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Universal Stainless Reports EPS of $0.25 for 2004 Second Quarter

Jul 21, 2004
Universal Stainless Reports EPS of $0.25 for 2004 Second Quarter

Universal Stainless Reports EPS of $0.25 for 2004 Second Quarter

Dunkirk operation attains operating income of $651,000 on $8.0 million in sales

BRIDGEVILLE, Pa., July 21, 2004 -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) today reported second quarter 2004 sales of $29.0 million and net income of $1.6 million, or $0.25 per diluted share. These results represent sales at a near record level and EPS ahead of the projected range of $0.15 to $0.20. Sales increased 72% from the second quarter of 2003 and 36% from the first quarter of 2004. Second quarter 2004 net income showed a strong turnaround from the net loss of $440,000, or $0.07 per diluted share, in the year ago period and was greatly improved from the net income of $227,000 or $0.04 per diluted share reported in the 2004 first quarter.

Commenting on the results, President and CEO Mac McAninch stated: "Business is good across all the markets we serve. Our sales to service centers, rerollers and forgers in the 2004 second quarter demonstrated substantial growth over the prior quarter and year over year. Our strong financial performance resulted from greater demand for our higher value-added niche products. This was reflected in higher shipments of aerospace, power generation, petrochemical and tool steel products, which were up 42%, 56%, 63% and 18%, respectively, over the first quarter of 2004 and even more substantially over the prior year."

Mr. McAninch added: "The improvement in our profitability company-wide in the second quarter was also due to the price increases we have implemented to offset unprecedented raw material cost increases as well as higher energy and manufacturing supply costs. In addition, the improvement in the second quarter was due to the efforts of our employees at each operating location to respond to customer needs in a time of high demand."

Segment Review

In the second quarter of 2004, the Universal Stainless & Alloy Products segment had sales of $25.1 million and operating income of $1.9 million. This compares with sales of $14.5 million and an operating loss of $255,000 in the second quarter of 2003 and sales of $18.8 million and operating income of $401,000 in the first quarter of 2004. The strong growth reflected increased sales to all customer categories, including sales of reroll product to Dunkirk, both year over year and sequentially. Increased shipments, combined with improved pricing, led to greater profitability.

The Dunkirk Specialty Steel segment reported record sales of $8.0 million and operating income of $651,000. This compares with sales of $5.4 million and an operating loss of $374,000 in the second quarter of 2003 and sales of $6.7 million and operating income of $34,000 in the prior quarter. Dunkirk's top line growth mainly reflected increased sales to service centers while its total sales volume allowed further reductions in the manufacturing cost of products sold, leading to the substantial improvement in its profitability.

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 third quarter 2004 sales will range from $30 to $35 million and that diluted EPS will range from $0.30 to $0.35. In the third quarter of 2003, sales were $18.6 million and the Company incurred a net loss per diluted share of $0.02.

The following factors were considered in developing these estimates:

- The Company's total backlog at June 30, 2004 approximated $49 million compared to $37 million at March 31, 2004, reflecting strength in all of the Company's niche markets.

- The third quarter results are expected to benefit from capital improvements implemented in the second quarter, including the addition of annealing furnaces for ingot, billet and bar products. The addition of a reheat furnace is scheduled to be completed in August and is expected to increase the throughput of the Bridgeville blooming mill with its full benefit expected in the 2004 fourth quarter.

- Sales from the Dunkirk Specialty Steel segment are expected to approximate $9 million due to strong customer demand. Further sales growth is expected when additional reroll product is available from the Bridgeville operation.

Mr. McAninch concluded: "The recent capital investments we have made will enable us to respond more quickly to customer needs which we expect will remain strong through the balance of the year."

Webcast

A simultaneous Webcast of the Company's conference call discussing the 2004 second quarter and the third quarter 2004 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, continuing through July 28th. It can be accessed by dialing 706-645-9291, passcode 8565498. 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 original equipment manufacturers, service centers, forgers, rerollers and wire redrawers.

