Q3 2019 Earnings Call
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I think you're married Oh. Good morning. This is June so injury of calm partners and I also would like to welcome you did the Universal stainless conference call and webcast. A we're here to discuss the Companys third quarter 2019 results reported this morning with us from management or Danny.
Chairman, President and Chief Executive Officer, Chris Simmer, Executive Vice President and Chief Commercial Officer, Paul Mcgrath, Vice President of administration in General Counsel, and Chris Scanlon, Vice President Finance, Chief Financial Officer and Treasurer.
Before I turn the call over to management, let me quickly review procedures I. After management has made a formal remarks, we will take your questions and as Mary said, our she will instruct you on procedures at that time also please note that in in this morning's call management will make forward looking statements.
Under the private Securities Litigation Reform Act opened 1995 regarding future events and financial performance. We caution you that such statements reflect management's best judgment based on factors currently known and that the actual events or results could differ materially please refer to the <unk>.
These documents that are filed from time to time with the FCC in particular.
Form 10-K , 10-Q, and form 8-K filed today with the company's press release.
These documents contain and identify important risks and other factors that may cause actual results could differ from there was contained in management's forward looking statements.
Forward looking statements made during the call or being made as of today.
If this call is replayed or reviewed after today the information presented during the call me not comparing current are accurate information the company disclaims any obligation to update or revise any forward looking statements management may provide guidance on today's call, but will not provide any further guidance or update.
On the performance during the quarter unless it is done in a poor in a public forum. During this call management will also discuss non-GAAP financial measures. These non-GAAP financial measures or not prepared in accordance with generally accepted accounting principles, a reconciliation of GAAP and non-GAAP results is provide.
I did in todays press release.
With the formalities complete I would now like to turn the call over to skinny.
Danny we're ready to begin.
Thank you Jim good morning, everyone.
Thanks for joining us today.
The progress we achieved in the first Dan for 2019, especially in a second quarter was slowed in the third quarter by unplanned downtime on critical equipment, including the hydraulic forward to north Jackson, and the bar and Rod Mill and Dunkirk.
As a result, we reported sales of $56.6 million down 20% from last quarter and 18% from the third quarter of 2018.
18% sales declined from 2018 include an 8.8 million dollar were 67% reduction plate sales.
He equipment issues reduced shipments by 2 million pounds in sales by $6 million I.
Another $1.4 million of international sales was shipped physically but they're not restart destinations in time to be included in third quarter revenue.
Premium products were particularly hard hit by the Fourg issues, reflecting a 4.8 million dollar sequential drop in sales to $8 million or 14.2% sales.
Year to date premium alloy sales totaled 30.2 million were 16.1% of sales.
Our aerospace sales remain strong in the third quarter and accounted for 72.3% of total sales year to date aerospace sales were up 16.8% from the same period of 2018, reaching a record $132.8 million.
Third quarter order entry of $53 million before surcharges increased 5% compared to the second quarter, indicating very little seasonal impact and continued strong aerospace demand.
Cool steel plate bookings were essentially equal to the second quarter, but 34% below the near record level of 2018.
Order backlog finished the quarter at $118.3 million compared to $116.9 million at June 30, and $111.4 million one year ago.
Net income for the third quarter was $800000 or nine cents per diluted share.
And included a four cents per share insurance recovery related to the fire in the pickling area that Dunkirk facility back in September of 2017.
That compares to net income in the second quarter of $2.1 million for 24 cents per diluted share including charges of three cents per diluted share play hydraulic forge at North Jackson in June .
In the third quarter 2018, net income totaled $3.9 million or 44 cents per diluted share.
EBIT da totaled $6 million compared with 8.2 million for the second quarter of 2019 and $10.1 million for the third quarter of 2018.
Cash flow from operations remain positive at $6.6 million in the third quarter and managed working capital fell $2.9 million.
Total debt was reduced $2.1 million to 66.1 million or 3.1 million at $64.9 million net of cash.
Chris will cover cash flow managed working capital and other related financial items in his remarks.
Let me review the issues that impacted third quarter results the goods a bit any ugly.
Reduce sales took a toll and margins in the third quarter with gross margin at 9.4% of sales compared with 12.8% on sales and the second quarter of 2019, and 15.1% of sales in the 2018 third quarter.
