LONGVIEW, Texas, Feb. 14, 2019 — Friedman Industries, Incorporated, headquartered in Longview, Texas, is a manufacturer and processor of steel products with operating plants in Hickman, Arkansas; Decatur, Alabama and Lone Star, Texas. The Company has two reportable segments; coil products and tubular products. The coil product segment consists of the operations in Hickman and Decatur where the Company processes hot-rolled steel coils using temper mills and cut-to-length lines. The tubular product segment consists of the operations in Lone Star where the Company manufactures electric resistance welded pipe, provides pipe finishing services and distributes pipe.
The Company announced today its results of operations for the third quarter. For the quarter ended December 31, 2018 (the “2018 quarter”), the Company recorded net earnings of $664,773 ($0.09 diluted earnings per share) on sales of $43,326,080 compared to net earnings of $161,271, as adjusted for the change in accounting principle discussed below, ($0.02 diluted earnings per share) on net sales of $28,033,521 for the quarter ended December 31, 2017 (the “2017 quarter”). Effective April 1, 2018, the Company changed its method for valuing prime coil inventory of the coil segment from the last-in, first-out (“LIFO”) method to the average cost method. The effects of the change in accounting principle from LIFO to average cost have been retrospectively applied to the quarter ended December 31, 2017 results. The Company believes the average cost method is preferable as it more closely resembles the physical flow of our inventory, it better matches revenues with expenses and it aligns with how we internally manage our business. As a result of the retrospective application of the change in accounting principle, certain financial statement line items in the Company’s consolidated balance sheet as of March 31, 2018, consolidated statement of operations for the three month and nine month periods ended December 31, 2017 and consolidated statement of cash flows for the nine months ended December 31, 2017 were adjusted as disclosed in Note B – Change In Accounting Principle of our quarterly report on Form 10-Q filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 14, 2019.
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COIL SEGMENT OPERATIONS
Coil segment sales for the 2018 quarter totaled approximately $28,731,000 compared to approximately $22,410,000 for the 2017 quarter. The increase in sales was driven by an increase in the average selling price associated with higher hot-rolled steel prices for the 2018 quarter compared to the 2017 quarter. Sales volume decreased slightly from approximately 33,500 tons in the 2017 quarter to approximately 31,500 tons in the 2018 quarter. Compared to the second quarter, third quarter margins contracted due to the price of hot-rolled steel declining significantly during the third quarter which resulted in downward pressure on selling prices. Additionally, higher cost inventory on hand flowed through cost of goods sold during the third quarter. Management expects continued margin pressure for the fourth quarter but expects the trend to reverse for the first quarter of fiscal 2020 if recent price increases from domestic steel mills gain traction. Management expects fourth quarter sales volume for the coil product segment to slightly exceed the third quarter volume.
TUBULAR SEGMENT OPERATIONS
Tubular segment sales for the 2018 quarter totaled approximately $14,595,000 compared to approximately $5,624,000 for the 2017 quarter. The increase in sales was primarily driven by an increase in sales volume with an increase in average selling prices being a secondary contributor to the increase. Sales volume increased from approximately 8,500 tons in the 2017 quarter to approximately 20,000 tons in the 2018 quarter. Compared to the second quarter, third quarter margins contracted due to the same circumstances mentioned for the coil segment above. Management expects continued margin compression into the fourth quarter associated with these factors and additional pressure on selling prices due to an increased presence of foreign material associated with import quotas resetting at the start of 2019.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and such statements involve risk and uncertainty. Such risks and uncertainty are also addressed in our Management’s Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including the Company’s Annual Report on Form 10-K and its other Quarterly Reports on Form 10-Q. Forward-looking statements include those preceded by, followed by or including the words “will,” “expect,” “intended,” “anticipated,” “believe,” “project,” “forecast,” “propose,” “plan,” “estimate,” “enable,” and similar expressions, including, for example, statements about our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity and trends in the oil and natural gas industry. These forward-looking statements may include, but are not limited to, future changes in the Company’s financial condition or results of operations, future production capacity, product quality and proposed expansion plans. Forward-looking statements may be made by management orally or in writing including, but not limited to, this news release.
Forward-looking statements are not guarantees of future performance. These statements are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Although forward-looking statements reflect our current beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements.
Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, changes in the demand for and prices of the Company’s products, changes in the demand for steel and steel products in general and the Company’s success in executing its internal operating plans, including any proposed expansion plans. Accordingly, undue reliance should not be placed on our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.
For further information, please refer to the Company’s Form 10-Q as filed with the SEC on February 14, 2019 or contact Alex LaRue, Chief Financial Officer – Secretary and Treasurer, at (903)758-3431.