Q4 2024 Olympic Steel Inc Earnings Call
Speaker Change: Thank you operator, welcome to Olympic Steel's earnings call for the fourth 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.
Speaker Change: 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 1095 and May not reflect actual results.
Speaker Change: The company does not undertake to update such statements changes in assumptions or changes in other factors affecting such forward looking statements.
Speaker Change: Important 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 the press releases filed with the Securities and Exchange Commission.
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.
Speaker Change: 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: Today's live broadcast will be archived and available for replay on Olympic steels website.
Rick Mirabito: 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 2020 for fourth quarter and full year results I'll begin with an overview of our 2020 for performance and talk about our recent and exciting acquisition of metal works out.
Rick Mirabito: I'll close my prepared remarks, with some additional thoughts on our near term outlook Andrew.
Rick Mirabito: Andrew will then review our segment performance and some of our latest investments in the business and following that rich will discuss our financial results in more detail and then as always we'll move into your questions.
As I reflect on our 2024 performance I am proud of our team and how we've evolved Olympic steel into a stronger more resilient company and that's evidenced by our sequential improvement in fourth quarter 2024 earnings versus third quarter, an exception in the current metals.
Rick Mirabito: <unk>.
Rick Mirabito: We successfully navigated a difficult year for the metals industry as we faced a wide range of macroeconomic challenges, including a greater than 40% decline in hot rolled carbon pricing during the first seven months of 2020 for nickel hitting a four year low which reduced stainless surcharges.
Rick Mirabito: In a demand environment that saw the purchasing managers index for manufacturing below 50 for 11 of the 12 months of the year.
Rick Mirabito: Despite these recessionary challenges Olympic steel successfully grew market share across our portfolio.
We maintain shipping volumes within 1% of our 2023 levels, which outperformed industry shipment levels and we executed on our strategy to be profitable in all market conditions with each of our segments, earning positive EBITDA in every quarter of 2024.
Rick Mirabito: Total sales for the year were $1 $9 billion net.
Net income was 23.0 million with adjusted EBITDA of $72 $5 million, our ability to deliver profitable results. In this environment is a testament to the success of our diversification and growth strategy, our commitment to operational discipline and our employees.
Rick Mirabito: Lloyds mindset to focus on what we can control, while driving profitability regardless of market conditions.
Rick Mirabito: And we continue to make strategic investments in our business while closely managing our operating expenses. During 2020 for these investments were mostly related to automation and capacity expansion, which enables us to enhance throughput safety and productivity.
We announced a number of significant projects that are expected to become operational in 2025 or early 2026, Andrew will talk more about these in a moment.
Rick Mirabito: We also continue to profitably grow through M&A in November we further advanced our position in manufactured metal products with the immediately accretive acquisition of metal works, a leading manufacturer of components for service station canopies that clips long gutters trim.
Rick Mirabito: <unk> and botox as well as solar canopy and ground racking components.
Rick Mirabito: These products are primarily made from coated carbon steel and aluminum, which creates an excellent strategic fit with our service center business.
Rick Mirabito: The amount of works team has built a respected brand with an exceptional reputation for high quality customer service and a culture that aligns really well with ours.
Rick Mirabito: This is our eighth acquisition in the past seven years, and we're thrilled to have metal works as part of the Olympic team.
Rick Mirabito: Our investments are always balanced with the importance of returning capital to our shareholders.
Rick Mirabito: We're pleased that the board has increased our quarterly dividend by 7%.
Rick Mirabito: Taking our quarterly dividend from <unk>.
Rick Mirabito: To <unk> 16 per share as we continue to reward our valued shareholders.
Rick Mirabito: As we turn our focus to 2025, we're all digesting the ever changing market dynamics, including tariffs on steel and aluminum and potentially on end products as well as new steel capacity and potential investments in legacy integrated steel mills.
Rick Mirabito: We will remain focused on what is in our control with an ability to remain nimble and adaptive.
Rick Mirabito: We remain optimistic about the long term outlook for Olympic steel and the overall metals industry and we're confident we will continue to create value for our shareholders as we invest in automation product diversity and quality solutions for our customers.
Andrew Greiff: Now I'll turn the call over to Andrew for his comments on our segment performance.
Andrew Greiff: Thank you Rick and good morning, everyone.
Andrew Greiff: I'd like to start by echoing Rick's sentiments on the resilience of today's Olympic steel. It was another challenging quarter for the metals industry and once again, our team delivered with all three segments, achieving EBITDA positive results in the fourth quarter in fact, our segments collectively.
Andrew Greiff: It performed the third quarter of 2024 reporting a sequential one $5 million improvement in adjusted EBITDA.
Andrew Greiff: Now, let's take a look at each segment's results in a little more detail.
