Olympic Steel Reports Record Third Quarter and Nine Month Net Sales

Olympic Steel Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced significantly improved financial results for the third quarter and nine-month period ended Sept. 30, 2018.

Third-quarter 2018 net sales increased 38%, to $457 million, which is the highest quarterly sales posted in the Companys history. This is up from $331 million in net sales during the third quarter of 2017. Year-to-date net sales grew 26% over the prior years same period, reaching a record $1.3 billion, versus $1.0 billion in 2017. Higher year-over-year shipping volume and higher average prices drove the sales increase in both periods.

Net income rose to $11.6 million, or $1.01 per diluted share, in the third quarter, up from $2.3 million or $0.20 per diluted share, in the same quarter of 2017. This years third-quarter net income was negatively impacted by $2.7 million in LIFO expense, which reduced quarterly earnings by $0.18 per diluted share. In last years same quarter, LIFO expense reduced net income by $0.7 million, or $0.04 per diluted share. Adjusting for LIFO impacts in both periods, third-quarter net income improved to $1.19 per diluted share in 2018, up from $0.24 per diluted share in 2017. The table that follows provides a reconciliation of non-GAAP measures, to measures prepared in accordance with GAAP.

Robust demand for metals and active shipping volume continued in the third quarter, said Chairman and Chief Executive Officer Michael D. Siegal. Our diversification strategies and strong balance sheet, combined with record sales and higher margins, drove significant earnings improvement in all three of our operating segments for the third quarter and nine months of 2018.

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For the 2018 nine-month period, net income grew to $35.1 million, or $3.07 per diluted share. This more than doubled net income of $14.8 million, or $1.30 per diluted share, reported for the same period in 2017. Year-to-date LIFO expense totaled $4.7 million, or $0.30 per diluted share, in 2018, compared with $1.5 million, or $0.08 per diluted share, in the same period last year.

End-market demand is expected to remain strong in all industries that we serve, Siegal said. Our customers anticipate year-over-year growth will continue in this years final quarter, and into 2019.

The Companys Board of Directors also approved a regular quarterly cash dividend of $0.02 per share, which is payable on Dec. 17, 2018, to shareholders of record on Dec. 3, 2018.

   
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 Nine Months Ended
Sept. 30, Sept. 30,
2018   2017 2018   2017
 
(unaudited) (unaudited)
Net income per diluted share (GAAP): $ 1.01 $ 0.20 $ 3.07 $ 1.30
Excluding the following items:
Tax adjustment on retirement plan (0.17 )
LIFO expense   0.18   0.04   0.30 0.08  

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

$ 1.19 $ 0.24 $ 3.37 $ 1.21  
 

Conference Call and Webcast

A simulcast of Olympic Steels 2018 third-quarter earnings conference call can be accessed via the Investor Relations section of the Companys website at www.olysteel.com. The live simulcast will begin at 10 a.m. EST on Nov. 8, and a replay will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Companys policy not to endorse any analysts 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: the recent fluctuations in metals pricing provides risks of falling metals prices and inventory devaluation; general and global business, economic, financial and political conditions; competitive factors such as the availability, global production levels and pricing of metals, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; 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 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 newly imposed tariffs and duties on exported steel, U.S. trade policy and its impact on the U.S. manufacturing industry; the availability, and increased costs, of labor related to tighter employment markets; the availability and rising costs of transportation and logistical services; rising interest rates and their impacts on our variable interest debt; the successes of our efforts and initiatives to increase sales and earnings, maintain or improve working capital turnover and free cash flows, improve our customer service, and achieve cost savings; our ability to generate free cash flow through operations and repay debt within anticipated time frames; 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; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; 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 Berlin Metals, LLC, or Berlin Metals, into our business and risks inherent with the Berlin Metals acquisition in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; the success of our operational initiatives to improve our operating, cultural and management systems and reduce our costs; the ability to comply with the terms of our asset-based credit facility; the ability of our customers and third parties to honor their agreements related to derivative instruments; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers or customers personnel; the impacts of union organizing activities and the success of union contract renewals; 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; the ability of our customers (especially those that may be highly leveraged, and those with inadequate liquidity) to maintain their credit availability; 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; access to capital and global credit markets; 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; 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; and 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.

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. Managements view of the Companys 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 and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, and tin products. The Companys 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 31 facilities in North America.

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

   
Olympic Steel, Inc.
Consolidated Statements of Comprehensive Income

(in thousands, except per-share data)

 
Three Months Ended Sept. 30, Nine Months Ended Sept. 30,
2018   2017 2018   2017
(unaudited) (unaudited)
Net sales $ 456,976 $ 331,442 $ 1,285,491 $ 1,022,530
 
Costs and expenses

Cost of materials sold (excludes items shown separately below)

365,362 265,351 1,016,200 806,846
Warehouse and processing 25,330 20,531 72,579 65,870
Administrative and general 21,197 16,647 61,592 52,699
Distribution 12,552 10,574 38,077 31,507
Selling 7,373 6,797 21,708 19,804
Occupancy 2,348 2,150 7,200 6,651
Depreciation 3,953 3,883 12,141 12,516
Amortization   247   223     716     667  
 
Total costs and expenses   438,362   326,156     1,230,213     996,560  
 
Operating income 18,614 5,286 55,278 25,970
 
Other income (loss), net   17   (22 )   (122 )   (76 )
 

