Synalloy Corporation Announces Strong Second Quarter Results

SPARTANBURG, S.C., July 19 /PRNewswire-FirstCall/ -- Synalloy Corporation (Nasdaq: SYNL), a producer of specialty chemicals, pigments, stainless steel pipe, vessels and process equipment, announces for the second quarter of 2007, a 113% increase in net earnings to $3,196,000, or $.50 per share, on a 20% sales increase to $43,941,000. This compares to net earnings of $1,498,000, or $.24 per share on sales of $36,729,000 in 2006's second quarter. The Company generated a 206% increase in net earnings for the first six months of 2007 of $6,721,000, or $1.06 per share, on a 21% sales increase to $88,339,000, compared to net earnings of $2,196,000, or $.35 per share on sales of $72,892,000 in the first six months of 2006.

Specialty Chemicals Segment

The Specialty Chemicals Segment experienced declines in sales of 7% and 5% and operating income of 33% and 29% in the second quarter and first six months of 2007, respectively, over the same periods last year. The decline in sales and operating income was experienced at all of the Segment's locations resulting from softening in demand for most of the Segment's products and the timing of production of certain contract products. The volume decline created negative manufacturing variances that impacted profits throughout the first 6 months. The new line of fire retardant products did not produce the level of sales expected in the second quarter but management remains confident that the sales will accelerate over the balance of 2007.

Metals Segment

Metals continued it stellar performance with sales increases of 33% and 35% for the second quarter and first 6 months of 2007, respectively, from the same periods a year earlier. The increases resulted from 73% and 63% increases in average selling prices for the quarter and 6 months, partially offset by 23% and 17% declines in unit volumes, respectively, compared to the same periods last year. Operating income surged upward 135% to $5,354,000 for the second quarter and 222% to $10,974,000 for the first six months of 2007 compared to the same periods last year. The Segment has benefited throughout the first 6 months from a change in product mix to larger pipe sizes, higher- priced alloys and a larger proportion of non-commodity products, combined with higher costs of stainless steel, including surcharges, in the first 6 months of 2007 compared to the same period in 2006, causing the significant increase in selling prices realized in the quarter and first 6 months. The change in product mix is the result of the successful development of business from LNG, biofuels and electric utility scrubber projects. Most of the products produced for these markets are subject to more stringent specifications including 100% x-ray of the weld seams. In addition, some of these non- commodity products are made from expensive alloys and are more difficult to produce. Accordingly, their cost and sales price is much higher than commodity products. An increase in specialty pipe unit volume was more than offset by lower unit volume of commodity pipe which was impacted by an increase in imports, primarily from China, and a decline in distributor sales resulting from a combination of it reducing inventories and an easing of end use demand. The change in product mix along with increased efficiencies from new equipment contributed significantly to the increase in operating income realized in the quarter and first 6 months. Part of the improved profits resulted from the increase in stainless prices including surcharges. Surcharges are assessed each month by the stainless steel producers to cover the change in their costs of certain raw materials. The Company, in turn, passes on the surcharge in the sales prices charged to its customers. Under the Company's first-in-first-out inventory method, cost of goods sold includes surcharges in effect three or more months prior to the month of sale. Accordingly, if surcharges are in an upward trend, reported profits will benefit. Conversely, when surcharges go down, profits are reduced. During the second quarter and first 6 months of 2007, the Segment continued to experience the upward trend in surcharges experienced in the third and fourth quarters of 2006. As a result, surcharges were significantly higher in the quarter and first 6 months than they were in the same periods of 2006 with an accompanying significant benefit to profits. Piping systems was the star performer, continuing to experience the favorable impact of its strong backlog as operating income more than tripled in the second quarter and increased significantly in the first 6 months of 2007 from the same periods last year. Piping systems' backlog continued to grow, reaching a record level of $62,200,000 at the end of the second quarter of 2007 compared to $22,100,000 at the end of the second quarter of 2006.

Other Items

The increase in unallocated corporate expense in the second quarter and first 6 months of 2007 compared to the same periods last year came primarily from an increase in profit-based incentives for management. The Company completed the relocation of Organic Pigments' operations from Greensboro, NC to Spartanburg in the first quarter of 2006. A $213,000 loss was recorded for the move in the first quarter of 2006.


