Friedman Industries(FRD) - 2026 Q2 - Quarterly Report

Sales Performance - Sales for the six months ended September 30, 2025, increased by approximately $65.9 million to a total of $362.4 million compared to the same period in 2024[67]. - Flat-roll segment sales for the 2025 period totaled approximately $267.4 million, up from $200.8 million in 2024, with an average selling price per ton increasing from approximately $895 to $946[69]. - Tubular segment sales for the 2025 period decreased to approximately $19.8 million from $20.5 million in 2024, despite an increase in average selling price per ton from approximately $1,087 to $1,196[71]. - Sales volume for the six months ended September 30, 2025, included approximately 296,500 tons from inventory and 43,500 tons of toll processing, compared to 240,000 tons and 42,000 tons, respectively, in 2024[67]. Profitability - Adjusted gross profit for the six months ended September 30, 2025, was approximately $55.4 million, representing an increase of $18.7 million from the prior year, with a gross profit margin of 19.3%[67]. - The Company expects third quarter fiscal 2026 sales volume to remain consistent with second quarter levels, with margins anticipated to improve modestly due to expected increases in metals pricing[92]. Costs and Expenses - Selling, general and administrative costs increased by approximately $3.3 million in the 2025 period, primarily due to higher incentive compensation and transaction-related expenses from the acquisition of Century Metals & Supplies[73]. - Income tax provision increased from approximately $0.5 million in 2024 to approximately $2.4 million in 2025, with an effective tax rate of 24.5%[74]. Liquidity and Financial Position - The company's current ratio was 3.2 at September 30, 2025, down from 4.3 at March 31, 2025, indicating a decrease in liquidity[87]. - The Company believes its current cash position and cash flows from operations are adequate to fund expected cash requirements for the next 12 months[90]. Acquisition Impact - The acquisition of Century Metals & Supplies resulted in notable increases in accounts receivable, inventory, fixed assets, accounts payable, and ABL facility debt[88]. - The Company’s financial statements preparation involves significant estimates and judgments, particularly related to the Century Metals & Supplies business combination[93]. Hedging Activities - The Company recognized hedging-related gains of approximately $1.1 million in the 2025 period, down from $5.6 million in the 2024 period[68]. - The Company recognized hedging gains of approximately $1.1 million and $5.6 million for the six months ended September 30, 2025, and 2024, respectively, related to economic hedges of risk[91]. - The Company’s hedging activities are classified as economic hedges with mark-to-market accounting treatment, which may result in gains or losses being recognized in different fiscal periods[91]. Debt and Financing - The Company renewed its asset-based lending facility (ABL Facility) for $125 million, maturing on August 29, 2030, with a current balance of approximately $84.2 million and an interest rate of 5.8%[89]. - The ABL Facility allows for borrowings based on a borrowing base calculation, which includes 90% of eligible accounts receivable and 85% of eligible inventory's net orderly liquidating value[89]. - The ABL Facility includes a financial covenant requiring a fixed charge coverage ratio of at least 1.00 to 1.00 for the trailing twelve-month period[89]. - The Company may increase the ABL Facility by up to $75 million, in minimum increments of $5 million, if certain conditions are met[89]. Forward-Looking Statements - Forward-looking statements regarding future sales, prices, and margins involve risks and uncertainties that could cause actual results to differ materially[94].