ZEUS - Earnings call transcript Q3 2019

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Operator

Good morning, and welcome to the Olympic Steel 2019 Third Quarter Financial Results Conference Call. [Operator Instructions]

Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor protections of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results. The company does not undertake to update such statements, changes in assumptions or changes in other factors affecting such forward-looking statements. Important assumptions, risks and uncertainties and other factors that could cause actual results to differ materially are set forth in the company's reports on Forms 10-K and 10-Q and the press releases filed with the Securities and Exchange Commission.

may which to is there per net discussion, share, diluted non-GAAP today's be adjusted references income During financial measure. this measure the company’s website. of comparable which can issued reconciliation non-GAAP on the and to A the found most this GAAP morning, financial release is press in be provided that was measure directly Today's will and archived Steel's be live Olympic available website. broadcast for replay on

ahead, today's time, Rick call, to host Marabito. go Olympic Marabito. Chief like introduce At I'd for this Officer, Steel's Executive Please Mr. Marabito? your

Rick Marabito

Thank Good us and Results. you to thank discuss Quarter you, Third morning, operator. for Olympic joining Steel's XXXX

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

quarter we net of $XXX,XXX morning, announced income or $X.XX. This third

Specialty show to quarter, for segments and resilience the Pipe was and carbon a Our and third Tube in market difficult products. which profitability continued Metals steel solid

demand, excess global pricing trade agreements, sharp demand. slowing in carbon capacity resulted uncertainty global in customer unsettled and and steel market declines Softer overall steel

beginning to business. of diversifying the We are positive see results our

sales We the segments to our our and third Pipe Tube have XX% of quarter. Specialty grown constitute Metals and in

grow had as strong Our our Specialty Metals segment share. we our continue Andrew Metals later profitability in to accomplishments market Specialty detail will the call.

and Tube Our to earnings. sales also Pipe strong segment and deliver continues

we repositioned geography. Tube Carolina continued grow and in North profitably Southeast market our to have where for particularly We that in greater share, operations in distribution Pipe participation the

countercyclical also while XX%. Carbon segment. are Tube X% in statistics, already EZ benefit included acquisitions products, of McCullough a times off pay by in were the and which the have Industries This by acquired down was metal-intensive manufacturers year-over-year, falling of prices. MSCI Flat providing Dumper, branded steel evidenced Products the market started As to two These down and sales year, we Pipe approximately our

in this the enabling strategy higher Olympic less will to service deliver with execution truly Steel returns space, us differentiate the believe of We center volatility.

steel bottom to best to the position Looking down focusing will service to forward, are our carbon we pressures, expenses, our believe generation by we debt, incrementally and cash all operating future on at sheet and of flow for balance pricing pay while providing Olympic the Steel reducing our strengthening we customers. continue exceptional

of which announce Directors. Whiting Our appointment Yesterday, Steel Popeyes have to our the declared XX Board marks Board holders cash restaurants of on Directors franchisee L. on of regular record of and is Ohio, Kitchen cash AES that quarter President December share, she Olympic Management, per paid also dividend the we of to consecutive $X.XX a Vanessa Louisiana pleased Northeastern of the of are Vanessa in is payable X. a we named December an her and of dividend. a her to the who This tremendous now XXth shareholders. one and managing our Olympic leading to contributions working look been will her David comments. experience future his is Ohio. we extensive to addition attorney lawyers corporate XXX all and to for turn the own forward a and mergers with to over the real estate top She for I Steel. Board, is in finance, has value to enhance acquisitions and Northern has She business call

David Wolfort

we a This have But similar you, experienced challenge. it Thank has is before. been market markets Rick. to

have cycles stronger and Our our emerged throughout many we always company. history, different navigated seasoned team has a

to our our And focused metal-intensive in manufacturers successfully expanded strategically business organization downstream We acquire three the our expanded strengths across of all strategically of we're and all on have integrating products. now footprint segments. of geographical through our strategy presence our

and diversify is profitable diversification thing growth clear, to demand. delivers sustained is one an our difficult and pricing challenge, grow center, Olympic our end-user strategy on is weather as both reflect and service markets and that we Steel As metal innovative helping.

