Q3 2024 Olympic Steel Inc Earnings Call
Operator: Good morning and welcome to the Olympic Steel 2024 Third Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode.
Good morning, and welcome to the Olympic Steel 2024 third quarter financial results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.
Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad.
Speaker Change: Anyone should require operator assistance. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded at this time I would like to hand, the conference call over to Rich Manson Chief Financial Officer at Olympic Steel. Please go ahead Sir.
Operator: As a reminder, this conference is being recorded.
Rich Manson: At this time, I would like to hand the conference call over to Rich Manson, Chief Financial Officer at Olympic Steel. Please go ahead, sir.
Rich Manson: Thank you, Operator.
Rich Manson: Thank you operator, welcome to Olympic Steel's earnings call for the third quarter of 2020 for our call. This morning will be hosted by our Chief Executive Officer, Rick Mirabito and we will also be joined by our President and Chief operating Officer, Andrew Greiff.
Rick Marabito: Welcome to Olympic Steel's earnings call for the third quarter of 2024. Our call this morning will be hosted by our Chief Executive Officer, Rick Marabito, and we will also be joined by our President and Chief Operating Officer, Andrew Greiff.
Rich Manson: Before we begin, I have a few reminders. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results. The company does not undertake to update such statements, changes in assumptions, or changes in other factors affecting such forward-looking statements. Important assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially are set forth in the company's reports on Forms 10-K and 10-Q and the press releases filed with the Securities and Exchange Commission.
Rick Mirabito: Before we begin I have a few reminders. Some statements made on today's call will be predictive and are intended to be made as forward looking within the safe Harbor provisions of the private Securities Litigation Reform Act of 1995 and May not reflect actual results.
Rick Mirabito: The company does not undertake to update such statements changes in assumptions or changes in other factors affecting such forward looking statements.
Rick Mirabito: The assumptions risks uncertainties and other factors that could cause actual results to differ materially are set forth in the Companys reports on forms 10-K, and 10-Q and press releases filed with the Securities and Exchange Commission.
Rich Manson: During today's discussion, we may refer to Adjusted Net Income for Diluted Share, EBITDA, and Adjusted EBITDA, which are all non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued last night and can be found on our website.
Speaker Change: During today's discussion we may refer to adjusted net income per diluted share EBITDA and adjusted EBITDA, which are all non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued last night and can be found on our website.
Rich Manson: Today's live broadcast will be archived and available for replay on Olympic Steel's website.
Speaker Change: Today's live broadcast will be archived and available for replay on Olympic steels website.
Rick Marabito: At this time, I'll turn the call over to Rick. Thank you, Rich, and good morning, everyone. Thank you for joining us today to discuss Olympic Steel's 2024 third quarter results. I'll begin by summarizing our results for the third quarter, and then I'll review how our strategies for diversification and overall focus on investing in and expanding in our higher margin opportunities are helping to drive results in difficult markets. Andrew will then review our segment performance and highlight our CapEx growth initiatives. And following that, Rich will discuss our financial results in more detail. And then, as always, we will open the call up for your questions.
Speaker Change: At this time I'll turn the call over to Rick.
Rick Mirabito: Thank you rich and good morning, everyone. Thank you for joining us today to discuss Olympic Steel's 2024 third quarter results I'll begin by summarizing our results for the third quarter and then I'll review, how our strategies for diversification and overall focus on investing in and expanding in our higher margin.
Rick Mirabito: Opportunities are helping to drive results in difficult markets.
Andrew will then review our segment performance and highlight our Capex growth initiatives and following that rich will discuss our financial results in more detail and then as always we will open the call up for your questions.
Rick Marabito: Challenging macroeconomic trends during the third quarter resulted in lower overall OEM demand, particularly in the heavy equipment sector, which is a significant end market for Olympic Steel. Reduced demand resulted in carbon pricing pressure. that affected both our carbon flat rolled and pipe and tube segment. Additionally, stainless steel surcharges fell during the quarter, creating pricing pressure in our specialty metals. Despite these market headwinds, Olympic Steel has demonstrated continued resilience, as all three segments were EBITDA positive for the third quarter of 2024, generating $15 million in EBITDA on $470 million of sales. The results reflect the success of our strategy to diversify into counter-cyclical, steel-intensive end products and invest in higher margin opportunities, such as flat-rolled coated products and the expansion of our fabrication.
Rick Mirabito: Challenging macroeconomic trends during the third quarter resulted in lower overall OEM demand, particularly in the heavy equipment sector, which is a significant end market for Olympic steel.
Rick Mirabito: Reduced demand resulted in carbon pricing pressures that affected both our carbon flat rolled and pipe and tube segments.
Rick Mirabito: Additionally, stainless steel surcharges fell during the quarter, creating pricing pressure in our specialty metals segment.
Rick Mirabito: Despite these market headwinds Olympic steel has demonstrated continued resilience as all three segments were EBITDA positive for the third quarter of 2024 generating $15 million of EBITDA and $470 million of sales.
Rick Mirabito: The results reflect the success of our strategy to diversify into counter cyclical steel intensive end products and invest in higher margin opportunities such as flat rolled coated products and the expansion of our fabrication capabilities.
