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Service Center First-Quarter Financials

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Service Centers Muddle Through North America’s distribution companies manage decent results despite flat sales and declining metals prices during the first quarter. Compiled by the Staff of Metal Center News Global Brass and Copper GBC Profitable Despite Declining Shipments Global Brass and Copper, Schaumburg, Ill., reported net income of $8.1 million during its first quarter, a decline from the $9.7 million during the same period of 2014. Net income in the prior quarter was $2.8 million. GBC’s net sales during the quarter declined 9.8 percent to $400.2 million. Sales were up from the $390.3 million in fourth-quarter 2014. The company’s shipment volumes declined 4.2 percent to 128.6 million pounds compared to the first quarter of 2014. The decline was attributed to lower demand in the munitions market, plus a decline in shipments to the automotive market, partially offset by increased demand in the building and coinage markets. “Our first-quarter results reflect continued progress in our cost management, productivity and commercial growth and pricing initiatives, which led to improved profitability and cash flow in spite of softer volume. The decline in volume within the munitions segment was expected due to the anticipated rebalancing of the supply chain,” said GBC President and CEO John Wasz during the company’s quarterly conference call with analysts and investors. By segment, volumes at Olin Brass declined 11.2 percent, while Chase Brass’ volumes were up 4.1 percent. A.J. Oster, the company’s processing and distribution business, saw volumes increase by 4.0 percent to 18.1 million pounds during the first quarter. The increase came despite an inventory correction and some slowing of automotive orders as a result of customers buying ahead at the end of 2014. During the quarter, the company sold its 50 percent share of the Dowa-Olin Metal Corp. to its Japanese venture partner, Dowa Metaltech. Still, GBC remains committed to growth through acquisition. Wasz said the company remains particularly interested in expanding its fabricated products business and growing its Eco Brass and CuVerro brands. “We’re still of the view that industry consolidation would be healthy for the strip industry, and we’re interested in pursuing opportunities on that front.” Looking ahead to the remainder of 2015, the company has increased its forecast for shipments to 521 million pounds in 2015, and sales to $540 million. “We are encouraged by the continued progress at Chase Brass and A.J. Oster and have high confidence in the initiatives and strategies we are implementing across GBC to drive improved operating performance and expand our product portfolio,” Wasz said. Olympic Steel Olympic Achieves Profitable Quarter Olympic Steel, Inc., Cleveland, reported first-quarter net income of $1.1 million, a decline from the $2.8 million reported in the same quarter last year. However, the profitable quarter was a turnaround from the $19.1 million loss posted in the prior quarter. Net sales of $345.9 million were flat with the first quarter of 2014, but an improvement of 5.9 percent compared to the fourth quarter. In the first quarter, the volume of carbon flat products decreased 2.4 percent to 276,000 tons. The average selling price for carbon steel products also declined 2.4 percent, resulting in a 4.7 percent dip in net sales in the segment. The company’s continued growth in specialty metals, now a separate reporting segment, offset some of the weakness in the carbon steel market. Sales of stainless steel flat products grew 14 percent to 19,000 tons in the first quarter. The average selling price in the specialty sector, including both stainless and aluminum, increased 4.1 percent during the quarter. The company’s tubular and pipe products, used primarily in industrial applications, also experienced higher selling prices during the quarter, resulting in a 5.9 percent increase in net sales for the segment. “Our strategy has been to diversify products and geographies in order to generate profitable growth regardless of the industry cycle,” said Chairman and CEO Michael D. Siegal. “We responded quickly to sharp declines in metal pricing by implementing a multi-pronged profit improvement program early in 2015.” In the face of challenging business conditions, Olympic reduced inventory by $31 million during the quarter, using a portion of that savings to pay down $10 million in debt. More debt reduction is expected in the coming months. Despite its efforts, the company and industry are facing serious headwinds, starting with a U.S. dollar that softened by 23 percent against the euro, hampering the ability of Olympic’s customers to export and making them more vulnerable to imports. “In addition, we are seeing record imports of raw steel products after a year of record imports in 2014. This material is in the marketplace now and continues to put pressure on pricing and margins,” Siegal said. Russel Metals Russel Feels Effects of Energy Slowdown, But Remains Profitable Russel Metals, Mississauga, Ontario, reported net income of $19 million during the first quarter, a decline of 34.5 percent compared to the