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Ahead Of The Bell: Olympic Steel Estimate Cut

The Associated Press

HARTFORD, Conn. (AP) — An analyst cut her estimates for Olympic Steel Inc. Wednesday after the steelmaker said it will write down the value of its inventory to cut costs.

The forecast reduction comes a day after Olympic Steel announced it expected to record an inventory write-down of $30 million as of March 31.

Analyst Yvonne M. Varano of Jefferies & Co. Inc. slashed her first-quarter estimate to a loss of 45 cents per share from a profit of a penny per share. She cut her second-quarter profit forecast to 8 cents per share from 15 cents per share, and reduced her full-year profit estimate to 25 cents per share from 95 cents per share.

Analysts surveyed by Thomson Reuters expect earnings of 5 cents per share for the first quarter, 17 cents per share for the second quarter and $1.06 per share for the year.

Varano said her reduced first-quarter estimate reflects a lower gross margin assumption.

"We had recently lowered our estimates for the quarter and remainder of the year following our reassessment of demand and price for the industry," she said in a note to investors.

The $30 million charge is effectively a non-cash item, but reflects the continued deterioration in selling prices that is likely to have a greater impact on gross margins in the first quarter than she initially forecast, she said.

However, reductions in costs should lead to improved earnings, Varano said.

The analyst rates Olympic Steel "Hold" with a $16 share price target.

Bedford Heights, Ohio-based Olympic Steel said that it estimates the write-down will reduce annual operating expenses for 2009 by about $65 million compared with last year.

"We expect to generate significant cash flow from inventory reductions in the next six months to substantially reduce our outstanding debt by the end of 2009," said Michael D. Siegal, chairman and chife executive, in a statement.

In Tuesday's trading, shares of Olympic Steel tumbled $2.27, or 12.4 percent, to finish at $16.03.