Rick Marabito: Given the ongoing uncertainty in the political and macroeconomic environment, our team is working diligently to manage costs and build efficiencies into our business. This includes investing in new equipment, automation and processing capabilities that will drive safety, efficiency, productivity, and future growth. We are closely managing our operating expenses and aligning our labor costs with customer demand. We believe the success of our acquisitions and capital investments in key organic growth areas has created a stronger, more resilient Olympic We are well positioned to continue to invest in these initiatives. Andrew will review recent equipment investments in a moment, and we remain active in our pursuit of acquisitions that meet our success criteria.
Rick Mirabito: Given the ongoing uncertainty in the political and macroeconomic environment. Our team is working diligently to manage costs and build efficiencies into our business. This.
Rick Mirabito: This includes investing in new equipment automation and processing capabilities that will drive safety efficiency productivity and future growth.
Rick Mirabito: We are closely managing our operating expenses and aligning our labor costs with customer demand.
We believe the success of our acquisitions and capital investments in key organic growth areas has created a stronger more resilient in Olympic steel.
Rick Mirabito: We are well positioned to continue to invest in these initiatives.
Rick Mirabito: Andrew will review recent equipment investments in a moment and we remain active in our pursuit of acquisitions that meet our success criteria.
Rick Marabito: During the third quarter, we reduced our debt by approximately $12 million to $197 million, and we entered the fourth quarter with approximately $304 million of credit availability to fund these growth initiatives. Looking to the fourth quarter of 2024, we expect the macroeconomic headwinds to continue while we wait the outcome of the presidential election and the Fed's direction on future We remain optimistic for the long-term outlook for Olympic Steel and our industry.
Rick Mirabito: During the third quarter, we reduced our debt by approximately $12 million to $197 million and we entered the fourth quarter with approximately $304 million of credit availability to fund these growth initiatives.
Rick Mirabito: Looking to the fourth quarter of 2024, we expect the macroeconomic headwinds to continue while we wait the outcome of the presidential election, and the fed's direction on future interest rate cuts.
Rick Mirabito: We remain optimistic for the long term outlook for Olympic steel and our industry.
Rick Marabito: We are confident that our strategy, combined with our financial flexibility to continue investing in organic and acquisitive growth opportunities, will make us even more resilient and create additional value for our shareholders.
Rick Mirabito: We are confident that our strategy combined with our financial flexibility to continue investing in organic and acquisitive growth opportunities will make us even more resilient and create additional value for our shareholders now I will turn the call over to Andrew for his comments on our segment performance.
Andrew Greiff: Now I'll turn the call over to Andrew for his comments on our segment. Thank you, Rick, and good morning, everyone. As Rick discussed, all three business segments were EBITDA-positive during the third quarter, even as we continue to experience the significant industry-wide headwinds. Our sustained profitability is a testament to the strategies we have in place for diversification, operational efficiency, enriched product mix, and expansion of our fabrication capacity and capability.
Andrew Greiff: Thank you Rick and good morning, everyone.
Andrew Greiff: Rick discussed all three business segments were EBITDA positive during the third quarter, even as we continued to experience the significant industry wide headwinds our sustained profitability is a testament to the strategies, we have in place for diversification operational efficiency enriched.
Andrew Greiff: Product mix and expansion of our fabrication capacity and capabilities.
Andrew Greiff: Now I'll provide some detail on each segment's results. In our carbon segment, volumes fell more than the normal seasonal decline for third quarter sales due to lower demand from our contractual OEM customers. especially in the heavy equipment sector. Even with this decline, the carbon segment generated $4.5 million in EBITDA in the third quarter. We saw strength in our counter-cyclical end product companies with strong quarters from MetalFab, our manufacturer of HVAC and venting products, and McCullough Industries, our manufacturer of industrial hoppers. We continue to see gains for our fabrication business as OEMs continue to outsource more of their first stages of manufacturing.
Andrew Greiff: Now I'll provide some detail on each segment's results and our carbon segment volumes fell more than the normal seasonal decline from third quarter sales due to lower demand from our contractual OEM customers, especially in the heavy equipment sector.
Andrew Greiff: Even with this decline the carbon segment generated $4 $5 million in EBITDA in the third quarter.
Andrew Greiff: We saw strength in our counter cyclical and products companies with strong quarters from metal fab or manufacturer of HVA inventing products and Mccullough industries, our manufacturer of industrial hoppers.
Andrew Greiff: We continued to see gains for our fabrication business as Oems continue to outsource more of their first stages of manufacturing.
Andrew Greiff: To serve this growing demand and improve the efficiency of our operations, we continue to invest in expanding our fabrication and processing capacity and capability. We have also aligned our fabrication-intensive facilities in Chambersburg, Pennsylvania, Mount Sterling, Kentucky, and Beaufort, Georgia, under the leadership of Max Fitzgerald, who has a strong growth-oriented background in metal fabrication. Our carbon segment continues to invest in automation, installing new stacking and material handling equipment on our Cleveland, Ohio temper mill, which is expected to improve throughput by up to 30%. Our Pipe & Tube segment posted adjusted EBITDA of $6.7 million in the third quarter of 2024.
