Olympic Steel Reports Fourth-Quarter and Full-Year 2019 Results

CLEVELAND--(BUSINESS WIRE)--February 21, 2020--Olympic Steel, Inc. (Nasdaq: ZEUS), a leading national metals service center, today announced financial results for the three and 12 months ended December 31, 2019.

Fourth-Quarter Results

The net loss for the quarter totaled $890,000, or $0.08 per diluted share, compared to a net loss of $1.3 million, or $0.11 per diluted share, in the fourth quarter of 2018. The results include $2.4 million of LIFO income in the fourth quarter of 2019, compared with $3.7 million of LIFO expense in the fourth quarter of 2018. The fourth-quarter earnings impact of LIFO is noted in the reconciliation below. Sales for the fourth quarter of 2019 totaled $320 million, compared with $430 million in the fourth quarter of 2018.

Full-Year 2019 Results

Net income for 2019 totaled $3.9 million, or $0.34 per diluted share, compared to net income of $33.8 million, or $2.95 per diluted share, in 2018. The results include $3.7 million of LIFO income in 2019, compared with $8.4 million of LIFO expense in 2018. The full-year earnings impact of LIFO is noted in the reconciliation below. Sales for 2019 totaled $1.6 billion, compared with $1.7 billion in 2018.

“As we reflect on 2019, we are encouraged by the progress we made to further our diversification strategy and strengthen our financial position,” said Chief Executive Officer Richard T. Marabito. “Our specialty metals business recorded its second most profitable year ever, and our pipe and tube business delivered solid profitability at a time when the industry was facing challenging market conditions. In addition, we acquired two downstream metal-intensive branded companies – McCullough Industries and EZ-Dumper – in our carbon products portfolio that had an immediate positive impact on our profitability.”

Marabito continued, “Our continued discipline on operating expenses and inventory management resulted in strong cash flow, which was used to invest in our business, execute on our acquisition strategy and reduce debt by $110 million, or 36%, in 2019.”

“As we start the new year, we will remain diligent in managing our operating expenses and strengthening our balance sheet to provide us with the flexibility to swiftly execute on further growth and business diversification opportunities,” Marabito concluded.

The table that follows provides a reconciliation of non-GAAP measures to measures prepared in accordance with GAAP.

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 December 31,								Twelve Months Ended December 31,
		2019				2018				2019				2018
Net income (loss) per diluted share:		$	(0.08	)		$	(0.11	)		$	0.34			$	2.95
Excluding the following item:
LIFO (income) / expense			(0.15	)			0.25				(0.23	)			0.56
Adjusted net income (loss) per diluted share (non-GAAP):		$	(0.23	)		$	0.14			$	0.11			$	3.51

Conference Call and Webcast

A simulcast of Olympic Steel’s 2019 fourth-quarter earnings conference call can be accessed via the Investor Relations section of the Company’s website at www.olysteel.com. The live simulcast will begin at 10 a.m. EST on February 21, 2020, and a replay will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Company’s policy not to endorse any analyst’s 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: risks of falling metals prices and inventory devaluation; general and global business, economic, financial and political conditions, including the 2020 U.S. election; competitive factors such as the availability, global pricing of metals and production levels (including the increased U.S. capacity), industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; 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 imposed tariffs and duties on exported steel or other products, U.S. trade policy and its impact on the U.S. manufacturing industry; 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 successes of our efforts and initiatives to improve working capital turnover and cash flows, and achieve cost savings; our ability to generate free cash flow through operations and repay debt; the availability, and increased costs, of labor related to tighter employment markets; the availability and rising costs of transportation and logistical services; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; 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; 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 recent acquisitions into our business and risks inherent with the acquisitions in the achievement of expected results, including whether the acquisition will be accretive and within the expected timeframe; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; rising interest rates and their impacts on our variable interest rate debt; the impacts of union organizing activities and the success of union contract renewals; 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; 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; 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; 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; and 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.

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. Management’s view of the Company’s 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 of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel, aluminum, tin plate, and metal-intensive branded products. The Company’s 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 30 facilities in North America.

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

Olympic Steel, Inc.
Consolidated Statements of Net Income
(in thousands, except per-share data)
		Three months ended								Twelve months ended
		December 31								December 31
		2019				2018				2019				2018
Net sales		$	319,740			$	429,590			$	1,579,040			$	1,715,081
Costs and expenses
Cost of materials sold (excludes items shown separately below)			251,130				356,754				1,280,110				1,372,954
Warehouse and processing			23,519				24,986				99,457				97,565
Administrative and general			18,786				19,515				76,863				81,107
Distribution			10,989				12,270				48,159				50,347
Selling			7,080				7,312				28,839				29,020
Occupancy			2,400				2,228				9,972				9,428
Depreciation			4,475				4,504				17,686				16,645
Amortization			346				247				1,344				963
Total costs and expenses			318,725				427,816				1,562,430				1,658,029
Operating income			1,015				1,774				16,610				57,052
Other income (loss), net			1				(185	)			(32	)			(307	)
Income before financing costs and income taxes			1,016				1,589				16,578				56,745
Interest and other expense on debt			2,304				3,101				11,289				10,681
Income (loss) before income taxes			(1,288	)			(1,512	)			5,289				46,064
Income tax provision (benefit)			(398	)			(196	)			1,433				12,305
Net income (loss)		$	(890	)		$	(1,316	)		$	3,856			$	33,759
Earnings per share:
Net income (loss) per share - basic		$	(0.08	)		$	(0.11	)		$	0.34			$	2.95
Weighted average shares outstanding - basic			11,416				11,444				11,509				11,432
Net income (loss) per share - diluted		$	(0.08	)		$	(0.11	)		$	0.34			$	2.95
Weighted average shares outstanding - diluted			11,416				11,444				11,509				11,440

