Universal Stainless Reports Strong Results, Record Sales for Second Quarter of 2007
Jul 24, 2007
Universal Stainless Reports Strong Results, Record Sales for Second Quarter of 2007
Universal Stainless Reports Strong Results, Record Sales for Second Quarter of 2007
Company Announces $3.5 Million Capital Project
BRIDGEVILLE, Pa., July 24, 2007 -- Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that sales for the second quarter of 2007 rose 29% to a record $62.1 million compared with $48.0 million in the same period of 2006. Net income for the 2007 second quarter rose 27% to $5.9 million, or $0.87 per diluted share, including the effect of an after-tax charge of $520,000, equivalent to $0.08 per diluted share, related to a previously reported legal settlement. In the second quarter of 2006, net income was $4.6 million, or $0.70 per diluted share.The 2007 second quarter results also included a net inventory adjustment of $1.0 million, equivalent to $0.10 per diluted share, mainly due to increased reserves related to a sharp decline in nickel prices at the end of the quarter. The annual income tax rate declined to 35.0% from 36.0% recorded in the 2006 second quarter, equivalent to $0.01 per diluted share. Net income for the 2006 second quarter has been adjusted for the retrospective application of an accounting pronouncement as detailed in the financial tables.
Sales for the second quarter of 2007 exceeded the Company's forecasted range of $52 to $57 million and its diluted EPS was within the Company's forecast of $0.85 to $0.90. Excluding the previously described charges for the legal settlement and inventory adjustments, which are $0.18 per diluted share in the aggregate, diluted EPS would have exceeded the Company's forecast.
For the first six months of 2007, sales rose 27% to $118.3 million and net income increased 47% to $12.6 million, or $1.87 per diluted share, compared to same period of 2006.
Chairman and CEO Mac McAninch commented: "The sustained strength of the aerospace market continued to be a main driver of our growth in the second quarter and its outlook is very positive into the next decade. The power generation, petrochemical and heavy equipment markets hold enormous opportunity for us as well."
Mr. McAninch continued: "Our optimism and the positive outlook for our end markets are not diminished by the continuing volatility in the market price of nickel and its recent decline, although that decline has affected our forecast for the current third quarter. However, over the longer term, we expect lower nickel prices to encourage our service center customers to rebuild their inventories. Lower nickel prices should also decrease our working capital needs.
"Our capital investments over the past two years have enabled us to better respond to opportunities in our niche markets to date. We have decided to take another major step to enhance our capabilities by adding high temperature annealing equipment capable of oil, water and air quenching at our Dunkirk facility. Dunkirk's high temperature heat treating operation, which is required for most of its product categories, is approaching full utilization. This capital expansion project, which will cost approximately $3.5 million and is scheduled for completion in the fourth quarter, has the potential to expand Dunkirk's annual sales by as much as $20 million. Our continued reinvestment of capital combined with our focus on further improving our processes and on-time delivery performance reflects our ongoing commitment to better serve the needs of our customers."
Segment Review
In the second quarter of 2007, the Universal Stainless & Alloy Products segment had record sales of $55.1 million and operating income of $5.8 million, yielding an operating margin of 11%. The operating income included $1.3 million of costs related to the aforementioned pre-tax effect of the legal settlement and the portion of the inventory adjustment attributable to the segment. In the second quarter of 2006, sales were $45.7 million and operating income was $5.8 million, or 13% of sales. In the first quarter of 2007, sales were $48.2 million and operating income was $7.2 million, or 15% of sales.
The 21% increase in sales from the 2006 second quarter reflected a doubling of sales to forgers mainly of billet for power generation applications and a 57% increase in sales of bar products to service centers mainly for aerospace applications. These included the contribution of a new vacuum-arc remelt (VAR) furnace installed in August 2006 and the effect of higher nickel prices on the surcharge pricing mechanism. These increases were partially offset by lower shipments of tool steel plate to service centers.
The Dunkirk Specialty Steel segment reported record sales of $21.3 million and operating income of $3.7 million for the 2007 second quarter, resulting in an operating margin of 17%. The operating income included $492,000 of costs related to the inventory adjustment attributable to the segment. In the second quarter of 2006, sales were $16.2 million and operating income was $2.3 million, or 14% of sales. In the first quarter of 2007, sales were $20.4 million and operating income was $3.8 million, or 19% of sales.
Dunkirk's 32% increase in sales and 60% rise in operating income over the 2006 second quarter were due to improved VAR remelted feedstock supply from Bridgeville, workforce additions, and the effect of higher nickel prices on the surcharge mechanism. The sales growth reflected a 37% increase in sales of bar products to service centers and OEMs, which offset lower sales of rod and wire products to service centers.