In addition to reduce shipment volume.
Less profitable product mix lower production levels due to equipment issues and continued surcharge versus materials cost misalignment, where their principal negative drivers of lower margins.
The ramp up with a new Dunkirk bar sell any outstanding cost performance in vacuum induction melting were partially offset.
Let me highlight the commodity situation first.
Nickel prices jumped during the quarter rising from $5.43 per pound in June to $8 in two cents in September of 48% increase.
As a result surcharges on a major on major nickel bearing deep produced grades like 15, five bottomed at 56 cents per pound in August and will rise to 67 cents per pound in November .
Similarly, surcharges unpopular nickel bearing premium grades like Thirteeneight bottomed at 94 cents per pound in August and will increase to $1.10 per pound by November .
In September this trend contributed towards an easing in the misalignment between surcharges in commodity prices, which has been pressuring margins most of this year.
Even though nickel has retreated to the $7.35 per pound range, we expect to see continued easing in misalignment on nickel grades in the fourth quarter.
Other important commodities continue to weaken during the third quarter.
Molly was down 3% chrome down, 12% vanadium down, 15% and 71% on a year to date basis.
And scrap was down 8% during the quarter.
So pricing of a tool steel grade like eight to reflect surcharges, which have fallen from 75 cents per pound in January .
To 41 cents per pound in September and we'll continue to fall to 38 cents per pound in November .
Keep in mind that tool steel typically sales were $1.50 to $1.75 cents a pound. So short term surcharge swings of this magnitude can have a significant impact on margins.
We anticipate these commodity stabilizing as we move through the fourth quarter.
To summarize misalignment ease during the third quarter, but negatively impacted margins by half million dollars were 0.9%.
We expect continued easing in the fourth quarter due to the recent rise nickel slowing price reductions of other key commodities and monthly reductions in material cost as high cost inventory sells through.
Let me turn to the facilities and operations.
We had our challenge is really equipment downtime during the quarter. There were two areas of note in terms of impact on shipments first and most importantly, the radial forge at North Jackson.
You'll recall that we had a fire on June 14th at this facility.
Our team rallied working with third parties and the mill builder to get back into production quickly.
When the last conference call reported that we plan to major one week outage in September and when do expansive diagnostic work to ensure all elements of the system, we're working as before the fire.
Unfortunately, we experienced deteriorating performance in July in early August and decide to accelerate the one week outage to replace the cylinder and other degraded parts.
The net result of the planned outage acceleration and intermittent unplanned downtime during the quarter were delayed shipments of 2 million pounds and $6 million, where margin impact of one of the half million dollars an impact on gross profit margins of 2.4%.
I'm pleased to report that the Fourg has been processing material at record levels over the past month.
And already process more material in the first two and half weeks of October than any month in the third quarter.
Secondly, we planned outage at the bar and Rod mill in Dunkirk to complete a $400000 capital project on inline furnace.
During the tear down the furnace, we uncovered serious structural issues caused by a class wonder jackets and related floor and foundation damage.
The outage was extended to three weeks and had a negative impact on cost and production flows Dunkirk facility.
I'm pleased to report that Dunkirk reported record throughput across all operations, including the boring Rod mill in September as recovered from this extended outage.
I would be remiss, if I didnt address some of the offsetting positive trends during the quarter.
Installation of the new bar sell in Dunkirk is complete as are most of the outstanding items on the punch list that I mentioned during the last call.
The new phased array inspection system will be in place this quarter.
As a reminder of the $10 million bars, So capital project involve modernization of our intermediate bar processing operations by consolidating six discrete processing steps into one fully functioning automated workstation.
Third quarter production on the sale was double Q1 and up 17% versus Q2, despite some of the operating challenges we faced.
The cell added half a million dollars to margins or 0.8% impact positive impact on gross margins.
Year to date inventory reduction totaled $2.2 million as we liquidated inventory positions according to obsolete production ramps.
Each quarter going forward, we expect to see positive effects than our margins as we continue up the learning curve and drive more product through the line.
We maintain our expectation of a two year payback on the project, which was financed in the tax advantage manner utilizing new market tax credits.
Our vacuum induction melting operations established new records for throughput campaign life and operating costs in Q3, supporting our corporate strategy to expand the premium other products.