Andrew Greiff: And our carbon segment, we continue to see lower demand from our contractual OEM customers, especially in the heavy equipment sector. However, we were able to maintain our shipping volumes. Despite this lower OEM demand by winning new business and adding new customers outpacing our industry shipments.
Andrew Greiff: In hot roll cold roll and coated products.
Andrew Greiff: We again grew our galvanized participation by 17% in 2024 following at 24% increase in 2023. Despite these challenges the carbon segment earned $7 $2 million in EBITDA in the fourth quarter helped by the strategic counter cyclical nature of our end products.
Andrew Greiff: Mrs.
Andrew Greiff: Our pipe and tube segment had another good quarter, delivering adjusted EBITDA of seven $2 million.
Andrew Greiff: The team's focus on fabricated product growth is driving positive results.
Andrew Greiff: Our specialty metals segment contributed $4 million of EBITDA, a solid fourth quarter for this group despite nickel surcharges hitting a four year low during the fourth quarter of 2024.
Andrew Greiff: For the full year specialty metals made great strides by gaining market share in both stainless and aluminum.
Andrew Greiff: We also continued to see strength in our manufactured products group with both metal fab and Mccullough industries, finishing the year strong newly acquired metal works also had an immediate positive impact on our results and we are excited to welcome their team to the Olympic Steel family.
Rick Mirabito: As Rick mentioned earlier, we are committed to making the right investments and higher margin opportunities to accelerate growth you can see this reflected in our capex spend which was $29 $5 million in 2024 and is expected to be $35 million in 2025, we have undertaken a number of.
Rick Mirabito: Organic growth initiatives designed to improve automation safety and throughput.
Rick Mirabito: The projects, which we expect to come online in late 2025 in early 2026 included new cut to length line at our Minneapolis coil facility to support our growing galvanize business.
Rick Mirabito: New high speed specialty metals splitter to expand at Berlin's capacity outside Gary Indiana.
Rick Mirabito: New white metals cut to length line in Schaumburg, Illinois, and the automation of our Chambersburg fabrication operation to improve safety efficiency and expand capacity by over 30% in.
Rick Mirabito: In addition, we recently relocated our actions stainless Houston facility to a 70000 square foot building with additional equipment to support our growing white metals distribution and fabrication business in the south and the west.
Rick Mirabito: We remain well positioned to continue making strategic investments in organic growth opportunities as well as additional acquisitions that enhance our higher value product and processing offerings and further support our diversification strategy now I will turn the call over to rich to go through the financials.
Speaker Change: Thank you Andrew as Rick and Andrew stated all three segments withstood the challenges facing the metals industry to deliver profitable results in the fourth quarter with sequential adjusted EBITDA improvement over the third quarter of 2024.
Speaker Change: 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 the pipe and tube segment and the November 2020 for acquisition of metal works, whose results are included in the carbon segment.
Speaker Change: For the fourth quarter net income totaled $3 9 million compared with $7 4 million in the fourth quarter of 2023.
Speaker Change: The results include $3 $1 million of LIFO pretax income in the fourth quarter of 2024, compared with $5 $3 million of LIFO pretax income in the fourth quarter of 2023.
Adjusted EBITDA for the fourth quarter was $14 $5 million compared with $16 $7 million in the prior year period and higher than the $13 million for the third quarter of 2024.
Speaker Change: As a reminder, in November 2024, we acquired metal works in an all cash transaction for $80 million.
Speaker Change: The purchase price reflects a multiple of approximately 615 times trailing 12 month adjusted EBITDA.
Speaker Change: Consolidated operating expenses for the fourth quarter totaled $96 $5 million compared with $104 million in the fourth quarter of 2023 or.
Speaker Change: Our fourth quarter operating expenses reflect the additional metal works, which does not reflect tons sold therefore operating expenses per ton at the consolidated level and the carbon segment will appear higher year over year.
Speaker Change: As a reminder, we also do not report ton sold for Mccullough industries, EZ dumper metal fab Shaw stainless or the entire pipe and tube segment.
Speaker Change: Consolidated operating expenses for the fourth quarter included $1 $8 million of metal works operating and acquisition related expenses and $1 8 million of lower incentive expenses when compared with the fourth quarter of 2023.
Speaker Change: We ended the quarter with total debt of approximately $272 million, an increase of $82 million from the third quarter.
Speaker Change: The increase in debt was the result of the metal works acquisition in November our debt position today is approximately $250 million and we continue to have availability of more than $200 million under our loan facility to support investments in higher return opportunities.
Speaker Change: Our capital expenditures for the full year of 2024 totaled $29 5 million compared with depreciation of $24 $5 million.
Speaker Change: We estimate that the 2025 capital expenditures will be approximately $35 million as we.
