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Universal Stainless Reports Strong 2005 Second Quarter Results

Jul 20, 2005
Universal Stainless Reports Strong 2005 Second Quarter Results

Universal Stainless Reports Strong 2005 Second Quarter Results

Quarterly earnings per share reach $0.50 on sales of $42 million

BRIDGEVILLE, Pa., July 20, 2005 -- Universal Stainless & Alloy Products, Inc. (Nasdaq: USAP) reported today that sales for the second quarter of 2005 rose 44% to $41.9 million compared with the same period of 2004. Second quarter 2005 net income more than doubled to $3.3 million, or $0.50 per diluted share, versus $1.6 million, or $0.25 per diluted share, in the year-ago period.

The Company's second quarter 2005 sales were in line with its forecasted range of $40 to $45 million and diluted EPS exceeded the projected range of $0.40 to $0.45.

President and CEO Mac McAninch commented: "Our second quarter results demonstrate the benefit of improved pricing and a favorable product mix due to very strong demand in our aerospace, power generation and petrochemical markets. In fact, sales to all end markets and customer categories increased substantially over the 2004 second quarter. Capacity limitations on remelted products prevented us from achieving even higher levels of sales. The scheduled addition of a sixth vacuum arc remelt furnace later this year should enable us to respond to the increased requirements of the aerospace and power generation markets."

Mr. McAninch continued: "In contrast to the strength in our main markets, the automotive market has weakened. While not a niche market that we focus on, it reduced demand for our tool steel in the second quarter compared to the first quarter of this year. However, heavy truck and industrial equipment production remains high and our tool steel backlog is at more normal levels."

Mr. McAninch added: "We are very pleased with the improvement in the operating margin at both our Universal Stainless and Dunkirk segments, which led to an overall company operating margin of 13% in the second quarter. We are continuing to realize the payback from our 2004 capital investments, on-going process improvement efforts and cost recovery pricing initiatives."

Mr. McAninch concluded: "We are entering the second half of 2005 with a high level of confidence based on the outlook for our niche markets, and on the size and quality of our backlog that extends into 2007. We remain committed to reinvest in our company to meet the needs of our customers and realize further value for our shareholders."

Segment Review

In the second quarter of 2005, the Universal Stainless & Alloy Products segment had sales of $37.2 million and operating income of $3.6 million, yielding an operating margin of 10%, a level not achieved since the first quarter of 2002. In the second quarter of 2004, sales were $25.5 million and operating income was $1.9 million, or 7% of sales. In the first quarter of 2005, sales were $38.4 million and operating income was $2.7 million, including a write-off of $342,000 of fixed assets in Bridgeville. This resulted in an operating margin of 7%.

The 46% increase in sales compared with the 2004 second quarter reflected substantial growth in sales to all customer categories. Second quarter 2005 sales were slightly lower than the prior quarter, reflecting the lower shipments of tool steel products to service centers, partially offset by increased bar shipments to them. The increase in operating income compared to both prior periods reflects stronger pricing and product mix.

The Dunkirk Specialty Steel segment reported sales of $12.4 million and operating income of $1.8 million, resulting in a record operating margin of 15%. These results compare with sales of $8.0 million and operating income of $651,000, or 8% of sales, in the second quarter of 2004. In the first quarter of 2005, sales were $13.7 million and operating income was $1.9 million, or 14% of sales, and included a $184,000 asset write-off.

Dunkirk's sales increased 54% over the 2004 second quarter due to substantial growth in shipments to all customer categories. Operating income increased 182% over the second quarter of 2004 on improvements in pricing, efficiency from higher volume and product mix. Dunkirk's sales were 9% lower than the 2005 first quarter mainly because of management's decision to allocate shipments of remelted feedstock from Bridgeville. Operating income was 2% lower than the prior quarter of 2005 due to the lower volume.

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 2005 sales will range from $40 to $45 million and that diluted EPS will range from $0.45 to $0.50. This compares with sales of $33.3 million and diluted EPS of $0.43 in the third quarter of 2004.

The following factors were considered in developing these estimates:
  --  The Company's total backlog at June 30, 2005 approximated
      $105 million compared to $88 million at March 31, 2005,
      reflecting strong aerospace, power generation and petrochemical
      markets.  The Company noted that a portion of the backlog is for
      shipments scheduled in 2006 and 2007, as customers take into
      account future needs and current remelt capacity constraints
      industry-wide.