After the extended outage at the bar and Rod Mill in Dunkirk was completed.
Facility achieved a new record monthly production level in September to partially offset the unplanned downtime experienced in August .
Lastly, we received approval from two major aerospace Oems for critical bearing and gearing steels, which will continue to grow our premium alloys consistent with our long term strategy.
Let me turn or in end markets for a second start with aerospace our largest market.
Our aerospace sales totaled $40.9 million were 72.3% of sales in the third quarter of 2019 compared with a record 49.3 million were 69.5% of sales in the second quarter of 2019, and 37.3 million or 54% of sales in the third quarter of 18.
Year to date aerospace sales increased 16.8% from the same period of 2018, reaching a record $132.8 million for the first nine months of the year.
Even with a continued issues plugging Boeing 737, Max demand from our customers remained on track in the third quarter.
Well uncertainty continues regarding when the 737 Max will be returned to service, we're not seeing a major impact on our order book, rather we see segments of the arrow metal supply chain getting caught up after a strong 2018.
I would note that there were a couple of order push outs recently, but they see more related to year end inventory adjustments specific to those customers.
The consensus among our customers in several wall Street analysts as the Boeing will achieve recertification in the US late in the fourth quarter. This year with other countries following throughout 2020.
Has that plays out and with their current production of 42 airplanes per month, there's continued expectation for ramp the 57 airplanes at some point next year is also expected that the first triple Sevenx will be delivered 2020. Despite recent issues that came up and testing.
More broadly the ita and their latest report on global Air traffic reported that August passenger traffic grew 3.8% year over year somewhat below the long run averaged 5.5%.
Load factors, however, reached a record, 85.6%, which bodes well for the aftermarket.
In fact, Honeywell in their third quarter report solid demand in the commercial aftermarket is contributing to their growth and aerospace for the period.
On the minus side freight traffic continued to decline in August with you as China trade dispute being a major contributing factor.
Overall aerospace continued to be a bright spot in the third quarter, both for universal and for our customers and that is expected to remain strong going forward, although given the near term cross currents and uncertainties were all monitoring the situation very closely.
The oil and gas end market remained our second largest end market in the third quarter of 2019, a 10% a total sales third quarter oil and gas sales totaled 5.7 million versus 7.7 million into 2019 second quarter and 8.9 million in the third quarter last year.
In general we would characterize the oil and gas Mark is moving sideways to softening.
Ill or remains at active market for Universal because were introduction of new products and incoming orders remain level with the second quarter bookings.
Schlumberger reported somewhat mixed results in their third quarter report on Friday.
I noted that international activity drove their overall growth, but North America sales were strong offshore well growth on land was minimal due to lower fracking activity and pricing weakness.
In their outlook, they pointed to market uncertainty stemming from challenges to global economic growth due to trade concerns is weighing on oil demand.
Our strategy for us for Universal continues to be expanding market penetration.
Rising the unique capabilities of North Jackson.
The heavy equipment market was our third largest market in the third quarter 2019, representing 7.7% of sales versus 10.1% of sales in 2019 second quarter and 19.4% of sales in the third quarter last year.
Third quarter 2019, heavy equipment sales, which are primarily tool steel plate had been anemic this year versus a record year in 2018 heavy equipment sales totaled 4.4 million compared to 7.2 million in the second quarter and 13.4 million in third quarter VP.
After a pickup in the second quarter, we saw reduced demand for tool steel in the third quarter.
The effective drop in commodity prices in surcharges compounded the issues I noted last quarter, including automotive production cuts somewhat fewer model changeovers and the pipeline short lead times are roughly six weeks and service center inventory adjustments.
Going into the fourth quarter, we've seen a modest improvement in bookings and expect sales to be more in line with the second quarter 2019.
Third quarter power generation market sales were 2.9 million compared with 3.2 million in 2019 second quarter and 2.7 million in the third quarter of 18 were 5.1% of sales our power generation sales continue to reflect maintenance spending for the most part and bookings were up 29% sequentially in the third quarter concern.
Listen with seasonal maintenance trends, we see little changing market dynamics over the near term and intend to supply maintenance needs until the replacement market for gas turbines kicks in.
In general industrial market sales were 3.6% of sales in the third quarter of 19.
