ZEUS - Earnings call transcript Q4 2018

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Operator

Good morning. And welcome to the Olympic Steel 2018 Full Year and Fourth Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the presentation. [Operator Instructions] And as a reminder, this conference is being recorded.

Litigation today’s made be Safe actual as of Private on intended and Harbor results. made XXXX the be of to forward-looking Securities statements call not predictive will are protections and Some may Act reflect Reform within the changes The or undertake in not affecting factors does update such other company changes such statements, to assumptions in forward-looking statements. are and reports and other filed Securities actual and differ materially cause on releases factors results company’s the XX-K could uncertainties set that risks, with in assumptions, and XX-Q, Important press Exchange Forms forth to the Commission.

be provided we adjusted archived our Thank the the is to reconciliation Steel’s website. was that to During will Please be today’s morning ahead. press share call, for live measure. this and diluted of income Olympic you, most go which direct discussion, broadcast can this today’s available introduce release time, found non-GAAP will A Steel’s website. in financial Rick Marabito. on this like reference Executive is issued Officer, I’d host At net replay on comparable sir. Today’s your measure per which GAAP Chief non-GAAP a measure for financial Olympic

Rick Marabito

you Operator, year fourth for Thank everyone. Steel’s us morning, and Olympic you, quarter to discuss good results. joining full Thank XXXX and

our Vice of me and President Chief morning call Dave Andrew McNeeley. Tube are Executive and this Rich Business, on Don the Manson; President the Wolfort; Operating Joining Olympic & Steel’s CFO, President, Greiff; Iron Officer, Chicago

our the XX we thank company tremendous moment of Michael for to I Siegal past take as his to leadership a Before for the years. begin, want CEO

in new Executive as the our of Chair work opportunity with the We are role have glad to Directors. his Board of him continue to to

we focused intensely Michael’s established under that as have will legacy We diversification on CEO. continuing growth tenure successful and of the remain

later to addition delivered on will seamless first as end that him landmark revenue financial the of place company CFO. consecutive for a In took at Rich we the morning. and XXXX year, a and Olympic Steel you the strong this is Rich addition, transition this results. management veteran hear executive of improved of with our is call this record year year earnings in from in many Manson’s XX-year our the profitability making third ways, the call

market share Our and pipe sheet stainless record year-over-year. XXXX. coil coil The net aluminum a to tube, in in higher consolidated all increased carbon, with combined sheet steel $X.X and volume prices billion and pushed sales higher and

three and Flat, our For Flat especially the and Carbon Metals all of year, product in segments, sales in significantly Pipe increased Tube.

In addition, both and Specialty and record Pipe achieved profitability. Metals Tube annual

softening XXXX quarter. market doubled a result consolidated the income the That’s profitable these to the in record the achieved $XX results, third operating despite company’s more XX-year than most We history. As million. last year in

fourth quarter we million For reported which of expense. share, the a loss included $X.X have of net XXXX, per of $X.XX LIFO

capital to our improve of grow well as across businesses, all operating in of efficiencies. in reinvested less and invest three our approximately expenditures. to returns continue later volatility, during fourth we LIFO the in Excluding XXXX to and detail the provide will quarter adjusted share which expense, Rich XXXX, of favorably In income compares of we fourth per the quarter $X.XX the more call. XXXX, net business with strategy higher with as million of earned $XX our We areas core our

hoppers McCullough that applications. use of Industries variety in diversifying of business the our acquisition addition, a including M&A branded executed recently April XXXX. manufacturer McCullough the and in of our activity, Metals of Berlin on growing Industries In closed XXXX industrial most and through we of January strategy is acquisitions in a self-dumping

capital expenditures acquisitions David provide both his remarks. will products. manufacturers more on branded acquisitions of detail We about other are metal-intensive our actively in exploring of and

declared marks Directors to of consecutive Xst. David Board which This the of Xth, the of call March quarter I XX, is holders March cash a XXXX on per February his dividend to XXth cash for over payable record comments. regular now turn on share, we on $X.XX Lastly a will dividend. paid

Dave Wolfort

Rick. punctuated a accomplished great Thank and deal Officer. role We his new into Rick by you, Marabito of seamless as as Chief the XXXX, Financial in CEO Manson into Rich his role transitions new

had on further which leadership ability our several execute We long-term changes, have also vision. to the other team’s senior strengthens successful

admiration fourth the of last working had Michael generation to in dedicated service. now Then of the itself years So old. before of XXXX on want at I public I years a with year, accomplishment. engineered of appreciation Thank offering of Michael Rick we together past Mike our years the spent right a XX accomplishments Siegal by profound acknowledge into and Siegal’s Marabito XXXX. I generational quarterbacked mutual has of get Siegal our like many company offer years which quarter over pleasure XX basis. is our my entire significant successfully along founding the you, his Michael have XX working business in and Michel. a the leadership enterprise, daily buyout