Andrew Greiff: To serve this growing demand and improve the efficiency of our operations, we continue to invest in expanding our fabrication and processing capacity and capabilities.
Andrew Greiff: We have also aligned our fabrication intensive facilities and Chambersburg, Pennsylvania, Mount Sterling, Kentucky, and Buford, Georgia under the leadership of Matt Fitzgerald, who has a strong growth oriented background in metal fabrication.
Our carbon segment continues to invest in automation, installing new stacking and material handling equipment on our Cleveland, Ohio temper mill, which is expected to improve throughput by up to 30%.
Andrew Greiff: Our pipe and tube segment posted adjusted EBITDA of $6 $7 million in the third quarter of 2024.
Andrew Greiff: Gross margins remain stronger and higher than previous years due to our value-added processing, which has been augmented by last year's acquisition of Central Tube and Ball. For our specialty metal segment, stainless surcharges fell to a 3.5 year low in September. Nonetheless, the segment had a solid third quarter contributing $5.9 million of EBITDA. We accomplished this by gaining market share in stainless and aluminum. We also installed a new automated packaging line in our Streetsboro, Ohio facility to improve throughput and efficiency. We remain committed to growing organically by investing in higher margin opportunities.
Andrew Greiff: Gross margins remained stronger than higher than previous years due to our value added processing, which has been augmented by last year's acquisition of central tube and bar.
Andrew Greiff: For our specialty metals segment stainless surcharges felt with three and one half year low in September.
Andrew Greiff: Nonetheless, the segment had a solid third quarter contributing $5 9 million of EBITDA.
Andrew Greiff: Accomplish this by gaining market share in stainless and aluminum. We also installed a new automated packaging line in our streets borrow Ohio facility to improve throughput and efficiency.
Andrew Greiff: We remain committed to growing organically by investing in higher margin opportunities. During 2024, we have ordered significant new pieces of equipment that will be delivered in 2025 and 2026 to further enhance our growth strategies in the carbon segment, we ordered a new cut to length.
Andrew Greiff: During 2024, we have ordered significant new pieces of equipment that will be delivered in 2025 and 2026 to further enhance our growth strategies. In the carbon segment, we ordered a new cut-to-length line for our Minneapolis Coil Facility, which will support our continued growth in coal-rolled and coated products. We have ordered two new lasers and two new plasma cutting machines, along with an automated material handling system, to expand our fabrication capabilities in Chambersburg, Pennsylvania. In the specialty metal segment, we have ordered a new cut-to-length line for our Schaumburg, Illinois facility to support our growing white metals distribution business, and we also ordered a new high-speed specialty slitter for our Berlin Metals operation outside of Gary, Indiana.
Andrew Greiff: <unk> for our Minneapolis, coiled facility, which will support our continued growth in cold rolled and coated products. We awarded two new lasers in two new plasma cutting machines, along with an automated material handling system to expand our fabrication capabilities and Chambersburg, Pennsylvania.
Andrew Greiff: In the specialty metals segment, we have ordered a new cut to length line for our Schaumburg, Illinois facility to support our growing white metals distribution business and we also ordered a new high speed specialty slither for RF Berlin metals operation outside of Gary Indiana.
Andrew Greiff: As I reflect on the third quarter and look at the fourth quarter, we think that macroeconomic headwinds are likely to continue. At the same time, we are benefiting from our strategy to expand into steel-intensive end products that are counter-cyclical to metals pricing, and invest in equipment that makes us safer, more efficient, and helps us grow our higher-margin fabrication and processing capabilities. We will continue to focus on what we can control and be mindful of and responsive to the things that we cannot control.
Andrew Greiff: As I reflect on the third quarter and look at the fourth quarter, we think that macroeconomic headwinds are likely to continue at the same time, we are benefiting from our strategy to expand into steel intensive and products that are counter cyclical to metals pricing and invest in equipment that makes us safer more.
Andrew Greiff: Our efficient and helps us grow our higher margin fabrication and processing capabilities. We will continue to focus on what we can control and be mindful of and responsive to the things that we cannot control.
Rich Manson: That concludes my comments and I will turn the call over to Rich to go through the finances. Thank you, Andrew. As you heard from both Rick and Andrew, all three segments contributed to our profitability during the quarter. Our third quarter results reflect the impact of our diversification strategy and our team's continued execution of our operating discipline.
Speaker Change: That concludes my comments and I will turn the call over to rich to go through the financials.
Rich Manson: Thank you Andrew as you heard from both Rick and Andrew All three segments contributed to our profitability during the quarter our.
Our third quarter results reflect the impact of our diversification strategy and our team's continued execution of our operating disciplines.
Rich Manson: Before I discuss the results in more detail, I want to remind everyone that year-over-year comparisons are impacted by the October 2023 acquisition of Central Tube and Bar, whose results are included in our pipe and tube segment. For the third quarter, net income totaled $2.7 million compared with $12.2 million in the third quarter of 2023. EBITDA for the third quarter was $15 million compared with $27.1 million in the prior year period. Both the third quarter of 2024 and 2023 results include $2 million of LIFO pre-taxing. Consolidated operating expenses for the third quarter totaled $99 million, compared with $91 million in the third quarter of 2023.