In 2 million at $2 million versus 2.4 million in the second quarter and 5.1 million in the same quarter last year.
Semiconductor infrastructure and general manufacturing markets remained slow.
That concludes my summary of the end markets, Let me turn the call over to Chris for his financial report Chris.
You Denny and good morning, everyone, let's get started with the income statement as they discussed third quarter 2019 sales of 56.6 million were down 20.3% were 14.4 million from the 2019th third quarter down 18.1% compared with the 2018 third quarter.
Third quarter sales were negatively impacted by unplanned downtime associated with repair activity at our north Jackson hydraulic forwards relating to the fire that occurred in the second quarter.
Hi related delayed shipments reduced third quarter net sales by approximately 6 million.
2099 months sales of 187.8 million were down 11 million were 5.6% compared to 2018 nine months sales of 198.9 million.
The year to date decrease was due to lower sales and most end markets with the exception of aerospace, which was up 19.1 million in power generation, which was up 1.3 million.
Third quarter 2019, gross margin totaled $5.3 million were 9.4% of sales down from 12.8% of sales in the 2019 second quarter and 15.1 person sales in the 2018 third quarter.
Our current quarter gross margin was negatively impacted by lower revenue and product mix. We also experienced misalignment of milk costs compared to commodity surcharges as Denny noted earlier this misalignment negatively impacted the third quarter gross margin.
Additionally, we incurred 500000 of increased operations costs due to the second quarter, North Jackson hydraulic forge far a portion of which negatively impacted our third quarter gross margin.
Lastly, we also recorded a onetime noncash impairment charge of approximately 200000 related to the rest for his components that are Dunkirk facility.
This charge was associated with the plan third quarter maintenance programs that are Dunkirk foreign Rod mill.
Selling general and administrative costs in the third quarter totaled 4.5 million or 8% of sales a decrease of 1.1 million compared with the 2018 second quarter and a 606000 decrease compared to the 2018 third quarter.
Employee related costs through vs DNA decline between periods, both sequentially and year over year.
Current quarter. Other income included insurance proceeds of 350000 related to the Dunkirk fickle roof fire, which occurred in September of 2017.
Specific to the third quarter, our income tax benefit was 577000, driven by favorable discrete items, primarily increased research and development tax credits.
For the nine months ended September 32019, our income tax expense totaled $55000 with their related effective income tax rate of 1.3%.
Net income in the third quarter was 766000 or nine cents per diluted share.
Second quarter 2019, net income totaled 2.1 million were 24 cents per diluted share in 2018 third quarter net income totaled $3.9 million were 44 cents per diluted share.
Our third quarter EBITDA totaled 6 million with Q3, EBITDA as adjusted for noncash share compensation totaling 6.3 million.
Third quarter, EBITDA is 2.2 million lower than the second quarter, 2019, and 4.1 million lower than third quarter 2018.
The EBITDA and adjusted EBITDA counts are provided in the tables to the press release.
Third quarter cash flow from operations was again positive at 6.6 million up 4.4 million from our 2019 second quarter cash flow from operations, which totaled 2.2 million.
Related to the balance sheet manage working capital totaled 144.9 million and decreased by 2.9 million compared with the second quarter of 2019.
Accounts receivable decreased by 4.6 million in inventory increased slightly by 568000 or 0.4% will accounts payable decreased by 1.1 million.
Third quarter 2019 backlog totaled 118.3 million and is up 1.4 million from between 19 second quarter.
Year over year third quarter, 2019 backlog increased 6.9 million or 6.1% compared to the 2018 third quarter.
Capital expenditures for the third quarter were 3.9 million with nine month, Capex totaling 13.3 million.
Third quarter 2018 capital expenditures totaled 6.6 million.
With 2019, nine month, Capex totaling 13.2 million.
2019, Capex is expected to be above our 2018 levels and total approximately 17 million.
This includes 500000 of capital spend related to the hydraulic forge fire in the barn Rod mill repairs.
New markets tax credit program restricted cash receipts totaled 359000 in the third quarter.
Restricted cash was related to the financing of our mid size bar sell capital projects.
Additionally, within the third quarter, we received 750000 of cash proceeds from in New York State development agreement related to the Dunkirk Marcel Capital project. These funds were used to pay down credit facility borrowings.