Schaumburg, process XXXX And square our operational and as This in invested adding building Now back Rick a Voss we cut-to-length XXXX the million light $XX let by Herr fourth Capital exclusively became me XX,XXX expanding to included noted, January metals. XXXX. into expenditures quarter. business. line get Illinois during feet our new and into

The laser Iron Chicago, new fiber in We are & adding productivity. in our Arsenal improve a Illinois optic Cleveland. Tube value-added and margins Chicago lasers and lasers Romeoville, increase and Iowa, to new tube

in business Streetsboro, support facility over to our installing rotary Specialty new shear We in -- are Iowa to our which a reduces cost. summer, productivity and stainless temper Iowa adding facility improves a mill in Integrity a steel second slitter Ohio growing the and our division at Stainless, Metals

more ample million growth new success Berlin XX further marks offerings, bit the into prime cross-selling growth capital adding allows with a manufactured and branded enhance The see our is advantage the processing reduce markets additional us acquisitions that opportunity to metal-intensive further to our metal-intensive business fed and it product we by manufacturing to volatility. credit expenditures our January provide of supports as profitability of our and of such in strategy branded acquisition strong the emphasize our growing our our line customers core. manufacturers, In We transactions. product business had McCullough want is invest our accelerates entry complementary facility addition an metals transaction Metals balance steel the year. were downstream acquisition number to It’s in acquisitions core and revolving by challenges. smartly continuing new And to to businesses, without to for which with part strategy. of of I synergistic $XX with of part during also accomplishments, and wasn’t and our of pursue expanded Industries, diversify XXXX tuck-in to all purchasing, notable logistics a resources product our and us opportunities. The while business. three X, of effort take This our announced this sheet on strategy overall expertise XXXX, stainless

XXXX. quarter. margins Hot third our began quarter, $XXX pricing fourth ton into late by we quarter headwinds experienced the in that in the early During impacted acceleration the of gross CRU a The continued Roll eroded and fourth as during an quarter, first negative headwinds quarter have pricing fourth

steel the of emphasize Union, European to and face these has product tariffs authored XXXX call by Canada in trade for counter focus want in and face metal-intensive additional business will cost focusing the inventory whose been variable responsible to by disputes to are In the our With such are that, capital in are reduce that to lower XXX. as move being for branded through volatility operating that we growth To headwinds, and local review. the I with by advantage We challenges expenses our from trade profitable of will we countries, McCullough turn low counteract customers also stocking into we our we financial evaluate aware ways and distribution on expenditures diversify continuing and we locations on conclusion, Section over our co-active and manufacturing to and and the recent XXXX. acquisition. provide global close continue turnover the to reducing disrupted product I Rich implementation planning improving are well for challenges mix

Rich Manson

We Thank by noting to had upon so you, of am call forward excited of CFO I and the building we and $XXX revenue during be as role fourth everyone. sales new record allow morning profitability I reported to our quarter good look and XXXX, my million the David, me comments. strong to on during those XXXX. achieved Rick stepping to expand began into Earlier record foundation.

quarter million Our or revenue XX% XXXX. of $XX fourth was the up from

up our was mix XXXX, $X.X total sales in best reflects Specialty For XXXX, record reported strategy the operating margins and we Carbon profitability our of revenue record XX% three segments. $XXX and or in in year. product XXXX. results. reported segment is The Specialty earnings in XX% mix Metals of sales volatility year annual Flat-Rolled offerings XX% which All from XX% record to our record our our for Tube and reduce resulted to Pipe third diversify and billion, million revenue the Metals Tube. Flat, year, Pipe and Carbon segments the in was full And company improve sales our The their in report and our

per a net loss of $X.X For share. or XXXX, the $X.XX quarter reported of fourth a we million

or we in excluding earnings charge, our share million that our indicated quarter LIFO the $X.XX in results $X.X LIFO a per fourth FIFO as However, a basis. charge, are morning, this include earlier release on non-GAAP a we

