Olympic Steel(US:ZEUS)2023-08-04 20:05Company Overview - The company operates in three reportable segments: specialty metals flat products, carbon flat products, and tubular and pipe products[95]. - At June 30, 2023, the company employed approximately 2,038 people, with 203 hourly plant personnel represented by collective bargaining units[98]. - The company has 36 strategically-located processing and distribution facilities in the U.S. and one in Monterrey, Mexico, allowing for regional and national customer focus[106]. Product Offerings - The carbon flat products segment expanded its offerings with the acquisition of Metal-Fab on January 3, 2023, adding venting, micro air, and clean air products[104]. - The specialty metals flat products segment has enhanced its product offerings through recent acquisitions, including stainless steel and aluminum products[95]. - Approximately 51% of consolidated net sales during the first six months of 2023 were directly related to industrial machinery and equipment manufacturers[174]. Financial Performance - Net sales decreased by $140 million, or 19.7%, to $569.3 million in Q2 2023 from $709.2 million in Q2 2022, with a consolidated 21.0% decrease in average selling prices[113]. - Net sales for the first six months of 2023 decreased by $263 million, or 18.7%, to $1.1 billion from $1.4 billion in the first six months of 2022[114]. - Specialty metals flat products segment net sales decreased by $80 million, or 35.2%, to $147 million in Q2 2023, driven by a 25.2% decrease in sales volume[127]. - Net income for Q2 2023 totaled $15.0 million, or $1.30 per share, compared to $37.6 million, or $3.26 per share, in Q2 2022[122]. Cost and Profitability - The gross profit as a percentage of net sales is generally higher in the carbon flat products and tubular and pipe products segments compared to the specialty metals flat products segment[102]. - Gross profit as a percentage of net sales increased to 22.4% in Q2 2023 from 21.0% in Q2 2022, attributed to a decrease in average cost of inventory[116]. - Operating income for Q2 2023 was $25.8 million, down from $53.9 million in Q2 2022, reflecting the impact of lower sales and increased operating expenses[111]. - Gross profit as a percentage of net sales decreased to 16.6% in Q2 2023 from 27.5% in Q2 2022, and to 17.0% in the first six months of 2023 from 28.4% in the same period of 2022[130]. Expenses and Costs - Operating expenses increased by $6.9 million, or 7.2%, to $101.6 million in Q2 2023, with operating expenses as a percentage of net sales rising to 17.9% from 13.4% in Q2 2022[117]. - Cost of materials sold decreased by $119 million, or 21.2%, to $441.9 million in Q2 2023, reflecting lower metals pricing[115]. - Cost of materials sold in the specialty metals flat products segment decreased by $41.8 million, or 25.4%, to $122.6 million in Q2 2023 from $164.4 million in Q2 2022[129]. Liquidity and Capital Resources - Liquidity and capital resources are primarily funded through cash generated from operations and borrowings under the ABL Credit Facility[149]. - For the six months ended June 30, 2023, the company generated $79.2 million of net cash from operations, an increase of 66.2% compared to $47.7 million for the same period in 2022[151]. - Net cash from operating activities for the first six months of 2023 was $45.8 million, primarily driven by net income of $24.9 million and non-cash depreciation and amortization of $13.0 million[152]. - Working capital as of June 30, 2023, totaled $481.8 million, reflecting a decrease of $11.6 million from December 31, 2022, primarily due to a $28.2 million decrease in inventories[153]. Investment and Financing Activities - Net cash used for investing activities was $144.5 million for the six months ended June 30, 2023, significantly higher than $6.7 million for the same period in 2022, mainly due to the $129.5 million acquisition of Metal-Fab[154]. - The company generated $68.3 million from financing activities in the first six months of 2023, primarily from $72.6 million of net borrowings under the ABL Credit Facility[157]. - Dividends paid increased to $2.8 million for the six months ended June 30, 2023, compared to $2.0 million for the same period in 2022[158]. - As of June 30, 2023, the company had approximately $343 million of availability under the ABL Credit Facility, which was increased to $625 million following an amendment[166][162]. Risk Factors - The company faces risks from supply chain disruptions, rising interest rates, and inflationary pressures that could impact financial performance[93]. - The company does not have long-term, fixed-price metals purchase contracts, which exposes it to market price fluctuations[97]. - The company entered into a five-year fixed rate interest rate hedge to manage interest rate risk, with the fixed rate updated to 2.42% as of January 3, 2023[177].