Universal Stainless & Alloy Products, Inc. reported net income of $312,000 on sales of $25.3 million for the third quarter and a net loss of $3.9 million on sales of $98.2 million for the first nine months of 2009.
Third Quarter Results — Net income of $312,000 ($0.05 per diluted share) compares with net income of $2.7 million ($0.40 per diluted share) in the year-ago third quarter. Sales of $25.3 million compares with sales of $57.6 million in the third quarter of 2008.
Cash flow from operations totaled $10.0 million, an increase of 44% from the third quarter of 2008. Capital expenditures were $2.7 million, including $2.1 million in expenditures for a meltshop upgrade project, which remains on time and on budget. At September 30, 2009, the company had cash of $42.2 million, working capital of $97.1 million, and long-term debt of $11.5 million.
Nine Month Results — The net loss of $3.9 million ($0.58 per share) compares to net income of $12.7 million ($1.87 per diluted share) in the comparable year-ago period. Sales of $98.2 million compare to sales of $178.0 million in the comparable year-ago period.
Results included a $742,000 ($0.11 per diluted share) negative tax adjustment in the second quarter, and $3.6 million ($0.53 per diluted share after-tax) of unusual charges in the first quarter in response to economic conditions. Before the tax adjustment and unusual charges, the company's net income was $408,000 ($0.06 per diluted share).
Management Comments — "Our ability to generate earnings and strong cash flow despite continued weak demand is due to the tight cost control and working capital management initiatives we began in the first quarter,” commented President and CEO Dennis Oates. “At the same time, we have continued to execute our long-term plan including our meltshop investment, which has already improved yields on semi-finished products even though the project is not scheduled for completion until mid-2010.
"Each of our end markets remained challenged in the third quarter, although there were some signs of stabilization. Order entry continued to improve sequentially, rising 30% from the second quarter, but it was not sufficient to replenish our backlog, which totaled $33 million at September 30 compared with $38 million at the end of June. However, our backlogs of aerospace products increased for the first time since 2008. Our backlog of service center plate products also rose largely driven by increased automotive production and model changeover. We expect demand in the petrochemical and power generation markets will improve in 2010.
"We are further positioning ourselves to take advantage of opportunities that arise from stronger market demand as well as to capture additional market share,” added Oates. “The most important part of this effort is maintaining our focus on unparalleled customer service, operational excellence and maintaining a strong balance sheet to permit strategic capital investment."
Segment Review — For the third quarter of 2009, the Universal Stainless & Alloy Products segment had sales of $21.7 million and operating income of $60,000, yielding an operating margin of 0.3% of sales. This compares with sales of $52.2 million and operating income of $3.3 million, or 6.3% of sales, in the third quarter of 2008. In the second quarter of 2009, sales were $26.9 million and operating income was $949,000, or 3.5% of sales.
Segment sales declined 59% from the year-ago third quarter primarily due to a 49% decrease in tons shipped. Shipments to service centers, rerollers and forgers declined substantially from the 2008 third quarter offsetting a strong increase in shipments to OEMs. Segment sales decreased 19% from the previous quarter on 24% fewer tons shipped.
The Dunkirk Specialty Steel segment recorded sales of $8.5 million and operating income of $397,000 for the third quarter of 2009, yielding an operating margin of 4.7% of sales. This compares with sales for the year-ago third quarter of $16.9 million and an operating loss of $172,000, which included the $586,000 charge for the relocation of the round bar finishing line and a $416,000 increase to the segment's LCM reserve. In the previous quarter, sales were $10.2 million and the segment incurred an operating loss of $384,000.
Dunkirk's sales declined 50% from the year-ago third quarter while tons shipped decreased 33% due to lower shipments to all customer categories and lower surcharges. Dunkirk's sales were 17% lower than in the previous quarter on a 23% decrease in tons shipped.
Headquartered in Bridgeville, Pa., Universal Stainless & Alloy Products manufactures and markets a broad line of semi-finished and finished specialty steels, including stainless steel, tool steel and certain other alloyed steels. The company's products are sold to rerollers, forgers, service centers, original equipment manufacturers and wire redrawers.