XXXX, we $X.XX per During million reported net income the $X.X a of quarter fourth share. or

results fourth $X.XX adoption items Tax exclude related share the in included Act income of the well XXXX. XXXX. as of one-time $X.X adjustment described per as non-GAAP adjustment, on one-time in we a and of those Job quarter basis If of Cuts a of the However, our release, LIFO lost we the that other earnings and million tax to

a $X.XX Please times XXXX XXXX, earlier or So the earnings page non-GAAP per morning. share that year-over-year fourth earnings. on and earnings XXXX share two we of was basis in on basis year the are on full our release stronger the this see reconciliation a results were $X.XX for issued quarter per X our of non-GAAP

The metal. on efficiently to we we of times. million receivable already XXXX attributable robust and increase was XXXX. XXXX balance year-over-year XX, XX.X Our bolstered At we higher world our $XXX our focused the cash. reported for to over And growth assets XXXX, December Flat in of primarily further earnings into and remain capital accounts inventory total our higher $XXX assets our turned December needs, prices fund and sheet. had days for XX, million or converting We increase working strong inventory X.X DSOs

low of months, few facility advantage credit both us changes made a in cost past to and This base few allows the borrowings. allow invest expenditures asset Over capital we strategic to us to acquisitions. our to take

in So million take and revolving of of the of with $XXX for as million capital completing November, $XXX million we from utilizing our the the $XXX and credit advantage high all-time The an of after at currently facility $XXX borrowings availability availability. fully size working acquisition. million a year assets. sits increased availability finished approximately million million lending the We to of to $XXX is McCullough company our $XXX

$XX Additionally, borrowings. a advantage current our five-year X.XX% of LIBOR environment and swap into we interest in million January XXXX, rate and rate took interest the of entered of

this provides borrowing acquisition and currently in that year end, borrowing was million low our interest swap is our toward rate effective interest ratio At so EBITDA X.XX%, was debt-to-FIFO We rate, EBITDA X.XXXX X.XXX. plus that $XX We rate growth strategic are interest advantage deploying FIFO capital debt-to-equity rate and organic a X.XX%. on us activities. rate the at believe our LIBOR

flow used to forward depreciation tax our capital we revolving keeping cash free by looking to down and XXXX cash immaturity to approximateXX.X% turnover The reducing capital, working below be to XXXX, expense. our our pay So %. expect and rate credit flow facility expenditures XX.X increasing expect generate our we annual will to

additional our for we provide details our which later Form today, to XX-K operating will Finally, file results on XXXX. plan

let’s Operator, the questions. that, with call Now, open for

Operator

the from with is question of Jefferies. first Martin Englert Our Instructions] line [Operator you. Thank

Martin Englert

Hi. Good morning, everyone.

Dave Wolfort

Good Martin. morning,

Rick Marabito

Good morning.

Martin Englert

in margin also You in then pressure XQ? in and call margins our gross over XQ XQ incrementally seeing XQ, than the quarter-to-date lower what were out would carrying you

Rick Marabito

November its October accelerate the quarter Rick. the through pressure to prices Obviously December. saw margin we as fourth Martin, from the to dropped,

are where think I to in we is similar start and we turning pretty is, are margins started December expectation the ended had as improving. our we to January, that going and

and of if the So, improving kind early them then bottom were the quarter you I’d we at that to continuing a it into get had of say drop to kind would of through start in margins look February here fourth now. graphically, expect

Martin Englert

Okay.

inflection mid-month though as you of positive area? So, yet a that haven’t seen

Rick Marabito

No.

Martin Englert

on can thinking… last provide And you. and you purchase XXXX, then, more the that Thank then EBITDA Okay. how McCullough the detail regarding you contribution price, with year, for sales acquisition, are

Rick Marabito

Sure.

Martin Englert

about segments … the amongst allocating there? that

Rick Marabito

Yeah.

early a but What press So I release we you we numbers pretty from impactful it’s acquisition. the you that asking January, press made and absent think of are in release me acquisition, tell some can obviously, very small is, about. a where a

they make described, hoppers. self-dumping we As

We incredible can have bring manufacturing of got we that process. type to synergies that a

I being think will of up will was have synergies will much our that it purchase of wasn’t we as through processing bring McCullough we bring concept a -- on base center and/or purchasing on XX-Q top in really really driven stage that them and able types existing the invest that, advantages call of price in talked logistical example of of then, be supply carry. we of first our and is perfect that returns on first included out to in today from add CapEx higher but already by are was certainly these probably some future lot service the so you of -- advantages, having the generic some inventory, we in purchase that Cleveland our the of disclosures that. first to warehouse the for do And you terms our price, terms we supply the when $XX quarter see it a would and acquisitions in the able quarter. in release earnings we million, We

continue of excited making the lot and of think pretty are type to there’s different down it the of similar in about that We model. we also McCullough for a acquisitions path businesses opportunity us

of disclosing around given it, thanks what parameters size the are other the it, not all So it’s but question, Martin. that’s for the about, obviously, financial we

Martin Englert

appreciate I it.

