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Universal Stainless Reports 2008 Fourth Quarter and Year Results

Jan 29, 2009
Universal Stainless Reports 2008 Fourth Quarter and Year Results

Universal Stainless Reports 2008 Fourth Quarter and Year Results

Fourth Quarter Diluted EPS is $0.18 On Sales of $57.1 Million Full Year Sales are Record $235.1 Million With Diluted EPS of $2.05 Operating Cash Flow Was $5.8 Million for Fourth Quarter and $17.7 Million for 2008

BRIDGEVILLE, Pa., Jan. 29, 2009 -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that sales for the fourth quarter of 2008 rose 15% to $57.1 million compared with $49.6 million in the fourth quarter of 2007. Net income for the fourth quarter of 2008 was $1.2 million, or $0.18 per diluted share, compared with $4.4 million, or $0.65 per diluted share in the fourth quarter of 2007.

Sales for the 2008 fourth quarter exceeded the Company's forecast of $45 to $55 million while EPS was in line with recent Company guidance of breakeven to $0.15, excluding import duties. For full year 2008, sales were a record $235.1 million while net income was $13.9 million, or $2.05 per diluted share, compared with sales of $229.9 million and net income of $22.5 million, or $3.32 per diluted share, in 2007. Import duties received in the 2008 and 2007 fourth quarters were $599,000 and $586,000, respectively.

Nickel and other commodity prices declined substantially in the fourth quarter of 2008 resulting in a charge related to an increase in inventory reserves of $807,000 (equivalent to $0.08 per dilute share) with $422,000 attributable to the Universal Stainless segment and $385,000 to the Dunkirk segment. The Company's tax rate for 2008 was 29.9% compared to 32.7% in 2007 due to the impact of lower income levels on the Company's permanent tax deductions and favorable adjustments to state income tax provisions. The benefit of this rate change in comparison to the 2007 fourth quarter and full year was equivalent to $0.05 and $0.08 per diluted share, respectively.

Cash flow from operations was $5.8 million for the 2008 fourth quarter and $17.7 million for the full year. Capital expenditures were $3.3 million and $12.9 million for those periods, respectively. The 2008 capital expenditures included the completion of a new high temperature annealing facility in Dunkirk, the addition of annealing and finishing equipment in Bridgeville and the relocation of the Company's round bar facility to Dunkirk, for which the remaining expense of $248,000 was recognized in the 2008 fourth quarter. At December 31, 2008, the Company had cash of $14.8 million, working capital of $94.8 million and long-term debt of $1.0 million. Accounts receivable at the end of the 2008 fourth quarter remained in line with the 2008 third quarter while inventories were down $7.2 million from the previous quarter.

President and CEO Dennis Oates commented: "Our 15% increase in sales over the fourth quarter of 2007 on a 19% increase in tons shipped was fueled by a 136% increase in shipments to forgers destined for the global power generation markets. With the exception of aerospace, our sales increased to all end markets compared to the 2007 fourth quarter. Our aerospace sales declined 5% as service centers sharply reduced buying activity amid falling commodity prices, the lingering effect of the Boeing work stoppage, and deteriorating economic and credit conditions. In total, our sales to service centers declined 21% from the 2007 fourth quarter, with the greatest impact on our Dunkirk segment, where service centers are the main customer group."

Mr. Oates continued: "Sales and gross profit margins were adversely affected by the rapid, unprecedented decline in raw material prices and the resulting timing imbalance between surcharges and raw material costs incurred."

Mr. Oates concluded: "There is no doubt that current business conditions are very challenging. We are focused on moving forward despite current conditions. Providing unparalleled customer service levels is crucial in this environment and we are increasing the intensity of our efforts to do so by making significant investments in our facilities, including the $13 million melt shop upgrade we announced separately today. We are optimistic about our long-term potential, while prudently planning for the contingencies and opportunities that may present themselves in the shorter term."

Segment Review

For the fourth quarter of 2008, the Universal Stainless & Alloy Products segment had sales of $53.1 million and operating income of $1.9 million, yielding an operating margin of 3%. In the fourth quarter of 2007, sales were $43.4 million and operating income was $3.2 million, or 7% of sales. In the third quarter of 2008, sales were $52.2 million and operating income was $3.3 million, or 6% of sales.

Segment sales rose 22% from the fourth quarter of 2007 primarily due to a 17% increase in tons shipped and the effect of base sales price increases announced earlier in 2008. Increased shipments to forgers, which more than doubled over the fourth quarter of 2007 due to strong demand for semi-finished power generation products, were partially offset by declines in all other customer categories.

Segment sales increased 2% over the third quarter of 2008 while tons shipped increased 8%. Higher shipments to forgers, rerollers and of bar products to service centers offset lower shipments of tool steel plate to service centers.

The Dunkirk Specialty Steel segment reported sales of $11.4 million and an operating loss of $1.3 million for the fourth quarter of 2008. This included a $248,000 charge related to the relocation of the round bar finishing line to Dunkirk from Bridgeville. In the fourth quarter of 2007, sales were $18.7 million and operating income was $2.2 million, or 12% of sales. In the third quarter of 2008, sales were $16.9 million while Dunkirk incurred an operating loss of $172,000, which included a $586,000 charge for the round bar finishing line relocation project. Before giving effect to the relocation charge, Dunkirk's operating income was $414,000 for the third quarter of 2008, resulting in an operating margin of 2%.

