NEWS
RELEASE
FOR
IMMEDIATE RELEASE
Synalloy Corporation
Announces Fourth Quarter Results
Spartanburg,
South Carolina, February 17, 2009...Synalloy Corporation (Nasdaq:SYNL), a
producer of specialty chemicals, pigments, stainless steel pipe, vessels and
process equipment, announces net earnings for the fiscal year ending January 3,
2009, of $5,983,000, or $.95 per share, on sales of $192,476,000. This compares
to net earnings of $10,125,000, or $1.60 per share, on sales of $178,285,000 in
the prior year. For the fourth quarter of 2008, the Company experienced a net
loss of $513,000, or $.08 per share on sales of $43,489,000, compared to net
earnings of $1,144,000, or $.18 per share, on sales of $38,431,000 a year
earlier. The loss incurred in the final quarter of 2008 was the result of a
pretax loss of approximately $3,000,000 from commodity pipe which is discussed
in more detail below.
Specialty
Chemicals Segment
The
Specialty Chemicals Segment sales increased 16% for the year and 17% in the
fourth quarter of 2008 compared to the same periods a year earlier. In spite of
the good sales increase, operating income for the year decreased 24% to
$2,111,000 compared to $2,777,000 for 2007, and declined 64% to $191,000 for the
fourth quarter of 2008 compared to $538,000 for the fourth quarter of 2007. The
increase in revenues in 2008 came primarily from adding several new products
during the year together with increased selling prices of our basic chemical
products to pass on some of the higher raw material and energy-related costs.
The decline in operating income for the year and fourth quarter was caused
primarily by our inability to pass on all of the increases in raw material and
energy related costs. We also had approximately $130,000 in claims
and inventory writedowns that negatively impacted the fourth
quarter.
Metals
Segment
The
Metals Segment sales increased 5% for the year from a 7% increase in average
selling prices, partially offset by a 5% decline in unit volumes, while
operating income for the year declined 43% to $9,325,000 from 2007’s total of
$16,388,000. Sales for the fourth quarter increased 11% from a 49% increase in
unit volumes, partially offset by a 16% decline in average selling prices. The
Segment experienced an operating loss of $1,196,000 for the fourth quarter of
2008 compared to a profit of $1,937,000 in the same period last
year.
Commodity
pipe unit volumes increased 200% in the fourth quarter of 2008 resulting in a 3%
increase for the year compared to the same periods last year. The increase in
commodity volumes reflects the apparent benefit that the unfair-trade case,
filed in January 2008 by U.S. producers of stainless steel pipe and the United
Steelworkers Union against China, had on imports over the last 3 quarters,
coupled with the very low volume experienced in last year’s fourth quarter.
Unfortunately, the decline in stainless steel surcharges paid on raw materials
that negatively impacted the third quarter, accelerated in the fourth quarter
which reduced profits significantly. This decline
created steady downward pressure on commodity selling
prices causing average selling prices to fall 32% in the fourth quarter and 11%
for the year compared to the same periods in 2007. This resulted in an
approximately $2,000,000 loss in the fourth quarter of 2008 under our FIFO
inventory method that matched the low selling prices with much higher inventory
costs. The rapid decline in commodity pricing also created an inventory
valuation issue at year end as the market value of much of our commodity
inventory fell below our costs. This led to an approximate $1,000,000 charge to
reduce inventory value to market prices.
The
non-commodity business continued to deliver excellent results. Although unit
volumes fell 14% for the year and 27% in the fourth quarter, average selling
prices increased 31% for the year and 16% for the quarter compared to the same
periods in 2007. The majority of the decline in unit volumes came in our piping
systems operation as customers pushed
out
delivery dates in the fourth quarter in response to the economic downturn. The
increase in average selling prices came primarily from a change in product mix.
As a result, the non-commodity business generated excellent profits for the year
and the fourth quarter of 2008. Piping systems’ backlog was $45,500,000 at the
end of the fourth quarter of 2008 compared to $38,700,000 at the end of the
third quarter of 2008 and $57,900,000 at the end of the fourth quarter of
2007.
Other
Items
Unallocated
corporate expenses declined 8% for the year and 34% for the fourth quarter,
compared to the prior year, to $395,000 and $2,492,000, respectively, primarily
from decreased management incentives, which are based on profits. In the fourth
quarter of 2008, the Company received a cash payment of $394,000, included in
other income, for the collection of a previously written-off note receivable
related to its Chinese investment that was dissolved in a prior
year.
With the
chaotic conditions in the credit markets, it is gratifying that the Company
maintained its strong financial condition in 2008. Year-end current assets were
four times current liabilities and total debt was a conservative $10,426,000
which was only 16.6% of shareholders’ equity.
Outlook
Management
of the Specialty Chemicals Segment was successful in increasing revenues in 2008
reflecting efforts to generate new products, improve existing products, and
compete in markets not as susceptible to foreign
imports. Unfortunately, higher petroleum costs drove up raw material
and energy costs which hurt profitability. If the recent decline in oil and
natural gas prices continues into the future, our costs of raw materials and
energy costs should decline which would help profitability. Although management
is confident it is positioned to compete effectively, current economic
conditions make operating performance in 2009 uncertain.