Rich Manson

all So forward up McCullough Carbon the going one … were results thing the to that, add Rich Flat is in

Rick Marabito

Oh! Yeah.

Rich Manson

think the was and … I part question. that Martin’s of last

Rick Marabito

you, Rich. Thank Yeah. Yeah.

Carbon So it segment. will into Flat the up roll

Martin Englert

hear had Got the things did number circling done liquidity a it. there revolver million post to back and change acquisition? the on, of I And you then there you just on currently of you call the you touched $XXX have liquidity there, it

Rich Manson

Rich. Yeah. Correct. Martin, it’s

We are -- about million seeing $XXX about million, currently. $XXX

Martin Englert

one your so if then demand I environment you could if activities are And there, bit seeing from the one volumes little that. of end purchasing for you add markets? other the regarding end and users, what Thanks various a year-to-date Okay. color now far various with amongst maybe right could give

Rick Marabito

David, Sure, Martin. you Martin. that take about how if from one

Dave Wolfort

Sure, customers signaling for our the single-digit growth. Quite growth XXXX question. large double-digit for to frankly, Thank very are you much high OEM Martin. low

into more the and we January, only of which production. agriculture, the bullish head going this growth and all XXXX tweaked the large sluggish are automotive, late environment at growth. of XXXX’s business with see end OEM are in So compounded week. continuation industrial is general, Across that from Board, CRU start incline and is beginning the But XXXX. juggling tail and that customers a to We of was neutral QX our all in production it’s construction, its XXXX of raise signaling in

Martin Englert

Okay. all detail Thanks for that folks.

Operator

are Gibbs with of Our next Phil from KeyBanc. questions the line

Phil Gibbs

Hey. Good morning.

Rick Marabito

Good morning.

Phil Gibbs

with and if that likes it’s the decent others own end destocking destocking of level more questions have having But of thorough. and are. you sounds cat a of year and and was of on it seems like equation, off some start just slow outlook. elaborating my a the bit deer year, took somewhat He very Martin and side demand little got a efforts some here transitory user we maybe almost like your the to high got

all kind So here of I am Cities Tale hearing from a Two morning. of you this

So reading I correctly? just wanted that were to see if we

Rick Marabito

Yeah.

optimistic So, think David elaborated I really market about OEM Phil, as I been demand as are has described, spot on. think our the soft we David

cyclicality move spot and the and that happens. of normally I through off as think we up tapers will spot normal down market the pick buying market the

demand So that good to are as we to customers at start growth looking And us, see optimistic we we pick are and at what we spot looking we business here. are demand some would are to year-over-year, David as going are the expect up described. telling our see

kind that in and are the optimistic you as is that tale growth. dropping I seeing And the good the to good that down around of typical. cities. year we So, were fourth cyclicality lay price I and quarter the got pretty a alluded our of are a was of with Obviously, think, end start Year, year-over-year accentuated the are think planning moving news then normal the the little you But, plus two customers we demand, prices bit. combined New of maybe for of overall,

Phil Gibbs

Okay.

I but I following as important, think it up. Thanks. quarter the wasn’t one, another have might had

Rick Marabito

Thank you, Phil.

Operator

you. Thank Singular with Research. Instructions] question lines next the Our Sakai [Operator from is of Chris

Chris Sakai

Hi. Good morning.

Rick Marabito

Good morning, Chris.

Chris Sakai

questions most it do exit sort as far how where been going here, Most have to the this the XXXX, year? from will for back that to But of margins see have my gross give idea going asked you do you -- be as of that’s of where some already. how my

Rick Marabito

Sure.

margins and little and So, about I to the into low first quarter a the point quarter we start think margins saw really the we fourth the talked their hit bit the first in quarter.

will then, of first will the now come have that that get we and looking we stable to the seeing of of that a and have the the start be we environment gross we price pricing normalized we what come back as into more quarter fourth last that and a we and ton we obviously consistent spikes half into highs will back be the and anticipate and would $XXX a first little normalized I margin first more our expect environment, see think, to off think would XXX consistent are environment the we year for some margins as forward. a is of lows into normalized and will pricing margins more us, the $XXX the move year. of settling I We at move optimistic at of half a rest And are in from we the quarter think in we driven back ourselves I more Section margins think off quarter saw quarter.

a the we be see then, and slower I you synopsis in rising quarter normalized similar the pretty to levels, think first will told fourth I would start of quarter, the to margins on the So them about. beginning more

Chris Sakai

Okay. Thanks a lot.