As in portfolio. to There to add began these is branded our downstream immense several companies metal-intensive XXXX, strategies we for Rick reasons. indicated, opportunity in

offered, returns therefore, of provide higher than First, EBITDA businesses the businesses these profitability. impact and, and existing margins product our have an our on by nature immediate

Second, we expertise margins. expanding can to logistics income purchasing, our these in metal processing apply and our goal and businesses of further enhance with the in EBITDA efficiencies growing

already to And business finally, help distribution these our impact acquisition their performance volatility positive strategy steel as the results. recent reduce an in immediate additions our on businesses profitability. have therefore, is is and, showing This promise overall had countercyclical our

companies portfolio, compounding evaluate impact that note our we our add we are It over to for manufacturers, targets opportunities capital to to As add to and identified. have to acquisitions continue will as to and a we they to is time. of these portfolio confident to continue grow we the businesses and positive new search have secure actively are necessary our important also

to I'd call to over efforts. add that, further to the our color Greiff With like commercial to Andrew turn

Andrew Greiff

David. you, Thank

few earlier noted were Rick the Metals to and Pipe highlight the business. Tube grow segments in Specialty take As specifically during to efforts Specialty like our our our I'd moments a profitably call, and resilient market. difficult Metals to

past of Metals, quarter resulted Specialty in Markowitz, the our have two years, our targeted President strong acquisitions the Over expenditures earnings. Metals Specialty the segment capital And third leadership grow. and under Andy helped of

to as to expand allowed cut-to-length Last stainless year, addition to light-gauge line Metals, we house to processing Illinois new aluminum. opened products. dedicated square-foot we facility us XX,XXX stainless steel our acquired as tin in in our XXXX, well Schaumburg, steel offerings a our which Berlin In

our Streetsboro, added slitter location. also We a second metal specialty in Ohio

was our According significant roll MSCI steel. shipments segment XX.X%, Metals Metals stainless market Report, Specialty growth, stainless X.X%. up most our were the down while XXXX, overall Activity the flat to notably in experienced has During

our expanding our footprint. increasing processing service, of this the to decade, capabilities geographic Over almost reflection past by have to a under X%. We fabrication the stainless ability and business just and exceptional X% believe steel in grown profitably we is market on our grow share focusing from customer our

in expect our grow product. this have will we XXXX add to to Looking continued as we participation aluminum and invest talent ahead,

us Our beyond, Atlanta focus our share Mexico on profitably in specifically will our and sales locations. Detroit, and to allow grow addition aluminum our market in XXXX automotive aluminum to in commodity-grade

are results the these encouraged great we have from to expanding by diversification believe we efforts. reducing we and a seeing EBITDA are opportunity very through continue our strategy Overall, and cyclicality margins

turn I will financial quarter. the the Rich for Now call to the discuss to over results

Rich Manson

you, morning, and good Thank everyone.

things I our that review want everyone a with Before our I impact about few XXXX. remind comparisons XXXX to results,

we And first in includes Metals, also XXXX. XXXX, For not and not expenses of own we include margins own the XXXX, comparisons in shipping impacted did quarter-over-quarter which profitability. revenues were the by did rapidly the XXX prices, McCullough gross tariffs XXXX of April Berlin quarters lastly, to XXXX. which which enacted volumes, results and Industries, from XXXX operations until led increasing Section late March

compared a For $XXX of third the quarter, XX% sales with we XXXX's quarter. million, decrease of reported net

and X% XXXX, due The by performance third Metals ago, driven improved on growth the majority versus decreased sales declines with market to our prices of a versus increasing period pricing. these Selling in quarter carbon the year by was down were strong the for of same X% posted flat quarter Specialty volume, quarter third the pressures XX%. while volume business.

