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Olympic Steel Reports Third-Quarter Results

CLEVELAND--(BUSINESS WIRE)--

Specialty Metals and Pipe and Tube Businesses Resilient in the Quarter

Company Continues to Successfully Integrate Recent Acquisitions

Olympic Steel, Inc. (ZEUS), a leading national metals service center, today announced financial results for the three months ended September 30, 2019.

Third-quarter 2019 net sales of $384 million were 16% lower compared with $457 million in the third quarter of 2018. Net sales were impacted by lower year-over-year shipping volumes and pricing within the carbon flat products segment. Net income was approximately $591 thousand, or $0.05 per diluted share, in the 2019 third quarter, compared with $11.6 million, or $1.01 per diluted share, in the same quarter of 2018. The specialty metals flat products segment continued to profitability grow its market share while sales in the tubular and pipe products segment outperformed the market. The 2019 third-quarter results include $1 million of LIFO income, as noted in the reconciliation below.

“While we anticipated the third quarter would be softer than the first half of the year, we are encouraged by the positive impact we are seeing from our strategy to diversify the business. Our specialty metals and pipe and tube businesses remained resilient in a challenging market environment. We also furthered our strategy of vertical integration during the third quarter through the acquisition of EZ Dumper®, a manufacturer of hydraulic truck dump inserts. This is our second acquisition in 2019 of manufacturers of higher-margin, metal-intensive branded products, which offer a countercyclical offset to the pricing dynamics of the steel distribution business. McCullough Industries, which we acquired earlier this year, continues to exceed our expectations by delivering EBITDA margins well above the levels earned through traditional service center business. We are committed to evaluating additional acquisition opportunities, and when there is a good fit, we have adequate capital available to pursue a transaction,” said Chief Executive Officer Richard T. Marabito.

“We will continue to best position Olympic Steel for the future by reducing our operating expenses, strengthening our balance sheet, and focusing on cash-flow generation while providing exceptional service to our customers,” Marabito concluded.

In addition, the Company’s Board of Directors approved a regular quarterly cash dividend of $0.02 per share, which is payable on December 16, 2019, to shareholders of record on December 2, 2019.

The table that follows provides a reconciliation of non-GAAP measures to measures prepared in accordance with GAAP.

Olympic Steel, Inc.

Reconciliation of Net Income Per Diluted Share to Adjusted Net Income Per Diluted Share

The following table reconciles adjusted net income per diluted share to the most directly comparable GAAP financial measure:

 

 

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income per diluted share (GAAP):

$ 0.05

 

$ 1.01

 

$ 0.41

 

$ 3.07

 

 

 

 

 

 

 

 

Excluding the following items:

 

 

 

 

 

 

 

LIFO (income) / expense

(0.05)

 

0.18

 

(0.08)

 

0.30

Adjusted net income per diluted share

(non-GAAP):

$ ---

 

$ 1.19

 

 

$ 0.33

 

 

$ 3.37

Conference Call and Webcast

A simulcast of Olympic Steel’s 2019 third-quarter earnings conference call can be accessed via the Investor Relations section of the Company’s website at www.olysteel.com. The live simulcast will begin at 10 a.m. EST on November 8, 2019, and a replay will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Company’s policy not to endorse any analyst’s sales or earnings estimates. Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “anticipate,” “should,” “intend,” “expect,” “believe,” “estimate,” “project,” “plan,” “potential,” and “continue,” as well as the negative of these terms or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Such risks and uncertainties include, but are not limited to: risks of falling metals prices and inventory devaluation; general and global business, economic, financial and political conditions; competitive factors such as the availability, global production levels and pricing of metals, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; the levels of imported steel in the United States and the tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 and imposed tariffs and duties on exported steel or other products, U.S. trade policy and its impact on the U.S. manufacturing industry; cyclicality and volatility within the metals industry; fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the successes of our efforts and initiatives to improve working capital turnover and cash flows, and achieve cost savings; our ability to generate free cash flow through operations and repay debt; the availability, and increased costs, of labor related to tighter employment markets; the availability and rising costs of transportation and logistical services; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; the adequacy of our existing information technology and business system software, including duplication and security processes; the adequacy of our efforts to mitigate cyber security risks and threats; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations; our ability to successfully integrate recent acquisitions into our business and risks inherent with the acquisitions in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; rising interest rates and their impacts on our variable interest rate debt; the impacts of union organizing activities and the success of union contract renewals; changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies; events or circumstances that could impair or adversely impact the carrying value of any of our assets; risks and uncertainties associated with intangible assets, including impairment charges related to indefinite lived intangible assets; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income or expense; the inflation or deflation existing within the metals industry, as well as product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any; and unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and environmental matters, including any developments that would require any increase in our costs for such contingencies.