  --  Tool steel sales are expected to remain at 2005 second
      quarter levels for the balance of the year as continued strength
      in the industrial manufacturing sector is offset by lower
      automotive requirements.

  --  Sales from the Dunkirk Specialty Steel segment are expected to
      approximate $13 million.
Webcast

A simultaneous Webcast of the Company's conference call discussing the second quarter of 2005 and the third 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 July 27th. It can be accessed by dialing 706-645-9291, passcode 7308195. 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 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                 For the 
                            Quarter Ended          Six-Months Ended
                               June 30,                June 30,
                           2005        2004        2005        2004
                        ---------   ---------   ---------   ---------
     Net Sales

 Stainless steel        $  34,205   $  22,889   $  67,824   $  39,057
 Tool steel                 4,359       3,742      10,376       6,908
 High-strength low
  alloy steel               1,642       1,064       2,764       1,925
 High-temperature
  alloy steel                 711         613       1,736       1,322
 Conversion services          850         596       1,964         928
 Other                         96         122         218         193
                        ---------   ---------   ---------   ---------
 Total net sales           41,863      29,026      84,882      50,333
 Cost of products
  sold                     34,197      24,531      70,607      43,875
 Selling and
  administrative
  expenses                  2,385       1,947       4,292       3,475
                        ---------   ---------   ---------   ---------
 Operating income           5,281       2,548       9,983       2,983
 Interest expense            (200)       (106)       (372)       (194)
 Other income                   3           3          63          11
                        ---------   ---------   ---------   ---------
 Income before taxes        5,084       2,445       9,674       2,800
 Income tax provision       1,831         879       3,483       1,007
                        ---------   ---------   ---------   ---------
 Net income             $   3,253   $   1,566   $   6,191   $   1,793
                        =========   =========   =========   =========
 Earnings per share
  - Basic               $    0.51   $    0.25   $    0.97   $    0.28
                        =========   =========   =========   =========
 Earnings per share
  - Diluted             $    0.50   $    0.25   $    0.96   $    0.28
                        =========   =========   =========   =========

 Weighted average
  shares of Common
  Stock outstanding
   Basic                6,363,831   6,299,579   6,357,189   6,297,816
   Diluted              6,451,326   6,355,148   6,459,901   6,345,591

 --------------------------------------------------------------------

                      MARKET SEGMENT INFORMATION

                               For the                 For the 
                            Quarter Ended          Six-Months Ended
                               June 30,                June 30,
                           2005        2004        2005        2004
                        ---------   ---------   ---------   ---------
      Net Sales

 Service centers        $  17,050   $  12,267   $  35,357   $  22,173
 Rerollers                 11,250       8,187      23,278      12,257
 Forgers                    7,907       5,133      14,170       8,949
 Original equipment
  manufacturers             2,597       1,904       4,921       3,838
 Wire redrawers             2,113         843       4,985       2,039
 Conversion services          851         596       1,965         928
 Other                         95          96         206         149
                        ---------   ---------   ---------   ---------
 Total net sales        $  41,863   $  29,026   $  84,882   $  50,333
                        =========   =========   =========   =========
 Tons shipped              13,383      12,131      28,613      21,197
                        =========   =========   =========   =========



                       BUSINESS SEGMENT RESULTS

 Universal Stainless & Alloy Products Segment

                               For the                 For the
                            Quarter Ended          Six-Months Ended
                               June 30,                June 30,
                           2005        2004        2005        2004
                        ---------   ---------   ---------   ---------
     Net Sales

 Stainless steel        $  23,536   $  16,376   $  45,313   $  27,096
 Tool steel                 4,247       3,667      10,154       6,747
 High-strength low
  alloy steel                 920         399       1,313         812
 High-temperature
  alloy steel                 703         526       1,728       1,075
 Conversion services          705         475       1,656         724
 Other                         43         106         160         152
                        ---------   ---------   ---------   ---------
                           30,154      21,549      60,324      36,606
 Intersegment               7,003       3,933      15,258       7,721
                        ---------   ---------   ---------   ---------

 Total net sales           37,157      25,482      75,582      44,327
 Material cost 
  of sales                 18,454      11,322      38,280      18,924
 Operation cost
  of sales                 13,304      10,932      28,083      20,743
 Selling and
  administrative
  expenses                  1,755       1,331       2,896       2,362
                        ---------   ---------   ---------   ---------

