NEWS
RELEASE
FOR
IMMEDIATE RELEASE
Synalloy Corporation
Announces First Quarter Results
Spartanburg,
South Carolina, April 24, 2009...Synalloy Corporation (Nasdaq:SYNL), a producer
of specialty chemicals, stainless steel pipe, vessels and process equipment,
announces that the first quarter of 2009 produced net earnings
of $194,000, or $.03 per share, on a 30% sales decrease to
$35,522,000. This compares to net earnings of $1,862,000, or $.30 per share on
sales of $50,974,000, in 2008’s first quarter. Although management is
disappointed with the modest level of profitability, we are pleased that the
Company has remained profitable and produced good cash flow during the worst
economic turmoil we have ever experienced.
Specialty
Chemicals Segment
Sales
decreased 8% from the first quarter of 2008 primarily from the sale on March 6,
2009, of the Segment’s pigment dispersion business, and to a lesser extent from
a softening in business conditions, mainly in our contract manufacturing.
Operating income declined 39% from the first quarter of 2008. Contract
manufacturing more than accounted for the operating income decline in the
quarter which resulted from lower volumes generating unabsorbed manufacturing
costs, excess costs from manufacturing issues on several products which were
corrected during the quarter, and unusually high maintenance costs. Raw material
costs stabilized during the quarter after increasing most of 2008, allowing
sales from our basic chemical products to generate a modest increase in
operating income compared to the same quarter last year. The sale of the pigment
dispersion business included substantially all of the operations’ assets for a
purchase price approximately equal to their net book value as of the date of
sale. As part of the agreement, the Segment is toll manufacturing pigments for a
transitional period of up to one year. The Segment will continue to produce and
sell chemical dispersions utilizing some of the existing equipment.
Metals
Segment
Due
to the nature of this business, which is highly dependent on capital
expenditures, the effect from the economic turmoil has been significant. Sales
decreased 39% in the first quarter of 2009 from the same quarter a year earlier
and operating income declined 78%. The sales decline resulted from a 34%
decrease in average selling prices partially offset by 18% higher unit volumes.
The significant decrease in first quarter selling prices, when compared to
2008’s first quarter, reflects much lower stainless steel prices together with 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 unit volume
resulted from a 94% increase in commodity pipe sales, partially offset by a 27%
decline in non-commodity unit volumes compared to the same quarter a year
earlier. The big percentage increase in commodity pipe unit volumes must be
viewed in the context of the comparison with last year’s unusually weak first
quarter level. The poor economic conditions worldwide have depressed demand for
stainless steel, leading to continued pricing pressure for commodity pipe.
Stainless steel surcharges, resulting primarily from the changes in nickel
prices, continued to fall precipitously during the first quarter to levels about
equal to one third of 2008’s first quarter averages. We cannot precisely
calculate the effect of the price declines on profitability, but our estimate is
that profits were reduced by about $3,000,000 in the first quarter of 2009 as
the result of matching high historical inventory costs against much lower
selling prices under our FIFO inventory method. As a result, commodity pipe had
a negative gross margin in the first quarter of 2009. The decline in unit
volumes for non-commodity products in the first quarter came from piping systems
when compared to 2008’s first quarter. Responding to the poor economy, many of
the piping systems’ customers have extended their delivery dates over the past
two quarters accounting
for the first quarter of 2009 decline in unit volume for non-commodity products
from 2008’s amount. In the first quarter of 2008, piping systems benefited from
the completion of several major projects generating strong profits. Despite
these factors, non-commodity products generated good operating results for the
first quarter of 2009. However, the results were below the strong results
achieved in 2008’s first quarter contributing to the operating income decline
for the first quarter of 2009 compared to 2008.
Other
Items
Management
recognizes the importance of maintaining a strong financial position during the
chaotic economic conditions we currently face. The positive result of the huge
price declines that have taken place in our Metals Segment is that working
capital needs are decreased by reduced inventory values and accounts receivable.
Even though profits were modest in the first quarter, cash flow of $6,368,000
from operations let us pay a $632,000 cash dividend, reduce debt by $5,059,000
and increase cash balances by $327,000. Debt net of cash at the end
of the first quarter was only $4,942,000 compared to $62,485,000 of
Shareholders' Equity. We are well positioned to take advantage of any
opportunities that may emerge as the year progresses.
Outlook
The
Specialty Chemicals Segment began 2009 experiencing difficult conditions during
the first two months of the quarter. However, revenues and profits began to
improve in March. Management is hopeful that this favorable trend will continue,
reflecting its efforts to generate new products, improve existing products, and
compete in markets not as susceptible to foreign imports. With raw material
prices stabilizing, primarily from lower petroleum costs, the negative impacts
of rapidly increasing raw material costs experienced over the last several
quarters should allow the Segment to generate more consistent profit margins in
the second quarter of 2009, assuming economic conditions do not deteriorate from
their current levels. However, the uncertainty of the economy makes predictions
of the Segment's performance extremely difficult.
