| September 2007 |
| Second-Quarter Report & Outlook |
| Some Up, Some Down |
|
Following is a roundup of the latest mill and service center second-quarter conference calls with analysts and investors. By the staff of Metal Center News Sidebars
and Tables:
Service Centers
Aleris During the first six months of 2007, Aleris expanded its inventory hedging program, which is designed to protect the value of the company’s underlying inventory from significant changes in the LME. Its EBITDA for the second quarter totaled $104.6 million, compared with $102.7 million for the comparable period last year. Adjusting for its inventory hedging program, the company’s EBITDA was $128.2 million vs. $118.7 million for the second quarter 2006. The company reported continued progress in its strategic growth initiatives, completing the acquisition of EKCO Products on May 3. Its proposed purchase of Wabash Alloys was announced on July 5. For the first half, Aleris revenues totaled $3.2 billion compared with $1.9 billion last year, while its EBITDA increased 23 percent to $222.3 million. Results were significantly affected by the Corus Aluminum acquisition and ongoing productivity initiatives, company officials said, partially offset by lower sales volumes in some North American businesses, as well as $23.7 million of losses on inventory hedges. The company expects to realize inventory hedge gains in the third quarter. “We continue to be pleased with the growth and development of Aleris during the second quarter of 2007,” said Steven J. Demetriou, chairman and CEO. “Though we were adversely impacted by destocking in our distribution segment and challenging housing and transportation segments in North America, we continue to make progress on the integration of the Corus Aluminum acquisition in Europe and cost reduction improvements throughout our global operations. We now expect to achieve $65 million in synergies related to Corus, an increase from our previous estimate of $45 million.” WCI Steel: Hurt By ‘Operational Difficulties’ For the quarter, the company reported revenues of $191.0 million, or $674 per ton, on shipments of 284,000 tons, which produced an operating loss of $17.8 million. “Our performance in the quarter was unacceptable, reflecting operational difficulties, disappointing plant performance and a variety of cost challenges,” said Michael C. Buenzow, interim president and chief executive officer. Second-quarter production and sales volume were adversely affected by several factors: the inability to build inventory in the first quarter for second-quarter shipments due to the late January damage to one of two BOF vessels; the one-week scheduled outage related to the BOF baghouse installation in April; the difficult start-up of the blast furnace after the BOF baghouse installation that resulted in an additional two weeks of unscheduled outages; and the ongoing challenges of stabilizing operations at the hot-strip mill with only two furnaces operating until start-up of the walking beam furnace. Combined these items reduced production and sales by at least 75,000 tons in the quarter, company officials reported. Construction of the new walking beam furnace at the hot-strip mill remains on schedule, with start-up planned for January. In 2008, with the walking beam furnace fully operational, annual production and shipment levels should exceed 1.3 million tons. Wheeling-Pittsburgh Steel shipments for this year’s second quarter totaled 684,592 tons or $682 per ton vs. 667,944 tons or $717 per ton for second-quarter 2006. Net sales for the second quarter totaled $467.0 million, down from net sales of $493.9 million for last year’s second quarter. “Our second quarter results were disappointing,” said James P. Bouchard, chairman and CEO. “Results were impacted by unplanned outages of the electric arc furnace in April, higher than anticipated scrap costs, as well as weaker than expected market conditions.” Bouchard has been working to lower Wheeling-Pitt’s cost structure and improve its cash flow. “There are several actions that we could take to alleviate the liquidity situation,” he said. “First and foremost among these possible actions is the proposed merger with Esmark, which will infuse between $50 million and $200 million of fresh equity into the combined company. We expect to refinance our revolving credit facility in connection with the merger, which should provide substantial additional liquidity.” Gerdau Ameristeel On July 10, the company announced plans to acquire Chaparral Steel Co. for approximately $4.2 billion in cash. Chaparral is the second largest producer of structural steel products in North America and also a major producer of steel bar products. “We are excited about the strategic impact of our recently announced acquisition of Chaparral Steel. The acquisition further expands our geographic footprint and solidifies our position as a leader in the North American long products sector, offering a full range of rebar, merchant, and structural products,” Longhi said. Kaiser For the first half, the company reported net income of $52 million, up from a net income of $36 million for the same period in 2006. Net sales for the first six months of 2007 increased 13 percent to $777 million vs. $690 million for the same period the previous year. The increase in both periods reflects the pass through to fabricated products customers of higher metal prices, favorable product mix and improved value-added pricing, said Jack A. Hockema, chairman, president, and CEO of Kaiser. “The company’s excellent results for both the quarter and year-to-date reflect strong performance in both our fabricated products and primary products segments.” “The company’s core fabricated products operating income was up 46 percent year-to-date, led by robust demand for aerospace and defense applications,” added Hockema. “The newly-available capacity created by our Trentwood expansion enabled increased heat-treat plate shipments. The record results were achieved despite soft demand in ground transportation and other industrial applications.” Operating income in primary products was $14 million for the second quarter of 2007, compared to $4 million for the same period of 2006. Year-to-date operating income in primary