

Mr. Oates added: "We have entered 2008 with a high level of optimism about our prospects. To generate further growth, we are focused on quickly developing new business opportunities. Additionally, we are accelerating efforts to eliminate waste in our operations and enhance customer satisfaction."

Segment Review

In the fourth quarter of 2007, the Universal Stainless & Alloy Products segment had sales of $43.4 million and operating income of $3.2 million, yielding an operating margin of 7%. That compares with sales of $47.1 million and operating income of $4.6 million, or 10% of sales, in the fourth quarter of 2006. In the third quarter of 2007, sales were $55.9 million and operating income was $4.3 million, or 8% of sales, and included a charge of $772,000 to the LCM (Lower of Cost or Market) reserve attributable to the segment.

Segment sales declined 8% compared with the fourth quarter of 2006 despite a 50% increase in sales of tool steel plate to service centers and a 12% increase in reroll product sales to the Dunkirk operation and other customers. These sales increases did not fully offset a 43% decrease in sales to forgers and a 22% decrease in sales of bar products to service centers, which continued to restrain orders due in part to volatile nickel pricing and excess inventories. Operating margins were lower due to a 15% decrease in shipment volume as well as product mix.

The Dunkirk Specialty Steel segment reported sales of $18.7 million and operating income of $2.2 million for the fourth quarter of 2007, resulting in an operating margin of 12%, which included the FIFO charge of $53,000. That compares with sales of $20.3 million and operating income of $3.9 million, or 19% of sales, in the fourth quarter of 2006, which included the estimated FIFO benefit of $1.1 million. In the third quarter of 2007, sales were $21.3 million and operating income was $3.0 million or 14% of sales and included a charge of $635,000 to the LCM reserve attributable to the segment, offset by an estimated $1.5 million FIFO benefit due to the timing of surcharges and the changing price of nickel.

The 8% decline in Dunkirk's sales over the 2006 fourth quarter reflected a 46% decrease in sales of rod and wire products, which was partially offset by a 9% increase in sales of bar products to OEMs and service centers. The decline in the operating margin over the fourth quarter of 2006 mainly reflected a 15% decrease in shipment volume and the swing in the FIFO effect resulting from the impact of nickel price changes in the applicable periods.

Business Outlook

The following statements are based on the Company's current expectations. These statements are forward-looking, and actual results may differ materially.

The Company estimates that first quarter 2008 sales will range from $50 to $55 million and that diluted EPS will range from $0.60 to $0.65. This compares with sales of $56.2 million and diluted EPS of $1.00, in the first quarter of 2007, which included a FIFO benefit estimated at approximately $1.2 million, equivalent to $0.12 per diluted share.

The following factors were considered in developing these estimates:
 * The Company's total backlog at December 31, 2007 was approximately
   $85 million compared to $88 million at September 30, 2007.  The
   Company experienced improvement in order entry for its electro-slag
   remelt products for the power generation market and for its tool
   steel products, which are used in heavy equipment manufacturing.

 * Sales from the Dunkirk Specialty Steel segment are expected to
   approximate $19 million in the first quarter of 2008, with volume
   growth limited by high temperature annealing capacity constraints.
   The Company expects its new high temperature annealing equipment to
   be operational in the 2008 second quarter.

 * The first quarter 2008 earnings forecast assumes that there will be
   no FIFO benefit at the Dunkirk operation.  It also assumes lower
   interest expense due to the pay down of the PNC term loan. The
   estimated tax rate for 2008 is 34%.
Webcast

A simultaneous Webcast of the Company's conference call discussing the fourth quarter of 2007 and the first quarter outlook, scheduled at 10:00 a.m. (Eastern) today, will be available on the Company's website at www.univstainless.com, and thereafter archived on the website. A telephone replay of the conference call will be available beginning at 12:00 noon (Eastern) today and continuing through January 29th. It can be accessed by dialing 706-645-9291, passcode 30027258. This is a toll call.

About Universal Stainless & Alloy Products, Inc.

Universal Stainless & Alloy Products, Inc., headquartered in Bridgeville, Pa., manufactures and markets a broad line of semi-finished and finished specialty steels, including stainless steel, tool steel and certain other alloyed steels. The Company's products are sold to rerollers, forgers, service centers, original equipment manufacturers and wire redrawers. More information is available at www.univstainless.com.

Forward-Looking Information Safe Harbor

Except for historical information contained herein, the statements in this release are forward-looking statements that are made pursuant to the "safe harbor" provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to differ materially from forecasted results. Those risks include, among others, risks associated with the receipt, pricing and timing of future customer orders, risks associated with significant fluctuations that may occur in raw material and energy prices, risks associated with the manufacturing process, labor and production yields, risks related to property, plant and equipment, and risks related to the ultimate outcome of the Company's current and future litigation and regulatory matters. Certain of these risks and other risks are described in the Company's filings with the Securities and Exchange Commission (SEC) over the last 12 months, copies of which are available from the SEC or may be obtained upon request from the Company.


              UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC.
                         FINANCIAL HIGHLIGHTS
         (Dollars in thousands, except per share information)
                              (Unaudited)

                 CONSOLIDATED STATEMENT OF OPERATIONS

                    For the Quarter Ended        For the Year Ended
                        December 31,                December 31,
                     2007          2006          2007          2006
                  ----------    ----------    ----------    ----------
 Net Sales
 Stainless steel  $   34,020    $   41,474    $  164,228    $  151,633
 Tool steel            7,297         4,744        28,119        23,389
 High-strength
  low alloy steel      6,080         6,145        25,892        16,467
 High-temperature
  alloy steel          1,580         2,792         9,317         9,837
 Conversion
  services               584           443         2,011         2,137
 Other                    72           209           369           410
                  ----------    ----------    ----------    ----------
   Total net
    sales             49,633        55,807       229,936       203,873
 Cost of
  products sold       41,154        44,001       184,491       160,722
 Selling and
  administrative
  expenses             3,087         2,619        12,038        10,792
                  ----------    ----------    ----------    ----------
   Operating
    income             5,392         9,187        33,407        32,359
 Interest expense       (128)         (296)         (731)       (1,106)
 Other income            740           516           776           522
                  ----------    ----------    ----------    ----------
   Income before
    taxes              6,004         9,407        33,452        31,775
 Income tax
  provision            1,616         3,133        10,948        11,185
                  ----------    ----------    ----------    ----------
   Net income     $    4,388    $    6,274    $   22,504    $   20,590
                  ==========    ==========    ==========    ==========

 Earnings per
  share - Basic   $     0.66    $     0.96    $     3.39    $     3.19
                  ==========    ==========    ==========    ==========
 Earnings per
  share - Diluted $     0.65    $     0.94    $     3.32    $     3.11
                  ==========    ==========    ==========    ==========

 Weighted average
  shares of
  Common Stock
  outstanding
   Basic           6,656,783     6,516,880     6,644,374     6,451,037
   Diluted         6,780,808     6,658,566     6,774,924     6,612,530
 ---------------------------------------------------------------------

 Note: 2006 results have been adjusted to reflect the retrospective
 application of the January 1, 2007 change in accounting for major
 maintenance expenses from the accrue-in-advance method to the
 deferral method in accordance with the FASB Staff Position entitled
 "Accounting for Planned Major Maintenance Activities," issued in
 September 2006. The effect of the change in accounting is summarized
 below:

                   For the Quarter Ended         For the Year Ended
                     December 31, 2006           December 31, 2006
                 As Reported   As Adjusted   As Reported   As Adjusted
                  ----------    ----------    ----------    ----------
 Operating income:
   Universal
    Stainless &
    Alloy
    Products
    Segment       $    4,850    $    4,645    $   19,690   $    19,674
   Dunkirk
    Specialty
    Steel Segment      3,961         3,923        11,496        11,472
   Intersegment
    elimination          619           619         1,213         1,213
                  ----------    ----------    ----------    ----------
                  $    9,430    $    9,187    $   32,399    $   32,359
                  ==========    ==========    ==========    ==========

 Net income       $    6,428    $    6,274    $   20,614    $   20,590
                  ==========    ==========    ==========    ==========

 Diluted earnings
  per share       $     0.97    $     0.94    $     3.12    $     3.11
                  ==========    ==========    ==========    ==========


                       BUSINESS SEGMENT RESULTS

 Universal Stainless & Alloy Products Segment

                    For the Quarter Ended        For the Year Ended
                        December 31,                December 31,
                     2007          2006          2007          2006
                  ----------    ----------    ----------    ----------
 Net Sales
 Stainless steel  $   21,524    $   28,019    $  108,535    $  102,372
 Tool steel            6,620         4,281        25,638        21,747
 High-strength
  low alloy steel      2,382         3,141        12,764         8,177
 High-temperature
  alloy steel            714         1,097         4,067         3,787
 Conversion
  services               448           287         1,405         1,530
 Other                    66           174           295           325
                  ----------    ----------    ----------    ----------
                      31,754        36,999       152,704       137,938
 Intersegment         11,614        10,143        49,858        41,232
                  ----------    ----------    ----------    ----------
   Total net
    sales             43,368        47,142       202,562       179,170
 Material cost
  of sales            23,386        23,489       106,456        85,298
 Operation cost
  of sales            14,730        17,295        67,286        66,806
 Selling and
  administrative
  expenses             2,034         1,713         8,345         7,392
                  ----------    ----------    ----------    ----------
   Operating
    income        $    3,218    $    4,645    $   20,475    $   19,674
                  ==========    ==========    ==========    ==========

