Friedman Industries, Inc. — Form 10-Q Summary
Business context and period: The filing covers the quarter ended June 30, 2013, the first quarter of fiscal 2014. Friedman reports coil and tubular product segments. Unless noted otherwise, comparisons are with the quarter ended June 30, 2012; balance-sheet comparisons are with March 31, 2013.
Financial performance
| Metric | Quarter ended June 30, 2013 | Comparable 2012 quarter |
|---|---|---|
| Net sales | $29.58 million | $39.43 million |
| Gross profit / margin | $2.44 million / 8.3% | $4.65 million / 11.8% |
| Earnings before taxes | $1.15 million | $3.10 million |
| Net earnings | $0.81 million | $2.09 million |
| Diluted earnings per share | $0.12 | $0.31 |
| Operating cash flow | $2.25 million | $2.92 million |
| Capital expenditures | $14,590 | $90,573 |
| Dividends declared per share | $0.08 | $0.13 |
Sales fell about 25%, while net earnings declined about 61%. Lower sales volume and average selling prices contributed to the decline. Segment operating profit was $178,000 for coil versus $354,000 a year earlier, and $1.65 million for tubular versus $3.69 million.
Financial position and liquidity
- Cash was $17.60 million at June 30, up from $15.92 million at March 31. Operating cash generation and lower receivables and inventory were partly offset by lower accounts payable.
- Working capital was $52.58 million, compared with $51.97 million at March 31; the current ratio was 10.6 versus 5.2.
- Total assets were $69.95 million. Stockholders’ equity was $63.22 million; current liabilities were $5.50 million.
- The balance sheet reports no borrowings or debt. The company paid no interest during either comparative quarter.
Changes, outlook, and risks
- Total tons sold declined from approximately 50,000 to 42,000, and average selling price fell from about $789 to $705 per ton. Coil sales rose slightly as volume increased, but tubular sales fell about $10.19 million as both volume and price declined.
- Management attributed softer demand to a weak U.S. economy, with tubular products also affected by oversupply and foreign competition. It expected soft market conditions to persist until sustained, significant improvement in the U.S. economy.
- Management said operating cash flows and borrowing capacity were adequate for expected cash needs over the next 24 months, and it had no current plans for significant term borrowing.
- Friedman depends primarily on Nucor Steel Company for coil supply. U.S. Steel Tubular Products is its primary tubular-product and pipe-manufacturing material supplier and a major customer for finished tubular products. Losing either relationship could materially harm the business; future supply and orders from U.S. Steel were uncertain.
- LIFO inventory was reduced during the quarter and was expected to be replaced by March 31, 2014. The company recorded a $54,625 deferred credit for the difference between replacement cost and LIFO cost. Quarterly LIFO valuations require estimates of year-end quantities.
- Management identified changes in product demand and prices and execution of operating plans, including possible expansion plans, as factors that could cause actual results to differ from forward-looking statements.
Important facts for investors to verify
- Whether sales volume, selling prices, and gross margin stabilize, particularly in the tubular segment.
- Whether soft demand, oversupply, and foreign competition continue to affect segment profitability.
- Whether supply and customer relationships with Nucor and U.S. Steel remain stable.
- Whether the reduced LIFO inventory is replaced by March 31, 2014, and how inventory valuation affects reported results.
- Whether cash generation and liquidity remain sufficient to fund operations and expected cash requirements.