Friedman Industries, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended September 30, 2012; filed November 13, 2012. The company reports coil and tubular product segments.
Key financial results
| Metric | Three months ended Sep. 30, 2012 | Year-over-year | Six months ended Sep. 30, 2012 | Year-over-year |
|---|---|---|---|---|
| Net sales | $33.33 million | Down 20.7% | $72.77 million | Down 10.1% |
| Gross profit | $3.78 million | Down $1.11 million | $8.42 million | Down $0.62 million |
| Gross margin | 11.3% | 11.6% prior year | 11.6% | 11.2% prior year |
| Earnings before taxes | $2.47 million | Down 28.9% | $5.57 million | Down 10.6% |
| Net earnings | $1.64 million | Down 29.0% | $3.74 million | Down 9.9% |
| Diluted EPS | $0.24 | $0.34 prior year | $0.55 | $0.61 prior year |
Cash flow and liquidity: Six-month operating cash flow was $10.69 million, versus $14.23 million a year earlier. Cash increased $8.80 million to $20.68 million; cash dividends paid were $1.77 million and capital expenditures were $0.14 million. Working capital was $53.90 million and the current ratio was 6.6 at September 30, compared with $51.15 million and 4.7 at March 31, 2012. Total assets were $76.28 million and stockholders’ equity was $65.39 million. The filing reports no interest paid; it does not show a separate debt balance. Management said it had no current plans for significant term borrowing.
Changes and operating performance
- For the six-month period, shipments were approximately 96,000 tons, about unchanged year over year, but average selling price fell from approximately $847 to $756 per ton. Average cost per ton also declined, from approximately $752 to $668.
- Second-quarter volume decreased to approximately 46,000 tons from 50,000; average selling price declined to approximately $720 from $841 per ton. Management attributed lower sales chiefly to lower prices and, in the quarter, lower volume.
- Six-month coil sales rose approximately $2.41 million as shipments increased to about 45,000 tons from 37,000; segment operating income was approximately $628,000 versus break-even a year earlier. Quarterly coil operating income was approximately $274,000 versus $329,000.
- Six-month tubular sales fell approximately $10.62 million as volume declined to about 52,000 tons from 59,000 and average selling price fell to approximately $758 from $844 per ton. Segment operating income declined approximately $1.36 million to $6.42 million. Management linked weaker tubular demand to softer energy-production demand.
Outlook, risks and notable items
- Management said coil demand remained soft and expected market conditions to improve only with broader U.S. economic recovery and stronger durable-goods demand. It also described softer demand for tubular products associated with energy production.
- Nucor Steel Company is the company’s primary coil supplier; management said supply was adequate and did not anticipate significant change, but loss of the supplier could materially harm the business.
- U.S. Steel Tubular Products is the primary supplier of tubular products and pipe-manufacturing coil material, and a major customer for finished tubular products. The company gave no assurance about future orders or material availability; losing USS as supplier or customer could materially harm the business.
- Management believed operating cash flow and borrowing capacity were adequate for expected cash needs over the next 24 months. Forward-looking outcomes remain exposed to changes in product demand and prices, steel-market conditions, and execution of operating or expansion plans.
- LIFO inventories were reduced during the quarter and six-month period and were expected to be replenished by March 31, 2013. A $40,360 deferred debit reflected the difference between replacement cost and LIFO cost; quarterly LIFO inventory valuation depends on estimates of year-end quantities.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No subsequent events requiring recognition or disclosure were identified.
Important facts for investors to verify
- Whether lower tubular demand, selling prices, and shipment volumes persist, particularly in markets tied to energy production.
- Exposure to Nucor and USS, including supplier continuity, material availability, and customer orders.
- Inventory valuation and the expected replenishment of reduced LIFO inventories by fiscal year-end.
- Cash generation and working-capital movements, including whether receivables and inventory reductions are sustainable.
- Future capital needs, borrowing plans, and the company’s ability to meet its stated 24-month cash requirements.