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Olympic Steel Reports Fourth-Quarter and Full-Year 2019 Results
February 21, 2020 06:30 AM Eastern Time

Strong cash flow during the year enabled company to invest in the business, execute on acquisition strategy and reduce debt by over $100 million

CLEVELAND - Olympic Steel, Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced financial results for the three and 12 months ended December 31, 2019.

Fourth-Quarter Results

The net loss for the quarter totaled $890,000, or $0.08 per diluted share, compared to a net loss of $1.3 million, or $0.11 per diluted share, in the fourth quarter of 2018. The results include $2.4 million of LIFO income in the fourth quarter of 2019, compared with $3.7 million of LIFO expense in the fourth quarter of 2018. The fourth-quarter earnings impact of LIFO is noted in the reconciliation below. Sales for the fourth quarter of 2019 totaled $320 million, compared with $430 million in the fourth quarter of 2018.

Full-Year 2019 Results

Net income for 2019 totaled $3.9 million, or $0.34 per diluted share, compared to net income of $33.8 million, or $2.95 per diluted share, in 2018. The results include $3.7 million of LIFO income in 2019, compared with $8.4 million of LIFO expense in 2018. The full-year earnings impact of LIFO is noted in the reconciliation below. Sales for 2019 totaled $1.6 billion, compared with $1.7 billion in 2018.

"As we reflect on 2019, we are encouraged by the progress we made to further our diversification strategy and strengthen our financial position," said Chief Executive Officer Richard T. Marabito. "Our specialty metals business recorded its second most profitable year ever, and our pipe and tube business delivered solid profitability at a time when the industry was facing challenging market conditions. In addition, we acquired two downstream metal-intensive branded companies - McCullough Industries and EZ-Dumper - in our carbon products portfolio that had an immediate positive impact on our profitability."

Marabito continued, "Our continued discipline on operating expenses and inventory management resulted in strong cash flow, which was used to invest in our business, execute on our acquisition strategy and reduce debt by $110 million, or 36%, in 2019."

"As we start the new year, we will remain diligent in managing our operating expenses and strengthening our balance sheet to provide us with the flexibility to swiftly execute on further growth and business diversification opportunities," Marabito concluded.

The table that follows provides a reconciliation of non-GAAP measures to measures prepared in accordance with GAAP.

Olympic Steel, Inc.

Reconciliation of Net Income Per Diluted Share to Adjusted Net Income Per Diluted Share

The following table reconciles adjusted net income per diluted share to the most directly comparable

GAAP financial measure:

 

 

Three Months Ended
December 31,

 

Twelve Months Ended
December 31,

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per diluted share:

$

(0.08

)

 

$

(0.11

)

 

$

0.34

 

 

$

2.95

 

 

 

 

 

 

 

 

Excluding the following item:

 

 

 

 

 

 

 

LIFO (income) / expense

 

(0.15

)

 

 

0.25

 

 

 

(0.23

)

 

 

0.56

Adjusted net income (loss) per diluted share (non-GAAP):

$

(0.23

)

 

$

0.14

 

$

0.11

 

 

$

3.51

Conference Call and Webcast

A simulcast of Olympic Steel's 2019 fourth-quarter earnings conference call can be accessed via the Investor Relations section of the Company's website at www.olysteel.com. The live simulcast will begin at 10 a.m. EST on February 21, 2020, and a replay will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Company's policy not to endorse any analyst's sales or earnings estimates. Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as "may," "will," "anticipate," "should," "intend," "expect," "believe," "estimate," "project," "plan," "potential," and "continue," as well as the negative of these terms or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Such risks and uncertainties include, but are not limited to: risks of falling metals prices and inventory devaluation; general and global business, economic, financial and political conditions, including the 2020 U.S. election; competitive factors such as the availability, global pricing of metals and production levels (including the increased U.S. capacity), industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; the levels of imported steel in the United States and the tariffs initiated by the U.S. government in 2018 under Section 232 of the Trade Expansion Act of 1962 and imposed tariffs and duties on exported steel or other products, U.S. trade policy and its impact on the U.S. manufacturing industry; cyclicality and volatility within the metals industry; fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the successes of our efforts and initiatives to improve working capital turnover and cash flows, and achieve cost savings; our ability to generate free cash flow through operations and repay debt; the availability, and increased costs, of labor related to tighter employment markets; the availability and rising costs of transportation and logistical services; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers' or customers' personnel; the adequacy of our existing information technology and business system software, including duplication and security processes; the adequacy of our efforts to mitigate cyber security risks and threats; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations; our ability to successfully integrate recent acquisitions into our business and risks inherent with the acquisitions in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; rising interest rates and their impacts on our variable interest rate debt; the impacts of union organizing activities and the success of union contract renewals; changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies; events or circumstances that could impair or adversely impact the carrying value of any of our assets; risks and uncertainties associated with intangible assets, including impairment charges related to indefinite lived intangible assets; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income or expense; the inflation or deflation existing within the metals industry, as well as product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any; and unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and environmental matters, including any developments that would require any increase in our costs for such contingencies.