Income before interest and income taxes

18,631 5,264 55,156 25,894
Interest and other expense on debt   2,923   1,966     7,579     5,380  
Income before income taxes 15,708 3,298 47,577 20,514
Income tax provision   4,109   1,018     12,501     5,738  
 
Net income $ 11,599 $ 2,280   $ 35,076   $ 14,776  
 
Earnings per share:
 
Net income per share – basic $ 1.01 $ 0.20   $ 3.07   $ 1.30  
 

Weighted average shares outstanding – basic

  11,444   11,386     11,427     11,384  
 
Net income per share – diluted $ 1.01 $ 0.20   $ 3.07   $ 1.30  
 

Weighted average shares outstanding – diluted

  11,446   11,386     11,427     11,384  
 
       
Olympic Steel, Inc.
Consolidated Balance Sheets

(in thousands)

 
At Sept. 30, 2018 At Dec. 31 2017
(unaudited)
Assets
 
Cash and cash equivalents $ 4,267 $ 3,009
Accounts receivable, net 213,422 132,737
Inventories, net (includes LIFO debit of $662 as of Sept. 30, 2018 and $5,337 as of Dec. 31, 2017) 366,198 275,307
Prepaid expenses and other 5,219 8,333
Assets held for sale       750  
Total current assets   589,106     420,136  
 
Property and equipment, at cost 398,524 376,710
Accumulated depreciation   (239,862 )   (229,062 )
Net property and equipment   158,662     147,648  
 
Intangible assets, net 27,519 22,980
Other long-term assets   13,980     13,394  
Total assets $ 789,267   $ 604,158  
 
Liabilities
 
Current portion of long-term debt $ $ 930
Accounts payable 118,134 84,034
Accrued payroll 19,265 11,999
Other accrued liabilities   11,595     14,184  
Total current liabilities   148,994     111,147  
Credit facility revolver 304,484 196,235
Other long-term liabilities 12,724 12,048
Deferred income taxes   14,718     12,145  
Total liabilities   480,920     331,575  
 
Shareholders’ Equity
 
Preferred stock
Common stock 130,597 129,453
Treasury stock (132 ) (337 )
Retained earnings   177,882     143,467  
Total shareholders’ equity   308,347     272,583  
Total liabilities and shareholders’ equity $ 789,267   $ 604,158  
 
 
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 Sept. 30:
(unaudited)
Carbon Flat  

Specialty Metals Flat

  Tubular and Pipe
Products

Products

Products1

2018   2017 2018   2017 2018   2017

Tons Sold1

  281,225   277,426   36,606   23,253 NA NA
 
Net Sales $ 282,810 $ 215,843 $ 92,153 $ 57,554 $ 82,013 $ 58,045
Average selling price per ton 1,006 778 2,517 2,475 NA NA
Cost of materials sold2   225,407   173,560   77,928   50,083   62,027   41,708
Gross profit3 57,403 42,283 14,225 7,471 19,986 16,337
Operating expenses4   42,910   38,585   9,271   5,397   16,884   14,729
Operating income $ 14,493 $ 3,698 $ 4,954 $ 2,074 $ 3,102 $ 1,608
 
Depreciation and Amortization 2,524 2,493 341 185 1,311 1,403
 
 
Nine Months Ended Sept. 30:
(unaudited)
Carbon Flat Specialty Metals Flat Tubular and Pipe
Products Products

Products1

2018 2017 2018 2017 2018 2017
Tons Sold1   883,190   889,676   100,275   68,985 NA NA
 
Net Sales $ 802,995 $ 669,817 $ 255,037 $ 173,789 $ 227,459 $ 178,924
Average selling price per ton 909 753 2,543 2,519 NA NA
Cost of materials sold2   632,326   532,383   216,726   148,413   167,148   126,050
Gross profit3 170,669 137,434 38,311 25,376 60,311 52,874
Operating expenses4   129,768   119,122   24,818   16,458   48,394   46,435
Operating income $ 40,901 $ 18,312 $ 13,493 $ 8,918 $ 11,917 $ 6,439
 
Depreciation and Amortization 7,665 8,287 880 609 4,237 4,211
 

1

 

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

2

Includes LIFO expense for the Tubular and Pipe Products segment of $2.7 million, and $4.7 million, for the three and nine months ended Sep. 30, 2018; and $0.7 million, and $1.5 million for the three and nine months ended Sept. 30, 2017.

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.

 
         
Olympic Steel, Inc.
Segment Financial Information Cont.

(In thousands, unaudited)

 
 
At Sept. 30, At Dec. 31,
2018 2017
Assets
Flat products $ 579,602 $ 409,116
Tubular and pipe products 209,007 194,787
Corporate   658     255  
Total assets $ 789,267   $ 604,158  
 
 

Other Information:

(audited, in thousands, except per-share data)
At Sep. 30, At Dec. 31,
2018 2017
 
Shareholders’ equity per share $ 28.01 $ 24.80
 

Debt-to-equity ratio

0.99 to 1

0.72 to 1

 
 
Nine Months Ended
June 30,
2018 2017
 
 
Net cash from (used for) operating activities

$

(63,133

)

$

(46,642

)
 
Cash dividends per share $ 0.06 $ 0.06

Investor and Media Contact:
Olympic Steel Investor Relations
Matthew
J. Dennis, CFA, 216-672-0522

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