same period in 2014. Net income was also off 38.7 percent compared to the prior quarter. Russel’s net sales during the quarter totaled $904 million, a 2.2 percent decline from first-quarter 2014. Compared to the prior quarter, Russel’s net sales were down 10.7 percent. “Our disciplined business approach gives us the flexibility to rationally adjust our operations in the face of a drop in steel prices, rig counts and oilfield activity. The depth of the change in the price of oil and steel was not foreseen by the industry, causing both energy and steel inventories to be overstocked throughout the distribution channel. Based on these economic conditions, our inventory position and operating costs are being proactively managed to ensure that we minimize the impact on the business and maximize our earnings,” said Brian Hedges, president and CEO. In the company’s metals service center segment, revenues of $400 million were slightly ahead of first-quarter 2014. Tons shipped from service centers declined by 3 percent. Exchange rate gains on the translation of U.S. operations offset volume declines. Additionally, gross margins in the segment were behind the same quarter the previous year as a result of difficult conditions, primarily the softening of demand in Western Canada and declining steel prices, executives said. In the energy products segment, first-quarter revenues declined 14 percent to $385 million, the product of dramatically lower activity in the sector. The company’s Canadian operations held up better than in the United States, though activity was still off 11 percent. In the steel distributors segment, revenues increased by 36 percent to $119 million. Russel executives expect the high inventory levels in the segment to decrease over the course of the second quarter. That may be more difficult for the company’s Houston operations, where the industry is facing a serious oversupply situation, they said. Russel officials were pessimistic about any immediate pick-up in the pricing. “Fundamentally, there hasn’t been any significant change in the marketplace. I don’t know if we got a back half lift, but at this point we’re bouncing along at the bottom,” said John Reid, executive vice president and chief operating officer. The testing conditions have the company poised to grab up suitable acquisition targets. “Our clean balance sheet and flexible operating cost structure will allow us to take advantage of acquisition opportunities that will arise in this challenging environment. We are prepared for a sustained trough in commodity pricing and will be strongly positioned when the inevitable recovery begins,” Hedges said. Ryerson Ryerson Reports $2.5 Million Loss Ryerson, Inc., reported a net loss of $2.5 million during the first quarter, a decline compared to both the previous quarter and first-quarter 2014. The Chicago-based service center company reported net income of $4.8 million in the fourth quarter and $1.6 million in the same quarter of 2014. Ryerson’s net sales in first-quarter 2015 totaled $868.0 million, flat with the prior quarter but a decline of 0.7 percent from first-quarter 2014. During this year’s first quarter, Ryerson reduced inventory by $76 million, or 10 percent. “We continued to effectively manage areas within our control, such as inventory and expenses,” said Mike Arnold, Ryerson’s outgoing president and CEO. “As a result, we generated strong, counter-cyclical cash flow. However, macro conditions—with supply exceeding demand across virtually all metal products on a global basis—pressured our results in the quarter.” Deflationary pricing continued in the first quarter, with the commodity metal price environment the worst seen since 2009, Arnold added. “Demand has been mixed. Some is the result of customers waiting on the sidelines for better prices.” The company reported shipments of 476,000 tons in the quarter, an increase of 1.1 percent from the prior quarter, but down 5.9 percent from first-quarter 2014. The average selling price of $1,824 per ton was down 1.1 percent from the prior quarter, but up 5.6 percent from the same quarter last year. “That was notably less than the underlying commodity price declines, as mix shift benefits and pricing discipline helped ease the impacts of margin compression in the quarter,” said Eddie Lehner, the company’s executive vice president and chief financial officer. Import pressure is subsiding somewhat with the lower costs, particularly inland where transportation costs are greater. “I think the trend is down, and it will stay down unless factors change. But there are still opportunities in cold-rolled steel, hot-dipped galvanized and plate,” said Lehner, who replaced Arnold as CEO at the start of the month. During the quarter, Ryerson completed its acquisition of Fay Industries and continues to evaluate 8-10 other potential deals. ‘What we’re seeing in the M&A market are smaller deals where we can add capabilities in our multi-markets. These are the deals that are holding up well,” said Lehner. “In some of the bigger deals we’ve seen valuations collapse, and the gap between what we can pay and what the seller might want has become too wide because they’re experiencing stress in their business, as well.”

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