sales the the strong quarter Pipe as during Our with Rick Tube market, segment and results outpacing also earlier. noted provided

first X% a year. last down decrease compared the with For months, nine million, net sales $XX were

the the XX% quarter dynamics on for to was consolidated gross Industry-wide last products. steel to of margins, third put our quarter continue in carbon year. margin XX% pressure flat gross in Our pricing compared particularly

to the gross and early by of decline sharp up. in third Our were during hot-rolled Pipe margins impacted the third the Tube the XXXX, third carbon the quarter occurred XXXX. flat, the Specialty of flat Metals relatively Compared gross gross part quarter margins CRU for quarter that were were June negatively in and margins in

For million Operating months million for the year. were period $XX.X expenses to XX% year, the million with margins LIFO XXXX the the $X.X $X.XX down third and the million with XXXX the were LIFO expense of of for compared first expense income with in quarter quarter of included included or compared of $X.X compared LIFO first same X.X% quarter XXXX. the nine for results XXXX. of the XX% million, nine the income $X.X million, months, of last compared LIFO $X third quarter last in third of of And results consolidated

were nine For XXXX, compared million of year. first the expenses with operating $XXX $XXX months million last

quarter results Also, We progress for third mind expenses the did in aggressively not are to continue opportunities for expenses, keep reducing that only for we Metals. operating XXXX well include of operating remainder included and two at as any pleased during reductions of XXXX McCullough the it's quarters for with look to and our expenses additional comparison Berlin as XXXX. purposes, important in

compared with in quarter million of income quarter third of or $X.XX $XXX,XXX $X.XX share, year. net per we the For reported the per or XXXX, same last share $XX.X

earnings share in per the quarter remainder XX.X%, tax and were the per XX% third breakeven the the quarter our share was effective be $X.XX of effective for expect Year-to-date, and third in tax rate of our compared XXXX. we to rate between LIFO, XX% Excluding with XXXX of year.

September of months $X.XX the in we months for reported compared net share the in were XXth, nine of compared million, first for $X.X period per ended with million XXXX, the For nine Earnings XXXX. to XXXX. income $XX.X XXXX same $X.XX,

recognition accounts attributable XXXX. million balance XXXX, accounting new focus The million, total a The of December in assets standard. with quality and right-to-use of our to approximately was we of decrease continue at in receivable and primarily asset remained inventory lease $XXX XX, had by $XXX offset accounts to we $XX efficiently under our into sheet. inventory, converting the to reduction $XX cash. million of Moving At the September on XXst, million, strong a assets decrease receivable the compared

approximately XX% of XX less we our from quarter, the the receivables DSOs invoice days XX.X aged than For date. are reported consolidated days and of

half year-end at inventory products X.X Year-to-date, million earlier, managing and third $XX the months turns expenditures focused down Capital late first which at $XXX the $X.X As totaled in we September we and was Rick our have quarter totaled levels. X first turned million of flat the XX our XXXX. nine quarter. from times times Inventory mentioned remained we second XXXX. inventory for million, on achieved

capital conditions, this Given we anticipate expenditures fourth our for quarter. market the continue at run lower to rate

are to loan. Today, XXXX. attributable prices total $XXX of lower are decreased our $XXX quarter debt debt since decreases we has primarily and to lower million third with to million expenses. in steel $XXX and $XX decreased asset-based efforts XXst, lower inventory availability our The $XX approximately December at of approximately by million by under operating and million Our ongoing the million

debt by the We be will XXXX. anticipate level $XXX of end our below million

XX-Q, focused operating expenses which reducing months will today, indicated turning, results of details quarter approving keeping Form we the conditions, difficult nine operating Rick expenditures. first to XXXX. during inventory market on for and earlier, additional and we As cash our Later provide remained these file generation judiciously third on by plan flow our capital the

for open questions. Now operator, let's call the

Operator

from question. [Operator Englert, Instructions] proceed Martin Please Our Jefferies. with first your is question

Martin Englert

Hi, everyone. morning, good

Rick Marabito

Good morning, Martin.