Lastly, looking at our debt the company's total debt at September Thirtyth 2019 was 66.1 million a decrease of 2.1 million from the prior quarter debt net of cash totaled 64.9 million at the end of the third quarter, a decrease of 3.1 million from between 19 second quarter.
This concludes his financial update and Denny I'll hand, the call back to you.
Thanks, Chris.
In summary, then we were challenged by several equipment issues in the third quarter, which lowered sales to a disappointing $56.6 million.
Each equipment issue has been addressed and production over the past four to six weeks has rebounded to record levels.
The equipment issues overshadowed excellent progress and ramping up the new Barcelona, Dunker, which is delivering on cost and inventory reductions as planned.
We also are encouraged by the milk cost reduction performance at our vacuum induction melting shop in our North Jackson facility.
Commercially we were pleased to earn new approvals for bearing and gearing steels for major aerospace Oems, which underscores that our strategy to grow premium melted products continues to evolve.
Year to date record aerospace sales $132.8 million or 17% growth over 2018 also validates continued strength in aero market and the long term execution of our strategy.
We anticipate easing in the misalignment between surcharges and material cost in the fourth quarter.
The easing is due to the firming in nickel prices.
The sell through of high cost inventory.
And on the non nickel bearing products like tool steel, we will continue to be challenged with misalignment due to declining commodity prices. However, we see those prices basically stabilizing as we move through the fourth quarter.
With major equipment maintenance behind US we are focused on getting back on track in the fourth quarter.
We have a strong backlog $118.3 million aerospace bookings have remained reasonably strong in the seasonally slower third quarter.
On a separate note.
We also received an unsolicited proposal to merge from Similarly Corporation on October 14th.
And filed a related 8-K, indicating our board of directors as well as our legal and financial advisors are carefully considering the proposal and we'll respond in due course.
Before I close I want to recognize the efforts of all of our employees to meet the substantial challenges we faced in the third quarter.
My confidence in our ability to build on our accomplishments and successfully execute our strategy continues to be based on their dedication and hard work.
That concludes our formal remarks, operator lets take some take some questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on the Touchstone thoughtful.
If your question has been answered.
You remove yourself from the Q Mispriced fountain. Thank you.
Our first question is from the line of Tyler Kenyon from Cowen Your line is open.
Hey, good morning.
Our our it.
Hey, good how are you.
Bye.
So a lot to lock or think about with with respect to bridging.
The third quarter to the for.
Just given the impact.
From the production downtime.
As well as the delayed shipment impact and then some some dynamics with surcharges and input costs.
Any help you could provide us with with how to be thinking about.
Fourth quarter sales and the trajectory of gross margins from here.
Yes, let me let me take a crack at this I realize we have a number of puts and takes so.
Here's the way we're looking at this situation.
We had we had basically six unusual items.
Could impact the third quarter five of them were negative and one of them was positive.
So as we look at it we reported nine cents per share the gross profit margin of 9.4%.
The biggest impact was the problem, we had at radial forge, which prevented us from shipping some $6 million of product.
That equated to 14 cents per share in the third quarter and impacted gross profit margins by 2.4 percentage points.
We had another $1.4 million of sales that did ship, but they were international sales they do not receive.
Right and time to be counted.
That impacted the third quarter by two cents per share and impacted margins by 0.5%.
We had continuing misalignment, which was lower than the first half of the year, but still was there.
That impacted the quarter by four cents per share.
10.9%.
When the gross profit side.
Chris mentioned in the write off of the rest furnace. This is a capital projects that have an inline furnace and doing a capital project, we had some underappreciated asset value, which we wrote off.
That's $200000 roughly or two cents a share it impacted gross profit margins by 0.4%.
And we had the issue it to be in our mill, which did preclude us from doing some work there and impacted sales getting small here, but that was a penny a share and impacted margins by 2.2%.
So you take those negatives that takes should nine cents per share up in a range of 32 cents per share we had a four cents per share positive.
So I take that out we're looking at the third quarter adjusted at 28 cents a share an equivalent gross profit margin of 13.8%.
I would and interest a fairness if you look at the positive we do have the dice show line, which is contributing about four cents a share in the quarter.
An improving margins by 0.8% the die show of course will continue into the future.
Hopefully that doesn't cloud the issue and clarify some of the impacts that we sold on third quarter.