In addition to financial information prepared in accordance with GAAP, this document also contains adjusted earnings per diluted share, which is a non-GAAP financial measure. Management’s view of the Company’s performance includes adjusted earnings per share, and management uses this non-GAAP financial measure internally for planning and forecasting purposes and to measure the performance of the Company. We believe this non-GAAP financial measure provides useful and meaningful information to us and investors because it enhances investors’ understanding of the continuing operating performance of our business and facilitates the comparison of performance between past and future periods. This non-GAAP financial measure should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure is provided above.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin plate, and metal-intensive branded products. The Company’s CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 30 facilities in North America.

For additional information, please visit the Company’s website at www.olysteel.com or https://olysteel.irpass.com/Contact_Us?BzID=2195

Olympic Steel, Inc.

Consolidated Statements of Net Income

(in thousands, except per-share data)

Three months ended

 

Nine months ended

September 30

 

September 30

2019

 

2018

 

2019

 

2018

 

Net sales

$

384,230

$

456,976

$

1,259,300

 

$

1,285,491

 

 

Costs and expenses

Cost of materials sold (excludes items shown separately below)

 

311,104

 

365,362

 

1,028,980

 

 

1,016,200

 

Warehouse and processing

 

25,204

 

25,330

 

75,938

 

 

72,579

 

Administrative and general

 

18,552

 

21,197

 

58,077

 

 

61,592

 

Distribution

 

11,840

 

12,552

 

37,170

 

 

38,077

 

Selling

 

6,999

 

7,373

 

21,759

 

 

21,708

 

Occupancy

 

2,308

 

2,348

 

7,572

 

 

7,200

 

Depreciation

 

4,292

 

3,953

 

13,211

 

 

12,141

 

Amortization

 

350

 

247

 

998

 

 

716

 

 

Total costs and expenses

 

380,649

 

438,362

 

1,243,705

 

 

1,230,213

 

 

Operating income

 

3,581

 

18,614

 

15,595

 

 

55,278

 

 

Other income (loss), net

 

12

 

17

 

(33

)

 

(122

)

 

Income before financing costs and income taxes

 

3,593

 

18,631

 

15,562

 

 

55,156

 

 

Interest and other expense on debt

 

2,569

 

2,923

 

8,985

 

 

7,579

 

 

Income before income taxes

 

1,024

 

15,708

 

6,577

 

 

47,577

 

 

Income tax provision

 

433

 

4,109

 

1,831

 

 

12,501

 

 

Net income

$

591

$

11,599

$

4,746

 

$

35,076

 

 

Earnings per share:

 

Net income per share - basic

$

0.05

$

1.01

$

0.41

 

$

3.07

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

11,420

 

11,444

 

11,526

 

 

11,427

 

 

 

 

 

 

 

 

Net income per share - diluted

$

0.05

$

1.01

$

0.41

 

$

3.07

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

11,420

 

11,446

 

11,526

 

 

11,427

 

Olympic Steel, Inc.

Consolidated Balance Sheets

(in thousands)

At Sept. 30, 2019

 

At Dec. 31, 2018

Assets

 

Cash and cash equivalents

$

8,488

 

$

9,319

 

Accounts receivable, net

 

168,037

 

 

175,252

 

Inventories, net (includes LIFO credit of $1,821 and $3,071 as of September 30, 2019 and December 31, 2018, respectively)

 

283,146

 

 

368,738

 

Prepaid expenses and other

 

6,274

 

 

9,460

 

 

Total current assets

 

465,945

 

 

562,769

 

 

Property and equipment, at cost

 

414,040

 

 

403,785

 

Accumulated depreciation

 

(255,996

)

 

(244,176

)

 

Net property and equipment

 

158,044

 

 

159,609

 

 

Goodwill

 

3,423

 

 

2,358

 

Intangible assets, net

 

29,576

 

 

24,914

 

Other long-term assets

 

13,891

 

 

11,090

 

Right of use asset, net

 

27,864

 

 

-

 

 

Total assets

$

698,743

 

$

760,740

 

 

Liabilities

 

Accounts payable

$

89,293

 

$

95,367

 

Accrued payroll

 

12,414

 

 

19,665

 

Other accrued liabilities

 

10,179

 

 

13,395

 

Current portion of lease liabilities

 