products totaled $18 million, an approximate $6 million increase over the same period in 2006. Strong results for both the quarter and year-to-date periods were driven by increases in primary aluminum prices. Both periods also reflected improved contractual pricing for alumina as well as favorable realized hedging results. The company is currently implementing previously-announced organic growth initiatives totaling $230 million, including a $139 million investment to expand heat-treat capacity and a $91 million program to improve efficiencies in the company’s rod, bar and tube value streams. “Our organic growth program has strong momentum,” said Hockema. “The Trentwood expansion continues on schedule, and the recently announced $34 million follow-on expansion of our heat-treat plate capacity is expected to come online in late 2008. Our program to improve efficiencies in our rod, bar and tube value streams is expected to be complete by 2009. Combined, we expect these investments to significantly enhance the market position of our broad product offerings.” Service Centers A.M. Castle & Co. For the second quarter, consolidated net sales totaled $372.6 million, an increase of 35.2 percent vs. the second quarter of 2006. Net income for the quarter was a record $16.0 million, as compared to $14.1 million in the prior year. Consolidated net sales for the first half of 2007 totaled $748.0 million, an increase of 34.8 percent from 2006. Net income was $31.6 million vs. $29.9 million in the prior year. “Our aerospace business continued to grow in the first half,” said Mike Goldberg, president and CEO of A.M. Castle. “We remain bullish on both the aerospace and oil and gas industries as a key element of our targeted growth strategy. We will continue to invest in new opportunities in these targeted industries.” The company’s metal segment sales totaled $343.3 million in the second quarter, an increase of 40.3 percent vs. the second quarter of 2006. The acquisition of Transtar Metals, completed last September, contributed 29.7 percent of the 40.3 percent increase in sales. Metal segment sales for the first six-months of the year totaled $689.9 million, an increase of 39.2 percent vs. first-half 2006, 29.3 percent of which the company attributes to Transtar. “Volume in the balance of our metals business was softer when compared to the second quarter and first half of last year,” noted Goldberg. “Yet, our average tons sold per day for the first half of this year were similar to those we experienced in the second half of 2006. Despite lower volume, average metal prices for the second quarter and first half of 2007 were higher across most products, and average nickel prices in particular were higher than the comparable periods last year.” A.M. Castle netted $93.2 million in a secondary equity offering on May 29, which it used to reduce its debt. In concert with the offering, the company moved to the New York Stock Exchange. “The equity offering allowed us to rebalance our capital structure to provide the financial flexibility to execute our growth strategy,” said Larry A. Boik, vice president and CFO of A.M. Castle. “The company’s move to the NYSE marks another great milestone in our history and is reflective of our outstanding growth and financial performance over the past several years.” Olympic Steel Though tons sold decreased 1.9 percent from 343,000 to 336,000 tons in the second quarter, the company’s net sales increased 8.3 percent from the $256.2 million to $277.4 million. Net income totaled $9.4 million, an increase of 11.9 percent from the same period in 2006. For the first six months, net sales increased 8.4 percent to $536.8 million, while net income declined to $14.7 million from $16.4 million in first-half 2006. Though tons sold in the first half fell 4.9 percent to 648,000, the decline was well above the North American average. According to MSCI data, industry shipments declined by 8.7 percent during the first half of the year. Olympic officials attributed most of the company’s declines to an erosion of shipments to other service centers as part of the nationwide inventory correction among distributors, as well as a dip in its toll processing business due to the sluggish North American automotive industry. President and Chief Executive Officer Michael D. Siegal pointed to signs of an improving steel market in the second half. “Carbon imports remain low, and service center inventories were reduced for the eighth consecutive month in June 2007, leading to a potentially improving sales and earnings environment when demand is restored from the current seasonal summer slowdown,” Siegal told investors and analysts during the company’s second-quarter conference call. Olympic spent $5.5 million on capital projects during the first half, including a new stretcher leveler at its Minneapolis facility, an expansion of its Iowa facility, the purchase of new laser, plasma and machining centers and the implementation of a new information system. “On a longer-term view, we remain committed to investing in value-added services and supply solutions for our customers, including adding to and increasing our existing facilities, equipment and technology to support our growth of value-added processing and gross-margin expansion,” Siegal said. Olympic’s value-added philosophy is starting to pay off, he added, with an increase of $10 per ton in gross margins despite the slower steel market. “From the steel side, even with the margin squeeze, we’ve still been able to accomplish some substantial gross margin increase, which speaks to the strategy of getting more value out the door on the steel we do provide.” Olympic executives noted that the recent bridge collapse in Minnesota might have an effect on the already strong plate market, as government officials begin to address needed infrastructure improvements around the nation. “There is an overwhelming consensus that we have been negligent as a nation in curing our infrastructure woes,” said Dave Wolford, president and chief operating officer. “It’s a constant battle getting federal funds released for highways. Independent sources have graded bridges throughout North America as substandard, and I think you’ |
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