Universal Stainless Reports 4th Quarter and Full-Year 2008 Results
01/30/2009 - Universal Stainless & Alloy Products reports net income of $1.2 million on sales of $57.1 million for the fourth quarter, and net income of $13.9 million on record net sales of $235.1 million for the year ended December 31, 2008.
Universal Stainless & Alloy Products, Inc. reported net income of $1.2 million on sales of $57.1 million for the fourth quarter, and net income of $13.9 million on record net sales of $235.1 million for the year ended December 31, 2008.
Fourth Quarter Results—The $1.2 million net income ($0.18 per diluted share) compares to net income of $4.4 million ($0.65 per diluted share) in the fourth quarter of 2007. Sales, which exceeded the company's forecast of $45 to $55 million, reflected a 15% increase as compared with sales of $49.6 million in the fourth quarter of 2007.
EPS was in line with recent company guidance of breakeven to $0.15, excluding import duties. Import duties received were $599,000, which compares to import duties of $586,000 in the year-ago fourth quarter.
Nickel and other commodity prices declined substantially in the fourth quarter, resulting in an $807,000 charge related to an increase in inventory reserves (equivalent to $0.08 per dilute share) with $422,000 attributable to the Universal Stainless segment and $385,000 to the Dunkirk segment.
Cash flow from operations was $5.8 million and capital expenditures were $3.3 million.
Full Year Results—The $13.9 million full-year net income ($2.05 per diluted share) compares to net income of $22.5 million ($3.32 per diluted share) in 2007. Record sales of $235.1 million compare with sales of $229.9 million in 2007.
The company's tax rate decreased to 29.9% for 2008 as 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 as compared to the fourth quarter and full year 2007 was equivalent to $0.05 and $0.08 per diluted share, respectively.
Cash flow from operations was $17.7 million for the full year, and capital expenditures were $12.9 million. The 2008 capital expenditures included 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.
Management Comments—"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,” commented President and CEO Dennis Oates. “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."
"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," Oates continued.
"There is no doubt that current business conditions are very challenging,” concluded Oates. “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 meltshop 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 Results—The company’s Universal Stainless & Alloy Products segment reported sales of $53.1 million and operating income of $1.9 million for the fourth quarter, yielding an operating margin of 3%. This compares to sales of $43.4 million and operating income of $3.2 million (7% of sales) in the fourth quarter of 2007, and sales of $52.2 million and operating income of $3.3 million (6% of sales) in the third quarter of 2008.
The 22% increase in segment sales (vs. the fourth quarter of 2007) is attributed primarily 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. Results, which included a $248,000 charge related to the relocation of the round bar finishing line to Dunkirk from Bridgeville, compare to sales of $18.7 million and operating income of $2.2 million (12% of sales) in the fourth quarter of 2007. 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% as 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 as the result of lower shipments of service centers and lower surcharges.
Business Outlook—The company is currently estimating 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. This compares to sales of $56.8 million and diluted EPS of $0.70 in the first quarter of 2008. Approximately $6 to $8 million of the decline in sales is a result of lower surcharges anticipated in the first quarter of 2009.
In developing its the estimates for the first quarter of 2009, the company took into consideration a number of factors, including the company's total backlog of $75 million at December 31, 2008, which compares with $101 million at September 30, 2008. (The current backlog mainly consists of semi-finished products for rerollers and forgers and tool steel plate for service centers.)
The company's forecast is also based on average December raw material costs. Finally, the company also is planning a two-week meltshop outage for March 2009 to install certain equipment, but this outage is not expected to have a material impact on first-quarter shipments. The company's outlook also includes approximately $300,000 of expenses related to the outage.
Headquartered in Bridgeville, Pa., Universal Stainless & Alloy Products 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.
