Friedman Industries(US:FRD)2023-11-13 16:00Sales Performance - Sales for the six months ended September 30, 2023, decreased by approximately $43.4 million to $257 million compared to the same period in 2022, despite an increase in tons sold from approximately 221,500 to 257,000 tons [71]. - Flat-roll segment sales for the 2023 period totaled approximately $245.7 million, down from $272.6 million in 2022, with average selling price per ton decreasing from approximately $1,367 to $1,011 [73]. - Tubular segment sales for the 2023 period were approximately $22.3 million, a decrease from $38.9 million in 2022, with tons sold dropping from approximately 21,000 to 16,000 tons [75]. - The Company expects sales volume for the third quarter of fiscal 2024 to be slightly lower than the second quarter volume due to seasonal impacts [94]. Profitability - Gross profit for the six months ended September 30, 2023, was approximately $22.2 million, with a gross profit margin of 8.3%, up from 7.5% in the prior year [71]. - Operating profits for the flat-roll segment increased to approximately $15.0 million in 2023 from $12.4 million in 2022, despite recognized losses on hedging activities [73]. - The tubular segment operated at a break-even level in the 2023 quarter, down from an operating profit of approximately $3.3 million in the 2022 quarter [85]. - The Company anticipates margin improvement during the third quarter and continuing into the fourth quarter due to increasing HRC prices, which have risen approximately $300 per ton [94]. Costs and Expenses - Selling, general and administrative costs decreased by approximately $0.2 million in the 2023 period compared to 2022, primarily due to one-time costs in the prior year [78]. - Income tax provision decreased from approximately $4.2 million in 2022 to approximately $3.7 million in 2023, with an effective tax rate of 24.9% for 2023 [79]. - The Company recognized a loss of approximately $0.4 million related to derivatives designated for hedge accounting for the six months ended September 30, 2023, while gaining approximately $4.8 million from derivatives not designated for hedge accounting [93]. Financial Position - The company's current ratio improved to 4.7 at September 30, 2023, compared to 3.2 at March 31, 2023, indicating better liquidity [89]. - The Company has a $150 million asset-based lending facility (ABL Facility) with a balance of approximately $54.4 million as of September 30, 2023, and an applicable interest rate of 7.5% [91]. - The Company's borrowing base calculation supported access to approximately $119.3 million under the ABL Facility as of September 30, 2023 [91]. - The Company had borrowings of approximately $34.2 million outstanding under the ABL Facility as of the filing date of the Form 10-Q [91]. - The Company believes its current cash position and cash flows from operations are adequate to fund expected cash requirements for the next 12 months [92]. Internal Controls - The Company has identified material weaknesses in internal control over financial reporting, which have not yet been remediated [101]. - The Company has engaged a consultant to assist with remediation efforts related to internal controls and has hired additional personnel to support these efforts [104]. - The Company expects the new ERP system to enhance the effectiveness of internal controls and reduce reliance on manual processes [104]. Future Outlook - The Company expects to continue monitoring and managing balance sheet components based on market conditions and operations [90].