Signs of Improvement Steel price and shipment declines make for a challenging third quarter, though distributors manage to post improved returns. Compiled By the Staff of Metal Center News A.M. Castle & Co. Castle Cuts Losses in Third Quarter A.M. Castle & Co., Oak Brook, Ill., reported a net loss of $20.0 million in its third quarter, an improvement of 28.2 percent from the same quarter of 2015 and a modest uptick from the prior quarter. Through three quarters, the specialty metals distributor posted a loss of $78.1 million, a 12.8 percent improvement from 2015. Castle’s net sales in the third quarter totaled $124.9 million, a decrease of 17.1 percent compared to third-quarter 2015. The decrease in revenues was mainly the result of a 9.6 percent drop in tons sold per day, coupled with a 4.4 percent decline in average selling prices. The company closed its Houston and Edmonton operations in February due to the weak energy market, which contributed to the decline in tons sold. Sales year to date totaled $419.4 million, a decline of 17.0 percent. “Although we experienced the normal industry slowdown during the summer months, our transformation continued to take hold as we achieved our third sequential quarter of EBITDA improvement,” President and CEO Steve Scheinkman told investors and analysts during the company’s quarterly conference call. “While our sales tons per day decreased by 6.0 percent compared to the previous quarter, our financial performance improved. We were able to increase our gross margins to align with Castle’s traditional margins in more stable markets even in this historically low commodity price environment,” During the quarter, Castle received notification from the New York Stock Exchange that its stock price, at less than $1 per share, no longer met the listing standards. Shortly thereafter, the company announced the sale of 4.6 million shares by Raging Capital to W.B. & Co., one of its oldest shareholders. W.B. now owns about 35 percent of the company’s common stock. In conjunction with that move, Castle announced $100 million in new secured-term credit financing, which “sends a strong message to the market that Castle has the support of world-class institutions,” Scheinkman said. Looking ahead, he added, “the company is well-positioned to take advantage of the eventual recovery in industrial end-market volumes and improvement in commodity prices. We expect the aerospace markets to remain stable and for business to improve, particularly where we have long-time contracts with sub-contractors who support platforms that are anticipated to grow.” Global Brass and Copper Holdings Sales, Income Decline at GBC Global Brass and Copper Holdings, Schaumburg, Ill., reported net income of $3.9 million in the third quarter, a 43.4 percent decline from the same quarter in 2015. Net income through three quarters totaled $24.5 million, down 23 percent from the previous year. Net sales by the GBC companies—Chase Brass and Copper, Olin Brass and A.J. Oster—totaled $349.1 million during the quarter, a 5.1 percent decline from third-quarter 2015. Year-to-date sales declined 14.1 percent to $1.02 billion. Volumes for third-quarter 2016 increased by 5.5 percent to 137.0 million pounds. Volumes at Olin Brass increased following a production outage in the second quarter. Chase grew its volumes with key building and housing customers, but continued to face headwinds in the industrial machinery and equipment sector, the company said. “As predicted last quarter, the second-quarter outage at Olin Brass pushed some volumes into the third quarter. We also had solid volumes at A.J. Oster, and continued to strengthen our relationships with key customers in our Chase business,” said John Wasz, GBC’s president and CEO. In May, an equipment failure at its Olin Brass facility in East Alton, Ill., resulted in a production slowdown for several weeks. “They did a fabulous job recovering from that. On-time delivery performance is back to where it was before the outage,” Wasz said. At GBC’s distribution business, A.J. Oster, third-quarter net sales declined 3.7 percent to $72.1 million, while shipments increased 2.6 percent to 19.5 million pounds. Year-to-date sales declined 7.6 percent to $212.5 million, while shipments increased 2.5 percent to 57.7 million pounds. The company enjoyed its ninth-consecutive quarter of year-over-year volume growth. “While we are experiencing lower-than-anticipated fourth-quarter volumes, we are encouraged by the momentum being generated by our various business improvements, including organic growth initiatives. Furthermore, we believe we are well-positioned to capitalize on attractive acquisition opportunities as they materialize,” Wasz said. Among end markets, the company is encouraged by its munitions business, but sees some factory shutdowns in its automotive business. Although construction growth slowed in the third quarter, “we remain hopeful, given that housing starts are still working their way up to the 10-year average,” Wasz said. The company continues to forecast full-year volumes of 510 million to 545 million pounds, though softening demand makes it more likely the forecast will come in at the low end of the range. Olympic Steel Olympic Reports Third-Quarter Loss Olympic Steel, Cleveland, reported a net loss of $1.8 million in the third quarter, a decline from the $600,000 loss in the same period of 2015 and from the $3.6 million in earnings posted in the second quarter. Olympic’s year-to-date income of $1.0 million is a reversal of the $21.8 million loss posted in the first three quarters of last year. Third-quarter sales totaled $268.3 million, down 3.1 percent from the 2015 period and 2.0 percent below the previous quarter. Year-to-date sales of $800.2 million were down 14.7 percent from last year. The revenue declines were attributable to lower average selling prices and lower sales of carbon flat products, the company said. “The commercial discipline exhibited by domestic steel producers this year is encouraging. Higher prices for steelmaking raw materials, such as iron ore and coking coal, suggest the price increases announced by the mills in October may hold,” said Chairman and CEO Michael D. Siegal. “Looking ahead, our