Olympic Steel, Inc.
Consolidated Balance Sheets
(in thousands)
		At Dec. 31, 2019				At Dec. 31, 2018
Assets
Cash and cash equivalents		$	5,742			$	9,319
Accounts receivable, net			133,572				175,252
Inventories, net (includes LIFO debit of $598 and a LIFO credit of $3,071 as of December 31, 2019 and December 31, 2018, respectively)			273,531				368,738
Prepaid expenses and other			6,997				9,460
Total current assets			419,842				562,769
Property and equipment, at cost			416,511				403,785
Accumulated depreciation			(260,264	)			(244,176	)
Net property and equipment			156,247				159,609
Goodwill			3,423				2,358
Intangible assets, net			29,259				24,914
Other long-term assets			14,439				11,090
Right of use asset, net			26,345				-
Total assets		$	649,555			$	760,740
Liabilities
Accounts payable		$	69,452			$	95,367
Accrued payroll			13,196				19,665
Other accrued liabilities			12,850				13,395
Current portion of lease liabilities			5,589				-
Total current liabilities			101,087				128,427
Credit facility revolver			192,925				302,530
Other long-term liabilities			14,068				9,327
Deferred income taxes			12,262				13,465
Lease liabilities			20,861				-
Total liabilities			341,203				453,749
Shareholders' Equity
Preferred stock			-				-
Common stock			131,647				130,778
Treasury stock			(335	)			(132	)
Accumulated other comprehensive loss			(2,281	)			-
Retained earnings			179,321				176,345
Total shareholders' equity			308,352				306,991
Total liabilities and shareholders' equity		$	649,555			$	760,740

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 December 31
		Carbon Flat Products							Specialty Metals Flat Products						Tubular and Pipe Products
		2019				2018			2019			2018			2019			2018
Tons sold1			221,446				259,181			30,439			35,312			N/A			N/A
Net sales		$	176,982			$	270,297		$	81,916		$	88,442		$	60,842		$	70,851
Average selling price per ton			799				1,043			2,691			2,505			N/A			N/A
Cost of materials sold2			141,172				223,616			68,795			77,827			41,163			55,311
Gross profit3			35,810				46,681			13,121			10,615			19,679			15,540
Operating expenses4			40,230				43,228			9,072			8,860			15,625			15,937
Operating income (loss)		$	(4,420	)		$	3,453		$	4,049		$	1,755		$	4,054		$	(397	)
Depreciation and amortization			3,000				2,956			427			371			1,352			1,364
		Twelve months ended December 31
		Carbon Flat Products							Specialty Metals Flat Products						Tubular and Pipe Products
		2019				2018			2019			2018			2019			2018
Tons sold1			1,010,340				1,142,371			141,828			135,587			N/A			N/A
Net sales		$	926,903			$	1,073,292		$	363,634		$	343.479		$	288,503		$	298,310
Average selling price per ton			917				940			2,564			2,533			N/A			N/A
Cost of materials sold5			763,549				855,942			310,931			294,553			205,630			222,459
Gross profit3			163,354				217,350			52,703			48,926			82,873			75,851
Operating expenses4			168,377				172,996			38,382			33,678			64,266			64,331
Operating income (loss)		$	(5,023	)		$	44,354		$	14,321		$	15,248		$	18,607		$	11,520
Depreciation and amortization			11,624				10,621			1,830			1,251			5,408			5,601
											At Dec. 31, 2019						At Dec. 31, 2018
Assets
Flat-products											$		432,566				$		560,116
Tubular and pipe products													215,841						200,016
Corporate													1,148						608
Total assets											$		649,555				$		760,740

1		Tonnage is less meaningful for the Tubular and Pipe Products segment and, therefore, is not reported.
2		Includes $2.4 million of LIFO income and $3.7 million of LIFO expense for the three months ended December 31, 2019 and December 31, 2018, respectively.
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 from the Consolidated Statements of Net Income.
5		Includes $3.7 million of LIFO income and $8.4 million of LIFO expense for the 12 months ended December 31, 2019 and December 31, 2018, respectively.

Other Information
(In thousands except per-share data)		At Dec. 31, 2019			At Dec. 31, 2018
Shareholders' equity per share		$	28.04		$	27.89
Debt to equity ratio		0.63 to 1			0.99 to 1
		Twelve Months Ended December 31,
		2019			2018
Net cash from (used for) operating activities		$	129,558		$	(50,501	)
Cash dividends per share		$	0.08		$	0.08