Universal Stainless Reports Record Sales and Earnings for Fourth Quarter and Full Year 2006
Jan 18, 2007
Universal Stainless Reports Record Sales and Earnings for Fourth Quarter and Full Year 2006
Universal Stainless Reports Record Sales and Earnings for Fourth Quarter and Full Year 2006
Fourth Quarter EPS Reaches $0.97 on $56 Million in Sales
Full-Year Sales Top $200 Million and EPS Climbs to $3.12
BRIDGEVILLE, Pa., Jan. 18, 2007 -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that sales for the fourth quarter of 2006 rose 33% to a record $55.8 million compared with $42.0 million in the same period of 2005. Fourth quarter 2006 net income rose 80% to a record $6.4 million, or $0.97 per diluted share. This compares with net income of $3.6 million, or $0.55 per diluted share, reported in the fourth quarter of 2005. For the full year 2006, sales rose 20% to a record $203.9 million compared with $170.0 million in 2005. Net income for 2006 increased 58% to a record $20.6 million, or $3.12 per diluted share compared with $13.1 million, or $2.02 per diluted share reported for 2005.
The 2006 fourth quarter and full year results included $465,000 of other income from the receipt of 2006 import duties, equivalent to $0.05 per diluted share, and a reduction in the annual income tax rate to 35.2% from 36.0%, equivalent to $0.04 per diluted share. The 2005 fourth quarter and full year results included import duties of $358,000, equivalent to $0.04 per diluted share, and a reduction in the annual income tax rate to 35.4% from 36.0%, equivalent to $0.02 per diluted share. The Company's fourth quarter 2006 results exceeded its forecast of sales in the range of $45 to $50 million and diluted EPS in the range of $0.70 to $0.75.
Chairman and CEO Mac McAninch commented: "We achieved record results in the fourth quarter of 2006 as we have each quarter this year due to the strength of our niche markets coupled with our targeted investments in capital equipment and personnel, which have enabled us to take advantage of market opportunities. Substantial aerospace demand continued to be the major force driving our growth in the fourth quarter accompanied by increased year-over-year sales to the petrochemical and power generation markets. In fact, the sizeable increase in our fourth quarter forger sales was for billet product to be used for power generation applications. While our sales of tool steel slowed in the second half of 2006, we view this as temporary because of the favorable outlook for heavy equipment manufacturers later in 2007."
Mr. McAninch continued: "Both of our operating segments reached important milestones for the full year. Sales at our Universal Stainless segment reached $179 million, while Dunkirk's sales crossed the $70 million threshold for the first time. These record results mainly reflect our successful shift to higher value-added products as well as higher nickel prices which increased the surcharge passed on to our customers."
Mr. McAninch concluded: "We are entering 2007 with a great deal of optimism for further growth due to the continued strength of our markets. We continue to focus on initiatives to build the Company. We have expanded our executive team with the addition of Ken Matz as our new president, which we announced earlier this week. We also will continue to re-invest in our Company to meet the needs of our customers, to further increase our value-added sales and to build additional value for our shareholders."
Segment Review
In the fourth quarter of 2006, the Universal Stainless & Alloy Products segment had sales of $47.1 million and operating income of $4.9 million, yielding an operating margin of 10%. This compares with fourth quarter 2005 sales of $37.7 million and operating income of $4.7 million, or 12% of sales. In the third quarter of 2006, sales were $47.2 million and operating income was $4.0 million, or 9% of sales. The reduction in operating margin in the 2006 fourth quarter in comparison to the prior year quarter is due to higher material costs incurred, as the price of nickel continued to rise throughout the quarter.
The 25% increase in sales from the 2005 fourth quarter reflects the contribution of the new vacuum-arc remelt furnaces installed in 2005 and 2006, the addition of two milling machines and a plate flattener, and efficiency improvements in Bridgeville. It also was due to higher product prices and a favorable product mix including increased shipments to forgers and of bar products to service centers. Fourth quarter 2006 sales were level with the 2006 third quarter as lower sales of semi-finished product to rerollers and of tool steel plate to service centers were offset by increased sales to forgers.
The Dunkirk Specialty Steel segment reported record sales for the 2006 fourth quarter of $20.3 million and record operating income of $4.0 million, resulting in an operating margin of 20%. This compares with sales of $13.0 million and operating income of $1.3 million, or 10% of sales, in the fourth quarter of 2005. In the third quarter of 2006 sales were $19.8 million and operating income was $3.8 million, or 19% of sales.
