Universal Stainless & Alloy Products, Inc. reported net income of $3.3 million on sales of $41.9 million for the second quarter of 2005.

The $3.3 million net income ($0.50 per diluted share) was more than double the $1.6 million ($0.25 per diluted share) net income reported in the year-ago period. Sales, $41.9, reflect a 44% increase compared with the same period of 2004. Sales were in line with the company’s forecasted range of $40 to $45 million, and diluted EPS exceeded the projected range of $0.40 to $0.45.

Comments—President and CEO Mac McAninch commented: "Our second quarter results demonstrate the benefit of improved pricing and a favorable product mix due to very strong demand in our aerospace, power generation and petrochemical markets. In fact, sales to all end markets and customer categories increased substantially over the 2004 second quarter. Capacity limitations on remelted products prevented us from achieving even higher levels of sales. The scheduled addition of a sixth vacuum arc remelt furnace later this year should enable us to respond to the increased requirements of the aerospace and power generation markets."

Mr. McAninch continued: "In contrast to the strength in our main markets, the automotive market has weakened. While not a niche market that we focus on, it reduced demand for our tool steel in the second quarter compared to the first quarter of this year. However, heavy truck and industrial equipment production remains high and our tool steel backlog is at more normal levels."

Mr. McAninch added: "We are very pleased with the improvement in the operating margin at both our Universal Stainless and Dunkirk segments, which led to an overall company operating margin of 13% in the second quarter. We are continuing to realize the payback from our 2004 capital investments, on-going process improvement efforts and cost recovery pricing initiatives."

Mr. McAninch concluded: "We are entering the second half of 2005 with a high level of confidence based on the outlook for our niche markets, and on the size and quality of our backlog that extends into 2007. We remain committed to reinvest in our company to meet the needs of our customers and realize further value for our shareholders."

Segment Review—In the second quarter, the Universal Stainless & Alloy Products segment had sales of $37.2 million and operating income of $3.6 million, yielding an operating margin of 10%, a level not achieved since the first quarter of 2002. In the second quarter of 2004, sales were $25.5 million and operating income was $1.9 million, or 7% of sales. In the first quarter of 2005, sales were $38.4 million and operating income was $2.7 million, including a write-off of $342,000 of fixed assets in Bridgeville. This resulted in an operating margin of 7%.

The 46% increase in sales compared with the 2004 second quarter reflected substantial growth in sales to all customer categories. Second quarter 2005 sales were slightly lower than the prior quarter, reflecting the lower shipments of tool steel products to service centers, partially offset by increased bar shipments to them. The increase in operating income compared to both prior periods reflects stronger pricing and product mix.

The Dunkirk Specialty Steel segment reported sales of $12.4 million and operating income of $1.8 million, resulting in a record operating margin of 15%. These results compare with sales of $8.0 million and operating income of $651,000, or 8% of sales, in the second quarter of 2004. In the first quarter of 2005, sales were $13.7 million and operating income was $1.9 million, or 14% of sales, and included a $184,000 asset write-off.

Dunkirk's sales increased 54% over the 2004 second quarter due to substantial growth in shipments to all customer categories. Operating income increased 182% over the second quarter of 2004 on improvements in pricing, efficiency from higher volume and product mix. Dunkirk's sales were 9% lower than the 2005 first quarter mainly because of management's decision to allocate shipments of remelted feedstock from Bridgeville. Operating income was 2% lower than the prior quarter of 2005 due to the lower volume.

Business Outlook—The company estimates that third quarter 2005 sales will range from $40 to $45 million and that diluted EPS will range from $0.45 to $0.50. This compares with sales of $33.3 million and diluted EPS of $0.43 in the third quarter of 2004.

The following factors were considered in developing these estimates:

• The company's total backlog at June 30, 2005 approximated $105 million compared to $88 million at March 31, 2005, reflecting strong aerospace, power generation and petrochemical markets. The company noted that a portion of the backlog is for shipments scheduled in 2006 and 2007, as customers take into account future needs and current remelt capacity constraints industry-wide.
• Tool steel sales are expected to remain at 2005 second quarter levels for the balance of the year as continued strength in the industrial manufacturing sector is offset by lower automotive requirements.
• Sales from the Dunkirk Specialty Steel segment are expected to approximate $13 million.

Headquartered in Bridgeville, Pa., Universal Stainless & Alloy Products, Inc. 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 original equipment manufacturers, service centers, forgers, rerollers and wire redrawers.