Olympic Steel's CEO Discusses Q2 2011 Results - Earnings Call Transcript

Olympic Steel, Inc. (ZEUS)

Q2 2011 Earnings Call

August 4, 2011 10:00 am ET

Executives

Michael Siegal - Chairman & CEO

David Wolfort - President & COO

Rick Marabito - CFO

Don McNeeley - President, Chicago Tube & Iron

Analysts

Edward Marshall - Sidoti & Company

Luke Folta - Jefferies

Mark Parr – KeyBanc

Sal Tharani - Goldman Sachs

Tim Hayes - Davenport & Company

Charles Bradford - Bradford Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Olympic Steel’s Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). As a reminder, today’s conference call is being recorded.

I would now like to turn the conference over to your host, Mr. Michael Siegal, Chairman and Chief Executive Officer. Please go ahead.

Michael Siegal

Thank you, Elle. Good morning and welcome to our call. On the call with me this morning is David Wolfort, our President and Chief Operating Officer; Rick Marabito, our Chief Financial Officer; and I have asked Don McNeeley, the President of our recently acquired Chicago Tube & Iron subsidiary to be on the call with us. I want to thank everyone for your participation and for your continued interest in Olympic Steel.

Before we begin our discussion, I want to remind you that during this call, we will provide forward-looking statements that we do not undertake to update or that may not reflect actual results, changes in assumptions or changes in other factors affecting such forward-looking statements. Important assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements can be found in our filings with the Securities and Exchange Commission including our 2011 second quarter Form 10-Q, which will be filed later today.

Earlier today, we reported our financial results for the second quarter and the first half ended June 30, 2011. We are pleased to announce strong 2011 sales and earnings performance. We have completed our third most profitable first half in the history of Olympic Steel behind 2004 and 2008.

Net sales for the second quarter of 2011 increased 41% to $299 million, we couldn’t find $1 million more to make $300 million, from $212.8 million for the second quarter of 2010. Our shipments in the second quarter of 2011 increased 13% to $285,000 from $252,000 in the second quarter of 2010, but were about 10% less than our very strong first quarter volume of 317,000 tons.

Second quarter 2011 net income increased 144% to $7.9 million or $0.73 per diluted share compared to net income of $3.3 million or $0.30 per diluted share for last year’s second quarter. Our second quarter results include $941,000 of non-recurring pre-tax transaction expenses related to the company’s acquisition of Chicago Tube & Iron which closed in the third quarter on July 1 and this equals to $0.05 of earnings per share.

Net sales in the first half of 2011 increased 56% to $593.4 million from $380.7 million for the first six months of 2010. Tons sold in the first half of 2011 increased 27% to 603,000 from 474,000 in 2010. First half 2011 net income more than tripled to $18.3 million or a $1.67 per diluted share compared to net income of $5 million or $0.45 per diluted share for the last year’s first half.

We have realized consistent gains in market share over the past 18 months. Our first half 2011 shipments increased year-over-year by 27% exceeding the pace of the market increase in total steel shipments of 19% reported by the Metal Service Center Institute in June 2011 Metals Activity Report. Our market demand strength has been seen in the heavy equipment, agricultural equipment and automotive sectors.

Our strong balance sheet and new five-year $335 million credit facility provide us with the strong foundation from continued growth and value creation. We have been making investments during the economic downturn in new products geographies, equipment and people to service our growing customer demands.

We continued to successfully start up new locations in Gary, Indiana; Monterrey, Mexico; and Kansas City, Missouri. We most recently added two locations in Roseville, Minnesota and Streetsboro, Ohio, which are expected to propel market share penetration in the future as these locations become fully operational and add to the top line growth and bottom line profitability.

In the first half of 2011, we estimate the cost of these new locations start ups had a total negative impact on earnings of above $500,000, and David will review our progress in more detail later in the call.

In addition to meeting forward internal expansion and CapEx programs over the past several years we have stated that our growth strategy also includes actively exploring strategic acquisition opportunities. Our patience in the acquisition area paid off with our July 1, 2011, acquisition of Chicago Tube & Iron. CTI accelerates our market share growth as expected to be immediately accretive to our earnings.

Our financial results will include results of CTI beginning in the third quarter. Olympic Steel’s current profile including CTI now approximates $1.4 billion in annualized sales, 1,600 employees, 4 million sq ft of facilities in 30 locations throughout the United States and Mexico.

As part of the acquisition it was important that CTI’s management team including Don McNeeley remain in place. Don continues in his role as President of CTI subsidiary, and was recently reported as an additional board member to Olympic Steel. He is 35 years field industry and CTI veteran with vast knowledge, networks and visibility in the steel market. Don is the former Chairman of the Metal Service Center Institute and he is an Adjunct Professor at Northwestern University where he teaches in the graduate engineering program. We are thrilled to have Don and his team with Olympic Steel.

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