 Dunkirk Specialty Steel Segment

                    For the Quarter Ended        For the Year Ended
                        December 31,                December 31,
                     2007          2006          2007          2006
                  ----------    ----------    ----------    ----------
 Net Sales
 Stainless steel  $   12,496    $   13,455    $   55,693    $   49,261
 Tool steel              677           463         2,481         1,642
 High-strength
  low alloy steel      3,698         3,004        13,128         8,290
 High-temperature
  alloy steel            866         1,695         5,250         6,050
 Conversion
  services               136           156           606           607
 Other                     6            35            74            85
                  ----------    ----------    ----------    ----------
                      17,879        18,808        77,232        65,935
 Intersegment            817         1,446         4,493         4,320
                  ----------    ----------    ----------    ----------
   Total net
    sales             18,696        20,254        81,725        70,255
 Material cost
  of sales            11,531        10,949        47,905        38,705
 Operation cost
  of sales             3,953         4,476        17,404        16,678
 Selling and
  administrative
  expenses             1,053           906         3,693         3,400
                  ----------    ----------    ----------    ----------
   Operating
    income        $    2,159    $    3,923    $   12,723    $   11,472
                  ==========    ==========    ==========    ==========


                      MARKET SEGMENT INFORMATION

                    For the Quarter Ended        For the Year Ended
                        December 31,                December 31,
                     2007          2006          2007          2006
                  ----------    ----------    ----------    ----------
 Net Sales
 Service centers  $   26,582    $   25,760    $  119,736    $  101,510
 Forgers               7,541        13,504        47,711        38,539
 Rerollers             8,957         8,193        35,006        33,273
 Original
  equipment
  manufacturers        4,418         4,392        18,287        18,368
 Wire redrawers        1,506         3,330         6,843         9,660
 Conversion
  services               584           443         2,011         2,137
 Other                    45           185           342           386
                  ----------    ----------    ----------    ----------
   Total net
    sales         $   49,633    $   55,807    $  229,936    $  203,873
                  ==========    ==========    ==========    ==========
 Tons shipped          9,788        12,064        43,644        50,485
                  ==========    ==========    ==========    ==========


                      CONSOLIDATED BALANCE SHEET

                               December 31,  December 31,
                                   2007          2006
                                ----------    ----------
 Assets
 Cash                           $   10,648    $    2,909
 Accounts receivable, net           27,501        33,308
 Inventory                          65,572        66,019
 Deferred taxes                      2,574         1,544
 Other current assets                2,853         1,606
                                ----------    ----------
   Total current assets            109,148       105,386
 Property, plant & equipment,
  net                               54,271        49,251
 Other assets                          767           584
                                ----------    ----------
   Total assets                 $  164,186    $  155,221
                                ==========    ==========

 Liabilities and Stockholders'
  Equity
 Trade accounts payable         $   13,983    $   13,123
 Outstanding checks in excess
  of bank balance                    2,064         3,427
 Accrued employment costs            5,307         4,121
 Current portion of long-term
  debt                                 383         2,364
 Other current liabilities           1,490         1,902
                                ----------    ----------
   Total current liabilities        23,227        24,937
 Bank revolver                          --         8,392
 Long-term debt                      1,453         8,836
 Deferred taxes                      9,904         8,402
                                ----------    ----------
   Total liabilities                34,584        50,567
 Stockholders' equity              129,602       104,654
                                ----------    ----------
   Total liabilities and
    stockholders' equity        $  164,186    $  155,221
                                ==========    ==========


               CONSOLIDATED STATEMENT OF CASH FLOW DATA

                             For the Year Ended December 31,
                                   2007          2006
                                ----------    ----------
 Cash flows provided by
  operating activities:
   Net income                   $   22,504    $   20,590
   Adjustments to reconcile to
    net cash provided by
    operating activities:
     Depreciation and
      amortization                   3,731         3,337
     Loss on retirement of
      fixed assets                      40           911
     Deferred tax increase
      (decrease)                       252        (1,852)
     Stock based compensation
      expense                          427           273
     Tax benefit from
      share-based payment
      arrangements                    (958)       (1,073)
   Changes in assets and
    liabilities:
     Accounts receivable, net        5,807        (5,345)
     Inventory                         447       (14,621)
     Trade accounts payable            860           544
     Accrued employment costs        1,186         1,163
     Other, net                       (673)        2,374
                                ----------    ----------
 Cash flow provided by
  operating activities              33,623         6,301
                                ----------    ----------
 Cash flow used in investing
  activities:
   Capital expenditures             (8,782)       (7,716)
                                ----------    ----------
 Cash flow used in investing
  activities                        (8,782)       (7,716)
                                ----------    ----------
 Cash flows used in financing
  activities:
   Revolving credit net
    repayments                      (8,392)        2,275
   Long-term debt repayments        (9,364)       (1,555)
   Net change in outstanding
    checks in excess of bank
    balance                         (1,363)          326

   Proceeds from issuance of
    common stock                     1,059         1,585
   Tax benefit from
    share-based payment
    arrangements                       958         1,073
                                ----------    ----------
 Cash flow (used in) provided
  by financing activities          (17,102)        3,704
                                ----------    ----------
   Net cash flow                $    7,739    $    2,289
                                ==========    ==========
CONTACT:  Universal Stainless & Alloy Products, Inc.
          Richard M. Ubinger, Vice President of Finance,
           Chief Financial Officer and Treasurer
          (412) 257-7606

          Comm-Partners LLC
          June Filingeri, President
          (203) 972-0186