Universal Stainless Reports 2007 Fourth Quarter, Full Year Results
Fourth Quarter Diluted EPS is $0.65 On Sales of $50 Million Full Year Sales of $230 Million and EPS of $3.32 Set New Company Records Cash Flow From Operations Reaches Record $33.6 Million
BRIDGEVILLE, Pa., Jan. 22, 2008 (PRIME NEWSWIRE) — Universal Stainless & Alloy Products, Inc. (Nasdaq:USAP) reported today that sales for the fourth quarter of 2007 were $49.6 million compared with $55.8 million in the fourth quarter of 2006. Net income for the 2007 fourth quarter was $4.4 million, or $0.65 per diluted share, compared with $6.3 million, or $0.94 per diluted share, in the fourth quarter of 2006. For the full year 2007, sales rose to a record $229.9 million and net income increased to a record $22.5 million, or $3.32 per diluted share, compared to sales of $203.9 million and net income of $20.6 million, or $3.11 per diluted share in 2006.
The Company had forecasted sales in the range of $45 to $50 million and diluted EPS in the range of $0.60 to $0.65 for the fourth quarter of 2007.
Results for the fourth quarter of 2007 included $586,000 of other income, equivalent to $0.06 per diluted share, from the receipt of import duties, compared with $465,000, equivalent to $0.05 per diluted share, in the 2006 fourth quarter.
Nickel costs continued to decline in the fourth quarter of 2007. The impact from the change in nickel costs on the Company’s Dunkirk segment reduced gross margins by an estimated $53,000 (FIFO charge) compared with an increase (FIFO benefit) of $1.1 million, equivalent to $0.11 per diluted share, in the fourth quarter of 2006. The swing in the FIFO effect combined with lower total shipment volume reduced company-wide gross margin dollars in the fourth quarter of 2007 compared with the same period of 2006.
The Company’s tax rate for 2007 was 32.7% compared to 35.2% in 2006 due to adjustments to state income tax provisions. The impact of this rate change in comparison to the 2006 fourth quarter and full year was equivalent to $0.05 and $0.12 per diluted share, respectively. Net income for the 2006 fourth quarter has been adjusted for the retrospective application of an accounting pronouncement as detailed in the financial tables.
For the full-year 2007, cash flow from operations reached a record $33.6 million and free cash flow (cash from operations minus capital expenditures) rose to $24.8 million, equivalent to $3.67 per diluted share. This was due to lower levels of receivables and inventories. The strong cash flow enabled the Company to retire the $7.5 million outstanding balance on its PNC term loan.
President and CEO Dennis Oates commented: “Our fourth quarter sales reached the high end of our forecast which recognized volatile raw material costs and economic uncertainty as well as normal conservative year-end order patterns. While we expected nickel to be the most volatile of our costs, the magnitude of its decline in December impacted our profitability for the quarter. Nickel prices have moved higher since then and we expect their volatility to continue.
“While there is caution in our marketplace due to ongoing concern about the U.S. economy, the end markets we serve are global in scope and have solid backlogs going out for several years. Although our direct customers will continue to make periodic inventory adjustments, we expect to see improving trends through the balance of the year. We also expect our cash flow to remain strong.”
Mr. Oates added: “We have entered 2008 with a high level of optimism about our prospects. To generate further growth, we are focused on quickly developing new business opportunities. Additionally, we are accelerating efforts to eliminate waste in our operations and enhance customer satisfaction.”
Segment Review
In the fourth quarter of 2007, the Universal Stainless & Alloy Products segment had sales of $43.4 million and operating income of $3.2 million, yielding an operating margin of 7%. That compares with sales of $47.1 million and operating income of $4.6 million, or 10% of sales, in the fourth quarter of 2006. In the third quarter of 2007, sales were $55.9 million and operating income was $4.3 million, or 8% of sales, and included a charge of $772,000 to the LCM (Lower of Cost or Market) reserve attributable to the segment.
Segment sales declined 8% compared with the fourth quarter of 2006 despite a 50% increase in sales of tool steel plate to service centers and a 12% increase in reroll product sales to the Dunkirk operation and other customers. These sales increases did not fully offset a 43% decrease in sales to forgers and a 22% decrease in sales of bar products to service centers, which continued to restrain orders due in part to volatile nickel pricing and excess inventories. Operating margins were lower due to a 15% decrease in shipment volume as well as product mix.