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 2007 sales will range from $52 to $57 million and that diluted EPS will range from $0.77 to $0.82. This compares with sales of $55.1 million and diluted EPS of $0.86, as adjusted, in the third quarter of 2006.
The following factors were considered in developing these estimates:
* The Company's total backlog at June 30, 2007 was approximately $103 million compared to $114 million at March 31, 2007. * Sales from the Dunkirk Specialty Steel segment are expected to approximate $19 million in the third quarter of 2007 on shipment volumes that are expected to approximate the prior quarter's level. The reduction in revenues is a result of lower surcharges anticipated due to the decline in the market value of nickel, which also is expected to eliminate the FIFO (First-In First-Out inventory accounting method) benefit the Company has experienced mainly in the Dunkirk segment in the past four quarters. The Company estimates that the 2007 second quarter FIFO benefit was $1.2 million, or $0.12 per diluted share. * The Company's progress in improving its on-time delivery performance has helped it to reduce its backlog, which is also being affected by delays in inventory replenishment by service centers. The Company expects service center order entry to return to more normal levels as it approaches the fourth quarter.Webcast
A simultaneous Webcast of the Company's conference call discussing the second quarter of 2007 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 5400663. 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 Quarter Ended For the Six-Months Ended
June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
Net Sales
Stainless steel $ 45,128 $ 35,015 $ 84,698 $ 68,433
Tool steel 6,444 7,410 13,541 13,237
High-strength low
alloy steel 7,572 3,241 13,806 5,793
High-temperature
alloy steel 2,355 1,744 5,100 4,113
Conversion services 492 504 981 1,233
Other 65 105 169 147
--------- --------- --------- ---------
Total net sales 62,056 48,019 118,295 92,956
Cost of products sold 49,442 37,641 92,462 73,811
Selling and
administrative
expenses 3,407 2,879 5,961 5,135
--------- --------- --------- ---------
Operating income 9,207 7,499 19,872 14,010
Interest expense (195) (269) (422) (535)
Other income 6 2 10 4
--------- --------- --------- ---------
Income before taxes 9,018 7,232 19,460 13,479
Income tax provision 3,156 2,603 6,811 4,852
--------- --------- --------- ---------
Net income $ 5,862 $ 4,629 $ 12,649 $ 8,627
========= ========= ========= =========
Earnings per share -
Basic $ 0.88 $ 0.72 $ 1.91 $ 1.34
========= ========= ========= =========
Earnings per share -
Diluted $ 0.87 $ 0.70 $ 1.87 $ 1.31
========= ========= ========= =========
Weighted average
shares of Common
Stock outstanding
Basic 6,642,655 6,426,374 6,631,981 6,421,848
Diluted 6,774,553 6,614,717 6,767,855 6,587,917
Note: 2006 results have been adjusted to reflect the retrospective
application of the January 1, 2007 change in accounting for major
maintenance expenses from the accrue-in-advance method to the
deferral method in accordance with the FASB Staff Position entitled
"Accounting for Planned Major Maintenance Activities," issued in
September 2006. The effect of the change in accounting is summarized
below:
For the Quarter Ended For the Six-Months Ended
June 30, 2006 June 30, 2006
As As As As
Reported Adjusted Reported Adjusted
--------- --------- --------- ---------
Operating income:
Universal Stainless
& Alloy
Products Segment $ 5,844 $ 5,826 $ 10,793 $ 10,932
Dunkirk Specialty
Steel Segment 2,257 2,326 3,724 3,786
Intersegment
elimination (653) (653) (708) (708)
--------- --------- --------- ---------
7,448 7,499 13,809 14,010
========= ========= ========= =========
Net income $ 4,596 $ 4,629 $ 8,498 $ 8,627
========= ========= ========= =========
Diluted earnings per
share $ 0.69 $ 0.70 $ 1.29 $ 1.31
========= ========= ========= =========
BUSINESS SEGMENT RESULTS
Universal Stainless & Alloy Products Segment
For the Quarter Ended For the Six-Months Ended
June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
Net Sales
Stainless steel $ 30,804 $ 22,444 $ 55,800 $ 46,011
Tool steel 6,111 7,254 12,270 12,614
High-strength low
alloy steel 3,822 1,690 7,822 2,929
High-temperature
alloy steel 916 718 2,146 1,759
Conversion services 325 384 652 922