Rich Manson: Before I discuss the results in more detail I want to remind everyone that year over year comparisons are impacted by the October 2023 acquisition of central tube Inbar, whose results are included in our pipe and tube segment.
For the third quarter net income totaled $2 $7 million compared with $12 $2 million in the third quarter of 2023 EBITDA.
Rich Manson: EBITDA for the third quarter was $15 million compared with $27 $1 million in the prior year period.
Rich Manson: Both the third quarter of 2024, and 2023 results include $2 million of LIFO pretax income.
Rich Manson: Consolidated operating expenses for the third quarter totaled $99 million compared with $91 million in the third quarter of 2023 or.
Rich Manson: Our third quarter operating expenses reflect the addition of central tube and bar, which does not report tons sold. Therefore, operating expenses per ton at the consolidated level and for the pipe and tube segment will appear higher year over year. As a reminder, we do not report tons sold for McCullough Industries, EZ Dumper, Metal Fab, Shaw Stainless, or the entire pipe and tube segment. Consolidated operating expenses for the third quarter included $3.3 million of CTB operating expenses and $1.2 million of lower incentive expenses when compared with the third quarter of 2023. Operating expenses for the third quarter of 2023 also reflect a $4 million cost benefit due to the employee retention credit that did not recur in the third quarter of 2024.
Rich Manson: Our third quarter operating expenses reflect the addition of central tube and bar, which does not report tons sold therefore operating expenses per ton at the consolidated level and for the pipe and tube segment will appear higher year over year.
Rich Manson: As a reminder, we do not report tons sold for Mccullough industries, EZ dumper metal fab Shah stainless or the entire pipe and tube segment.
Rich Manson: Consolidated operating expenses for the third quarter included $3 $3 million of CTV operating expenses, and one $2 million of lower incentive expenses when compared with the third quarter of 2023.
Rich Manson: Operating expenses for the third quarter of 2023 also reflect a $4 million cost benefit due to the employee retention credit that did not recur in the third quarter of 2024.
Rich Manson: We ended the quarter with total debt of $197 million, a $12 million decrease from the second quarter of 2024. We anticipate increased cash flow in the fourth quarter of 2024 due to lower working capital requirements. We continue to have access to more than $300 million of additional borrowing availability to support our investments and higher return opportunities. Our capital expenditures for the first three quarters of 2024 totaled $22.3 million, compared with depreciation of $17.6 million. We estimate that 2024 capital expenditures will be approximately $30 million as we continue to invest in automation, our fabrication and processing capabilities, and other higher return parts of our business.
Rich Manson: We ended the quarter with total debt of $197 million, a $12 million decrease from the second quarter of 2024, we.
Rich Manson: We anticipate increased cash flow in the fourth quarter of 2024 due to lower working capital requirements. We.
Rich Manson: We continue to have access to more than $300 million of additional borrowing availability to support our investments in higher return opportunities.
Rich Manson: Our capital expenditures for the first three quarters of 2024 totaled $22 3 million.
Compared with depreciation of $17 6 million.
We estimate that 2020 for capital expenditures will be approximately $30 million as we continue to invest in automation, our fabrication and processing capabilities and other higher return parts of our business.
Rich Manson: Our third quarter 2024 effective income tax rate was 30% compared with 27.7% in the same period last year. We expect our 2024 tax rate to approximate 28 to 29%. In addition, we paid a quarterly dividend of $0.15 per share in the third quarter, and our Board of Directors has approved our next regular quarterly cash dividend of $0.15 per share, which is payable on December 16, 2024, to shareholders of record on December 2, 2024. The company has now paid regular quarterly dividends dating back to 2006, increasing the dividend in each of the last three years. Our ability to remain resilient in profitable and difficult markets is a testament to the success of our strategic investments.
Rich Manson: Our third quarter 2024 effective income tax rate was 30% compared with 27, 7% in the same period last year.
Rich Manson: We expect our 2024 tax rate to approximate 28% to 29%.
Rich Manson: In addition, we paid a quarterly dividend of <unk> 15 per share in the third quarter and our board of Directors has approved our next regular quarterly cash dividend of <unk> 15 per share, which is payable on December 16th 2024 to shareholders of record on December 2nd 2020 for.
Rich Manson: The company has now paid regular quarterly dividends dating back to 2006, increasing the dividend in each of the last three years.
Rich Manson: Our ability to remain resilient and profitable in difficult markets is a testament to the success of our strategic investments.
Rich Manson: We will continue to execute our diversification strategy for the long term, while continuing our near-term focus on expense control and working capital management. We are well positioned to weather market challenges and deliver sustained results for our shareholders.
Rich Manson: We will continue to execute our diversification strategy for the long term, while continuing our near term focus on expense control and working capital management.
Rich Manson: We are well positioned to weather market challenges and deliver sustained results for our shareholders. Operator, we are now ready for questions.
Rich Manson: Operator, we are now ready for Thank you.
Speaker Change: Thank you we will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue you.
Operator: We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: You May press Star two if you would like to remove your question from Q4 participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, while we poll for our first question. Our first question comes from Dave start with Stonegate. Please proceed.
Operator: One moment while we poll for our first question.