Rick Marabito

You are welcome.

Operator

is the line Englert Our Jefferies. next question Martin with from of

Martin Englert

Sure. Thanks for the follow-up.

the On for headwind this was notable LIFO quarter. that a accounting

Rick Marabito

Yeah.

Martin Englert

what guidance, are Any here? provide expecting you kind XQ in you on of can

Rich Manson

Yeah. Martin, it’s Rich.

our I we the market think expect ahead. of the that, we hoping little is are changes do full would we The that, quarters we income thing the kind when LIFO see that bit estimate for it note year. probably LIFO here, in a of as to to one

So not order benign. as wouldn’t million LIFO more look we first little XX, anticipate what charge December I to forecasting we $X.X XXXX first to am as are is a quarter. I at a kind But like. look effect, just going of the always in the

Martin Englert

targeting think, are looks are quickly, Okay. be you to Thanks Q-on-Q. What some here inventory working capital for destocking volumes, inventory, value improvements I really that. there, like stepped And dollar with there’s there? and thinking you going then, up plans

Rick Marabito

Yeah.

on inventory. target some have got improvements We

for inventory talked turnover I times. X.X Rich our So was ‘XX, which about believe

we pretty turn I our faster in will feel comfortable inventory and We XXXX. will target

I like opportunity up fourth pricing pricing impact. inventory to our to but we The inventory and the inventory volume down about up half quarter in a my slightly pick think Pipe year caused fourth much saw actually we half actually expectation on the inventory half reductions dollars, to as the a did the about quarter. the volume turn the a up in the and the on terms tick in impact turn. you see take Tube of Martin with in LIFO Of note, some volumes of the will through turn a is decreased inventory. on see our move a impact actually we The we continue pick have and first

Martin Englert

then around CapEx D&A for Okay. you you touching And the Thanks say around, of the for that. did or budgeted D&A just below quickly on year? noted kind

Rich Manson

Yeah. for the between Martin, range the we we so is of somewhere XX% to I less cap probably than to depreciation the in XX% depreciation, of year, to think expect million would that. million are $XX be to $XX forecasting going be which somewhere

Dave Wolfort

think about is million a it. $XX to Probably, good round number

Martin Englert

Okay. Thanks the detail there other for folks.

Operator

comes KeyBanc. next Leshock from of with line And our question the Michael

Michael Leshock

Hey. Good morning.

how seeing kind the the if savings Just buckets thinking are we in where that about you of same could wondering be quarter? should then freight in out. about you are pressures expense operating reductions, break in vein, terms that and And of subside this the

Rick Marabito

impact really we middle year. of last part the the saw inflation So, hit the of freight, in

a We it third freight into starting relatively quarter fourth the have in and the market distribution XXXX. stable seen stable relatively planning market quarter for and for --

So much is similar pressures probably as some saw terms XXXX, of into what on half going the in year I labor. We inflationary rates of same. pretty you the tell back freight

So of sort summer going settled part peaked, that in. also the of has the middle I in year, too the that think into

third recent think going be forward, to quarter consistent are. what seen more So fourth have our quarter rates in the rates and labor run pretty you will I

where operating believe I the our will think we we where to that can think to start are admin we we are other yield move operating efficiencies, of grow I some as we some terms expenses, topline at savings In grow opportunities through working got we And business. spot some warehouse, the and gain XXXX. as have also I in we continue on, and

some think surges had labor. those of unlike XXXX where volume, high the point to at we trying I in access during surges of saw meet point are to we equilibrium and here in a we

us this operating labor that some the grow of into smoothing really we to leverage year I as allow will expenses. think

Michael Leshock

Okay. Great. Thank you.

Operator

you. Thank

the comments. We management have over no further floor any for back questions like turn at I’d closing this to to time.

Rick Marabito

we Operator. call to your Well, our Have spring. joining forward for and in Olympic we this on day. appreciate look thank morning you. quarter everyone. this Once sharing again us first Thank you with you, Steel great results our interest and you you, Thank a

Operator

This concludes teleconference. today’s

may disconnect this time thank participation. You you and your lines for your

Olympic Steel (ZEUS) 15 Feb 192018 Q4 Earnings call transcript