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 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 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 Six-Months Ended
                             June 30,                 June 30,
                         2004        2003         2004         2003
                      ----------  ----------   ----------  ----------
   Net Sales

 Stainless steel      $   22,889  $   12,612   $   39,057  $   23,849
 Tool steel                3,743       2,599        6,908       4,500
 High-strength low
  alloy steel              1,064         668        1,925       1,339
 High-temperature
  alloy steel                612         625        1,322       1,142
 Conversion services         596         265          928         598
 Other                       122          68          193         109
                      ----------  ----------   ----------  ----------
 Total net sales          29,026      16,837       50,333      31,537
 Cost of products sold    24,531      15,941       43,875      30,621
 Selling and
  administrative
  expenses                 1,947       1,525        3,475       2,918
                      ----------  ----------   ----------  ----------
 Operating income
  (loss)                   2,548        (629)       2,983      (2,002)
 Interest expense           (106)        (94)        (194)       (189)
 Other income                  3          23           11          50
                      ----------  ----------   ----------  ----------
 Income (loss) before
  taxes                    2,445        (700)       2,800      (2,141)
 Income tax provision
  (benefit)                  879        (260)       1,007      (1,118)
                      ----------  ----------   ----------  ----------
 Net income (loss)    $    1,566  $     (440)  $    1,793  $   (1,023)
                      ==========  ==========   ==========  ==========
 Earnings (loss) per
  share
  - Basic             $     0.25  $    (0.07)  $     0.28  $    (0.16)
                      ==========  ==========   ==========  ==========
 Earnings (loss) per
  share
  - Diluted           $     0.25  $    (0.07)  $     0.28  $    (0.16)
                      ==========  ==========   ==========  ==========
 Weighted average
  shares of Common
  Stock outstanding
   Basic               6,299,579   6,284,691    6,297,816   6,284,665
   Diluted             6,355,148   6,284,691    6,345,591   6,284,665


                      MARKET SEGMENT INFORMATION

                              For the             For the
                           Quarter Ended     Six-Months Ended
                              June 30,            June 30,
                           2004      2003      2004     2003
                         -------   -------   -------   -------
   Net Sales

 Service centers         $12,267   $ 7,905   $22,173   $14,855
 Rerollers                 8,187     4,240    12,257     8,039
 Forgers                   5,133     2,355     8,949     4,002
 Original equipment
  manufacturers            1,904     1,372     3,838     2,421
 Wire redrawers              843       640     2,039     1,520
 Conversion services         596       265       928       598
 Other                        96        60       149       102
                         -------   -------   -------   -------
 Total net sales         $29,026   $16,837   $50,333   $31,537
                         =======   =======   =======   =======

 Tons shipped             12,131     8,645    21,197    16,058
                         =======   =======   =======   =======

                       BUSINESS SEGMENT RESULTS

 Universal Stainless & Alloy Products Segment

                                    For the              For the
                                 Quarter Ended       Six-Months Ended
                                    June 30,             June 30,
                                 2004     2003        2004      2003
                               -------   -------    -------   -------
    Net Sales

 Stainless steel               $16,376   $ 7,949    $27,096   $15,060
 Tool steel                      3,668     2,413      6,747     4,180
 High-strength low alloy steel     399       464        812       871
 High-temperature alloy steel      525       547      1,075     1,025
 Conversion services               475       198        724       508
 Other                             106        61        152        94
                               -------   -------    -------   -------
                                21,549    11,632     36,606    21,738
 Intersegment                    3,515     2,867      7,721     5,162
                               -------   -------    -------   -------
 Total net sales                25,064    14,499     44,327    26,900
 
 Material cost of sales          8,390     5,244     18,924     9,640
 Operation cost of sales        13,446     8,512     20,743    16,371
 Selling and
 administrative expenses         1,331       998      2,362     1,918
                               -------   -------    -------   -------

 Operating income (loss)       $ 1,897   $  (255)   $ 2,298   $(1,029)
                               =======   =======    =======   =======