Other 36 72 122 112
-------- -------- -------- --------
42,014 32,562 78,812 64,347
Intersegment 13,080 13,138 24,447 20,490
-------- -------- -------- --------
Total net sales 55,094 45,700 103,259 84,837
Material cost of
sales 29,684 20,346 50,915 37,754
Operation cost of
sales 17,033 17,502 35,050 32,596
Selling and
administrative
expenses 2,571 2,026 4,289 3,555
-------- -------- -------- --------
Operating income $ 5,806 $ 5,826 $ 13,005 $ 10,932
======== ======== ======== ========
Dunkirk Specialty Steel Segment
For the Quarter Ended For the Six-Months Ended
June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
Net Sales
Stainless steel $ 14,324 $ 12,571 $ 28,898 $ 22,422
Tool steel 333 156 1,271 623
High-strength low
alloy steel 3,750 1,551 5,984 2,864
High-temperature
alloy steel 1,439 1,026 2,954 2,354
Conversion services 167 120 329 311
Other 29 33 47 35
-------- -------- -------- --------
20,042 15,457 39,483 28,609
Intersegment 1,279 722 2,278 1,557
-------- -------- -------- --------
Total net sales 21,321 16,179 41,761 30,166
Material cost of
sales 12,048 8,938 23,244 16,909
Operation cost of
sales 4,719 4,062 9,306 7,891
Selling and
administrative
expenses 836 853 1,672 1,580
-------- -------- -------- --------
Operating income $ 3,718 $ 2,326 $ 7,539 $ 3,786
======== ======== ======== ========
MARKET SEGMENT INFORMATION
For the Quarter Ended For the Six-Months Ended
June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
Net Sales
Service centers $ 32,598 $ 26,318 $ 61,703 $ 49,356
Forgers 13,744 6,857 26,318 14,421
Rerollers 8,658 7,377 15,850 15,224
Original equipment
manufacturers 4,540 4,956 9,417 9,555
Wire redrawers 2,015 1,876 3,913 3,020
Conversion services 492 504 981 1,233
Other 9 131 113 147
--------- --------- --------- ---------
Total net sales $ 62,056 $ 48,019 $ 118,295 $ 92,956
========= ========= ========= =========
Tons shipped 11,327 12,740 22,484 24,785
========= ========= ========= =========
CONSOLIDATED BALANCE SHEET
June 30, December 31,
2007 2006
---- ----
Assets
Cash $ 861 $ 2,909
Accounts receivable, net 39,157 33,308
Inventory 75,577 66,019
Deferred taxes 1,831 1,544
Other current assets 1,663 1,606
--------- ---------
Total current assets 119,089 105,386
Property, plant & equipment, net 50,340 49,251
Other assets 739 584
--------- ---------
Total assets $ 170,168 $ 155,221
========= =========
Liabilities and Stockholders' Equity
Trade accounts payable $ 18,305 $ 13,123
Outstanding checks in excess of bank
balance 7,556 3,427
Accrued employment costs 4,927 4,121
Current portion of long-term debt 2,375 2,364
Other current liabilities 1,124 1,902
--------- ---------
Total current liabilities 34,287 24,937
Bank revolver 218 8,392
Long-term debt 7,645 8,836
Deferred taxes 8,550 8,402
--------- ---------
Total liabilities 50,700 50,567
Stockholders' equity 119,468 104,654
--------- ---------
Total liabilities and stockholders'
equity $ 170,168 $ 155,221
========= =========
CONSOLIDATED STATEMENT OF CASH FLOW DATA
For the Six-month Period Ended June 30,
2007 2006
---- ----
Cash flows provided by operating activities:
Net income $ 12,649 $ 8,627
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 1,822 1,639
Deferred tax decrease (318) (271)
Stock based compensation expense 208 126
Excess tax benefits from share-based
payment arrangements (982) (115)
Changes in assets and liabilities:
Accounts receivable, net (5,849) (4,880)
Inventory (9,558) (7,731)
Trade accounts payable 5,182 1,081
Deferred revenue 199 3,942
Accrued employment costs 806 1,023
Other, net (33) 698
--------- ---------
Cash flow provided by operating activities 4,126 4,139
--------- ---------
Cash flow used in investing activities:
Capital expenditures (2,906) (5,290)
--------- ---------
Cash flow used in investing activities (2,906) (5,290)
--------- ---------
Cash flows used in financing activities:
Revolving credit net repayments (8,174) 714
Long-term debt repayments (1,180) (278)
Net change in outstanding checks in excess
of bank balance 4,129 285
Proceeds from issuance of common stock 975 207
Excess tax benefits from share-based
payment arrangements 982 115
--------- ---------
Cash flow (used in) provided by financing
activities (3,268) 1,043
--------- ---------
Net cash flow $ (2,048) $ (108)
========= =========
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