As you look at the fourth quarter to answer the other part of your question.
Obviously, we've got product that went out the door and is now arrived in port nor will be counted automatically in the fourth quarter and we would expect to see our fourth quarter sales the higher than the third quarter.
And our margins to be back in line with where we've been in the last couple of quarters.
For said another way, we're not anticipating five of these negative adjustments.
Does that help.
That's helpful.
That is that's very helpful.
And then also I mean, even even excluding.
The benefit that you had an Austrian asking a look look relatively low I mean, if there are there any way to be thinking about that moving into year end are there are there any accruals, we should be mindful of.
The trends that we have Tyler that you see should continue within the fourth quarter.
Okay.
And then just this last spring.
Generated from.
And free cash from this quarter and just kind of want to get an updated view is too is the kind of debt reduction target.
Evergreen current cash flow and debt reduction target growth rate as we move into the closely here. Thank you.
I think on the last call I said, we wanted to get down in that a fifties mid fiftys I think thats going to be a stretch frankly, because if you think about some of the billings that we anticipate in the third quarter.
They may not be collected so our goal is still to get down the fifties. So we do expect to generate cash in the fourth quarter and pay down debt.
But I think it's going to be high Fiftys 60 ish kind of a number by the end of the year not the mid Fiftys, we're talking about list last quarter.
Thanks very much.
You're welcome.
Our next question is from the line of Phil Gibbs from capital markets. Your line is open.
Good morning.
Hey, Bill.
Semi for for going through all that detail on the items there.
Appreciate it.
The $6 million hit from the forge should we think about that essentially as you had $8 million and vim sales.
And you would have had 14.
If if the production have been onpoint with what you're seeing now.
No the change in premium melted products was more like for $44.8 million I think exactly and a majority of that was related to the 6 million.
So it's it's not the eight it's not the arithmetic you just did if you look at the change in premium melted products. It was $4.8 million in the fourth quarter, pushing the third quarter compared to the second that was the decline.
And roughly 80% of that was tied to what happened to forge.
Okay.
So still probably close to 45 in the $50 million annualized rate, but.
Not at that that 14.
Yes, the challenge to challenge, we have on premium melted products as they get the product. It didn't go out the third quarter.
Ready and shift to a customer.
In time in the quarter. So they can be counted in the quarter and we still have the risk of people doing some window dressing at the end of the year, but fundamentally the majority of that product should go out in the fourth quarter.
You talked about some new new wins and bearing and gearing steels.
When when do those start to.
Enter into the fold.
And how meaningful are those for the business at the margin.
Thats all this is Chris Emerald I'll touch on that picture as we did we did begin to have some shipments in the third quarter I'd characterize it is very modest.
That's a lot of the product that was put into inventory through the course of these trials and evaluations.
But now we're moving full steam ahead to position our production in our inventory to break into the supply chain.
In a more meaningful way next year. So a lot of these approvals that have taken years to get is a.
A big milestone that we needed to hit in order to participate and now we're at that level.
But I would expect these new products to really start to take hold as we move through the.
Second third and fourth quarters of next year.
So just if I could add to that Chris.
Phil we've talked in the past when these calls about some inventory that we had where we were holding inventory was good inventory, but we couldn't really sell to we got the approvals that's probably in a range of three or $4 million. So thats the material that Chris was alluding to so we can start to sell off that material.
And as I personally look at the 2020 I'm very excited about this these opportunities I think it has very meaningful sales opportunities for the company.
Take us a quarter or two to really get established.
With the customers in the supply chain.
I think by the second half of next year this be very attractive business for us.
So and I am just trying to think about this from a from a high level. So, let's just say right now your your rate.
Sales or premium sales has been 40 million.
Maybe maybe a little bit higher let's say you don't have the operational issues at the forward you're able to get some product out the door and you lay start layering in some of these new contracts because I know. These are these are probably two nice ones, but theres more common.
What should we think about just in the here and now without any more incremental approvals, what your revenue potential and or Jackson's.
For for premium melted products just to make sure I'm answering your question correctly.
There's no reason to expect we should see continued double digit growth in 2020, so be up in the $60 million range.
And what is the biggest driver at the margin incrementally. These these newer this newer business you're talking about now on the bearing gearing steels.
