Synalloy Corporation Announces Second Quarter Results
SPARTANBURG, S.C., July 26, 2010 (GLOBE NEWSWIRE) -- Synalloy Corporation (Nasdaq:SYNL), a producer of stainless steel pipe, fabricator of stainless and carbon steel piping systems, and producer of specialty chemicals, announces that the second quarter of 2010 produced net earnings of $1,078,000, or $0.17 per share, on a 68% sales increase to $36,349,000. This compares to a net loss from continuing operations of $259,000, or $0.04 loss per share, on sales from continuing operations of $21,692,000, in 2009's second quarter. For the six months ended July 3, 2010, sales were $71,549,000, up 37% from sales of $52,085,000 from continuing operations for the same period of 2009. Net earnings for the first six months of 2010 were $1,160,000 or $0.18 per share. Net earnings from continuing operations for the first six months of 2009 were $81,000 or $0.01 per share.
Metals Segment
Sales increased 78% in the second quarter of 2010 from the same quarter a year earlier while operating income was $963,000 compared to a $108,000 loss a year earlier. The sales increase resulted from a 72% increase in unit volumes combined with a 4% increase in average selling prices. The increase in unit volume came from a 140% increase in commodity pipe sales that reflect the more aggressive marketing of this product to gain market share. The increased unit volumes let us operate the plant at a more efficient level and retain our experienced employees. Non-commodity unit volumes, aided by the August 31, 2009 acquisition of Ram-Fab, LLC, were essentially unchanged. Second quarter's selling prices, when compared to 2009's second quarter, reflects higher stainless steel prices partially offset by a change in product mix to a higher percent of lower-priced commodity pipe from higher-priced non-commodity pipe and piping systems. The increase in operating income in the second quarter of 2010 was primarily due to profits produced by our FIFO inventory method from the rising price of raw materials compared to little effect from this a year earlier.
Sales for the first six months of 2010 increased 36% from the same period of 2009 and operating income decreased 16% for 2010 when compared to 2009. The sales increase was comprised of a 58% increase in unit volumes partially offset by a 13% decrease in average selling prices. The unit volume increase reflects an 87% increase in commodity pipe from the same factor as outlined above for the second quarter, combined with a 21% increase from piping systems mainly as the result of the acquisition of Ram-Fab. The lower selling prices resulted from the change in product mix partially offset by higher stainless steel prices. Operating income for the first six months of 2010 was lower than the comparable period last year as a result of a $500,000 charge during the first quarter of 2010 for a product claim made by a Metals Segment customer. Excluding this charge, operating income would have been 59% higher.
Specialty Chemicals Segment
The Specialty Chemicals Segment increased revenues for the second quarter of 2010 by 48% over the second quarter of 2009. Sales for the first six months of 2010 increased 40% over the same period of 2009. Operating income increased 179% and 149% for the second quarter and first six months of 2010, respectively, when compared to the same periods of 2009. The revenue increase during the second quarter was a result of gained market share in the sulfated product line, dust control additives and carpet and agricultural chemical additives. The Company also experienced growth in its contract manufacturing activities to existing and new contract customers. Operating income increases resulted from raw material cost control combined with a greater number of pounds of finished goods being produced and sold by our facilities. The Segment's profitability has been very consistent each month during the first half of 2010.
Sale of Blackman Uhler Specialties & Discontinued Operations
On October 3, 2009, the Company entered into an Asset Purchase Agreement with SantoLubes Manufacturing, LLC ("SM") to sell the specialty chemical business of Blackman Uhler Specialties, LLC ("BU") for a purchase price of $10,366,000, along with certain property, plant and equipment held by Synalloy Corporation for a purchase price of $1,130,000, all located at the Spartanburg, SC location. The purchase price of approximately $11,496,000, payable in cash, was equal to the approximate net book values of the assets sold as of October 3, 2009, the effective date of the sale, and the Company has recorded a loss of approximately $250,000 resulting primarily from transaction fees and other costs related to the sale. Divesting BU's specialty chemicals business, which had annual sales of approximately $14,500,000, has freed up resources and working capital to allow further expansion into the Company's metals businesses. BU along with Organic Pigment's ("OP") pigment dispersion business, which was sold on March 6, 2009 and had annual sales of approximately $7,000,000, were both physically located at the Spartanburg facility. As a result, these operations, which werepreviously included in the Specialty Chemicals Segment, are being reported as discontinued operations in 2009 results.