 Operating income       $   3,644   $   1,897   $   6,323   $   2,298
                        =========   =========   =========   =========


 Dunkirk Specialty Steel Segment

                               For the                 For the
                            Quarter Ended          Six-Months Ended
                               June 30,                June 30,
                           2005        2004        2005        2004
                        ---------   ---------   ---------   ---------
     Net Sales

 Stainless steel        $  10,669   $   6,513   $  22,511   $  11,961
 Tool steel                   112          75         222         161
 High-strength low
  alloy steel                 722         665       1,451       1,113
 High-temperature
  alloy steel                   8          87           8         247
 Conversion services          145         121         308         204
 Other                         53          16          58          41
                        ---------   ---------   ---------   ---------
                           11,709       7,477      24,558      13,727
 Intersegment                 663         558       1,481       1,053
                        ---------   ---------   ---------   ---------

 Total net sales           12,372       8,035      26,039      14,780
 Material cost
  of sales                  6,442       3,902      13,556       7,379
 Operation cost
  of sales                  3,465       2,866       7,389       5,603
 Selling and
  administrative
  expenses                    630         616       1,396       1,113
                        ---------   ---------   ---------   ---------
 Operating income       $   1,835   $     651   $   3,698   $     685
                        =========   =========   =========   =========


                      CONSOLIDATED BALANCE SHEET

                                           June 30,    December 31,
                                             2005          2004
                                           --------      --------
            Assets

 Cash                                      $  1,158      $    241
 Accounts receivable, net                    27,669        24,562
 Inventory                                   48,273        38,318
 Other current assets                         2,589         3,418
                                           --------      --------
                                                       
 Total current assets                        79,689        66,539
 Property, plant & equipment, net            41,786        40,716
 Other assets                                   568           585
                                           --------      --------
 Total assets                              $122,043      $107,840
                                           ========      ========
                                                       
   Liabilities and Stockholders' Equity                
                                                       
 Accounts payable                          $ 16,397      $ 11,666
 Bank overdrafts                                452         2,638
 Accrued employment costs                     2,875         1,830
 Current portion of long-term debt            1,053         2,044
 Other current liabilities                      923           442
                                           --------      --------
                                                       
 Total current liabilities                   21,700        18,620
 Bank revolver                                4,578    
                                                            8,635
                                                       
 Long-term debt                              11,978         3,555
 Deferred taxes                              10,232        10,093
                                           --------      --------
                                                       
 Total liabilities                           48,488        40,903
 Stockholders' equity                        73,555        66,937
                                           --------      --------
 Total liabilities and                                 
  stockholders' equity                     $122,043      $107,840
                                           ========      ========


                  CONSOLIDATED STATEMENT OF CASH FLOW DATA

                      For the Six-Months Ended June 30,

                                                   2005        2004
                                                  -------    -------
 Cash flows from operating activities:
  Net income                                      $ 6,191    $ 1,793
  Adjustments to reconcile to net cash
   provided by operating activities:
    Depreciation and amortization                   1,532      1,571
    Deferred taxes                                    412         84
    Tax benefit from exercise of stock options        115          3
  Changes in assets and liabilities:
    Accounts receivable, net                       (3,107)    (6,858)
    Inventory                                      (9,955)    (8,297)
    Trade accounts payable                          4,731      4,147
    Accrued employment costs                        1,045        907
    Other, net                                      1,383      1,720
                                                  -------    -------
 Cash flow from (due to) operating activities       2,347     (4,930)
                                                  -------    -------
 Cash flow from investing activities:

   Capital expenditures                            (2,931)    (1,195)
                                                  -------    -------
 Cash flow due to investing activities             (2,931)    (1,195)
                                                  -------    -------
 Cash flows from financing activities:
  Net borrowings under revolving line of credit    (4,057)     3,167
  Proceeds from long-term debt                      8,050         --
  Repayments of long-term debt                       (618)      (983)
  Net change in bank overdrafts                    (2,186)      (508)
  Proceeds from issuance of common stock              312         83
                                                  -------    -------
 Cash flow from financing activities                1,501      1,759
                                                  -------    -------
  Net cash flow                                   $   917    $(4,366)
                                                  =======    =======
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
          (203) 972-0186