Dunkirk's sales declined 39% while tons shipped decreased 35% compared with the fourth quarter of 2007 reflecting lower shipments to service centers and OEMs and lower surcharges on products shipped. The lower shipment volume and lower surcharges combined with high raw material costs due to the timing of procurement as well as the effect of the inventory charge led to the operating loss in the fourth quarter of 2008.

Dunkirk's sales decreased 33% and tons shipped decreased 28% compared with the third quarter of 2008 mainly due to lower shipments of service centers and lower surcharges.

Business Outlook

The Company currently estimates that sales for the first quarter of 2009 will range from $32 to $42 million and that diluted EPS will range from breakeven to $0.10. In the first quarter of 2008, sales were $56.8 million and diluted EPS was $0.70. Approximately $6-8 million of the decline in sales from the 2008 first quarter is a result of lower surcharges anticipated in the first quarter of 2009.

The following factors were considered in developing the estimates for the first quarter of 2009:
  *  The Company's total backlog at December 31, 2008 was $75 million 
     compared with $101 million at September 30, 2008. The Company's 
     current backlog mainly consists of semi-finished products for 
     rerollers and forgers and tool steel plate for service centers.

  *  The Company's forecast is based on average December raw
     material costs.

  *  A two-week melt shop outage planned for March 2009 to install
     certain equipment is not expected to have a material impact on
     first quarter shipments.  The Company's outlook includes
     approximately $300,000 of expenses related to the outage.
Webcast

A simultaneous Webcast of the Company's conference call discussing the fourth quarter of 2008 and the first quarter 2009 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.

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. The Company's actual results in future periods also may be impacted by various economic and market risk and uncertainties, many of which are beyond the Company's control. 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,
                       2008         2007         2008         2007
                     ---------    ---------    ---------    ---------
   Net Sales
 Stainless steel     $  44,339    $  34,020    $ 172,222    $ 164,228
 Tool steel              7,887        7,297       39,046       28,119
 High-strength
  low alloy steel        2,427        6,080       11,936       25,892
 High-temperature
  alloy steel            1,678        1,580        7,931        9,317
 Conversion
  services                 427          584        1,941        2,011
 Other                     382           72        2,030          369
                     ---------    ---------    ---------    ---------
   Total net sales      57,140       49,633      235,106      229,936
 Cost of products
  sold                  54,092       41,154      204,929      184,491
 Selling and
  administrative
  expenses               2,524        3,087       11,085       12,038
                     ---------    ---------    ---------    ---------
   Operating income        524        5,392       19,092       33,407
 Interest expense          (24)        (128)        (105)        (731)
 Other income              694          740          911          776
                     ---------    ---------    ---------    ---------
   Income before
    taxes                1,194        6,004       19,898       33,452
 Income tax
  (benefit)
  provision                (37)       1,616        5,948       10,948
                     ---------    ---------    ---------    ---------
   Net income        $   1,231    $   4,388    $  13,950    $  22,504
                     =========    =========    =========    =========

 Earnings per share
  - Basic            $    0.18    $    0.66    $    2.08    $    3.39
                     =========    =========    =========    =========
 Earnings per share
  - Diluted          $    0.18    $    0.65    $    2.05    $    3.32
                     =========    =========    =========    =========

 Weighted average
  shares of Common
  Stock outstanding
   Basic             6,727,727    6,656,783    6,706,535    6,644,374
   Diluted           6,781,712    6,780,808    6,801,203    6,774,924


                        MARKET SEGMENT INFORMATION

                     For the Quarter Ended       For the Year Ended
                           December 31,             December 31,
                       2008         2007         2008         2007
                     ---------    ---------    ---------    ---------
   Net Sales
 Service centers     $  20,979    $  26,582    $ 110,889    $ 119,736
 Forgers                18,092        7,541       52,551       47,711
 Rerollers              11,649        8,957       41,660       35,006
 Original
  equipment
  manufacturers          3,968        4,418       18,955       18,287
 Wire redrawers          1,662        1,506        7,129        6,843
 Conversion
  services                 427          584        1,941        2,011
 Other                     363           45        1,981          342
                     ---------    ---------    ---------    ---------
   Total net sales   $  57,140    $  49,633    $ 235,106    $ 229,936
                     =========    =========    =========    =========

 Tons shipped           11,681        9,788       45,679       43,644
                     =========    =========    =========    =========


                            BUSINESS SEGMENT RESULTS

 Universal Stainless & Alloy Products Segment

                     For the Quarter Ended       For the Year Ended
                           December 31,             December 31,
                       2008         2007         2008         2007
                     ---------    ---------    ---------    ---------
   Net Sales
 Stainless steel     $  36,233    $  21,524     $121,612    $ 108,535
 Tool steel              7,768        6,620       37,631       25,638
 High-strength low
  alloy steel              925        2,382        3,881       12,764
 High-temperature
  alloy steel              661          714        2,977        4,067
 Conversion services       296          448        1,278        1,405
 Other                     351           66        1,875          295
                     ---------    ---------    ---------    ---------
                        46,234       31,754      169,254      152,704
 Intersegment            6,880       11,614       37,384       49,858
                     ---------    ---------    ---------    ---------

