Universal Stainless Reports 2008 Second Quarter Results
Jul 24, 2008
Universal Stainless Reports 2008 Second Quarter Results
Universal Stainless Reports 2008 Second Quarter Results
Record Sales of $63.5 Million and Diluted EPS of $0.77 Exceed Forecast Backlog Rises 10 Percent to $97 Million
BRIDGEVILLE, Pa., July 24, 2008 -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that sales for the second quarter of 2008 were $63.5 million compared with $62.1 million reported in the second quarter of 2007. Net income for the second quarter of 2008 was $5.3 million, or $0.77 per diluted share, compared with $5.9 million, or $0.87 per diluted share, in the second quarter of 2007.The results for the second quarter of 2008 exceeded the Company's forecast of sales in the range of $55 to $60 million and diluted EPS in the range of $0.70 to $0.75.
Net income for the second quarters of both 2008 and 2007 included net inventory charges before tax of $1.5 million ($0.15 per diluted share) and $1.0 million ($0.10 per diluted share), respectively, for increased reserves related to declines in nickel prices at the end of each quarter. Net income for the second quarter of 2007 also included the effect of a pre-tax charge of $800,000, equivalent to $0.08 per diluted share, related to a legal settlement
The Company's tax rate for the second quarter of 2008 was 33% compared to 35% in second quarter of 2007. The benefit of this rate change was equivalent to $0.02 per diluted share in the 2008 second quarter.
For the first six months of 2008, sales rose 2% to $120.3 million while net income was $10.0 million, or $1.47 per diluted share, compared with $12.6 million, or $1.87 per diluted share, in the same period of 2007.
Cash flow from operations was $4.7 million for the second quarter of 2008 and capital expenditures were $2.3 million. Inventories were $72.4 million, an increase of $6.9 million from the 2008 first quarter, as a result of increased order entry activity. This increase was substantially offset by an increase in accounts payable. Accounts receivable remained level sequentially due to improved collections.
President and CEO Dennis Oates commented: "The record sales we achieved in the second quarter led to better than forecasted EPS. Driving our results were higher sales to the power generation market combined with record sales to the petrochemical market and tool steel to service centers. In fact, our sales of tool steel rose 28% from the strong first quarter, mainly due to high demand for heavy equipment to support global infrastructure investments and major metal fabrication markets. While aerospace demand remains strong, our sales to the aerospace market were 6% below the first quarter of 2008 as service centers and their customers moved to the sidelines in anticipation of a further reduction in the cost of nickel. Based on their current inventory levels, we continue to expect service center order entry will begin to pick up in the second half of the year."
Mr. Oates continued: "We remained focused on improving customer service levels and our operational efficiency in the second quarter. The relocation of our bar finishing equipment to Dunkirk is underway, the new high temperature annealing equipment in Dunkirk is up and running with increased utilization expected, and the capital improvements to our melt shop are moving forward on schedule. We are also continuing to energize and strengthen our sales effort, which has contributed to the solid increase in our backlog. "
Mr. Oates concluded: "We plan to continue our progress in the third quarter as we work towards further accelerating our growth."
Segment Review
For the second quarter of 2008, the Universal Stainless & Alloy Products segment had sales of $53.1 million and operating income of $5.6 million, yielding an operating margin of 11%. This compares with sales of $55.1 million and operating income of $5.8 million, or 11% of sales, in the second quarter of 2007. The 2008 second quarter included a $1.2 million increase to its lower of cost or market reserve primarily related to the decline in nickel prices at the end of the quarter. The second quarter of 2007 also included an inventory adjustment as well as the pre-tax effect of a legal settlement aggregating $1.3 million. In the first quarter of 2008, sales were $48.2 million and operating income was $4.9 million, or 10% of sales.
Segment sales were down 4% from the second quarter of 2007 primarily due to an 8% decline in tons shipped partially offset by favorable shifts in the product mix. Specifically, higher shipments of tool steel plate to service centers partially offset lower shipments of semi-finished products to forgers and rerollers, including Dunkirk, and of bar products to service centers. The shift in product mix increased the second quarter 2008 operating margin, before the effect of the inventory adjustments, compared with the prior year second quarter.
Segment sales increased 10% over the first quarter of 2008 even though tons shipped declined 7%. This was due to increased shipments to forgers and of bar products and tool steel plate to service centers, offset by lower shipments to rerollers, including Dunkirk. The improved product mix led to the sequential improvement in the operating margin.
The Company noted that it is negotiating a new collective bargaining agreement that covers the hourly employees at its Bridgeville facility. The current agreement expires on August 31, 2008.
