Friedman Industries(US:FRD)2023-02-08 16:00Financial Performance - Sales for the nine months ended December 31, 2022, increased by $213.2 million to $372.8 million compared to $172.8 million for the same period in 2021, driven by an increase in tons sold from approximately 147,500 tons to approximately 335,000 tons [76]. - Gross profit for the nine months ended December 31, 2022, decreased to $29.5 million, down from $43.4 million in the prior year, with gross profit as a percentage of sales dropping from approximately 20.7% to 7.0% [76]. - The coil product segment's sales for the 2022 period totaled $372.8 million, with an average selling price per ton decreasing from approximately $1,737 to $1,222, while tons sold increased from approximately 111,000 to 306,500 [78]. - The tubular product segment's sales for the 2022 period increased to $50.5 million from $37.3 million in 2021, with the average selling price per ton rising from approximately $1,074 to $1,785, despite a decrease in tons sold from approximately 36,500 to 28,500 [80]. - Coil segment sales for Q4 2022 totaled $100,231,001, a significant increase from $41,795,586 in Q4 2021, with a sales volume increase from approximately 29,000 tons to 106,000 tons [89]. - Tubular segment sales for Q4 2022 reached $11,629,092, up from $9,860,357 in Q4 2021, driven by an increase in average selling price per ton from approximately $1,111 to $1,648, despite a decrease in tons sold from 10,500 to 7,000 [92]. Operating Profit and Costs - The company recorded operating profits of approximately $15.7 million for the coil segment in the 2022 period, down from $33.5 million in the 2021 period, impacted by recognized net losses on hedging activities [78]. - The operating profit for the coil segment in Q4 2022 was approximately $3,259,000, compared to an operating loss of approximately $4,032,000 in Q4 2021 [89]. - The tubular segment recorded an operating profit of approximately $692,000 for Q4 2022, a recovery from an operating loss of approximately $647,000 in Q4 2021 [92]. - General, selling, and administrative costs increased by $5.0 million in the 2022 period, primarily due to costs associated with the Plateplus transaction and increased personnel [84]. - General, selling, and administrative costs increased by $2,706,608 in Q4 2022 compared to Q4 2021, primarily due to increased payroll and professional fees [94]. Other Income and Tax Provisions - Other income for the 2022 period was reported at $7.3 million, primarily from a gain on derivative instruments, compared to a loss of $4.8 million in the 2021 period [85]. - Other income for Q4 2022 was reported at $826,039, down from $1,727,134 in Q4 2021, mainly due to a decrease in gains on derivative instruments [95]. - Income tax provision decreased from $6.3 million in the 2021 period to $4.6 million in the 2022 period, mainly due to lower earnings before income tax [86]. - Income taxes shifted from a benefit of $967,681 in Q4 2021 to a provision of $431,579 in Q4 2022, reflecting higher earnings before income taxes [96]. Future Expectations - The company expects sales volume for Q4 2023 to be between 115,000 tons and 125,000 tons, higher than Q3 2023 due to increased sales at the new Sinton, Texas facility [103]. - The company anticipates margin improvement in Q4 2023 due to rising prices in the hot-rolled coil market [104]. Internal Controls and Reporting - The Company has identified material weaknesses in internal control over financial reporting, which may lead to material misstatements not being prevented or detected timely [112]. - The Company did not design relevant control activities necessary to address all identified risks of material misstatement, and some controls were implemented late in the fiscal year [112]. - The Company has added eight accounting personnel from Plateplus to improve segregation of duties and execution of controls [115]. - The Company transferred the enterprise resource planning (ERP) system from Plateplus to enhance control processes and reduce reliance on manual execution [115]. - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of the end of the reporting period due to unresolved material weaknesses [109]. - The Company expects that the additional accounting personnel and new ERP system will remediate the identified material weaknesses over time [116]. - The Company has not filed its Form 10-K and Form 10-Q reports timely for the fiscal year ended March 31, 2022, and subsequent quarters [109]. - Management believes that the consolidated financial statements fairly present the financial condition and results of operations in accordance with U.S. Generally Accepted Accounting Principles [110]. - There were no changes in the Company's internal control over financial reporting that materially affected its effectiveness during the fiscal quarter ended December 31, 2022 [117]. - The Company will continue to monitor and make changes to its procedures and controls as necessary to ensure effectiveness [116]. Operational Developments - The new facility in Sinton, Texas, commenced operations in October 2022, with expected annual shipments ranging from 110,000 tons to 140,000 tons for fiscal 2024 [73]. - The company experienced significant volatility in hot-rolled steel coil prices, with a decline of approximately 52% from September 2021 to February 2022, followed by a sharp increase of approximately 60% due to geopolitical events [77].