Olympic Steel(US:ZEUS)2023-05-05 19:23Financial Data and Key Metrics Changes - Olympic Steel reported sales of $573 million for Q1 2023, with adjusted EBITDA of $28.6 million, reflecting a steady customer demand and a 3% increase in metal distribution shipments year-over-year, and a significant 15% increase from the previous quarter [7] - Net income for the quarter totaled $9.8 million, a decrease from $37.3 million in Q1 2022, with no LIFO adjustment recorded for either quarter [22] - Total debt at the end of Q1 was $258 million, an increase of $93 million since year-end 2022, primarily due to the $131 million acquisition of Metal Fab [23] Business Segment Performance - The Carbon segment contributed adjusted EBITDA of $11.6 million, with shipments rising 6% year-over-year, excluding Metal Fab [15] - The Pipe and Tube segment had its second most profitable quarter ever, contributing EBITDA of $11.3 million, driven by margin improvement and fabricated product growth [16] - Specialty Metals earned EBITDA of $10.2 million despite facing industry-wide stainless steel headwinds, with a focus on organic growth in aluminum [18] Market Data and Key Metrics Changes - Hot rolled index pricing increased by 74% from the beginning of 2023, following six months of declining steel prices [8] - Demand from industrial OEMs remained steady, with expectations for Q2 to mirror Q1 performance, particularly in the Food Equipment and Appliance segments [13][19] Company Strategy and Industry Competition - The acquisition of Metal Fab in January 2023 was highlighted as a significant step in diversifying and strengthening the company, broadening product offerings and geographic reach [9][10] - The company is well-positioned to pursue additional acquisition opportunities, supported by a strong balance sheet and increased credit availability [12][20] - The company continues to focus on strategic acquisitions as a growth driver, alongside organic growth initiatives [45][46] Management's Comments on Operating Environment and Future Outlook - Management acknowledged an unsettled near-term macroeconomic picture but expressed confidence in the company's resilience and ability to navigate market cyclicality [13] - The second quarter is expected to reflect the full strength of Metal Fab's earnings, with synergies anticipated in the second half of 2023 [22][28] Other Important Information - Capital expenditures for Q1 2023 totaled $7.4 million, with expectations for total capital expenditures in 2023 to reach $30 million [26] - The company increased its quarterly dividend by 39% to $0.125 per share, maintaining a consistent dividend payment record for 72 consecutive quarters [27] Q&A Session Summary Question: Expectations for pricing for carbon in Q2 - Management anticipates some softness in pricing but expects margins to hold through Q2 due to a lag in contract pricing [30] Question: Specialty metals dynamics in Q1 and expectations for Q2 - Management noted high inventory levels at service centers but expects volume to improve in Q2 due to customer demand from food equipment and truck trailer sectors [32] Question: Impact of Metal Fab earnings and synergies - Management indicated that the second quarter will not include onetime charges from the acquisition, leading to improved financial results [34][35] Question: Expansion in Iowa and associated downtime - Management confirmed that the expansion will not cause any downtime and is expected to be operational by year-end [37] Question: Industry-wide capacity outlook - Management expects more product availability in the second half of the year, with domestic mills performing well [41] Question: Margin expansion in pipe and tube - Management attributed margin expansion to investments in fabrication capabilities and growth in the stainless portion of the business [44] Question: Appetite for more acquisitions - Management confirmed ongoing interest in strategic acquisitions, supported by a strong balance sheet and record availability [46]