The Dunkirk Specialty Steel segment reported sales of $21.2 million and operating income of $2.1 million for the second quarter of 2008, resulting in an operating margin of 10%, which included a $259,000 increase to its lower of cost or market reserve and no FIFO benefit. That compares with sales of $21.3 million and operating income of $3.7 million, or 17% of sales, in the second quarter of 2007, which included an estimated FIFO benefit of $1.2 million offset by $492,000 of costs related to the inventory adjustment attributable to the segment. In the first quarter of 2008, sales were $20.1 million and operating income was $2.8 million, or 14% of sales, and included a FIFO charge of $157,000.
Dunkirk's sales declined 1% while tons shipped increased 4% compared with the second quarter of 2007. Higher shipments of rod and wire products to service centers and OEMs, and of finished bar products to OEMs, offset lower shipments of vacuum-arc remelted finished bar products to service centers. Selling prices and operating margins declined from the second quarter of 2007 due to product mix and the effect of lower nickel prices on surcharges assessed.
Dunkirk's sales rose 6% and tons shipped increased 4% over the first quarter of 2008 due to increased shipments in all categories, except rod and wire products to service centers. The operating margin was lower than in the 2008 first quarter mainly due to the effect of the inventory adjustment on the most recent period.
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 sales for the third quarter of 2008 will range from $60 to $65 million and that diluted EPS will range from $0.78 to $0.83. This does not include any expense related to the relocation of the round bar finishing facility from Bridgeville to Dunkirk discussed below. In the third quarter of 2007, sales were $62.0 million and diluted EPS was $0.81. Results in the prior year third quarter included a charge of $1.4 million, equivalent to $0.14 per diluted share, for an increase to the Company's inventory reserve, mainly due to a continued decline in nickel prices in the quarter. This was offset by an estimated FIFO benefit of $1.5 million, equivalent to $0.15 per diluted share, at the Dunkirk segment.
The following factors were considered in developing the estimates for the third quarter of 2008:
* The Company's total backlog at June 30, 2008 rose to $97 million from $88 million at March 31, 2008. The increased backlog is primarily attributable to demand for the company's tool steel plate and electro-slag remelted products. * Sales from the Dunkirk Specialty Steel segment are expected to approximate $19 million in the third quarter of 2008, while pounds shipped are expected to match the prior year period. It is assumed that there will be no FIFO benefit or charge at the Dunkirk operation. * The cost to relocate the round bar finishing facility from Bridgeville to Dunkirk is $800,000, equivalent to $0.08 per share. No costs were expensed during the 2008 second quarter. Management expects the relocation project to be complete and all costs recognized by September 30.Webcast
A simultaneous Webcast of the Company's conference call discussing the second quarter of 2008 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 31st. It can be accessed by dialing 706-645-9291, passcode 54242860. 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 For the
Quarter Ended Six-Months Ended
June 30, June 30,
2008 2007 2008 2007
---- ---- ---- ----
Net Sales
Stainless steel $ 43,760 $ 45,128 $ 85,788 $ 84,698
Tool steel 11,659 6,444 20,766 13,541
High-strength
low alloy steel 2,934 7,572 6,945 13,806
High-temperature
alloy steel 3,344 2,355 4,490 5,100
Conversion
services 448 492 973 981
Other 1,337 65 1,365 169
----------- ---------- ---------- ----------
Total net
sales 63,482 62,056 120,327 118,295
Cost of products
sold 53,018 49,442 99,797 92,462
Selling and
administrative
expenses 2,634 3,407 5,709 5,961
----------- ---------- ---------- ----------
Operating
income 7,830 9,207 14,821 19,872
Interest expense (27) (195) (55) (422)
Other income 62 6 149 10
----------- ---------- ---------- ----------
Income
before
taxes 7,865 9,018 14,915 19,460
Income tax
provision 2,595 3,156 4,922 6,811
----------- ---------- ---------- ----------
Net income $ 5,270 $ 5,862 9,993 12,649
=========== ========== ========== ==========
Earnings per
share - Basic $ 0.79 $ 0.88 $ 1.49 $ 1.91
=========== ========== ========== ==========
Earnings per
share - Diluted $ 0.77 $ 0.87 $ 1.47 $ 1.87
=========== ========== ========== ==========
Weighted average
shares of
Common Stock
outstanding
Basic 6,707,523 6,642,655 6,685,368 6,631,981
Diluted 6,819,546 6,774,586 6,795,514 6,767,871
MARKET SEGMENT INFORMATION
For the For the
Quarter Ended Six-Months Ended