Dave Storm: Our first question comes from Dave Storm with Stonegate. Please proceed.
Speaker Change: More of them.
Speaker Change: Good morning, Jason.
Dave Storm: So, you mentioned in the prepared remarks that you're obviously doing a lot to bring new machinery into your operation. try to get a sense of, and I appreciate you laying out kind of the lead times for getting those.
Jason: Good morning.
Dave start: So you mentioned in the prepared remarks that Youre, obviously doing a lot to bring new machinery into your operations.
Speaker Change: Trying to get a sense of and I. Appreciate you laying out kind of the lead times forgetting them again those machines in house, just trying to get a sense of.
Andrew Greiff: Just trying to get a sense of maybe what step two would be there, you know, between implementing those machines, getting employees trained up on them, you know, how should we be thinking about what it will take to get those machines up and running once they're in-house.
Dave start: Maybe.
Dave start: Step two would be there.
Dave start: Between implementing those machines getting employees trained up on them how.
Dave start: How should we be thinking about what.
Dave start: What it will take to get those machines up and running once they are in house.
Andrew Greiff: Dave, this is Andrew. I'll answer that. I would tell you that From the equipment manufacturers, the training will take place in some cases prior to the equipment coming in. They have some facilities that we can send our people to that have the equipment available that they could do some training. But almost immediately, as the new equipment and the new automation comes in, we'll have people that will be ready almost immediately. So once the equipment is in and ready to get going, we would expect that in a very short time period, it will be up and operational, and assuming the equipment performs the way we expect it to, we'll get it right into place.
Andrew Greiff: Dave This is Andrew.
Andrew Greiff: I'll answer that.
Dave: I'd tell you that.
Andrew Greiff: <unk>.
Andrew Greiff: From the equipment manufacturers to training will take place.
Andrew Greiff: And in some cases prior to the equipment coming in.
Andrew Greiff: They have some facilities that we can send our people too that have the equipment available.
Andrew Greiff: They could do some training but.
Andrew Greiff: Almost immediately as the new equipment and the new automation comes in.
Andrew Greiff: We will have people that will be ready almost immediately so once once the equipment is in and ready to get going we would expect that.
Andrew Greiff: A.
Andrew Greiff: Very short time period, it will be up and operational and assuming the equipment performs the way we expected to.
Andrew Greiff: We will get it right right into place.
Speaker Change: Understood that's very helpful.
Speaker Change: If we start seeing some of that in.
Dave Storm: Great to see that you've paid down some debt.
Speaker Change: Okay Perfect and then just one more from me great to see that you paid down some debt.
Dave Storm: I know you've obviously been acquisitive. past.
Speaker Change: You've obviously been acquisitive.
Speaker Change: In the past are there any M&A targets that youre kind of keep your eye on maybe just a sense of what the market looks like.
Dave Storm: Are there any M&A targets that you're kind of keeping your eye on, you know, maybe? As you're thinking about having any targets, would you be targeting more counter-cyclical type companies? that have been so beneficial.
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Speaker Change: Maybe.
Speaker Change: As Youre thinking about M&A targets are you targeting would you be targeting more.
Speaker Change: Counter cyclical type companies.
Speaker Change: And so beneficial for you.
Speaker Change: <unk>.
Rick Marabito: Yeah, thanks for the question, Dave.
Speaker Change: Yes, Thanks for the question David It's Rick.
Rick Marabito: It's Rick. Absolutely. We're very active continuing to look at acquisitions. You know that it's part of our strategic growth is to actually do both. So, Andrew outlined a lot of the internal growth through new equipment, but don't sell us short. We're actively pursuing acquisitions. So, if you look at our history over the last five years, we've made six acquisitions. So, we're averaging around one to a little more than one a year. It's been about a year. And so, you know, my line internally always is if we don't find an acquisition in our strike zone each year, I'd be disappointed and I'd share that with you.
Speaker Change: Absolutely, we're very active continuing to look at acquisitions.
Speaker Change: You know that it's part of our strategic growth is to actually do both so Andrew outlined a lot of the internal growth through new equipment.
Speaker Change: <unk>.
Speaker Change: Don't tell a short where we're actively pursuing acquisitions.
So.
Speaker Change: If you look at our history over the last five years, we've made six acquisitions, so were averaging around one to a little more than one a year, it's been about a year and so.
Speaker Change: My line internally always is if we don't find an acquisition in our strike zone, each year I'd be disappointed and I'd share that with DSO.
Speaker Change: So yes very active.
Rick Marabito: So, yes, very active. We've seen really good flow in terms of companies that would fit our strike zone. You are exactly right in terms of the strike zone. It's aside from being well-run companies where we believe we can add synergy together with a management team that's strong and continues, you know that we've shown and will continue to seek out companies that are A, in the end market, counter cyclical category and industry. So, that's very much at the top of the list. B, those that do higher margin higher return fabrication, that's very high on the list, and service centers.
Speaker Change: We've seen really good flow in.
Speaker Change: In terms of companies that would fit our strike zone you are exactly right in terms of the strike zone.
Speaker Change: Aside from being well run companies, where we believe we can add synergy.
Speaker Change: Together with a management team that is strong and continues.