Speaker Change: You need to invest in automation and other growth initiatives that Andrew outlined.
Speaker Change: Our fourth quarter 2024 effective income tax rate was 18, 9% compared with 23, 3% in the same period last year.
Speaker Change: We expect our 2025 tax rate to approximate 27% to 28%.
Speaker Change: In addition, we paid a quarterly dividend of <unk> 15 per share in the fourth quarter as we announced in our earnings release last night, our board of directors improved an increase in our regular quarterly cash dividend to <unk> 16 per share. This marks the fourth dividend increase since 2022 cumulatively raising our quarterly dividend.
Speaker Change: <unk> per share $2 16 per share.
Speaker Change: The dividend is payable on March 17th 2025 to shareholders of record as of March 3rd 2025.
Speaker Change: The company has paid a regular quarterly dividends since March 2006.
Speaker Change: Our long term strategy for diversification, coupled with our focus on controlling expenses and managing working capital enabled us to remain resilient and profitable over the course of a very difficult year for the metals industry.
Speaker Change: As we monitor the macroeconomic factors that we'll be shaping our industry in the coming year, we remain confident that these strategic initiatives enable us to deliver profitable results for our shareholders opt.
Speaker Change: Operator, we are now ready for questions.
Speaker Change: Thank you.
Speaker Change: At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset.
Speaker Change: Before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Our first question comes from Samuel Mckinney with Keybanc capital markets. Please proceed with your question.
Samuel Mckinney: Hey, good morning, guys.
Good morning, Sam.
Samuel Mckinney: Starting in carbon flat I mean, it typical seasonal volume decline in the fourth quarter, but what I really want to focus on is that impressive gross profit per ton of $314. The best figure that you guys have posted more than a year what drove such strengthening gross profit to increase that $35 a ton quarter on quarter.
Speaker Change: Hey, Sam it's rich and so as you know we've been expanding our end use.
Speaker Change: And metal products companies and as I noted in my comments that we don't report ton sold for those companies because it's different than the distribution business, but things like metal works and metal fab Mccullough industries. They do roll up into the carbon segment, and so youre seeing that counter cyclical nature of those goods.
Speaker Change: So youre seeing an increase in gross margin, but not necessarily a difference in tonnage.
Rick Mirabito: And the other thing Sam It's Rick I would say also is and we talked about it I think last call.
Speaker Change: <unk>.
Really a concerted effort and success in growing our fabrication business and that fabrication business is a nice adder as well so and we will continue to do that and that looks like.
Speaker Change: An area of strength as we move into 2025 in terms of volume and as Andrew also noted in his comments that we've had a nice growth in galvanized over the last two years and that certainly helps the margin as those products tend to be better rather than better than just the black or pickled and oiled hot rolled.
Speaker Change: Items.
Speaker Change: Yes that all makes sense. Thank you and then shifting over to the pipe and tube segment that two part question here I know the first quarter is typically the peak sales quarter, but youll be coming off a pretty low sales base from the fourth quarter of 24. What are you seeing in that segment that first do you think kind of pushed sales down in the fourth quarter and.
Speaker Change: How strongly do you think you can recover moving into the first quarter.
Sam: Hey, Sam.
Andrew So I think the first quarter is going to be traditional I think Dave.
Started the year kind of as expected.
Sam: As we come through the first quarter and even coming into the second quarter. There is some great opportunities in.
Sam: New customers that they picked up starting.
Sam: The end of 2024, the other thing that you'll continue to see is a shift into greater fabrication.
Sam: Their objective is to really have about a 50 50 mix between pure tube and pipe distribution versus the fabrication and where we're continuing to see that.
Sam: <unk> invested in some more too Blazers.
Due to some customers that we've picked up.
Sam: Okay, and then last one for me.
Sam: Moving to specialty metals to date first quarter aluminum prices have been fairly steady versus the fourth quarter average. However, the Midwest transaction premium has really shot up in February can you talk about through your contract versus spot exposure in that market and how an increased in the Midwest transaction price might impact us.
Sam: Yes, great question so.
Sam: Youre right I mean, Midwest certainly has jumped up since the announcement of the tariffs.
Sam: A number of our customers and the bulk of that business still today is contractual so.
Sam: We have customers that have locked in the inkjet spot clearly has has jumped because of that but I think that just the overall growth for our aluminum business.
<unk> continues to grow each year, we had another good year in 'twenty four again picking up some really good opportunities in 25, most of those are going to be on the contractual side. So we do have some we have spot opportunities, but the bulk of really what we're doing today is on the contractual.
Sam: Side of it.
Speaker Change: Okay. Thank you guys and congrats on the strong end of the year.
Sam: Thank you. Thank you Sam.
Speaker Change: Our next question comes from Dave storms with Stonegate. Please proceed with your question.