The Dunkirk Specialty Steel segment reported sales of $18.7 million and operating income of $2.2 million for the fourth quarter of 2007, resulting in an operating margin of 12%, which included the FIFO charge of $53,000. That compares with sales of $20.3 million and operating income of $3.9 million, or 19% of sales, in the fourth quarter of 2006, which included the estimated FIFO benefit of $1.1 million. In the third quarter of 2007, sales were $21.3 million and operating income was $3.0 million or 14% of sales and included a charge of $635,000 to the LCM reserve attributable to the segment, offset by an estimated $1.5 million FIFO benefit due to the timing of surcharges and the changing price of nickel.
The 8% decline in Dunkirk’s sales over the 2006 fourth quarter reflected a 46% decrease in sales of rod and wire products, which was partially offset by a 9% increase in sales of bar products to OEMs and service centers. The decline in the operating margin over the fourth quarter of 2006 mainly reflected a 15% decrease in shipment volume and the swing in the FIFO effect resulting from the impact of nickel price changes in the applicable periods.
Business Outlook
The following statements are based on the Company’s current expectations. These statements are forward-looking, and actual results may differ materially.
The Company estimates that first quarter 2008 sales will range from $50 to $55 million and that diluted EPS will range from $0.60 to $0.65. This compares with sales of $56.2 million and diluted EPS of $1.00, in the first quarter of 2007, which included a FIFO benefit estimated at approximately $1.2 million, equivalent to $0.12 per diluted share.
The following factors were considered in developing these estimates:
* The Company's total backlog at December 31, 2007 was approximately $85 million compared to $88 million at September 30, 2007. The Company experienced improvement in order entry for its electro-slag remelt products for the power generation market and for its tool steel products, which are used in heavy equipment manufacturing. * Sales from the Dunkirk Specialty Steel segment are expected to approximate $19 million in the first quarter of 2008, with volume growth limited by high temperature annealing capacity constraints. The Company expects its new high temperature annealing equipment to be operational in the 2008 second quarter. * The first quarter 2008 earnings forecast assumes that there will be no FIFO benefit at the Dunkirk operation. It also assumes lower interest expense due to the pay down of the PNC term loan. The estimated tax rate for 2008 is 34%.
Webcast
A simultaneous Webcast of the Company’s conference call discussing the fourth quarter of 2007 and the first quarter outlook, scheduled at 10:00 a.m. (Eastern) today, will be available on the Company’s website at www.univstainless.com, and thereafter archived on the website. A telephone replay of the conference call will be available beginning at 12:00 noon (Eastern) today and continuing through January 29th. It can be accessed by dialing 706-645-9291, passcode 30027258. This is a toll call.
About Universal Stainless & Alloy Products, Inc.
Universal Stainless & Alloy Products, Inc., headquartered in Bridgeville, Pa., 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 rerollers, forgers, service centers, original equipment manufacturers and wire redrawers. More information is available at www.univstainless.com.
Forward-Looking Information Safe Harbor
Except for historical information contained herein, the statements in this release are forward-looking statements that are made pursuant to the “safe harbor” provision of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the Company’s actual results in future periods to differ materially from forecasted results. Those risks include, among others, risks associated with the receipt, pricing and timing of future customer orders, risks associated with significant fluctuations that may occur in raw material and energy prices, risks associated with the manufacturing process, labor and production yields, risks related to property, plant and equipment, and risks related to the ultimate outcome of the Company’s current and future litigation and regulatory matters. Certain of these risks and other risks are described in the Company’s filings with the Securities and Exchange Commission (SEC) over the last 12 months, copies of which are available from the SEC or may be obtained upon request from the Company.
