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6-2011 First-Quarter Report & Outlook: Service Centers
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Service Centers Start Year Strong 

By the Staff of Metal Center News

In their first-quarter conference calls with analysts and investors, executives from three leading service centers report improved profitability.

A.M. Castle
Sales Gains Drive Profits
A.M. Castle & Co., Franklin Park, Ill., returned to profitability during the first quarter, posting a net profit of $2.7 million. The specialty metals distributor had losses of $4.6 million in the same quarter last year, as well as a $1.7 million loss in the fourth quarter.

Castle’s net sales totaled $272.8 million for the three-months ended March 31, 22.3 percent better than the $223.0 million in the first quarter of 2010.

Sales in the company’s Metals segment were $244.6 million, 22.5 percent higher than last year. Metals segment tons sold per day were up 17.7 percent from the first quarter of 2010 and 12.3 percent from the fourth quarter of 2010.   

“Sales volume was strong for the quarter, reflecting continued improvement in demand within several key end-use markets including oil and gas, mining and heavy equipment, and general industrial markets. Sales growth gained momentum throughout the quarter with March volume per day growing 8.9 percent from January, making March our strongest volume month on a per-day basis since January of 2009,” said Michael Goldberg, president and CEO.

Castle has been quiet on the consolidation front for the past several years, but is exploring opportunities to grow through acquisition. “We’re very focused around certain end-use markets, such as aerospace, oil and gas, and heavy equipment. Our orientation is to look through the market lens rather than the geographic lens,” Goldberg said.

He expects underlying demand to continue to improve during the second quarter, while prices appear stable. “Therefore, we expect further sequential sales growth and increased profitability during the second quarter, and we are optimistic about our opportunities to expand our share of the market as the economic recovery progresses.”

Goldberg noted that virtually all of the signs— demand, pricing, customer confidence, capital spending and inventory in the chain—point to a healthy business environment in the near future. Additionally, he pointed to the macroeconomic trends, such as the PMI indexes, which have been trending positively for more than a year. “If prior correlations hold true, we believe the recent PMI trends bode well for continued expansion of our business into 2012,” he said. 

Olympic Steel
Sales, Profits, Facilities Expand
Olympic Steel Inc., Cleveland, enjoyed a 75 percent increase in sales during this year’s first quarter, compared to the same period in 2010. The sales jump resulted in profits of $10.3 million, well ahead of the $1.7 million during the same quarter of last year. The quarter was a turnaround from the $1.6 million loss in the previous quarter.

“We are extremely pleased with our strong first-quarter sales and earnings, our best quarterly results since the third quarter of 2008,” said Olympic Steel Chairman and CEO Michael Siegal. “We continue to gain market share, and we are experiencing strong momentum as the industrial recovery continues.”

Olympic reported a 43 percent increase in quarterly shipments—well ahead of the 23.5 percent jump in industry steel shipments reported by the Metals Service Center Institute. “We quantify that [increased shipments and market share] as a flight to quality. The large OEMs recognize the strength of Olympic’s balance sheet and our willingness to locate factories close to them,” said David Wolfort, president and chief operating officer.

About 14 percent of the company’s revenues came from its value-added processing in the first quarter. Olympic is committed to growing its fabricating processes. “We have a metric of trying to get our fabrication processing up to close to 20 percent of the mix over time,” Wolfort said.

Olympic’s sales performance has been strongest in Middle America and slightly weaker on the East Coast. “The customers in the Midwest—farming and mining manufacturers and earth movers—are very strong. Our facilities in Iowa and Minnesota are pushing the limits of their capacity,” Siegal said. “The Southeast is a little weaker in terms of demand, and we have some capacity availability in the New England markets, as well.”

In other news, Olympic is buying one new facility and leasing several others, expanding its operating space by approximately 300,000 square feet. The company recently completed the previously announced purchase of a new facility at the site of United States Steel Corp.’s Gary Works in Indiana. The new location, which totals approximately 177,000 square feet, will house the company’s new temper mill and cut-to-length line, and is expected to become operational by year-end 2011.

“We are pleased to execute on our geographic growth strategy and provide more timely delivery options and a greater range of services to our customers,” says Siegal. “It is our intention to continue to seek opportunities to increase our national supply chain. Being closer to our customers, with more timely deliveries and smaller quantities, is even more critical when distribution fuel cost constraints exist.”

Olympic is also in the process of leasing new facilities in Kansas City, Mo.; Quincy, Wash.; St. Paul, Minn.; and Monterrey, Mexico. “The fact we’ve been in Mexico a long time without brick and mortar speaks well to our ability to penetrate the market from a long distance. Even though it’s a small facility, having the brick and mortar in Mexico is probably the most profound of the investments we’re making in terms of real long-term growth opportunity,” Siegal said.

Russel Metals
Favorable Market Conditions Lead to Good Results
Russel Metals Inc., Mississauga, Ont., reported improved first-quarter 2011 earnings of $33 million on revenues of $658 million, up from earnings of $9 million on revenues of $527 million in the 2010 first quarter.

“All of our operations capitalized on favorable market conditions as volumes increased and rising steel prices that began in the fourth quarter of 2010 and continued into 2011. Strong oil prices led to increased drilling rig activity for oil in the energy sector and offset the lower conventional gas-
related drilling activities due to continued low gas prices. We are focused on keeping our inventory position low and our on-order position as short as possible due to concerns about price volatility,” said Brian R. Hedges, Russel president and CEO.

Revenues in Russel’s service centers segment increased 30 percent to $364 million for the first quarter, vs. first-quarter 2010. Rising steel prices increased the company’s gross margins by 2.5 percent, to 25 percent for the quarter. Operating profits of $36 million were more than double 2010 operating profits of $15 million, Hedges said. n

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Thursday, November 20, 2014