Speaker Change: You know that where we've shown and will continue to seek out companies that are a in the end market counter cyclical.
Speaker Change: Category in the industry. So that's very much at the top of the list.
Speaker Change: Those that do higher margin.
Higher return fabrication, that's very high on the list.
Speaker Change: And service centers right.
Rick Marabito: You saw the last acquisition we did was CTB in the pipe and tube sector. of the Service Center Group. So we're looking at all three of those areas. And really, the keys are finding well-run, high-return, accretive, good content. So, you know, stay tuned, more to come, we're actively, we're actively participating.
You saw the last acquisition, we did was.
Speaker Change: <unk> in the pipe and tube.
Speaker Change: Sector of.
Speaker Change: The service center groups so.
Speaker Change: We're looking at all three of those areas and really the keys are finding well run high return accretive.
Speaker Change: Good companies and so.
Speaker Change: They tuned more to come we're actively we're.
Actively participating in that space.
Speaker Change: Understood. Thank you for taking my questions and good luck in the fourth quarter.
Dave Storm: Thank you for taking my questions and good luck. Thanks, Dave.
Speaker Change: Thanks, Dave Thank you.
Samuel Mckinney: The next question comes from Samuel McKinney with KeyBank Capital Markets. Please proceed.
Speaker Change: Next question comes from Samuel Mckinney with Keybanc capital markets. Please proceed.
Samuel Mckinney: Hi, good morning, guys. Hey, Sam.
Samuel Mckinney: Hi, good morning, guys.
Speaker Change: Hey, Sam.
Samuel Mckinney: A continued demand weakness from industrial machinery and equipment OEMs. Some of your peers have already spoken to it and you talked about it today with the seasonally soft third quarter volumes.
Samuel Mckinney: The continued demand weakness from industrial machinery and equipment Oems some of your peers have already spoken to it and you talked about it today with the seasonally soft third quarter volumes.
Rick Marabito: Any thoughts regarding the potential for a release of pent-up demand after we hopefully get past the election next week and gain some clarity on the next four years? Yes, Sam, that's a great question. We do. We do think that there is some pent-up demand, certainly on the spot side of the business. With the industrial OEMs, I'm not sure that we're going to see any big releases in the fourth quarter. I don't think we're going to see much of a trail off like we did in the third quarter versus the second quarter. But I do think that there's opportunity, certainly in the fourth quarter, for a number of the spot players and those non-contractual customers to be more active, certainly than they had been.
Samuel Mckinney: Any thoughts regarding the potential for a release of pent up demand. After we can hopefully get past the election next week and gained some clarity on the next four years.
Speaker Change: Yes, Sam that's a great question.
Speaker Change: Do we do think that there is some pent up demand.
Speaker Change: Certainly on the spot side of the business with the industrial Oems I'm not sure that we're going to see any big releases in the fourth quarter I don't think we're going to see much of a trail off like we did in the third quarter versus the second quarter.
Speaker Change: But I do think that there is opportunity certainly in the fourth quarter for a number of the spot players.
Speaker Change: And those non contractual customers.
Speaker Change: To be more active than certainly than they had been and I think going into next year.
Rick Marabito: And I think going into next year, while You know, they're still in their forecasting phase. I don't anticipate that we're going to see greater reductions from the heavy-duty equipment sector versus what we've seen at this point.
Speaker Change: <unk>.
Speaker Change: They're still in their forecasting phase.
Rick Mirabito: I don't anticipate that we're going to see greater reductions from the heavy duty equipment sector versus what we've seen at this point and then Sam It's Rick the other thing I'd add is.
Rick Marabito: Yeah, and then Sam, it's Rick. The other thing I'd add is, is we've been really expanding our business. So I think offsetting any kind of, as Andrew said, I'd call it kind of steadiness off of a kind of a down demand period in the last quarter. I think you'll see Olympic Steel actually onboarding new business. We've been very active on the fabrication side with some of the large OEMs, so going into next year, you know, our view is even if we have kind of stable demand from some of these larger OEMs in the heavy equipment sector, I think we've got the opportunity to.
Rick Mirabito: We've been really expanding our business so.
Speaker Change: I think offsetting any kind of.
Speaker Change: As Andrew said I'd call it kind of steadiness off of kind of a down demand period in the last quarter.
Speaker Change: I think youll see Olympic steel actually Onboarding, new business, we've been very active on the fabrication side with some of the large Oems.
Speaker Change: So going into next year, our view is even if we have kind of stable demand from some of these larger Oems in the heavy equipment sector. I think we've got the opportunity to increase our business.
Samuel Mckinney: Okay, thanks. That's helpful.
Speaker Change: Okay. Thanks, that's helpful. I appreciate that and then next pipe and tube gross margin of 35%. This quarter was the segment's best number of the year.
Samuel Mckinney: I appreciate that.
Samuel Mckinney: And then next, pipe and tube gross margin of 35% this quarter was the segment's best number of the year, but sales have fallen almost 10% sequentially in both the second and the third quarter.
Speaker Change: But sales have fallen almost 10% sequentially in both the second and third quarter. So a two part question here can you address how segment volumes behaved during the third quarter.
