Olympic Steel's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Olympic Steel, Inc. (ZEUS)

Q2 2012 Earnings Call

August 9, 2012 10:00 AM ET

Executives

Michael Siegal – Chairman and CEO

Rick Marabito – CFO and Treasurer

David Wolfort – President and COO

Analysts

Ed Marshall – Sidoti & Company

Tim Hayes – Davenport & Company

Richard Garchitorena – Credit Suisse

Aldo Mazzaferro – Macquarie

Charles Bradford – Bradford Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Olympic Steel Incorporated Second Quarter 2012 Earnings Results Call. At this time, all participants are in a listen-only mode. Later, we’ll have a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Mr. Michael Siegal, Chairman and Chief Executive Officer. Sir, you may begin.

Michael Siegal

Good morning, and welcome to our call. Thank you, operator. On the call with me this morning is David Wolfort, our President and Chief Operating Officer; and Rick Marabito, our Chief Financial Officer and Treasurer. I want to thank all of you for your participation and for your 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 nor – 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 Form 10-K and our 2012 second quarter Form 10-Q, which we will file later day.

Earlier today we reported our financial results for the second quarter and first half ended June 30, 2012. Net sales for the second quarter of 2012 totaled $367.4 million, which is a 22.9% increase from the $299 million in the second quarter of 2011. Our second quarter 2012 net income totaled $4.5 million or $0.41 per diluted share compared to net income of $7.9 million or $0.73 per diluted share in last year’s second quarter. Net sales for the first half of 2012 totaled $749.4 million, a 26.3% increase from the $593.4 million for the first six months of 2011. First half 2012 net income totaled $10.8 million or $0.98 per diluted share compared to the net income of $18.3 million or $1.67 per diluted share for last year’s first half.

Our 2012 financial statements include the results of Chicago Tube and Iron, which was acquired by Olympic Steel on July 1, 2011. We are pleased with our sales and market share growth in the second quarter. In the second quarter, our year-over-year flat roll tonnage increased by 6.0% compared to the market increase of 4.6%, as reported by the Metals Service Center Institute’s Metals Activity Report. As indicated in our release, our second quarter earnings were impacted by the degradation of pricing in both the carbon and nickel products, which affect stainless, and by startup cost associated with our new operations that are not yet fully operational. Our current focus is on executing at our new locations, increasing our cash flows and reducing our debt. This will be accomplished by reducing working capital levels, spending less in CapEx than our annual depreciation levels starting in 2013 and garnering the future contributions of our startup locations that are in their capacity ramp-up station – stages in 2012. Our pipe and tube business continues to perform well and has been accretive to our earnings since we acquired CTI on July 1, 2011, and we have been expanding investments in both pipe and tube facilities and equipment.

Our balance sheet is strong, supported by the liquidity and four years remaining on our bank credit agreement. We also reported today that Olympic Steel’s Board of Directors approved a regular quarterly cash dividend of $0.02 per share to be paid on September 18, 2012 to the shareholders of record on September 4, 2012.

I’ll turn the call over to Rick.

Rick Marabito

Thank you, Michael, and good morning, everyone. I’ll review some additional financial highlights from the quarter and the first half. But first let me remind everybody; as Michael said, we acquired Chicago Tube and Iron on July 1 of 2011. As such, our first half of 2011 does not include CTI results. And our business results after the acquisition are reported in two segments, a flat product segment and a tubular and pipe product segment. For more information, please refer to the segment information that we provide in our earnings release as well as in our Form 10-Q, MD&A and footnote sections.

Our volume in the flat roll business totaled 614,000 tons sold for the first half of 2012 and that compares to 603,000 tons last year. In the second quarter, our tons sold increased 6% to 302,000 from 285,000 in the second quarter of 2011. We do not report tons sold in the pipe and tube segment, as it is not considered a meaningful measure for that segment.

As a percentage of net sales, consolidated gross margin totaled 19.6% in the first half. Margins in the second quarter were 19.5% versus 19.7% in the first quarter and margins were down from the robust flat roll margins of 20.9% earned in the first half of 2011. The year-over-year decline is due to a more active spot market in the first half of 2011 and 2012 and the continued pressure on carbon and stainless prices in the current year. Pipe and tube gross profit totaled 29.6% in the first half of 2012, as our pipe and tube product gross margins are higher than our traditional flat product margins.

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