Martin Englert

over received these are your we plus now, if So seen recent success flat to you end weeks, to on talk could how but the several roll on users first also Maybe prices plate. price and touch have recovering increases some being market, raising by margins?

David Wolfort

Martin, Dave Wolfort here.

price yesterday. second the is saw increase we traction. There So

good all bottom know, cycles. – not on cycles Great it's the be the so on the business. of we end high top to end a the of on As to the of cyclical and be

a of we've the in anticipation up. prices being the ordering this lowering to surge mills, times And levels. went marketplace, what huge out, a seen lead bottom went was to of close is of there inventory the So in

So that that XXXX. early in into see a extend should phase, and I XXXX, we can think clearly recovery

Martin Englert

and second recover the prices portion your ability margins that, of And to Okay. now? increase

David Wolfort

Yes.

hand-in-hand, it particularly goes with spot think I the business.

not at have resistant any should have were OEMs at shape times. we it's with the be our a business. secure who arrangements that We Again, sustainable. longer-term because would low pretty of artificially and X rotations cyclicality good to low in number the inventory numbers. We And to liked of

stainless Greiff. I'll about and little talk He a to can bit So Andrew aluminum. turn

Andrew Greiff

you, Thank David. Yes.

moving aluminum quarters. And So increase, see automotive be similar users fourth to anticipation will that with carbon, in food into the we our see fourth end segments, the and expect we XXXX consistent from in both quarter to business. that primarily equipment previous an sales

we'll So strong pretty into next expect as well. going we be year

Martin Englert

XQ a And more Flat near-term dig for little expectations Okay. that as to in volume Specialty ton seasonality there. there? as color bit the and profit Thanks per across gross of impact sequential some for all the well on and Carbon maybe expectations

Rick Marabito

Yes. Martin, it's Rick.

deal we'll seasonality So the with first.

shipments. quarter fourth we're see fourth probably down typically, X% looking I I at quarter think X% for to a normal seasonality. on third mean, quarter, we to

think I normal. pretty that's So

the I ship of a But spot a marketplace. than maybe bump up, would in with October here bit half spot expected of think keep the that, as the October David a talked declines, bit in back prices mind, price sales the in get some about, you – the moving weaker little terms in we'll little with have was of quarter.

So on we'd decline on the sequential count that volume. to X% X%

In due the expect I terms I to the was down. specifically a as David margins that think lot spot now opportunity, on as there said, on of we've going – And outlined, see to pressure And of margins, recovery. seeing October got side. the pricing clearly we'd some to start was

Martin Englert

October? spot improvement ton Okay. is, profit pressure that the way business and lagging a offsetting business challenging And per on on so contractual the partially gross to maybe think about maybe

Rick Marabito

Yes.

it. think I got you

Martin Englert

going ago, Volumes do Or a What growth then what's at both are under XQ expect see I plans seen? volumes? a happening year-on-year customers? some inventory think on possibly? on you your also your Would is of pressure contraction year be little that thoughts continuation That’s downstream I bit here. year-end a could, remain Okay. dynamics, If And plus versus touch ahead one the to this last into here. but one to the maybe we've helpful.

David Wolfort

Well, side. tackle the here. David Martin, I'll commercial

as seen First quarter. quarter material take adjusting right seen through raw the production confidence, robust although place adjusting their inventory as XXXX goods lack raw down we've goods third And people finished be through finished the the adjustment similar of same up cycles, they'll into certainly of OEMs large but not with all, inventory inventory now. that XXXX. expectation materials, as we've a in And fourth their to is an with taking back their

Martin Englert

that. for you Thank

bit So destocking on front the it yes? Probably maybe through abates supply margins, little downstream from pricing. the some of as here, plus sounds on the a chain tailwinds maybe finished the and and as elsewhere well improvement like pricing volume goods

David Wolfort

Yes.

think Martin. I so,

Martin Englert

all appreciate the that. and see Okay, the efforts diversification I And from the to there. benefits nice

David Wolfort

Thank you.

