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Olympic Steel(ZEUS) - 2024 Q3 - Earnings Call Transcript
ZEUSOlympic Steel(ZEUS)2024-11-01 22:45
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Financial Data and Key Metrics - Net income for Q3 2024 was 2.7million,comparedto2.7 million, compared to 12.2 million in Q3 2023 [22] - EBITDA for Q3 2024 was 15million,downfrom15 million, down from 27.1 million in the prior year period [22] - Consolidated operating expenses for Q3 2024 totaled 99million,upfrom99 million, up from 91 million in Q3 2023 [23] - Total debt decreased by 12millionto12 million to 197 million in Q3 2024 [24] - Capital expenditures for the first three quarters of 2024 totaled 22.3million,withfull−year2024estimatesat22.3 million, with full-year 2024 estimates at 30 million [25] - Effective income tax rate for Q3 2024 was 30%, compared to 27.7% in Q3 2023 [25] Business Segment Performance Carbon Segment - Volumes fell more than the normal seasonal decline due to lower demand from OEM customers, especially in the heavy equipment sector [14] - Generated 4.5millioninEBITDAinQ32024[14]−Strengthincountercyclicalendproducts,suchasHVACandindustrialhoppers[14]−Investmentsinautomationexpectedtoimprovethroughputbyupto304.5 million in EBITDA in Q3 2024 [14] - Strength in countercyclical end products, such as HVAC and industrial hoppers [14] - Investments in automation expected to improve throughput by up to 30% [16] Pipe and Tube Segment - Adjusted EBITDA of 6.7 million in Q3 2024 [16] - Gross margins remained strong due to value-added processing and the acquisition of Central Tube & Bar [16] - Value-added processing accounts for over 40% of the segment's business [41] Specialty Metals Segment - Contributed 5.9millionofEBITDAinQ32024despitestainlesssurchargesfallingtoa3.5−yearlow[17]−Gainedmarketshareinstainlessandaluminum[17]−Installednewautomatedpackaginglinetoimprovethroughputandefficiency[17]MarketandStrategicDirection−Macroeconomicheadwinds,includingreducedOEMdemandandpricingpressures,impactedallsegments[7][9]−Strategyfocusesondiversificationintocountercyclicalsteel−intensiveendproductsandhigher−marginopportunities[8][10]−Investmentsinautomation,fabrication,andprocessingcapabilitiestodrivefuturegrowth[9][18]−Activepursuitofacquisitionsthatmeetcriteriaforcountercyclicalendmarkets,higher−marginfabrication,andservicecenters[32][34]ManagementCommentaryonOperatingEnvironmentandOutlook−Macroeconomicuncertainty,includingthepresidentialelectionandFedinterestratedecisions,isexpectedtocontinueintoQ42024[11]−Optimisticaboutthelong−termoutlookforthecompanyandindustry,drivenbystrategicinvestmentsandfinancialflexibility[11]−Focusonmanagingcosts,aligninglaborcostswithdemand,andinvestinginhigher−returnopportunities[10][27]OtherImportantInformation−Quarterlydividendof5.9 million of EBITDA in Q3 2024 despite stainless surcharges falling to a 3.5-year low [17] - Gained market share in stainless and aluminum [17] - Installed new automated packaging line to improve throughput and efficiency [17] Market and Strategic Direction - Macroeconomic headwinds, including reduced OEM demand and pricing pressures, impacted all segments [7][9] - Strategy focuses on diversification into countercyclical steel-intensive end products and higher-margin opportunities [8][10] - Investments in automation, fabrication, and processing capabilities to drive future growth [9][18] - Active pursuit of acquisitions that meet criteria for countercyclical end markets, higher-margin fabrication, and service centers [32][34] Management Commentary on Operating Environment and Outlook - Macroeconomic uncertainty, including the presidential election and Fed interest rate decisions, is expected to continue into Q4 2024 [11] - Optimistic about the long-term outlook for the company and industry, driven by strategic investments and financial flexibility [11] - Focus on managing costs, aligning labor costs with demand, and investing in higher-return opportunities [10][27] Other Important Information - Quarterly dividend of 0.15 per share paid in Q3 2024, with another dividend of $0.15 per share approved for December 2024 [26] - Company has paid regular quarterly dividends since 2006, with increases in each of the last three years [26] Q&A Session Summary Question: Lead time and implementation of new machinery - Training for new equipment will occur before and immediately after installation, with operations expected to begin shortly after [30] Question: M&A targets and strategy - Actively pursuing acquisitions, averaging one per year over the last five years, focusing on countercyclical end markets and higher-margin fabrication [32][34] Question: Pent-up demand post-election - Potential for pent-up demand in spot markets, but industrial OEM demand likely to remain stable [36][37] Question: Pipe and tube segment performance - Gross margin of 35% in Q3 2024, with Central Tube & Bar contributing higher margins [39][42] Question: Impact of Nippon's potential acquisition of U.S. Steel - No significant changes expected for Olympic Steel, with continued strong relationships regardless of ownership [43] Question: Carbon flat operating expenses - Operating expenses increased due to one-time items, with adjustments for employee retention credit and CTB expenses [45][46] Question: Internal investment goals - Investments aimed at increasing profitability, enhancing quality, safety, productivity, and capacity [48]