Universal Stainless Reports Higher Third Quarter Sales as Shipments Increased to Most End Markets
Net sales were US$42.9 million in the second quarter of 2013 and US$61.4 million in the third quarter of 2012. Sequentially, third quarter 2013 shipment volume increased 15% compared to the second quarter of 2013, but decreased by the same percentage from the third quarter of 2012.
Compared with the second quarter of 2013, tons shipped increased to most end markets. Aerospace shipments were up 19%, power generation shipments were up 48%, and oil and gas shipments were up 30%, while heavy equipment market shipments were lower by 26%, mainly reflecting lower shipments of tool steel. There was also a step-up in premium alloy shipments both sequentially and from the third quarter of 2012.
The gross margin for the third quarter of 2013 was US$2.4 million or 5.0% of sales in the third quarter of 2013, compared with gross margin as a percentage of sales of 12.4% in the second quarter of 2013 and 15.2% in the third quarter of 2012. As previously reported, the decrease was primarily due to a shift in sales mix to lower margin products, lower surcharges due to the decline in raw material prices, and lower manufacturing utilization.
As a result, the company incurred an operating loss of US$2.0 million in the third quarter of 2013 as compared to operating income of US$0.4 million in the second quarter of 2013 and US$4.7 million in the third quarter of 2012.
The net loss for the third quarter of 2013 was US$1.7 million, or US$0.25 per diluted share, also in line with guidance. The net loss for the third quarter of 2013 included a US$0.4 million favorable settlement of an escrow account related to the asset purchase of the North Jackson facility in 2011 and a tax benefit of US$0.7 million. In comparison, net income was US$0.5 million, or US$0.06 per diluted share, including a tax benefit of US$0.8 million, in the second quarter of 2013, and US$2.7 million, or US$0.38 per diluted share, in the third quarter of 2012.
For the first nine months of 2013, the company's net sales were US$140.5 million and net loss was US$1.2 million, or US$0.17 per diluted share. That compares with net sales of US$203.8 million and net income of US$13.5 million, or US$1.86 per diluted share for the first nine months of 2012.
The company proactively reduced its spending levels and production volumes along with reducing inventory levels during the third quarter of 2013 and generated cash from operations of US$11.5 million. In turn, the company repaid US$8.8 million of its long-term debt obligations. Capital expenditures for the first nine months of 2013 were US$10.4 million compared to US$30.7 million for the first nine months of 2012. Backlog (before surcharges) at September 30, 2013 was US$39.9 million compared with US$49.2 million at 30 June 2013.
Chairman, president and CEO Dennis Oates commented: "The sequential growth in our third quarter sales and shipment volume was accomplished amidst challenging conditions that have persisted all year. Even so, we saw strong growth compared to the second quarter in our sales and shipments to three of our four key markets - aerospace, our largest end market, power generation and oil & gas.
"Despite this solid top-line improvement, the shift in our sales mix combined with reduced surcharges and significantly lower manufacturing utilization in the third quarter negatively impacted our gross margin. Production levels were flexed downward in response to market conditions through most of our operations. However, we made the strategic decision to maintain our newly-trained workforce in our North Jackson facility to continue its progress towards achieving customer approvals of our newer products.
"Our North Jackson operation is essential to our strategic plan to move Universal's product mix to higher margin premium alloys. We continued to gain customer approvals throughout the third quarter and were very pleased to announce our long-term agreement with Haynes International last week. We were also pleased to begin receiving orders in the quarter under our long-term agreement with Rolls-Royce.
"As we look to the balance of 2013, we will continue to execute our strategic plan. Difficult industry conditions are expected to persist in the fourth quarter; however, 2014 is expected to be a year of recovery in most of our end markets."
Universal Stainless & Alloy Products, Inc., headquartered in Bridgeville, Pa., manufactures and markets semi-finished and finished specialty steels, including stainless steel, nickel alloys, tool steel and certain other alloyed steels. The company's products are used in a variety of industries, including aerospace, power generation, oil and gas, and heavy equipment manufacturing. Established in 1994, the company, with its experience, technical expertise, and dedicated workforce, stands committed to providing the best quality, delivery, and service possible.