Other Items
Unallocated corporate expenses decreased $175,000 and $305,000 for the second quarter and first six months of 2010, respectively, compared to the same periods a year ago due to reduced environmental charges that were eliminated by the sale of BU at the end of the third quarter of 2009.
On June 30, 2010, the Company entered into a Credit Agreement with a regional bank to provide a $20,000,000 line of credit that expires on June 30, 2013. The Company's previous debt facility, with a different lender, was going to expire at the end of 2010.
The Company's cash balance decreased during the first six months of 2010 from $14,097,000 at the end of 2009 to $99,000 as of July 3, 2010. In addition, the Company had $2,313,000 outstanding on its bank line of credit as of July 3, 2010. There was no bank indebtedness at the end of 2009. As a result of higher sales and production activity during the first half of 2010, compared to 2009, accounts receivable, inventory and accounts payable levels increased at July 3, 2010, resulting in a net cash decrease of $12,257,000, when compared to the prior year end. Other significant cash outlays during the first six months of 2010 include the purchase of the land and buildings at our Crossett, AR facility which were previously leased from the seller plus the annual dividend of $1,581,000 that was paid in the first quarter of 2010.
Outlook
The Metals Segment's business is highly dependent on capital expenditures which have been significantly impacted by the economic turmoil. Surcharges have increased consistently through June 2010 and are scheduled to drop for the third quarter of 2010. Despite the falling surcharge prices, we anticipate production and shipment volumes for the remainder of the year to be comparable to second quarter levels. Higher stocking levels in the distribution chain and modest activity increases in the project sector continue to indicate that some of our markets are in economic recovery. Management believes it is benefiting from the stimulus spending by the Federal Government, which includes a "Buy-American" provision covering iron and steel, as we have seen increased bidding activity in both the water and wastewater treatment and power generation areas, both of which are significant parts of our piping systems business. However, business opportunities remain extremely competitive hurting product pricing in all of our markets. While the impact from current economic conditions both domestically and worldwide makes it difficult to predict the performance of this Segment for the remainder of 2010, we are seeing improvements in business conditions within our markets. We believe we are the largest and most capable domestic producer of non-commodity stainless pipe and an effective producer of commodity stainless pipe which should serve us well in the long run. We also continue to be optimistic about the piping systems business over the long term. Piping systems' backlog was $33,046,000 at July 3, 2010 compared to $40,300,000 at the end of the second quarter of 2009, with approximately 90% of the backlog coming from paper, water and wastewater treatment projects. We estimate that approximately 80% of the backlog should be completed over the next 12 months.
The higher sales levels the Specialty Chemicals Segment experienced during the first six months of the year are continuing into the third quarter and management expects these sales trends to remain favorable for the remainder of 2010 when compared to the prior year. The higher projected sales should result in continued favorable operating results for the last six months of 2010 assuming economic conditions do not weaken. For more information about Synalloy Corporation, please visit our web site at www.synalloy.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
All statements contained in this release that are not historical facts are "forward-looking statements." The words "estimate," "project," "intend," "expect," "believe," "anticipate," "plan" and similar expressions identify forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, including without limitation those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions, the impact of competitive products and pricing, product demand and acceptance risks, raw material and other increased costs, customer delays or difficulties in the production of products, unavailability of debt financing on acceptable terms and exposure to increased market interest rate risk, inability to comply with covenants and ratios required by our debt financing arrangements and other risks detailed from time-to-time in Synalloy's Securities and Exchange Commission filings. Synalloy Corporation assumes no obligation to update the information included in this release.