As a
result of the significant increases in stainless steel pipe imported from China,
the Metals Segment along with 3 other U.S. producers of stainless steel pipe and
the United Steelworkers Union filed an unfair-trade case against China on
January 30, 2008. It is the third case involving pipe and tube imports from
China filed since early 2007. The U.S. Department of Commerce (DOC) findings
have supported petitioners in all 3 cases, and it has issued final
determinations on welded stainless steel pipe. On January 21, 2009, it announced
its determination of duties ranging from 12% to over 300% on stainless steel
welded pipe smaller than 16 inches in diameter imported from China. The
International Trade Commission (ITC) will have its final vote in late February
and issue its final ruling in March. As discussed above, based on activity over
the last 3 quarters, we believe the actions by the ITC and the DOC have already
reduced import activity and have had a positive influence on demand for domestic
producers. This is encouraging but until this trade case is finalized it will
add uncertainty to the future results from commodity pipe. This positive impact
on commodity pipe volumes has been offset by falling stainless steel prices
which, along with the uncertainty of the economy, have caused distributors to
limit stocking of inventories. Although stainless steel surcharges appear to
have stabilized so far in 2009, the significant declines experienced in the
fourth quarter of 2008 have created a poor pricing environment for our commodity
pipe which will negatively impact profitability in the first quarter of 2009. It
is possible that the stimulus spending by the Federal Government will fund
increased activity in the water and wastewater treatment area which is a
significant part of our piping systems’ business. However, the impact from
current economic conditions both domestically and worldwide makes it difficult
to predict the performance of this Segment for 2009. In spite of
this, management continues to be optimistic about the piping systems business
over the long-term based on our current bidding activity for projects and our
strong backlog, with over 80% of the backlog coming from energy and water and
wastewater treatment projects. Management also believes 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 the Company well in the
long term.
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.
Contact: Greg
Bowie at (864) 596-1535
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SYNALLOY CORPORATION COMPARATIVE
ANALYSIS
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THREE
MONTHS ENDED
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YEAR
ENDED
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Jan
3, 2009
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Dec
29, 2007
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Jan
3, 2009
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Dec
29, 2007
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Net
sales
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Specialty
Chemicals Segment
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$ |
15,280,000 |
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$ |
13,021,000 |
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$ |
60,599,000 |
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$ |
52,066,000 |
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Metals
Segment
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28,209,000 |
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25,410,000 |
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131,877,000 |
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126,219,000 |
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$ |
43,489,000 |
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$ |
38,431,000 |
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$ |
192,476,000 |
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$ |
178,285,000 |
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Operating
income (loss)
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Specialty
Chemicals Segment
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$ |
191,000 |
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$ |
538,000 |
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$ |
2,111,000 |
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$ |
2,777,000 |
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Metals
Segment
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(1,196,000 |
) |
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1,937,000 |
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9,325,000 |
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16,388,000 |
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(1,005,000 |
) |
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2,475,000 |
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|
11,436,000 |
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|
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19,165,000 |
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Unallocated
expenses
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Corporate
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395,000 |
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|
599,000 |
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2,492,000 |
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2,708,000 |
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Interest
and debt expense
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365,000 |
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|
319,000 |
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|
866,000 |
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1,153,000 |
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Other
income
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(395,000 |
) |
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(18,000 |
) |
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(401,000 |
) |
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(20,000 |
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Income
(loss) before income
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tax
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(1,370,000 |
) |
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1,575,000 |
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8,479,000 |
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15,324,000 |
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Provision
(benefit) for income
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tax
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(857,000 |
) |
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431,000 |
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2,496,000 |
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|
5,199,000 |
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Net
income (loss)
|
|
$ |
(513,000 |
) |
|
$ |
1,144,000 |
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$ |
5,983,000 |
|
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$ |
10,125,000 |
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Net
income (loss)
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Per
basic common share
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$ |
(.08 |
) |
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$ |
.18 |
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$ |
.96 |
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$ |
1.63 |
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Per
diluted common share
|
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$ |
(.08 |
) |
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$ |
.18 |
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$ |
.95 |
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$ |
1.60 |
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Average
shares outstanding
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Basic
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|
6,247,534 |
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6,237,305 |
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6,245,344 |
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6,211,639 |
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Diluted
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6,247,534 |
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|
6,296,602 |
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6,281,124 |
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|
6,295,911 |
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Backlog-Piping
Systems & Process Equipment
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$ |
45,500,000 |
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$ |
57,000,000 |
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Balance
Sheet
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Jan
3, 2009
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Dec
29, 2007
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Assets
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Cash
and sundry current assets
|
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$ |
3,851,000 |
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$ |
2,745,000 |
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Accounts
receivable, net
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|
21,202,000 |
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|
19,888,000 |
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Inventories
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42,911,000 |
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|
48,801,000 |
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Total
current assets
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67,964,000 |
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|
71,434,000 |
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Property,
plant and equipment, net
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22,130,000 |
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|
20,859,000 |
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Other
assets
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4,272,000 |
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|
4,328,000 |
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Total
assets
|
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$ |
94,366,000 |
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$ |
96,621,000 |
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Liabilities
and shareholders' equity
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Current
portion of long-term debt
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$ |
467,000 |
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$ |
467,000 |
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Accounts
payable
|
|
|
9,049,000 |
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|
|
13,029,000 |
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Accrued
expenses
|
|
|
7,521,000 |
|
|
|
11,240,000 |
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Total
current liabilities
|
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|
17,037,000 |
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|
|
24,736,000 |
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Long-term
debt
|
|
|
9,958,000 |
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|
10,246,000 |
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Other
long-term liabilities
|
|
|
4,504,000 |
|
|
|
3,499,000 |
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|
Shareholders'
equity
|
|
|
62,867,000 |
|
|
|
58,140,000 |
|
|
Total
liabilities & shareholders' equity
|
|
$ |
94,366,000 |
|
|
$ |
96,621,000 |
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