UNIVERSAL STAINLESS & ALLOY PRODUCTS, INC. FINANCIAL HIGHLIGHTS (Dollars in thousands, except per share information) (Unaudited) CONSOLIDATED STATEMENT OF OPERATIONS For the Quarter Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Net Sales Stainless steel $ 34,020 $ 41,474 $ 164,228 $ 151,633 Tool steel 7,297 4,744 28,119 23,389 High-strength low alloy steel 6,080 6,145 25,892 16,467 High-temperature alloy steel 1,580 2,792 9,317 9,837 Conversion services 584 443 2,011 2,137 Other 72 209 369 410 ---------- ---------- ---------- ---------- Total net sales 49,633 55,807 229,936 203,873 Cost of products sold 41,154 44,001 184,491 160,722 Selling and administrative expenses 3,087 2,619 12,038 10,792 ---------- ---------- ---------- ---------- Operating income 5,392 9,187 33,407 32,359 Interest expense (128) (296) (731) (1,106) Other income 740 516 776 522 ---------- ---------- ---------- ---------- Income before taxes 6,004 9,407 33,452 31,775 Income tax provision 1,616 3,133 10,948 11,185 ---------- ---------- ---------- ---------- Net income $ 4,388 $ 6,274 $ 22,504 $ 20,590 ========== ========== ========== ========== Earnings per share - Basic $ 0.66 $ 0.96 $ 3.39 $ 3.19 ========== ========== ========== ========== Earnings per share - Diluted $ 0.65 $ 0.94 $ 3.32 $ 3.11 ========== ========== ========== ========== Weighted average shares of Common Stock outstanding Basic 6,656,783 6,516,880 6,644,374 6,451,037 Diluted 6,780,808 6,658,566 6,774,924 6,612,530 --------------------------------------------------------------------- Note: 2006 results have been adjusted to reflect the retrospective application of the January 1, 2007 change in accounting for major maintenance expenses from the accrue-in-advance method to the deferral method in accordance with the FASB Staff Position entitled "Accounting for Planned Major Maintenance Activities," issued in September 2006. The effect of the change in accounting is summarized below: For the Quarter Ended For the Year Ended December 31, 2006 December 31, 2006 As Reported As Adjusted As Reported As Adjusted ---------- ---------- ---------- ---------- Operating income: Universal Stainless & Alloy Products Segment $ 4,850 $ 4,645 $ 19,690 $ 19,674 Dunkirk Specialty Steel Segment 3,961 3,923 11,496 11,472 Intersegment elimination 619 619 1,213 1,213 ---------- ---------- ---------- ---------- $ 9,430 $ 9,187 $ 32,399 $ 32,359 ========== ========== ========== ========== Net income $ 6,428 $ 6,274 $ 20,614 $ 20,590 ========== ========== ========== ========== Diluted earnings per share $ 0.97 $ 0.94 $ 3.12 $ 3.11 ========== ========== ========== ========== BUSINESS SEGMENT RESULTS Universal Stainless & Alloy Products Segment For the Quarter Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Net Sales Stainless steel $ 21,524 $ 28,019 $ 108,535 $ 102,372 Tool steel 6,620 4,281 25,638 21,747 High-strength low alloy steel 2,382 3,141 12,764 8,177 High-temperature alloy steel 714 1,097 4,067 3,787 Conversion services 448 287 1,405 1,530 Other 66 174 295 325 ---------- ---------- ---------- ---------- 31,754 36,999 152,704 137,938 Intersegment 11,614 10,143 49,858 41,232 ---------- ---------- ---------- ---------- Total net sales 43,368 47,142 202,562 179,170 Material cost of sales 23,386 23,489 106,456 85,298 Operation cost of sales 14,730 17,295 67,286 66,806 Selling and administrative expenses 2,034 1,713 8,345 7,392 ---------- ---------- ---------- ---------- Operating income $ 3,218 $ 4,645 $ 20,475 $ 19,674 ========== ========== ========== ========== Dunkirk Specialty Steel Segment For the Quarter Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Net Sales Stainless steel $ 12,496 $ 13,455 $ 55,693 $ 49,261 Tool steel 677 463 2,481 1,642 High-strength low alloy steel 3,698 3,004 13,128 8,290 High-temperature alloy steel 866 1,695 5,250 6,050 Conversion services 136 156 606 607 Other 6 35 