Demand for many of the Specialty Chemicals Segment's products improved over the last part of June and into July, indicating an improvement in market conditions and the Segment is beginning to see results from several new products developed earlier this year. In addition, management is anticipating an increase in orders from a significant contract customer in the third quarter after experiencing lower than normal activity in the first 6 months. The Consumer Product Safety Commission Mattress Flammability Legislation became effective July 1, 2007, and products manufactured after that date must be compliant. While sales of our fire retardants products have been slower than expected, demand for our products is increasing steadily as manufacturers are beginning to implement the new regulations, many of which are beginning to utilize our products. Fire retardant products are also being supplied to a producer of unique commercial and residential insulation products that are cotton based. The Chemicals Segment is now positioned to ramp up production at both of its sites to meet the anticipated demands of these customers over the next two quarters. All of these factors provide the opportunity for the Segment to improve profits for the remainder of 2007 over the first 6 months.

The significant decline in nickel prices in recent weeks will result in lower stainless steel surcharges in August and September. This will cause distributors to delay purchases as much as possible to get the lower prices. The volatility of nickel prices makes it impossible to know the level of surcharges beyond September. These factors add uncertainty to the performance of commodity pipe during the third quarter of 2007. However, we believe their impact on profitability will be mitigated because of the significant growth in project business, larger diameter and higher-priced alloy pipe business, most of which are subject to fixed pricing. Piping systems' record backlog, of which management expects about 80% to be completed over the next 12 months, should continue to provide a much higher level of sales and profits for piping systems over the balance of 2007 compared to the same period last year. Management's optimism about the piping systems business is further enhanced due to the large dollar amount of projects we expect to bid during the balance of 2007. With over 85% of the backlog coming from energy and wastewater treatment projects, management is confident that it has positioned the Metals Segment to benefit from the long term growth of these areas.

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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This press release includes and incorporates by reference "forward-looking statements" within the meaning of the securities laws. All statements 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 press release.


                            THREE MONTHS ENDED         SIX MONTHS ENDED
                            Jun 30,      Jul 1,       Jun 30,      Jul 1,
                             2007         2006         2007        2006
    Net sales
        Segment          $11,619,000  $12,545,000  $24,063,000  $25,433,000
       Metals Segment     32,322,000   24,184,000   64,276,000   47,459,000
                         $43,941,000  $36,729,000  $88,339,000  $72,892,000
    Operating income
        Segment              527,000      787,000    1,134,000    1,588,000
       Metals Segment      5,354,000    2,292,000   10,974,000    3,412,000
                           5,881,000    3,079,000   12,108,000    5,000,000
    Unallocated expenses
       Corporate             709,000      527,000    1,461,000      988,000
       Plant relocation
        costs                      -            -            -      213,000
       Interest and debt
        expense              262,000      200,000      471,000      347,000
       Other (income)
        expense              (1,000)            -       (2,000)      (1,000)

    Income before income
     taxes                 4,911,000    2,352,000   10,178,000    3,453,000

    Provision for income
     taxes                 1,715,000      854,000    3,457,000    1,257,000

    Net income            $3,196,000   $1,498,000   $6,721,000   $2,196,000

    Net income
       Per basic common
        share                   $.51         $.24        $1.09         $.36

       Per diluted common
        share                   $.50         $.24        $1.06         $.35

    Average shares
       Basic               6,210,877    6,122,679    6,186,793    6,115,834
       Diluted             6,345,098    6,235,399    6,311,498    6,227,687

    Backlog-Piping Systems & Process Equipment      $62,200,000 $22,100,000

    Balance Sheet                                   Jun 30, 2007  Dec 30, 2006
     Cash and sundry current assets               $   2,602,000 $  2,122,000
     Accounts receivable, net                        22,375,000   22,429,000
     Inventories                                     45,557,000   41,545,000
       Total current assets                          70,534,000   66,096,000
     Property, plant and equipment, net              19,788,000   18,952,000
     Other assets                                     4,302,000    4,309,000

    Total assets                                  $  94,624,000 $ 89,357,000

    Liabilities and shareholders' equity
     Current portion of long-term debt            $     467,000 $    467,000
     Accounts payable                                14,338,000   11,776,000
     Accrued expenses                                 6,079,000    7,469,000
       Total current liabilities                     20,884,000   19,712,000
     Long-term debt                                  15,870,000   17,731,000
     Other long-term liabilities                      3,338,000    4,787,000
    Shareholders' equity                             54,532,000   47,127,000
    Total liabilities & shareholders' equity      $  94,624,000 $ 89,357,000

SOURCE Synalloy Corporation