Operator

Please [Operator Phil question. Markets. proceed with next from is Instructions] question Our Capital KeyBanc your Gibbs,

Phil Gibbs

Hey, good morning.

David Wolfort

Good morning, Phil.

Phil Gibbs

in some picked definitely I in some what growth, leases I think of some commentary aluminum optimism in some you're versus I the business, – comments your of – up. expecting the terms what

it to to Is Is several about specifically understand that two had automotive to spoken business finally this are? broader-based take aluminum trying to what fruition? Just that coming set playing own this on the You dynamics how effort? quarters ago more being versus and your coming infrastructure. those within fruition? partially a Is are each other thoughts

Andrew Greiff

this of we have talked – areas, in automotive customers kind we facility, are the as talked in a targeting Well, our of to see number only but we as it's about Phil, the come certainly well. and those efforts. yes all Detroit success aluminum our not Atlanta the is, have have three into in The started And And our as Andrew. particular, on answer seen have been and to really Mexico in gains, of There that we fruition. thoughts. is about, is your

Phil Gibbs

terms of that up of started that run to magnitude. some that next have just meaning in current Or rate timing, sense seeing And the of your to expecting you're a In trying gauge I'm now, is something pick to business? year? you

Andrew Greiff

year. build to more we it's Well, XXXX. but we success, into get anticipate we'll into get as and We've going some seen we as stronger it anticipate we see be next

Phil Gibbs

the I alluded what kind I And would certainly place seeing lead right the not October to I Olympic efforts to support And come which largely lot own pretty side, relative a you’ve to Steel's of down agree came in now. have Okay. conclusion? prices to with. to a sheet sequentially we're your inventories weeks. orders and we mean inventory bit recent times in that took in of a the little fact much Should expect but think reduction we think enticing get

any that? just So thoughts on

Rich Manson

had up. I quarter here the anticipate it's at Rich. our alluded the in end inventory third we do the will Phil, a you your fourth that you down that since to quicker. here inventory million We morning, the $XXX very $XXX Sure, thought stuff our writing think gone $XXX reduce where maybe from this really ended, little were to below it we've all be going bit We quarter. And we to effort expect in seeing we do and as not from of set And down million flow and cash debt. you be keep quarter-end, saw of that's expect turning but soon. And million, of part to to inventory

Rick Marabito

Yes.

we're to to the inventory pretty turning carbon going disciplined times. of Phil, five So that goal flat stay

that got the number, but the a you in we've to close – quarter. we're not of said, bit end huge So year-end see it at have we're inventory, to what as saw than of planning movements inventory you're Rich a at the while little pretty lower going to third

Phil Gibbs

But the be number It impact this pricing to a in like terms the pricing the is falling volume? in is right right, going sounds making quarter the versus the more fourth inventory a and of component, now. up

Let's just far that is the sequential say component reduction. falls X%, volume inventory of the if price away

Rick Marabito

Yes.

got We bigger turns pricing to on You don't it. the measure want The impacts the it. of volume I leave wrong our But it. of piece impression. do piece the

the impacts. will still we're the we're into volume inventory. building inventory preponderance when talking not from turnover, planning But the on the be of So balance, you're about the price right, decrease

Phil Gibbs

Perfect, much. thanks very

Rick Marabito

You’re welcome.

Operator

the the closing call of for now question-and-answer over reached remarks the session. Marabito turn have Mr. end back We I to will

Rick Marabito

look conferences again meantime, York we next have And mining Olympic month. metals this for again, to in interest speak of this upcoming day, Once great forward being you. held New the and you with and you some quarter. talking a with in at We to you, us Thank later thank your hope Operator. joining the and morning in you Thank Steel. for

Operator

This concludes today's conference.

disconnect may lines time. at participation. your you Thank your You this for

Olympic Steel (ZEUS) 8 Nov 192019 Q3 Earnings call transcript