Oh that is that's not the biggest driver the margins is continued expansion of premium products in general.
These products will clearly help.
I think some of the capital projects like the bar sellers that kicks in and Thats going to help on the margins as well as we go into 2012.
Okay.
What you're seeing coming out that Biennale is not is not I mean, we're not done for as the we're just scratching the surface with a Barcelona.
The the $17 million Capex you mentioned.
The.
Some of that sounds like its spending that you had to do because of the fire.
Yes, how much of that to you you potentially view being reimbursed for if any.
We do expect to receive insurance proceeds as result of the North Jackson fire.
We are in contact with insurance company. They have accepted our claim and we do continue to work with the ensure through the claims processing activities. These things do tend to take a while as we work through and as we saw this quarter with receipt of the funds from the Dunkirk Pickle room, which occurred back in 2017.
So is the end of our the focus.
Really give you a hard number on that until we've now I understand I can appreciate that but I just want to I just want to be clear in terms of the.
You had you had capex related to both North Jackson and Dunkirk It sounds like from some some unexpected issues I'm, just trying to bench or bracket, rather what what that was it sounds sounds like something around $5 million.
Is that.
We're always about 500.
This year it was about $500000, though.
Okay. So I had an extra zero okay.
Minor mistake, thanks, guys.
Our next question from the line of Greg Wise.
From Boston Partners. Your line is open.
Hey, guys, how you doing great.
Sure I just wanted to kind of get your reaction obviously over the last couple of years you guys you've done a good job increasing your exposure to the attractive aerospace Psycho and Youve certainly highlighted.
The potential for for fuel.
Future improvements and continued growth with or what are the north Jackson.
And more consistent execution, but how do you kind of reconcile that just against the staggering low valuation you're getting in the market. Today, you know you're trading at half book value low multiple of certainly potential earnings and just the urgency to to create value for shareholders.
Well what you just quoted in terms of evaluation of the company is accurate we are below book value. Our view is that is.
There's a lot of concern about aerospace were heavily weighted towards aerospace and there's a lot a tentative tentativeness out there with companies in our space right now as I look at everybody's public in our space. You're also seeing that we're seeing the same fundamental trends.
It's more severely in the case of universal as the smallest player in the space.
But our view is we have to continue on our strategy continue executing and the market will realize that as we start to put numbers on the board.
That's why I said at the beginning of my comments here that we slowed down the third quarter, obviously doesn't help with that.
But the underlying strategy is still very evident.
Thats still hangs together and we're still very optimistic about our ability to continue to grow the vacuum induction melted products and the continuing improving the other products as well.
We're seeing more opportunities for AOCI produced Remelted steels.
So we really spending some capital as we go into 2020 and 2021 to support those efforts.
Although they're not premium other products, the very high margin specialty alloys.
So we see a continuation of margin expansion, adding value for stockholders.
And then also sooner or later be realized by the marketplace. Once we put a couple of quarters together the demonstrates that.
And just very quickly if I could follow up last year, you sold a little stock at 24, and a half which in in hindsight looks like a very wise move.
Given your stock is trading you know over $10 below that now is there any thought of using.
Some amount of capital to go back the other way and repurchase stock.
Our board has always considering different options.
As we meet.
So that is one thing that we consider I'm not prepared to announce anything at this point in time, though.
Okay. Thank you.
We look forward to continue to.
Improvement.
Okay, great good talking to them.
Our next question is from the line of fill gaps from capital markets. Your line is.
How are those guys on again.
Heavy heavy equipment did you say that the fourth quarter sales are are going to be.
Similar to the second quarter done any kind of a bounce back from from the weak Q2 levels.
We Q3, yes, yes, thats, what I mean, yes, Q4 looks like Q2.
Yes, I did say that and that's the way, we feel and that will be supported based upon some of the bookings we've seen so far in October and remember that pretty short lead time business, we do that stuff in five or six weeks.
Okay and this is.
This is this is the tool steel bucket essentially right.
Yes, that's that's the vast majority of that.
So we've seen 2018 was an all time record if you recall things started to slow down in the fourth quarter.
Hindsight's always 2020, so I think the market itself go a little ahead of itself. So we were in the middle with Destocking fees.
I think it's further aggravated by the fact, we've seen very sharp.