Samuel Mckinney: So a two-part question here. Can you address how segment volumes behave during the third quarter? And then of that 79 million in sales in the third quarter, any way to frame up how much of that's coming from the higher margin central tube and bar?
Speaker Change: And of that $79 million in sales in the third quarter any way to frame up how much of thats coming from the higher margin central tube and bar.
Rich Manson: Hey, Sam, it's Rich. Let me let me address the gross margin first. So remember, that gross margin includes $2 million of LIFO income. And so that 35% is a LIFO number. I think when you take that out, you're pretty much back to the traditional low 30s that we've seen most of this year.
Speaker Change: Hey, Sam It's Ray So let me let me address the gross margin first so remember that gross margin includes $2 million of LIFO income.
Speaker Change: So that 35% is a LIFO number I think when you take that out youre pretty much back to the traditional low 30 that we've seen most of this year I'll, let Andrew address the question in terms of the falloff is basically the same industrial customers that we just talked about well that's exactly right rich so.
Andrew Greiff: I'll let Andrew address the question in terms of the fall off is basically the same industrial customers that we just talked about. Well, that's exactly right, Rich. So a number of the customers that we talked about on the on the sheet and the fabrication side for carbon flat roll, very similar to what we see on the on the pipe and tube side.
Andrew Greiff: A number of the customers that we talk about on the on the sheet in the fabrication side for carbon flat roll them very similar to what we see on the on the pipe and tube side regarding central tube.
Andrew Greiff: Regarding central tube, we've been we've been very pleased with what we've seen. A big part of what central tube does is fabrication for the OEM. And so we are pleased to see the business there. There's a there's a good, a good focus on data centers. And so we really like that business and expect to see continued progress in fourth quarter and then certainly into next year.
Speaker Change: Ben.
Speaker Change: We've been very pleased with what we've seen.
A big part of what's central to does is fabrication for the OEM.
Speaker Change: So we are pleased to see the business there.
Speaker Change: Good a good focus on data centers, and so we really like that business in.
Speaker Change: Expect to see continued progress.
Speaker Change: Progress in the fourth quarter and certainly into next year, and then Sam with respect to the value added I think our pipe and tube segment is north of 40% in terms of value added versus the distribution business and then lastly, Sam I think part of your question was on the CTV margins and yes, you are correct.
Andrew Greiff: And then lastly, Sam, I think part of your question was on the CTB margins and yes, you are correct. CTB's margins are north of our existing pipe and tube business, which as you know and commented on are very strong margins. Okay, thank you.
Speaker Change: <unk> margins.
Our north of our existing pipe and tube business, which as you know and commented on our very strong margin, so and we see that continuing.
Okay. Thank you and then one last one for me.
Samuel Mckinney: And then one last one for me, if Nippon is able to close on its acquisition of U.S.
Speaker Change: If Nippon is able to close on its acquisition of U S. Steel what do you think changes both in the marketplace and four Olympic specifically and remind me do you have any co located facilities with U S steel right now.
Samuel Mckinney: Steel, what do you think changes both in the marketplace and for Olympic specifically? And remind me, do you have any co-located facilities with U.S. Steel right now?
Rick Marabito: Yes, Sam, we do. Our Gary facility in Gary, Indiana, is on site at U.S. Steel.
Yes, Sam we do we are Gary facility in Gary Indiana.
Speaker Change: Is onsite at U S steel.
Rick Marabito: We have great relationships with all of the vendors, including the two you mentioned. So I think for Olympic Steel, you know, obviously, whichever way this deal goes, we would anticipate continuing to be a really good supplier of whoever the future owner is, whether it continues to be U.S. Steel. are good customers, good customers. Sorry.
Speaker Change: We have great relationships with.
Speaker Change: All of the vendors, including the.
Speaker Change: Including the two you mentioned.
Speaker Change: So I think for Olympic steel.
Speaker Change: Obviously whichever way. This this deal goes we would anticipate continuing to be a really good supplier of whoever.
Speaker Change: Whoever the future owner is whether it continues to be U S steel or it continues to be.
Speaker Change: Our good customers good customers sorry.
Speaker Change: Yes.
Samuel Mckinney: Alright, thanks guys, good luck in the fourth quarter.
Speaker Change: Alright, Thanks, guys. Good luck in the fourth quarter.
Speaker Change: Thanks Sam.
Operator: Once again, to ask a question at star 1 on your telephone keypad.
Speaker Change: Once again to ask a question Thats Star one on your telephone keypad. Our next question comes from Chris Sakai with singular research. Please proceed.
Chris Sakai: Our next question comes from Chris Sakai with Singular Research. Please proceed.
Chris Sakai: Yes, hi. Good morning.
Speaker Change: Yes, hi, good morning.
Chris Sakai: Good morning, Chris. My question is that for carbon flat operating expenses, are a lot of these fixed expenses that you cannot change, or what can be done to reduce operating expenses?
Speaker Change: Good morning.
Speaker Change: Yeah.
Chris Sakai: My question is that for carbon flat operating expenses.
Chris Sakai: <unk> are a lot of these.
Speaker Change: Fixed expenses.
Speaker Change: You cannot change or what can be done to reduce operating expenses.
