Synalloy Corporation — Q1 2014 Form 10-Q
Entity note: The filing identifies Synalloy Corporation as the registrant; the request metadata names ASCENT INDUSTRIES CO. The summary below reflects the filing provided.
Business context and reporting period
Unaudited results cover the three months ended March 29, 2014, compared with the three months ended March 30, 2013. Synalloy operates Metals and Specialty Chemicals segments. Management cautions that interim results are not necessarily indicative of full-year results.
Financial performance and liquidity
| Metric | Q1 2014 | Q1 2013 / comparison |
|---|---|---|
| Net sales | $57.84 million | $57.84 million; essentially unchanged |
| Gross profit / margin | $7.05 million / 12.2% | $6.90 million / 11.9% |
| Operating income / margin | $2.83 million / 4.9% | $2.40 million / 4.2% |
| Net income | $1.78 million | $1.47 million; up 21% |
| Diluted EPS | $0.20 | $0.23 |
| Operating cash flow | $7.35 million | $(0.17) million |
| Capital expenditures | $1.65 million | $1.42 million |
The EPS decline despite higher net income reflects the additional 2.3 million shares issued in the September 2013 public offering; weighted-average diluted shares rose to 8.70 million from 6.42 million. Q1 2014 operating cash flow was supported substantially by a $10.25 million increase in accounts payable, alongside cash uses from receivables and inventory.
At March 29, 2014, cash was $6.83 million, current assets were $110.35 million, and current liabilities were $34.22 million. Long-term debt was $20.27 million and current debt was $2.53 million, for total debt of approximately $22.81 million. The company reported compliance with debt covenants. Working capital was approximately $76.13 million.
Changes and segment results
- Metals: Sales fell 7% to $41.41 million, while operating income rose 13% to $2.25 million. Lower pipe and piping systems sales reflected reduced pricing and volumes, and the prior-year comparison included the Bechtel nuclear project, completed in Q4 2013. Improved product mix, cost reductions, and $489,000 of Bechtel cost recovery supported earnings. Bristol Fabrication recorded a $1.05 million quarterly loss.
- Specialty Chemicals: Sales increased 25% to $16.44 million and operating income increased 27% to $1.64 million. CRI Tolling contributed $1.59 million of sales and $73,000 of pretax earnings in the quarter and continued to outperform management’s acquisition projections.
- Consolidated SG&A declined 7% to $4.22 million. Interest expense fell to $266,000 from $342,000, mainly because the company repaid its line of credit using public-offering proceeds. A $119,000 unfavorable change in interest-rate-swap fair value affected Q1 2014 results.
Outlook, risks, and unusual items
- Management expects gradual improvement in Metals during 2014, citing quoting activity and project starts, but said commodity pricing recovery remains uncertain. It highlighted strong special-alloy activity and anticipated continued demand for Palmer tanks.
- Management expects Specialty Chemicals sales to improve through new business and oil-and-gas opportunities, with margins expected to hold steady despite anticipated raw-material cost increases. The oil-and-gas initiative had an annual revenue run rate above $3 million in the quarter. CRI Tolling expansion was scheduled for completion in late Q3 2014.
- Total fabrication backlog was $31.20 million at March 29, 2014, versus $50.75 million at December 28, 2013 and $24.01 million a year earlier. Palmer backlog was $10.84 million, down from $11.48 million at year-end.
- After quarter-end, the company announced the planned June 27, 2014 closure of Bristol Fabrication, which had incurred $5.2 million of losses over 2011–2013. It expects approximately $1.9 million of union pension withdrawal liability; other closure costs were not yet determinable. The closure was attributed to the inability to agree with the union on cost reductions.
- Risks cited include demand and pricing changes, raw-material cost and availability, customer and project delays, labor relations, oil-price and fracking-related developments, acquisition integration, interest rates, financing availability, and compliance with debt covenants. Management reported no known asserted or unasserted contingencies expected to materially affect financial condition or results.
Important facts for investors to verify
- Confirm the registrant identity: the supplied filing is for Synalloy Corporation, not the company named in the request metadata.
- Assess the effect of Bristol Fabrication’s closure, including the approximately $1.9 million pension withdrawal liability and presently undetermined additional costs.
- Evaluate the quality and sustainability of operating cash flow, given the substantial contribution from higher accounts payable and the increases in receivables and inventories.
- Monitor segment trends, fabrication backlog, commodity and nickel pricing, inventory gains or losses, and CRI Tolling expansion and performance.
- Review debt covenants, variable-rate exposure and swap fair-value effects; management stated it was compliant with covenants at quarter-end.