5,742

 

 

-

 

 

Total current liabilities

 

117,628

 

 

128,427

 

 

Credit facility revolver

 

223,004

 

 

302,530

 

Other long-term liabilities

 

14,348

 

 

9,327

 

Deferred income taxes

 

12,904

 

 

13,465

 

Lease liabilities

 

22,211

 

 

-

 

 

Total liabilities

 

390,095

 

 

453,749

 

 

Shareholders' Equity

 

Preferred stock

 

-

 

 

-

 

Common stock

 

132,676

 

 

130,778

 

Treasury stock

 

(1,654

)

 

(132

)

Accumulated other comprehensive loss

 

(2,806

)

 

-

 

Retained earnings

 

180,432

 

 

176,345

 

 

Total shareholders' equity

 

308,648

 

 

306,991

 

 

Total liabilities and shareholders' equity

$

698,743

$

760,740

 

Olympic Steel, Inc.

Segment Financial Information

(In thousands, except tonnage and per-ton data. Figures may not foot to consolidated totals due to Corporate expenses.)

Three months ended September 30

Carbon Flat Products

 

Specialty Metals Flat
Products

 

Tubular and Pipe
Products

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

Tons sold1

 

248,521

 

 

281,225

 

38,213

 

36,606

 

N/A

 

N/A

 

Net sales

$

215,515

 

$

282,810

$

97,563

$

92,153

$

71,152

$

82,013

Average selling price per ton

 

867

 

 

 

1,006

 

2,553

 

2,517

 

N/A

 

N/A

Cost of materials sold2

 

176,277

 

 

225,407

 

83,696

 

77,928

 

51,131

 

62,027

Gross profit3

 

39,238

 

 

57,403

 

13,867

 

14,225

 

20,021

 

19,986

Operating expenses4

 

41,539

 

 

42,910

 

9,807

 

9,271

 

15,559

 

16,884

Operating income

 

(2,301

)

 

14,493

 

4,060

 

4,954

 

4,462

 

3,102

 

Depreciation and amortization

 

2,850

 

 

2,524

 

441

 

341

 

1,309

 

1,311

 

Nine months ended September 30

Carbon Flat Products

 

Specialty Metals Flat
Products

 

Tubular and Pipe
Products

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

Tons sold1

 

788,894

 

 

883,190

 

111,389

 

100,275

 

N/A

 

N/A

 

Net sales

$

749,921

 

$

802,995

$

281,718

$

255,037

$

227,661

$

227,459

Average selling price per ton

 

951

 

 

909

 

2,529

 

2,543

 

N/A

 

N/A

Cost of materials sold5

 

622,377

 

 

632,326

 

242,136

 

216,726

 

164,467

 

167,148

Gross profit3

 

127,544

 

 

170,669

 

39,582

 

38,311

 

63,194

 

60,311

Operating expenses4

 

128,147

 

 

129,768

 

29,310

 

24,818

 

48,641

 

48,394

Operating income

 

(603

)

 

40,901

 

10,272

 

13,493

 

14,553

 

11,917

 

Depreciation and amortization

 

8,624

 

 

7,665

 

1,403

 

880

 

4,056

 

4,237

 

 

 

At Sept. 30,
2019

At Dec. 31,
2018

Assets

 

 

Flat-products

 

 

$

483,828

$

560,116

Tubular and pipe products

 

 

 

213,674

 

200,016

Corporate

 

 

 

1,241

 

608

Total assets

 

 

$

698,743

$

760,740

 

1

Tonnage is less meaningful for the Tubular and Pipe Products segment and, therefore, is not reported.

2

Includes $1.0 million of LIFO income and $2.7 million of LIFO expense for the three months ended September 30, 2019 and September 30, 2018, respectively.

3

Gross profit is calculated as net sales less the cost of materials sold.

4

Operating expenses are calculated as total costs and expenses less the cost of materials sold from the Consolidated Statements of Net Income.

5

Includes $1.25 million of LIFO income and $4.7 million of LIFO expense for the nine months ended September 30, 2019 and September 30, 2018, respectively

Other Information

(In thousands except per-share data)

At Sept. 30,
2019

At Dec. 31,
2018

Shareholders' equity per share

$

28.07

$

27.89

 

 

Debt to equity ratio

0.72 to 1

0.99 to 1

 
 

Nine Months Ended September 30,

2019

2018

 

Net cash from (used for) operating activities

$

99,355

$

(63,137

)

 

Cash dividends per share

$

0.06

$

0.06

 

 

 

 

 

 

 

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