74 85 ---------- ---------- ---------- ---------- 17,879 18,808 77,232 65,935 Intersegment 817 1,446 4,493 4,320 ---------- ---------- ---------- ---------- Total net sales 18,696 20,254 81,725 70,255 Material cost of sales 11,531 10,949 47,905 38,705 Operation cost of sales 3,953 4,476 17,404 16,678 Selling and administrative expenses 1,053 906 3,693 3,400 ---------- ---------- ---------- ---------- Operating income $ 2,159 $ 3,923 $ 12,723 $ 11,472 ========== ========== ========== ========== MARKET SEGMENT INFORMATION For the Quarter Ended For the Year Ended December 31, December 31, 2007 2006 2007 2006 ---------- ---------- ---------- ---------- Net Sales Service centers $ 26,582 $ 25,760 $ 119,736 $ 101,510 Forgers 7,541 13,504 47,711 38,539 Rerollers 8,957 8,193 35,006 33,273 Original equipment manufacturers 4,418 4,392 18,287 18,368 Wire redrawers 1,506 3,330 6,843 9,660 Conversion services 584 443 2,011 2,137 Other 45 185 342 386 ---------- ---------- ---------- ---------- Total net sales $ 49,633 $ 55,807 $ 229,936 $ 203,873 ========== ========== ========== ========== Tons shipped 9,788 12,064 43,644 50,485 ========== ========== ========== ========== CONSOLIDATED BALANCE SHEET December 31, December 31, 2007 2006 ---------- ---------- Assets Cash $ 10,648 $ 2,909 Accounts receivable, net 27,501 33,308 Inventory 65,572 66,019 Deferred taxes 2,574 1,544 Other current assets 2,853 1,606 ---------- ---------- Total current assets 109,148 105,386 Property, plant & equipment, net 54,271 49,251 Other assets 767 584 ---------- ---------- Total assets $ 164,186 $ 155,221 ========== ========== Liabilities and Stockholders' Equity Trade accounts payable $ 13,983 $ 13,123 Outstanding checks in excess of bank balance 2,064 3,427 Accrued employment costs 5,307 4,121 Current portion of long-term debt 383 2,364 Other current liabilities 1,490 1,902 ---------- ---------- Total current liabilities 23,227 24,937 Bank revolver -- 8,392 Long-term debt 1,453 8,836 Deferred taxes 9,904 8,402 ---------- ---------- Total liabilities 34,584 50,567 Stockholders' equity 129,602 104,654 ---------- ---------- Total liabilities and stockholders' equity $ 164,186 $ 155,221 ========== ========== CONSOLIDATED STATEMENT OF CASH FLOW DATA For the Year Ended December 31, 2007 2006 ---------- ---------- Cash flows provided by operating activities: Net income $ 22,504 $ 20,590 Adjustments to reconcile to net cash provided by operating activities: Depreciation and amortization 3,731 3,337 Loss on retirement of fixed assets 40 911 Deferred tax increase (decrease) 252 (1,852) Stock based compensation expense 427 273 Tax benefit from share-based payment arrangements (958) (1,073) Changes in assets and liabilities: Accounts receivable, net 5,807 (5,345) Inventory 447 (14,621) Trade accounts payable 860 544 Accrued employment costs 1,186 1,163 Other, net (673) 2,374 ---------- ---------- Cash flow provided by operating activities 33,623 6,301 ---------- ---------- Cash flow used in investing activities: Capital expenditures (8,782) (7,716) ---------- ---------- Cash flow used in investing activities (8,782) (7,716) ---------- ---------- Cash flows used in financing activities: Revolving credit net repayments (8,392) 2,275 Long-term debt repayments (9,364) (1,555) Net change in outstanding checks in excess of bank balance (1,363) 326 Proceeds from issuance of common stock 1,059 1,585 Tax benefit from share-based payment arrangements 958 1,073 ---------- ---------- Cash flow (used in) provided by financing activities (17,102) 3,704 ---------- ---------- Net cash flow $ 7,739 $ 2,289 ========== ==========
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CONTACT: Universal Stainless & Alloy Products, Inc. Richard M. Ubinger, Vice President of Finance, Chief Financial Officer and Treasurer (412) 257-7606 Comm-Partners LLC June Filingeri, President (203) 972-0186