Rich Manson: Yeah, Chris, so a couple things. So when you look at the face of the operating expenses, year over year, it looked like an $8 million increase. But there's really two items that make up almost the entire $8 million.
Speaker Change: Yes, Chris So a couple of things. So when you look at the face of the operating expenses year over year. It looks like an $8 million increase but theres really two items that make up almost the entire $8 million one being that there was a $4 million reduction in operating expenses in the third quarter of 2023 related to the employee retention credit that did.
Rich Manson: One being that there was a $4 million reduction in operating expenses in the third quarter of 2023, related to the employee retention credit, that didn't occur in 2024. And then we had about $3.3 million of CTB operating expenses in the third quarter of 2024, that were not there in 2023. So, you know, overall, we're kind of flattish in volume and those operating expenses when you adjust for the one time items are essentially flattish.
Speaker Change: Occur in 2024, and then we have about $3 $3 million of CTV operating expenses in the third quarter of 2024 that were not there in 2023. So overall, we're kind of flattish on volume in those operating expenses. When you adjust for the onetime items are essentially flattish one of the things we have seen here in the third quarter.
Andrew Greiff: You know, one of the things we have seen here in the third quarter, as Andrew noted, we're a little bit slower with some of the industrial OEMs. And in some cases, we've reduced or taken out some second shifts that in those areas where the sales were down a little bit. Now, most of that was not reflected in the third quarter, but we do expect to see that reflected in the fourth quarter, you know, once you take out severance and all those kind of things, for some of the people that were the headcount was Yeah, and the other thing I'd add, Chris, on the fixed versus variable, we've, we talk about it a lot.
Speaker Change: As Andrew noted were a little bit slower with some of the industrial Oems.
Speaker Change: In some cases, we have reduced our or taken out some second shifts that that.
Speaker Change: And those areas, where the where the where the sales were down a little bit now most of that was not reflected in the third quarter, but we do expect to see that reflected in the fourth quarter. Once you take out severance and all those kind of things for some of the people that were where the head count was reduced and the other thing I'd add Chris on the fixed versus variable.
Speaker Change: We talk about it a lot we disclose it in our our SEC documents, but we also have in terms of our incentives there they are highly variable and they do.
Andrew Greiff: We disclose it in our, our SEC documents, but we also have in terms of our incentives, they're, they're highly variable, and they do, they do mirror profitability.
They do mirror.
<unk> ability.
Andrew Greiff: So those things tend to Okay, thanks. It sounds like you're doing a lot of internal investments. Is the main goal here to really increase profitability? Is that the main understanding? Well, obviously, yes, we believe those investments in terms of The return is our smart moves, but in addition to the increased profitability, they also enhance our quality. safety, increased productivity. They expand our capacity on those pieces of equipment, so they open up those pieces of equipment.
Speaker Change: So those.
Speaker Change: Those things tend to on that.
Speaker Change: Compensation side also automatically.
Speaker Change: Just with the profitability up and down so.
Speaker Change: I'd add that as well.
Speaker Change: Okay. Thanks, and then.
Speaker Change: It sounds like Youre doing a lot of internal investments.
Speaker Change: <unk> is the main goal here to really increase profitability is that for me.
Speaker Change: On this journey.
Speaker Change: Well, obviously, yes.
Speaker Change: We believe those investments in terms of.
Speaker Change: The return.
Speaker Change: Is <unk>.
Speaker Change: Our smart moves, but in addition to the increased profitability. They also enhance our quality.
Speaker Change: Safety.
Speaker Change: Increased productivity.
Speaker Change: They expand our capacity on those pieces of equipment. So they open up those pieces of equipment to do new business. Some of the new business is in areas that were growing like coated product in the carbon.
Andrew Greiff: do new business. Some of the new business is in areas that we're growing, like coated product in the carbon. So it's really all that. But I think you know from following us, we're also sticklers on the profitability side in terms of justification. So it's all of that. And yes, that obviously is going to lead to improvement.
Speaker Change: So it's really all of that but.
Speaker Change: I think you know from following US we're also sticklers on.
Speaker Change: On the profitability side in terms of justification. So it's all of that and yes that obviously is going to lead to improve returns in those areas.
Chris Sakai: Okay, great. Thanks for the answers.
Okay, great. Thanks for the answers.
Chris Sakai: Thanks, Chris. Thank you.
Speaker Change: Thanks, Chris.
Speaker Change: Thank you there are no further questions in queue at this time I would like to turn the floor back over to Richard My Rubino for closing remarks.
Operator: There are no further questions in queue at this time.
Rich Manson: I would like to turn the floor back over to Richard Marabito for closing remarks. Thank you very much, Operator. And thank you all for joining us on our call today. We genuinely appreciate your continued interest in Olympic Steel, and we look forward to speaking with you again next quarter. Thank you.
Speaker Change: Thank you very much operator, and thank you all for joining us on our call today. We genuinely appreciate your continued interest in Olympic steel and we look forward to speaking with you again next quarter. Thank you have a great day everyone.
Operator: This does conclude today's teleconference. You may disconnect your lines at this time.
Speaker Change: Thank you. This does concludes today's teleconference. You may disconnect your lines at this.
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Operator: © The Bachelor In Paradise. Thanks for watching!
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Speaker Change: Okay.
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