customers’ inventory levels remain lean, suggesting order patterns should normalize if average prices begin to rebound.” Olympic Steel’s carbon flat product sales totaled $169.4 million in the quarter, down 4.1 percent from third-quarter 2015. Tubular product sales declined 8.2 percent to $49.3 million, while specialty flat products increased 6.6 percent to $49.5 million. “The third quarter started out as expected. However, instead of business picking up after the normal July slowdown, shipping volume weakened and prices dropped by 26 percent in the quarter,” Siegal said. “It wasn’t until late October we saw shipping volumes improve and pricing stabilize at new low levels.” Siegal believes business conditions may finally be improving for the metals industry, which has experienced 20 consecutive months of year-over-year shipment declines from service centers. “After nearly two straight years of declining shipments, lead times are beginning to stretch longer, raw material costs are rising and supply discipline exhibited by the domestic mills is encouraging. In addition, inventory levels in the metal supply chain appear to be low and in balance with the lower levels of demand recently experienced. These dynamics point to an improving marketplace as we enter 2017,” he said. Russel Metals Sales Down, Earnings Up Russel Metals, Toronto, reported earnings of $16 million (Canadian) for the third quarter, an improvement on the $13 million earned in the same quarter last year. Sales for the quarter totaled $639 million, down 17 percent from 2015. Russel’s service center segment reported third-quarter revenues of $349 million, 5 percent lower than the prior-year period due to weaker demand, primarily in Alberta, related to the oil and gas industry. Tons shipped by Russel’s service centers decreased by 5 percent, while the selling price per ton was comparable to the 2015 third quarter. Gross margins improved to 22.2 percent as the company benefited from value-added processing and improved steel prices early in the quarter. Operating profits for service centers totaled $17 million, a 79 percent improvement from third-quarter 2015. Revenues in Russel’s energy products segment decreased 28 percent in the third quarter due to reduced capital projects and drilling activity in the energy sector. Gross margins decreased slightly to 15.5 percent. The company cut operating expenses by 26 percent, in line with the revenue decline. Third-quarter operating profits totaled $6 million, up from $1 million in the second quarter. Third-quarter revenues in Russel’s steel distributors segment totaled $72 million, 30 percent lower than in third-quarter 2015 due to lower demand. Gross margins increased to 19.2 percent as metal prices strengthened. Operating profits grew to $5 million from $2 million in the same period in 2015. Russel’s revenues for the nine months ended Sept. 30 totaled $1.9 billion, down 21 percent from 2015. Year-to-date earnings of $40 million were down 17 percent from the first three quarters last year. “Our earnings from operations in the third quarter were stronger than our earnings in the same quarter last year,” said CEO Brian Hedges. “In the quarter, operating profits from our metals service centers and steel distributors businesses were almost double last year. Steel prices declined late in the quarter, especially in plate products. Operating profits for our energy operations improved from the second quarter, but were 50 percent lower than the same quarter last year. While the timing of the energy sector recovery remains unclear, we remain one of the few energy product distributors that have demonstrated the ability to generate a profit from operations at the bottom of the energy cycle.” Ryerson Third-Quarter Earnings Increase Ryerson, the Chicago-based service center company, reported net income of $8.2 million in the third quarter, a 46.4 percent improvement on the prior quarter and 22.3 percent better than the same quarter of 2015. Through the first nine months, Ryerson’s net income increased 36.5 percent to $27.3 million. Ryerson’s net sales in the third quarter totaled $735.1 million, flat with the previous quarter, but down 6.9 percent from third-quarter 2015. For the year to date, its sales declined 12.8 percent to $2.2 billion, as a 0.5 percent increase in tons shipped was more than offset by a 13.3 percent decline in the average selling price per ton. Ryerson’s shipment gain for the year significantly outpaced the industry average, which declined by 6.9 percent, as measured by MSCI. “The Ryerson team performed well in a challenging environment,” said Ryerson President and CEO Eddie Lehner. “While industrial metals demand continued to contract and spot carbon sheet index pricing fell almost 20 percent in the quarter, Ryerson was able to increase gross margin, net income and earnings per share in the third quarter compared to prior year.” The metals distributor shipped 480,000 tons in the third quarter, a decline of 4.9 percent from the prior quarter and 2.4 percent from third-quarter 2015. Shipments were down in carbon, aluminum and stainless from the second-quarter, while only stainless steel shipments showed an increase from the third quarter last year. For the year to date, Ryerson’s carbon steel shipments declined 1.3 percent to 1.1 million tons, while its aluminum shipments slipped by 2.0 percent to 145,000 tons. Stainless shipments increased 13.1 percent to 198,000 tons. Lehner said the company’s end markets experienced sequential volume declines in transportation, oil and gas, construction, HVAC and industrial equipment, with consumer durable equipment the only bright spot. For the full year, gains were experienced in food processing, construction equipment and consumer durables. The pricing environment was also difficult to navigate, he said. “The increase in average selling prices was muted within the quarter, as the duration of carbon spot-market increases did not sustain long enough to become fully priced in the market. Within a 180-day period from the start of the second quarter to the end of the third, bellwether hot-rolled sheet prices rose approximately $180 per ton before falling by $120 per ton, causing service center whiplash.