FRD Stock Down Following Q3 Earnings and Revenue Decline, Backlog Up

Core Viewpoint - Friedman Industries reported a significant decline in net sales and a net loss for the third quarter of fiscal 2025, reflecting challenges in the steel market and pricing pressures [2][8]. Financial Performance Overview - For the third quarter ended Dec. 31, 2024, net sales were $94.1 million, an 18.9% decline from $115.9 million in the prior-year quarter [2]. - The company posted a net loss of $1.2 million, or $0.17 per diluted share, compared to net earnings of $1.2 million, or $0.16 per diluted share, in the same period last year [2]. Cost Analysis - The cost of materials sold decreased by 14.6% year over year to $78.5 million from $91.9 million [3]. - Processing and warehousing expenses increased by 1.4% to $7.5 million, while selling, general, and administrative expenses decreased by 8.2% to $3.9 million [3]. Segmental Performance - The flat-roll segment reported sales of $86.1 million, a 19.1% decline from $106.4 million in the prior-year quarter, with a significant drop in operating profit by 85.1% to $1.3 million [4]. - The tubular segment's sales were $7.9 million, down 16.9% from $9.5 million a year ago, with an operating loss of $0.2 million compared to a $0.1 million loss in the prior-year quarter [5]. Key Business Metrics - The company ended the quarter with a working capital balance of approximately $107 million, down from $116 million at the end of March 31, 2024 [6]. - Operating cash flow generated was $2.7 million, and debt was reduced by 9% during the quarter [6]. - The quarter-end sales backlog volume was 11% higher compared to the prior year [6]. Management Commentary and Market Conditions - The CEO acknowledged industry-wide pricing pressures and reduced sales volume due to political uncertainty and holiday-related slowdowns, but noted an uptick in sales order activity post-U.S. presidential election [7]. - Confidence in the long-term industry outlook and strategic positioning of Friedman Industries was expressed [7]. Factors Influencing Performance - Earnings were negatively impacted by lower steel prices, particularly in the flat-roll segment, which contributed to a decline in gross margins [8]. - The tubular segment faced challenges despite stable sales volume due to lower pricing affecting revenue generation [8]. Hedging Activities - The company reported a modest gain of $0.3 million in hedging activities for the quarter, compared to a $4.1 million loss in the prior-year period [9]. Guidance and Outlook - Looking ahead, the company expects improved sales volume in the fourth quarter of fiscal 2025, supported by stronger order activity and rising hot-rolled coil prices [11]. Other Developments - During the quarter, the company focused on optimizing operations across its six manufacturing plants, with no acquisitions, divestitures, or restructuring activities reported [12].