In addition to financial information prepared in accordance with GAAP, this document also contains adjusted earnings per diluted share, which is a non-GAAP financial measure. Management's view of the Company's performance includes adjusted earnings per share, and management uses this non-GAAP financial measure internally for planning and forecasting purposes and to measure the performance of the Company. We believe this non-GAAP financial measure provides useful and meaningful information to us and investors because it enhances investors' understanding of the continuing operating performance of our business and facilitates the comparison of performance between past and future periods. This non-GAAP financial measure should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure is provided above.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin plate, and metal-intensive branded products. The Company's CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 30 facilities in North America.

For additional information, please visit the Company's website at www.olysteel.com or https://olysteel.irpass.com/Contact_Us?BzID=2195

Olympic Steel, Inc.

Consolidated Statements of Net Income

(in thousands, except per-share data)

 

Three months ended

 

Twelve months ended

December 31

 

December 31

2019

 

2018

 

2019

 

2018

 

Net sales

$

319,740

 

$

429,590

 

$

1,579,040

 

$

1,715,081

 

 

Costs and expenses

Cost of materials sold (excludes items shown separately below)

 

251,130

 

 

356,754

 

 

1,280,110

 

 

1,372,954

 

Warehouse and processing

 

23,519

 

 

24,986

 

 

99,457

 

 

97,565

 

Administrative and general

 

18,786

 

 

19,515

 

 

76,863

 

 

81,107

 

Distribution

 

10,989

 

 

12,270

 

 

48,159

 

 

50,347

 

Selling

 

7,080

 

 

7,312

 

 

28,839

 

 

29,020

 

Occupancy

 

2,400

 

 

2,228

 

 

9,972

 

 

9,428

 

Depreciation

 

4,475

 

 

4,504

 

 

17,686

 

 

16,645

 

Amortization

 

346

 

 

247

 

 

1,344

 

 

963

 

 

Total costs and expenses

 

318,725

 

 

427,816

 

 

1,562,430

 

 

1,658,029

 

 

Operating income

 

1,015

 

 

1,774

 

 

16,610

 

 

57,052

 

 

Other income (loss), net

 

1

 

 

(185

)

 

(32

)

 

(307

)

 

Income before financing costs and income taxes

 

1,016

 

 

1,589

 

 

16,578

 

 

56,745

 

 

Interest and other expense on debt

 

2,304

 

 

3,101

 

 

11,289

 

 

10,681

 

 

Income (loss) before income taxes

 

(1,288

)

 

(1,512

)

 

5,289

 

 

46,064

 

 

Income tax provision (benefit)

 

(398

)

 

(196

)

 

1,433

 

 

12,305

 

 

Net income (loss)

$

(890

)

$

(1,316

)

$

3,856

 

$

33,759

 

 

Earnings per share:

 

Net income (loss) per share - basic

$

(0.08

)

$

(0.11

)

$

0.34

 

$

2.95

 

 

 

 

 

 

 

 

Weighted average shares outstanding - basic

 

11,416

 

 

11,444

 

 

11,509

 

 

11,432

 

 

 

 

 

 

 

 

Net income (loss) per share - diluted

$

(0.08

)

$

(0.11

)

$

0.34

 

$

2.95

 

 

 

 

 

 

 

 

Weighted average shares outstanding - diluted

 

11,416

 

 

11,444

 

 

11,509

 

 

11,440

 

Olympic Steel, Inc.

Consolidated Balance Sheets

(in thousands)

 

At Dec. 31, 2019

At Dec. 31, 2018

Assets

 

Cash and cash equivalents

$

5,742

 

$

9,319

 

Accounts receivable, net

 

133,572

 

 

175,252

 

Inventories, net (includes LIFO debit of $598 and a LIFO credit of $3,071 as of December 31, 2019 and December 31, 2018, respectively)

 

273,531

 

 

368,738

 

Prepaid expenses and other

 

6,997

 

 

9,460

 

 

Total current assets

 

419,842

 

 

562,769

 

 

Property and equipment, at cost

 

416,511

 

 

403,785

 

Accumulated depreciation

 

(260,264

)

 

(244,176

)

 

Net property and equipment

 

156,247

 

 

159,609

 

 

Goodwill

 

3,423

 

 

2,358

 

Intangible assets, net

 

29,259

 

 

24,914

 

Other long-term assets

 

14,439

 

 

11,090

 

Right of use asset, net

 

26,345

 

 

-

 

 

Total assets

$

649,555

 

$

760,740

 

 

Liabilities

 

Accounts payable

$

69,452

 

$

95,367

 

Accrued payroll

 

13,196

 

 

19,665

 

Other accrued liabilities

 

12,850

 

 

13,395

 