SYNALLOY CORPORATION COMPARATIVE ANALYSIS
THREE MONTHS ENDED SIX MONTHS ENDED
Jul 3, 2010 Jul 4, 2009 Jul 3, 2010 Jul 4, 2009
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Net sales
Metals Segment $ 25,137,000 $ 14,135,000 $ 50,099,000 $ 36,762,000
Specialty Chemicals
Segment 11,212,000 7,557,000 21,450,000 15,323,000
------------- ------------- ------------- -------------
$ 36,349,000 $ 21,692,000 $ 71,549,000 $ 52,085,000
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Operating income
Metals Segment $ 963,000 $ (108,000) $ 561,000 $ 666,000
Specialty Chemicals
Segment 1,241,000 445,000 2,327,000 935,000
------------- ------------- ------------- -------------
2,204,000 337,000 2,888,000 1,601,000
Unallocated expenses
Corporate 496,000 671,000 1,059,000 1,364,000
Interest and debt expense 13,000 89,000 14,000 194,000
Change in fair value of
interest rate swap -- (28,000) -- (77,000)
Other income (1,000) (2,000) (10,000) (3,000)
------------- ------------- ------------- -------------
Income (loss) from
continuing operations
before income taxes 1,696,000 (393,000) 1,825,000 123,000
Provision for (benefit
from) income taxes 618,000 (134,000) 665,000 42,000
------------- ------------- ------------- -------------
Net income (loss) from
continuing operations 1,078,000 (259,000) 1,160,000 81,000
Net income (loss) from
discontinued operations -- 100,000 -- (46,000)
------------- ------------- ------------- -------------
Net income (loss) $ 1,078,000 $ (159,000) $ 1,160,000 $ 35,000
============= ============= ============= =============
Net income (loss) per
basic common share:
Continuing operations $ 0.17 $ (0.04) $ 0.18 $ 0.01
Discontinued operations 0.00 0.02 0.00 0.00
------------- ------------- ------------- -------------
Net income (loss) $ 0.17 $ (0.02) $ 0.18 $ 0.01
============= ============= ============= =============
Net income (loss) per
diluted common share:
Continuing operations $ 0.17 $ (0.04) $ 0.18 $ 0.01
Discontinued operations 0.00 0.02 0.00 0.00
------------- ------------- ------------- -------------
Net income (loss) $ 0.17 $ (0.02) $ 0.18 $ 0.01
============= ============= ============= =============
Average shares outstanding
Basic 6,283,011 6,262,959 6,277,399 6,257,035
============= ============= ============= =============
Diluted 6,313,135 6,262,959 6,300,258 6,261,401
============= ============= ============= =============
Backlog-Piping Systems &
Process Equipment $ 33,046,000 $ 40,300,000
============= =============
Balance Sheet Jul 3, 2010 Jan 2, 2010
------------- -------------
Assets
Cash $ 99,000 $ 14,097,000
Accounts receivable, net 19,892,000 14,041,000
Inventories 35,690,000 25,504,000
Sundry current assets 2,724,000 3,259,000
------------- -------------
Total current assets 58,405,000 56,901,000
Property, plant and
equipment, net 18,342,000 15,797,000
Other assets 5,611,000 5,554,000
------------- -------------
Total assets $ 82,358,000 $ 78,252,000
============= =============
Liabilities and
shareholders' equity
Accounts payable $ 10,518,000 $ 6,582,000
Accrued expenses 4,361,000 6,195,000
------------- -------------
Total current
liabilities 14,879,000 12,777,000
Long-term debt 2,313,000 --
Other long-term
liabilities 2,685,000 2,754,000
Shareholders' equity 62,481,000 62,721,000
------------- -------------
Total liabilities &
shareholders' equity $ 82,358,000 $ 78,252,000
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CONTACT: Synalloy Corporation
Rick Sieradzki
(864) 596-1558
Released July 26, 2010