June 30, June 30,
2008 2007 2008 2007
---- ---- ---- ----
Net Sales
Service centers $ 33,850 $ 32,598 $ 63,084 $ 61,703
Forgers 11,142 13,744 20,160 26,318
Rerollers 9,240 8,658 20,479 15,850
Original
equipment
manufacturers 5,795 4,540 11,236 9,417
Wire redrawers 1,692 2,015 3,061 3,913
Conversion
services 448 492 973 981
Other 1,315 9 1,334 113
----------- ---------- ---------- ----------
Total net
sales $ 63,482 $ 62,056 $ 120,327 $ 118,295
=========== ========== ========== ==========
Tons shipped 11,423 11,327 23,190 22,484
=========== ========== ========== ==========
BUSINESS SEGMENT RESULTS
Universal Stainless & Alloy Products Segment
For the For the
Quarter Ended Six-Months Ended
June 30, June 30,
2008 2007 2008 2007
--------- -------- --------- ---------
Net Sales
Stainless steel $ 28,901 $ 30,804 $ 56,211 $ 55,800
Tool steel 11,278 6,111 19,702 12,270
High-strength
low alloy steel 1,114 3,822 2,227 7,822
High-temperature
alloy steel 929 916 1,498 2,146
Conversion
services 296 325 653 652
Other 1,262 36 1,272 122
--------- -------- --------- ---------
43,780 42,014 81,563 78,812
Intersegment 9,312 13,080 19,727 24,447
--------- -------- --------- ---------
Total net
sales 53,092 55,094 101,290 103,259
Material cost of
sales 28,654 29,684 51,993 50,915
Operation cost of
sales 16,936 17,033 34,726 35,050
Selling and
administrative
expenses 1,869 2,571 4,007 4,289
--------- -------- --------- ---------
Operating
income $ 5,633 $ 5,806 $ 10,564 $ 13,005
========= ======== ========= =========
Dunkirk Specialty Steel Segment
For the For the
Quarter Ended Six-Months Ended
June 30, June 30,
2008 2007 2008 2007
--------- -------- --------- ---------
Net Sales
Stainless steel $ 14,859 $ 14,324 $ 29,577 $ 28,898
Tool steel 381 333 1,064 1,271
High-strength low
alloy steel 1,820 3,750 4,718 5,984
High-temperature
alloy steel 2,415 1,439 2,992 2,954
Conversion
services 152 167 320 329
Other 75 29 93 47
--------- -------- --------- ---------
19,702 20,042 38,764 39,483
Intersegment 1,474 1,279 2,462 2,278
--------- -------- --------- ---------
Total net
sales 21,176 21,321 41,226 41,761
Material cost of
sales 13,126 12,048 24,965 23,244
Operation cost of
sales 5,159 4,719 9,648 9,306
Selling and
administrative
expenses 765 836 1,702 1,672
--------- -------- --------- ---------
Operating
income $ 2,126 $ 3,718 $ 4,911 $ 7,539
========= ======== ========= =========
CONSOLIDATED BALANCE SHEET
June 30, Dec. 31,
2008 2007
--------- ---------
Assets
Cash $ 13,067 $ 10,648
Accounts receivable, net 34,634 27,501
Inventory 72,399 65,572
Other current assets 5,581 5,537
--------- ---------
Total current assets 125,681 109,258
Property, plant & equipment, net 57,357 54,271
Other assets 920 767
--------- ---------
Total assets $ 183,958 $ 164,296
========= =========
Liabilities and Stockholders'
Equity
Trade accounts payable $ 20,819 $ 13,983
Outstanding checks in excess of
bank balance 3,912 2,064
Accrued employment costs 4,941 5,307
Current portion of long-term debt 395 383
Other current liabilities 1,004 1,600
--------- ---------
Total current liabilities 31,071 23,337
Long-term debt 1,247 1,453
Deferred taxes 10,399 9,904
--------- ---------
Total liabilities 42,717 34,694
Stockholders' equity 141,241 129,602
--------- ---------
Total liabilities and
stockholders' equity $ 183,958 $ 164,296
========= =========
CONSOLIDATED STATEMENT OF CASH FLOW DATA
For the Six-month Period Ended June 30,
2008 2007
--------- ----------
Cash flows provided by operating
activities:
Net income $ 9,993 $ 12,649
Adjustments to reconcile to net
cash provided by operating
activities:
Depreciation and amortization 2,008 1,822
Deferred tax increase (decrease) 304 (318)
Stock based compensation expense 413 208
Tax benefits from share-based
payment arrangements (511) (982)
Changes in assets and liabilities:
Accounts receivable, net (7,133) (5,849)
Inventory (6,827) (9,558)
Trade accounts payable 6,836 5,182
Accrued employment costs (366) 806
Other, net 216 166
--------- ----------
Cash flow provided by operating
activities 4,933 4,126
--------- ----------
Cash flow used in investing activities:
Capital expenditures (5,401) (2,906)
--------- ----------
Cash flow used in investing activities (5,401) (2,906)
--------- ----------
Cash flows used in financing activities:
Revolving credit net repayments -- (8,174)
Long-term debt repayments (194) (1,180)
Net change in outstanding checks in
excess of bank balance 1,848 4,129
Proceeds from issuance of common
stock 722 975
Tax benefits from share-based
payment arrangements 511 982
--------- ----------
Cash flow provided by (used in)
financing activities 2,887 (3,268)
--------- ----------
Net cash flow $ 2,419 $ (2,048)
========= ==========
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