Current portion of lease liabilities

 

5,589

 

 

-

 

 

Total current liabilities

 

101,087

 

 

128,427

 

 

Credit facility revolver

 

192,925

 

 

302,530

 

Other long-term liabilities

 

14,068

 

 

9,327

 

Deferred income taxes

 

12,262

 

 

13,465

 

Lease liabilities

 

20,861

 

 

-

 

 

Total liabilities

 

341,203

 

 

453,749

 

 

Shareholders' Equity

 

Preferred stock

 

-

 

 

-

 

Common stock

 

131,647

 

 

130,778

 

Treasury stock

 

(335

)

 

(132

)

Accumulated other comprehensive loss

 

(2,281

)

 

-

 

Retained earnings

 

179,321

 

 

176,345

 

 

Total shareholders' equity

 

308,352

 

 

306,991

 

 

Total liabilities and shareholders' equity

$

649,555

 

$

760,740

Olympic Steel, Inc.

Segment Financial Information

(In thousands, except tonnage and per-ton data. Figures may not foot to consolidated totals due to Corporate expenses.)

 

Three months ended December 31

Carbon Flat Products

 

Specialty Metals Flat
Products

 

Tubular and Pipe Products

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

Tons sold1

 

221,446

 

 

259,181

 

30,439

 

35,312

 

N/A

 

N/A

 

 

Net sales

$

176,982

 

$

270,297

$

81,916

$

88,442

$

60,842

$

70,851

 

Average selling price per ton

 

799

 

 

 

1,043

 

2,691

 

2,505

 

N/A

 

N/A

 

Cost of materials sold2

 

141,172

 

 

223,616

 

68,795

 

77,827

 

41,163

 

55,311

 

Gross profit3

 

35,810

 

 

46,681

 

13,121

 

10,615

 

19,679

 

15,540

 

Operating expenses4

 

40,230

 

 

43,228

 

9,072

 

8,860

 

15,625

 

15,937

 

Operating income (loss)

$

(4,420

)

$

3,453

$

4,049

$

1,755

$

4,054

$

(397

)

 

Depreciation and amortization

 

3,000

 

 

2,956

 

427

 

371

 

1,352

 

1,364

 

 

Twelve months ended December 31

Carbon Flat Products

 

Specialty Metals Flat
Products

 

Tubular and Pipe Products

2019

 

2018

 

2019

 

2018

 

2019

 

2018

 

Tons sold1

 

1,010,340

 

 

1,142,371

 

141,828

 

135,587

 

N/A

 

N/A

 

 

Net sales

$

926,903

 

$

1,073,292

$

363,634

$

343.479

$

288,503

$

298,310

 

Average selling price per ton

 

917

 

 

940

 

2,564

 

2,533

 

N/A

 

N/A

 

Cost of materials sold5

 

763,549

 

 

855,942

 

310,931

 

294,553

 

205,630

 

222,459

 

Gross profit3

 

163,354

 

 

217,350

 

52,703

 

48,926

 

82,873

 

75,851

 

Operating expenses4

 

168,377

 

 

172,996

 

38,382

 

33,678

 

64,266

 

64,331

 

Operating income (loss)

$

(5,023

)

$

44,354

$

14,321

$

15,248

$

18,607

$

11,520

 

 

Depreciation and amortization

 

11,624

 

 

10,621

 

1,830

 

1,251

 

5,408

 

5,601

 

 

 

 

At Dec. 31,
2019

At Dec. 31,
2018

Assets

 

 

Flat-products

 

 

$

432,566

$

560,116

 

Tubular and pipe products

 

 

 

215,841

 

200,016

 

Corporate

 

 

 

1,148

 

608

 

Total assets

 

 

$

649,555

$

760,740

 

 

1

Tonnage is less meaningful for the Tubular and Pipe Products segment and, therefore, is not reported.

2

Includes $2.4 million of LIFO income and $3.7 million of LIFO expense for the three months ended December 31, 2019 and December 31, 2018, respectively.

3

Gross profit is calculated as net sales less the cost of materials sold.

4

Operating expenses are calculated as total costs and expenses less the cost of materials sold from the Consolidated Statements of Net Income.

5

Includes $3.7 million of LIFO income and $8.4 million of LIFO expense for the 12 months ended December 31, 2019 and December 31, 2018, respectively.

Other Information

 

(In thousands except per-share data)

At Dec. 31,
2019

At Dec. 31,
2018

Shareholders' equity per share

$

28.04

$

27.89

 

 

Debt to equity ratio

0.63 to 1

0.99 to 1

 
 

Twelve Months Ended December 31,

2019

 

2018

 

Net cash from (used for) operating activities

$

129,558

$

(50,501

)

 

Cash dividends per share

$

0.08

$

0.08

 

 

 

 

 

 

 

Richard A. Manson
Chief Financial Officer
(216) 672-0522
ir@olysteel.com

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