Dunkirk's 56% increase in sales and 212% rise in operating income over the 2005 fourth quarter were due to the improved VAR remelted feedstock supply from Bridgeville, workforce additions, the timing of feedstock procurement and rising nickel prices that affected the surcharge mechanism. The year-over-year growth in sales reflected increases in nearly every customer category, with sales to redrawers up 40%, to service centers up 60% and to OEMs up 70%. Sales rose 2% over the 2006 third quarter and operating income increased 4% from the 2006 third quarter due to the effect of higher nickel prices.
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 2007 sales will range from $52 to $57 million and that diluted EPS will range from $0.82 to $0.87. This compares with sales of $44.9 million and diluted EPS of $0.59 in the first quarter of 2006.
The following factors were considered in developing these estimates:
* The Company's total backlog at December 31, 2006 remained at
high levels, approximating $120 million compared to $124
million at September 30, 2006.
* The Company expects to continue to work down its backlog and
improve its on-time delivery performance in the 2007 first
quarter because it is shipping more remelted products from
its seventh VAR furnace installed in August and is
continuing to improve manufacturing processes and efficiency
company-wide.
* End market demand is expected to remain strong in the 2007
first quarter. Nickel prices are expected to remain level
with the 2006 fourth quarter.
* Sales from the Dunkirk Specialty Steel segment are expected
to approximate $20 million in the first quarter of 2007 based
on its backlog of $51 million at December 31, 2006. Its
operating income as a percentage of sales is expected to
approximate the average for 2006 of 16%, as the majority
of its feedstock to support these sales reflect the higher
nickel prices reached in the second half of 2006.
Webcast A simultaneous Webcast of the Company's conference call discussing the fourth quarter of 2006 and the first quarter 2007 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 25th. It can be accessed by dialing 706-645-9291, passcode 5578498. 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.
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 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,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Stainless steel $ 41,474 $ 32,191 $ 151,633 $ 135,588
Tool steel 4,744 5,556 23,389 20,737
High-strength
low alloy steel 6,145 2,336 16,467 6,606
High-temperature
alloy steel 2,792 1,371 9,837 3,694
Conversion
services 443 497 2,137 3,030
Other 209 92 410 367
--------- --------- --------- ---------
Total net sales 55,807 42,043 203,873 170,022
Cost of products
sold 43,758 34,653 160,682 140,952
Selling and
administrative
expenses 2,619 2,106 10,792 8,441
--------- --------- --------- ---------
Operating income 9,430 5,284 32,399 20,629
Interest expense (296) (256) (1,106) (851)
Other income 516 374 522 437
--------- --------- --------- ---------
Income before
taxes 9,650 5,402 31,815 20,215
Income tax
provision 3,222 1,826 11,201 7,159
--------- --------- --------- ---------
Net income $ 6,428 $ 3,576 $ 20,614 $ 13,056
========= ========= ========= =========
Earnings per
share - Basic $ 0.99 $ 0.56 $ 3.20 $ 2.05
========= ========= ========= =========
Earnings per
share - Diluted $ 0.97 $ 0.55 $ 3.12 $ 2.02
========= ========= ========= =========
Weighted average
shares of Common
Stock outstanding
Basic 6,516,880 6,403,185 6,451,037 6,375,257
Diluted 6,658,566 6,507,520 6,612,530 6,479,114
MARKET SEGMENT INFORMATION
For the Quarter Ended For the Year Ended
December 31, December 31,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Service centers $ 25,760 $ 19,817 $101,510 $ 73,213
Forgers 13,504 7,172 38,539 29,914
Rerollers 8,193 6,214 33,273 39,254
Original
equipment
manufacturers 4,392 5,922 18,368 13,992
Wire redrawers 3,330 2,329 9,660 10,263
Conversion
services 443 497 2,137 3,030
Other 185 92 386 356
-------- -------- -------- --------
Total net sales $ 55,807 $ 42,043 $203,873 $170,022
======== ======== ======== ========
Tons shipped 12,064 10,668 50,485 51,233
======== ======== ======== ========
BUSINESS SEGMENT RESULTS