 Dunkirk Specialty Steel Segment

                                    For the              For the
                                 Quarter Ended       Six-Months Ended
                                    June 30,             June 30,
                                 2004     2003        2004      2003
                               -------   -------    -------   -------
      Net Sales

 Stainless steel               $ 6,513   $ 4,663    $11,961   $ 8,789
 Tool steel                         75       186        161       320
 High-strength low alloy steel     665       204      1,113       468
 High-temperature alloy steel       87        78        247       117
 Conversion services               121        67        204        90
 Other                              16         7         41        15
                               -------   -------    -------   -------
                                 7,477     5,205     13,727     9,799
 Intersegment                      558       190      1,053       380
                               -------   -------    -------   -------
 Total net sales                 8,035     5,395     14,780    10,179

 Material cost of sales          3,902     2,941      7,379     5,553
 Operation cost of sales         2,866     2,301      5,603     4,599
 Selling and
  administrative expenses          616       527      1,113     1,000
                               -------   -------    -------   -------

 Operating income (loss)       $   651   $  (374)   $   685   $  (973)
                               =======   =======    =======   =======

                      CONSOLIDATED BALANCE SHEET

                                       June 30,          December 31,
                                         2004               2003
                                       -------             -------
    Assets

 Cash                                  $   369             $ 4,735
 Accounts receivable, net               19,548              12,690
 Inventory                              30,578              22,281
 Other current assets                    3,941               4,285
                                       -------             -------
 Total current assets                   54,436              43,991
 Property, plant & equipment, net       39,805              40,176
 Other assets                              732                 758
                                       -------             -------
 Total assets                          $94,973             $84,925
                                       =======             =======

    Liabilities and
    Stockholders' Equity

 Accounts payable                      $10,939             $ 6,792
 Bank overdrafts                           305                 813
 Accrued employment costs                1,740                 833
 Current portion of long-term debt       1,928               1,944
 Other current liabilities               1,550                 195
                                       -------             -------
 Total current liabilities              16,462              10,577
 Bank revolver                           3,167                  --
 Long-term debt                          4,632               5,599
 Deferred taxes                          9,397               9,313
                                       -------             -------
 Total liabilities                      33,658              25,489
 Stockholders' equity                   61,315              59,436
                                       -------             -------
 Total liabilities and
  stockholders' equity                 $94,973             $84,925
                                       =======             =======

               CONSOLIDATED STATEMENT OF CASH FLOW DATA
                  For the Six-Months Ended June 30,

                                                    2004      2003
                                                  -------    -------
 Cash flows from operating activities:
  Net income (loss)                               $ 1,793    $(1,023)
  Adjustments to reconcile to net cash
   provided by operating activities:
    Depreciation and amortization                   1,571      1,571
    Deferred taxes                                     84        145
    Tax benefit from exercise of stock options          3         --
  Changes in assets and liabilities:
    Accounts receivable, net                       (6,858)      (797)
    Inventory                                      (8,297)       780
    Trade accounts payable                          4,147      1,776
    Accrued employment costs                          907        (13)
    Refundable taxes                                   --       (265)
    Other, net                                      1,720        839
                                                  -------    -------
 Cash flow from (due to) operating activities      (4,930)     3,013
                                                  -------    -------
 Cash flow from investing activities:

  Capital expenditures                             (1,195)      (191)
                                                  -------    -------
 Cash flow due to investing activities             (1,195)      (191)
                                                  -------    -------
 Cash flows from financing activities:

  Net borrowings under revolving line of credit     3,167         --
  Proceeds from deferred loan agreement                --        200
  Repayments of long-term debt                       (983)      (959)
  Net change in bank overdrafts                      (508)       641
  Proceeds from issuance of common stock               83         25
                                                  -------    -------
 Cash flow from (due to) financing activities       1,759        (93)
                                                  -------    -------
 Net cash flow                                    $(4,366)   $ 2,729
                                                  =======    =======
CONTACTS: Richard M. Ubinger
          Vice President of Finance, Chief Financial Officer
            and Treasurer
          (412) 257-7606

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