Decreases in full price due to surcharges.
If you think about what I said, there is surcharges Gulf from 71 cents a pounds back in January to to 38 cents a pound here as we get into the fourth quarter when a product that sells for about 50, Roebuck 75 pounds. So thats a.
That's a tough pill to swallow it to navigate through over very short period of time.
On the if you got a couple other questions before I wrap up but.
I know you had raised based price is uncertain alloyd materials, maybe three to six months ago, and I know those weren't going to kick in any way until 2020 and but.
The vibe in the industrial markets has has clearly changed do you think that impacts that that price increase announcement that you put out are you still expect to see that based on the based on the products that you targeted.
Phil This is Chris.
Acceptance in the marketplace or the price increase has.
And then what we call 100% capture rates. So we are getting it.
With a lot of the new orders that are going and it will be at 2020 event before we start to realize them.
That was primarily on the low while one product.
Okay, I will start to see that benefit next year.
Okay.
And I think I had one more but.
Don't remember thanks, guys appreciate it.
You're welcome.
Again, ladies and gentlemen.
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Thank you.
So.
No.
Our next question is from the line of Gold Pfizer from Forest Hills Capital. Your line is open.
Hey, guys. This is coal how're you doing.
Good call how are you.
Doing really well so earlier on the call. When you said that you were carefully considering the synalloy proposal I just wanted to confirm that.
As part of that that would be considering all strategic alternatives like shopping the company.
Our taking their competitive bidding process and or buybacks as well.
It sounds like I would refer you to our 8-K filing.
How about on prepared and sales and in this format.
Fair enough.
Hi, Thank you.
Our next question is from the line of Phil Good from capital markets. Your line is open.
I remembered.
I agree.
Clearly the deja Vu all over again.
As we kind of look out into next year, I know, you're a spot buyer of electrodes and pricing. There has has softened but most of the supply chain has had built a level of inventory into 2019, given the scarcity.
That existed a couple of quarters ago.
This is assuming these recent spot prices that were seeing now and the graphite electrode market persist one can you.
But realize those those lower cost in the future.
I think clearly the third quarter was the high watermark.
You'll start to average down what's in inventory purchases in the fourth quarter.
So you start to see that bleed into our PNM as we go into the first data for 2020, but I don't think you're going to get to the points.
We are you basically liquidate the electrode inventory to the point, where we're back down to.
Paul $3, a pound through at dollars a pound until mid year next year.
Okay, and then last one I just want to make sure I'm clear here Donny it sounds like there's a bit of benefit on the nickel side in Q4 still some some some hangover and the vanadium kind of tool steel grades in terms of alignment, but we could see a little bit of a benefit.
To the extent you had let's say ferrous scrap prices started to stabilize and move higher and nickel stays in around where it's at in the vanadium piece stops falling should we expect as we look out into the first half of next year that.
That.
But the these misalignment issues will turn into.
Some level of positive for you.
I used the term easing in the fourth quarter of for the region. You just alluded too because we know nickel based products will see higher surcharges in October and November those surcharges are down a little bit into December based upon the retreat that we saw it nickel so far I think where we're at 735 I think last time I checked on nickel.
Okay. So we're looking at in the fourth quarter is an easing.
Compared to third quarter, because we'll have more positiveness on nickel bearing but we see continued misalignment on the.
Non nickel bearing steels tool steel being the most clearing.
I don't see that getting worse I see that stabilizing so.
We just said easing we didn't say, we're going to turn positive as you get into first quarter, you're you're asking me to Fourq is something as wild forecasts, but the nickel holds up where it's that today, where rises somewhat as we get into first quarter next year, which would require really some increased activity in China.
My mind.
Sorry to interrupt that Danny let's just say, let's just say that the things stay where they are now.
The things stay where they're at right now than I would've been.
The first quarter next year, I'd say, we'd be neutral in the first quarter next year.
Thank you.
Okay.
I'm showing no further questions at this time I would now like to turn the conference back to Mr. Dennis Alex. Please go ahead.
Thank you very much once again I want to thank everyone for joining us this morning.
We sincerely appreciate your ongoing support and interest in Universal.
And we'll look forward to updating you on our progress during the fourth quarter or next school in January .
The great day in the early wishes for happy holidays.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful you may all disconnect.
Yes.