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.