As
a result of the significant increases in stainless steel pipe imported from
China, the Bristol Metals, LLC along with three other U.S. producers of
stainless steel pipe and the United Steelworkers Union filed an unfair-trade
case against China on January 30, 2008. The U.S. Department of Commerce (DOC)
issued final determinations on welded stainless steel pipe, and 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) had its final vote February
19th
and upheld the earlier determinations by the DOC. Bristol Metals, LLC joined
other domestic producers to appeal the lower than anticipated dumping margin
imposed on one Chinese manufacturer in the determination of duties. We
expect the court to rule on this appeal within 12-18 months. We believe the
actions by the ITC and the DOC have 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 more than offset by falling stainless steel prices, the depressed economy,
and distributors’ reluctance to restock inventories. Although stainless steel
surcharges appear to have stopped the precipitous decline seen in the first
quarter, the significant declines experienced over the last two quarters have
created a poor pricing environment for our commodity pipe, which will continue
to negatively impact profitability into the second quarter of 2009. Our steel
suppliers have implemented a 6% price increase which the industry thinks will be
accepted in the market place. We are hopeful that this signals that the lows in
stainless steel prices are behind us which would bode well for future
profitability. 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 world-wide makes
it difficult to predict the performance of this Segment for the second quarter
and remainder of 2009. Management continues to 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 based on our strong backlog, with 80% of the backlog coming from
energy and water and wastewater treatment projects. Piping systems’ backlog was
$41,007,000 at the end of the first quarter of 2009 compared to $ 45,500,000 at
the end of 2008. We estimate that approximately 60% of the backlog should be
completed in 2009.
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," “outlook” 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; raw materials availability; customer delays or difficulties in the
production of products; environmental issues; 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; ability to weather the current economic downturn; loss of consumer
or investor confidence and other risks detailed from time-to-time in Synalloy's
Securities and Exchange Commission filings. Synalloy Corporation assumes no
obligation to update any forward-looking information included in this
release.
Contact: Greg
Bowie at (864) 596-1535
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THREE
MONTHS ENDED
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Apr
4, 2009
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Mar
29, 2008
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Net
sales
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Specialty
Chemicals Segment
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$ |
12,895,000 |
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$ |
14,052,000 |
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Metals
Segment
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22,627,000 |
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36,922,000 |
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$ |
35,522,000 |
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$ |
50,974,000 |
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Operating
income
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Specialty
Chemicals Segment
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$ |
267,000 |
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$ |
439,000 |
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Metals
Segment
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774,000 |
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3,449,000 |
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1,041,000 |
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3,888,000 |
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Unallocated
expenses
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Corporate
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692,000 |
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744,000 |
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Interest
and debt expense
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105,000 |
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192,000 |
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Change
in fair value of interest rate swap
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(49,000 |
) |
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140,000 |
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Other
income
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(1,000 |
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(2,000 |
) |
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Income
before income taxes
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294,000 |
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2,814,000 |
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Provision
for income taxes
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100,000 |
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952,000 |
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Net
income
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$ |
194,000 |
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$ |
1,862,000 |
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Net
income
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Per
basic common share
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$ |
.03 |
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$ |
.30 |
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Per
diluted common share
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$ |
.03 |
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$ |
.30 |
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Average
shares outstanding
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Basic
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6,249,357 |
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6,239,976 |
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Diluted
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6,250,983 |
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6,281,059 |
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Backlog-Piping
Systems & Process Equipment
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$ |
41,007,000 |
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$ |
49,800,000 |
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Balance
Sheet
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Apr
4, 2009
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Mar
29, 2008
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Assets
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Cash
and sundry current assets
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$ |
3,146,000 |
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$ |
2,773,000 |
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Accounts
receivable, net
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18,184,000 |
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27,834,000 |
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Inventories
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39,354,000 |
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46,130,000 |
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Total
current assets
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60,684,000 |
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76,737,000 |
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Property,
plant and equipment, net
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21,293,000 |
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21,262,000 |
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Other
assets
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4,348,000 |
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4,328,000 |
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Total
assets
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$ |
86,325,000 |
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$ |
102,327,000 |
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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
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7,541,000 |
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13,101,000 |
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Accrued
expenses
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6,438,000 |
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10,365,000 |
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Total
current liabilities
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14,446,000 |
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23,933,000 |
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Long-term
debt
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4,900,000 |
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16,271,000 |
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Other
long-term liabilities
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4,494,000 |
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3,617,000 |
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Shareholders'
equity
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62,485,000 |
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58,506,000 |
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Total
liabilities & shareholders' equity
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$ |
86,325,000 |
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$ |
102,327,000 |
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