   Total net sales      53,114       43,368      206,638      202,562
 Material cost of
  sales                 32,215       23,386      114,930      106,456
 Operation cost of
  sales                 17,375       14,730       68,415       67,286
 Selling and
  administrative
  expenses               1,673        2,034        7,613        8,345
                     ---------    ---------    ---------    ---------

   Operating income  $   1,851    $   3,218    $  15,680    $  20,475
                     =========    =========    =========    =========


 Dunkirk Specialty Steel Segment

                     For the Quarter Ended       For the Year Ended
                           December 31,              December 31,
                       2008         2007         2008         2007
                     ---------    ---------    ---------    ---------
   Net Sales
 Stainless steel     $   8,107    $  12,496    $  50,610    $  55,693
 Tool steel                119          677        1,415        2,481
 High-strength low
  alloy steel            1,502        3,698        8,055       13,128
 High-temperature
  alloy steel            1,017          866        4,954        5,250
 Conversion services       131          136          663          606
 Other                      30            6          155           74
                     ---------    ---------    ---------    ---------
                        10,906       17,879       65,852       77,232
 Intersegment              492          817        3,712        4,493
                     ---------    ---------    ---------    ---------

   Total net sales      11,398       18,696       69,564       81,725
 Material cost of
  sales                  8,031       11,531       44,215       47,905
 Operation cost of
  sales                  3,843        3,953       18,465       17,404
 Selling and
  administrative
  expenses                 851        1,053        3,472        3,693
                     ---------    ---------    ---------    ---------

   Operating (loss)
    income           $  (1,327)   $   2,159    $   3,412    $  12,723
                     =========    =========    =========    =========


                      CONSOLIDATED BALANCE SHEET

                                   Dec. 31,              Dec. 31,
                                     2008                  2007
                                  ----------            ----------
   Assets
 Cash                             $   14,812            $   10,648
 Accounts receivable, net             33,057                27,501
 Inventory                            63,222                65,572
 Other current assets                  8,239                 5,537
                                  ----------            ----------

   Total current assets              119,330               109,258
 Property, plant &
  equipment, net                      62,626                54,271
 Other assets                            988                   767
                                  ----------            ----------

   Total assets                   $  182,944            $  164,296
                                  ==========            ==========

   Liabilities and
    Stockholders' Equity
 Trade accounts payable           $   19,350            $   13,983
 Outstanding checks in excess
  of bank balance                        540                 2,064
 Accrued employment costs              3,795                 5,307
 Current portion of long-term debt       403                   383
 Other current liabilities               421                 1,600
                                  ----------            ----------

   Total current liabilities          24,509                23,337
 Long-term debt                        1,046                 1,453
 Deferred taxes                       11,689                 9,904
                                  ----------            ----------

   Total liabilities                  37,244                34,694
 Stockholders' equity                145,700               129,602
                                  ----------            ----------

   Total liabilities
    and stockholders' equity      $  182,944            $  164,296
                                  ==========            ==========


               CONSOLIDATED STATEMENT OF CASH FLOW DATA

                    For the Year Ended December 31,

                                     2008                  2007
                                  ----------            ----------
 Cash flows provided by
  operating activities:
   Net income                     $   13,950            $   22,504
   Adjustments to reconcile
    to net cash provided by
    operating activities:
     Depreciation and
      amortization                     4,167                 3,731
     Loss on retirement of
      fixed assets                       402                    40
     Deferred tax increase               558                   253
     Stock based compensation
      expense                            838                   427
     Tax benefit from
      share-based payment
      arrangements                      (529)                 (958)
   Changes in assets and
    liabilities:
     Accounts receivable, net         (5,556)                5,807
     Inventory                         2,350                   447
     Trade accounts payable            5,367                   860
     Accrued employment costs         (1,512)                1,186
     Other, net                       (2,365)                 (674)
                                  ----------            ----------
 Cash flow provided by
  operating activities                17,670                33,623
                                  ----------            ----------
 Cash flow used in investing
  activities:
   Capital expenditures              (12,905)               (8,782)
                                  ----------            ----------
 Cash flow used in investing
  activities                         (12,905)               (8,782)
                                  ----------            ----------
 Cash flows used in financing
  activities:
   Revolving credit net
    repayments                            --                (8,392)
   Long-term debt repayments            (387)               (9,364)
   Net change in outstanding
    checks in excess of bank
    balance                           (1,524)               (1,363)
   Proceeds from issuance of
    common stock                         781                 1,059
   Tax benefit from share-based
    payment arrangements                 529                   958
                                  ----------            ----------
 Cash flow used in financing
  activities                            (601)              (17,102)
                                  ----------            ----------

     Net cash flow                $    4,164            $    7,739
                                  ==========            ==========
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