Universal Stainless & Alloy Products Segment
For the Quarter Ended For the Year Ended
December 31, December 31,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Stainless steel $ 28,019 $ 21,666 $102,372 $ 90,530
Tool steel 4,281 5,324 21,747 20,047
High-strength
low alloy steel 3,141 1,312 8,177 3,199
High-temperature
alloy steel 1,097 1,019 3,787 3,254
Conversion
services 287 412 1,530 2,534
Other 174 78 325 295
-------- -------- -------- --------
36,999 29,811 137,938 119,859
Intersegment 10,143 7,893 41,232 33,399
-------- -------- -------- --------
Total net sales 47,142 37,704 179,170 153,258
Material cost of
sales 23,489 16,412 85,298 75,568
Operation cost
of sales 17,090 15,151 66,790 56,885
Selling and
administrative
expenses 1,713 1,467 7,392 5,791
-------- -------- -------- --------
Operating income $ 4,850 $ 4,674 $ 19,690 $ 15,014
======== ======== ======== ========
Dunkirk Specialty Steel Segment
For the Quarter Ended For the Year Ended
December 31, December 31,
2006 2005 2006 2005
---- ---- ---- ----
Net Sales
Stainless steel $13,455 $10,525 $49,261 $45,058
Tool steel 463 232 1,642 690
High-strength low
alloy steel 3,004 1,024 8,290 3,407
High-temperature
alloy steel 1,695 352 6,050 440
Conversion services 156 85 607 496
Other 35 14 85 72
------- ------- ------- -------
18,808 12,232 65,935 50,163
Intersegment 1,446 750 4,320 2,848
------- ------- ------- -------
Total net sales 20,254 12,982 70,255 53,011
Material cost of
sales 10,949 7,750 38,705 29,496
Operation cost of
sales 4,438 3,324 16,654 14,141
Selling and
administrative
expenses 906 639 3,400 2,650
------- ------- ------- -------
Operating income $ 3,961 $ 1,269 $11,496 $ 6,724
======= ======= ======= =======
CONSOLIDATED BALANCE SHEET
December 31, December 31,
2006 2005
---- ----
Assets
Cash $ 2,909 $ 620
Accounts receivable, net 33,308 27,963
Inventory 66,019 51,398
Other current assets 3,044 2,790
-------- --------
Total current assets 105,280 82,771
Property, plant & equipment, net 49,251 45,761
Other assets 584 495
-------- --------
Total assets $155,115 $129,027
======== ========
Liabilities and Stockholders' Equity
Trade accounts payable $ 13,123 $ 12,579
Accrued employment costs 4,121 2,958
Outstanding checks in
excess of bank balance 3,427 3,101
Current portion of
long-term debt 2,364 1,555
Other current liabilities 1,902 914
-------- --------
Total current
liabilities 24,937 21,107
Bank revolver 8,392 6,117
Long-term debt 8,836 11,200
Deferred taxes 8,402 9,600
-------- --------
Total liabilities 50,567 48,024
Stockholders' equity 104,548 81,003
-------- --------
Total liabilities and
stockholders' equity $155,115 $129,027
======== ========
CONSOLIDATED STATEMENT OF CASH FLOW DATA
For the Year Ended December 31,
2006 2005
---- ----
Cash flows provided by operating
activities:
Net income $ 20,614 $ 13,056
Adjustments to reconcile
to net cash provided by
operating activities:
Depreciation and
amortization 3,337 3,085
Loss on retirement of
fixed assets 911 705
Deferred tax decrease (1,836) (90)
Stock based compensation
expense 273 --
Tax benefit from exercise
of stock options -- 207
Excess tax benefits from
share-based payment
arrangements (1,073) --
Changes in assets and
liabilities:
Accounts receivable, net (5,345) (3,401)
Inventory (14,621) (13,080)
Trade accounts payable 544 913
Accrued employment costs 1,163 1,128
Other, net 2,334 808
-------- --------
Cash flow provided by
operating activities 6,301 3,331
-------- --------
Cash flow used in investing
activities:
Acquisition of assets and
real property through
purchase agreements -- (344)
Capital expenditures (7,716) (8,464)
-------- --------
Cash flow used in investing
activities (7,716) (8,808)
-------- --------
Cash flows provided by
financing activities:
Revolving credit net
borrowings 2,275 (2,518)
Proceeds from long-term
debt -- 8,050
Deferred financing costs -- (48)
Long-term debt repayments (1,555) (894)
Net change in outstanding
checks in excess of bank
balance 326 463
Proceeds from issuance of
common stock 1,585 803
Excess tax benefits from
share-based payment
arrangements 1,073 --
-------- --------
Cash flow provided by
financing activities 3,704 5,856
-------- --------
Net cash flow $ 2,289 $ 379
======== ========
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
