Synalloy Corporation — Form 10-Q summary
Reporting period: Quarter ended September 27, 2014; comparisons are with the quarter and nine months ended September 28, 2013. The supplied filing is for Synalloy Corporation, although the request metadata names ASCENT INDUSTRIES CO.
Financial performance
| Metric | Third quarter 2014 | Third quarter 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Continuing-operations net sales | $48.45 million | $49.21 million | $150.94 million | $150.35 million |
| Gross profit | $8.32 million | $5.17 million | $25.37 million | $17.03 million |
| Gross margin | 17.2% | 10.5% | 16.8% | 11.3% |
| Operating income | $4.71 million | $1.12 million | $13.26 million | $4.97 million |
| Income from continuing operations | $3.18 million | $1.48 million | $11.21 million | $4.00 million |
| Net income (loss), including discontinued operations | $1.28 million | $1.46 million | $3.46 million | $4.84 million |
| Continuing-operations diluted EPS | $0.36 | $0.23 | $1.29 | $0.62 |
Third-quarter sales declined 2%, while continuing-operations earnings rose 115%. Nine-month sales were nearly flat and continuing-operations earnings increased 181%. Discontinued operations generated losses of $1.90 million for the quarter and $7.75 million for the nine months, reducing reported net income. Per-share comparisons also reflect the 2.3 million shares issued in the September 2013 offering.
- Segments: Metals sales were down 6% for both the quarter and nine months, while segment operating income rose to $3.84 million and $11.00 million, respectively. Specialty Chemicals sales increased 11% for the quarter and 17% year to date; operating income fell 10% in the quarter to $1.42 million but rose 7% for the nine months to $4.77 million.
- Cash flow and investment: Operating cash flow was $21.82 million, compared with cash used of $0.81 million in the prior-year period. Capital expenditures were $4.56 million, including $2.95 million for the CRI expansion. Ending cash was $20.75 million, up from $1.77 million at fiscal 2013 year-end.
- Debt and liquidity: Current and long-term debt totaled $21.54 million at September 27, down from $23.44 million at December 28, 2013. Current assets were $106.75 million and current liabilities $29.19 million. Management reported compliance with debt covenants. Interest expense was $0.79 million for the nine months, down from $1.08 million.
Material changes and unusual items
- Synalloy sold Ram-Fab on August 29, 2014, for consideration valued at less than $10 million, including cash at closing, potential earn-outs and retained specified current assets. The company reported approximately $3.61 million of sale proceeds and a $0.95 million loss on sale, plus $2.00 million of closure-related costs.
- The company closed Bristol Fab on June 27, 2014, after failing to reach a new union agreement. It accrued $6.99 million of closure costs, including a $3.03 million noncash inventory write-off and approximately $1.90 million in pension-fund withdrawal liability. Bristol Fab had operating losses of $2.26 million in the first half of 2014.
- A $3.48 million favorable Palmer earn-out liability remeasurement was recorded in the second quarter and benefited nine-month continuing results. Management expected no Year 2 payment and estimated a $2.50 million Year 3 payment; it did not expect Palmer to reach the higher earn-out threshold.
- Metals profitability benefited from cost controls, improved product mix and stainless-steel inventory gains; management estimated third-quarter inventory gains of $0.81 million, versus a $1.42 million loss in the prior-year quarter. Tropical Cyclone Odile disrupted shipments and was estimated to reduce net income by about $0.20 million.
Outlook, risks and contingencies
Management anticipated further improvement in Metals during the remainder of 2014, citing quoting activity, expected project starts, stronger commodity pricing and focus on higher-margin products. It said most of the third-quarter storage-tank sales shortfall should be recovered in the fourth quarter; backlog was $13.55 million at September 27, up from $11.48 million at December 28, 2013. Specialty Chemicals sales were expected to improve through the rest of 2014 and into 2015, with operating margins expected to hold steady. The CRI Tolling expansion was scheduled to come online at the end of November 2014, supported by a three-year tolling agreement. Management also cited acquisition capacity, but provided no quantified earnings or revenue guidance.
Risks discussed include customer capital-spending cycles, competition and pricing, raw-material costs and availability, oil-and-gas demand and regulation, labor and staffing, acquisition integration, customer financial condition, environmental matters, interest rates, financing availability and debt-covenant compliance. The filing reported no material change in market-risk exposure or risk factors. Management said disclosure controls were effective. It was not aware of claims expected to have a material effect, while noting ordinary-course legal matters and uncertainty about their outcomes.
Important facts for investors to verify
- Confirm the issuer identity: the filing is for Synalloy Corporation, not the company named in the request metadata.
- Track the actual sale proceeds and any future earn-out payments from Ram-Fab, and the final costs and obligations associated with both discontinued businesses.
- Assess whether storage-tank backlog converted to sales as expected and whether the CRI expansion and tolling agreement delivered the anticipated benefits.
- Monitor Metals and Specialty Chemicals margins, including the effects of nickel prices, product mix, customer demand and inventory gains or losses.
- Review the Palmer earn-out estimate, debt-covenant headroom and the $1.90 million Bristol Fab pension withdrawal liability.