Dave Storms: Morning, everyone.
Speaker Change: Good morning, Dave.
Speaker Change: Just wanted to start with metal works transaction and see if there's anything more you can tell us about this.
Speaker Change: As needed synergies maybe in the back office I know you mentioned and Carboplatin.
Speaker Change: Quite a nice person.
Speaker Change: Rather.
Speaker Change: Shops.
Speaker Change: Is there anything more you can tell us there.
Rick Mirabito: Yes, Dave it's Rick Thanks for the question so.
Rick Mirabito: Like most of our end manufactured metal products. The real synergy is the integration into the Olympic steel supply chain.
Rick Mirabito: And our ability to.
Rick Mirabito: Whether it's our sourcing relationships or our ability to do some first stage processing.
Rick Mirabito: Those are the those would be the real synergies so.
Rick Mirabito: They do start with a.
Rick Mirabito: Cut metal product versus a coil. So we obviously have lots of processing capabilities, where we can do the first stage processing.
Rick Mirabito: But I would say the.
Rick Mirabito: The sourcing and the first stage processing would be the real synergies and then you mentioned on the expense side.
Rick Mirabito: In terms of I don't know if I'd call them synergies, but what we will be able to do is to integrate metal works into Olympic in terms of things like.
Rick Mirabito: Systems and accounting and.
Rick Mirabito: And some of the back office areas.
Rick Mirabito: Not really sure we will get cost synergies I think we will just really be able to.
Rick Mirabito: Move that company to our platform.
Rick Mirabito: Which will obviously gain efficiencies and allow us to.
Rick Mirabito: Communicate and and.
Rick Mirabito: And work closer together so those are the main areas.
Rick Mirabito: Understood that's very helpful. Thank you.
Rick Mirabito: And then <unk>.
Rick Mirabito: And then just recently kind of mentioned a couple of times now if you picked up a couple of customers going into 2025, how would you characterize your market share.
Rick Mirabito: And your various end markets.
Rick Mirabito: So Dave this is Andrew what I would tell you is we've we've seen our greatest growth in the last two years in coated products. So galvanized is up significantly we've had really good.
Rick Mirabito: As well in hot roll Cold roll.
Rick Mirabito: Plate, we lagged a little bit in 2024, but starting off this year.
Rick Mirabito: And for 2025 plate will be will be very strong.
Rick Mirabito: Certainly in and what we're seeing in stainless and aluminum we continue to pick up market share continued to grow stainless has been very steady, but really the growth in aluminum.
Rick Mirabito: Has really been terrific and.
Rick Mirabito: No.
Rick Mirabito: The bulk of the aluminum that we bring in is domestic so.
Rick Mirabito: So we have great domestic support certainly in all of our products, but.
Rick Mirabito: Specific to aluminum the same thing with with stainless so I would say all of our key products, we have seen year over year improvement and certainly outperforming the market.
Rick Mirabito: Pretty much every segment.
Rick Mirabito: Understood. Thank you and then just one more for me.
Speaker Change: There's been a lot of discussion.
Speaker Change: In the news recently about tariffs.
Speaker Change: Are you seeing any early indications.
Speaker Change: From that talk and consume b.
Robert: Robert handle broker.
Speaker Change: Yes, sure so I'll I'll pick up on that and then maybe Rick rich will jump in but certainly since the announcements.
Robert: The key one on stainless and aluminum right around the 10th.
Robert: We saw almost immediate impact Dave. So if you took a look at hot rolled futures.
Robert: Go back to the beginning of the year, where they were at $725 $730 a ton of kind of a Friday right before the announcement. It was up to 70 to 80 and then almost immediately you saw jumped to about $848 50.
Robert: Since that time, we have.
Robert: Right about 900, so a pretty big jump at that point.
Robert: The crew, which is the index price same thing. So if you take a look at June through December you had the hot rolled CRU somewhere in the 650 680 range.
Robert: Then once we got into January right around the United Nation.
Robert: We were right around 680, and now we're up to two just about 807 down <unk>, 9% to 800 and the anticipation is that its going to continue to go up the announcements that we have seen on the spot side from the domestic hot rolled producers all had been week over week continuing to to.
Robert: Raise prices on the spot side of it and we've seen that from certainly from lead time, where prior to the announcements you add hot roll somewhere in the three to four week time period and now you are closer to I would say six to eight weeks on the KOL roll in in the coated it's more like eight to 10 and so you saw this.
Robert: Rush from transactional players to try to jump in in anticipation of.
Robert: The March 12.
Robert: <unk> time by the president, but that's when they were going to go into effect.
Robert: And then I think we'll continue to see an increase until we see otherwise if there are some deals that are cut if something happens certainly between now and then but we do expect that we'll see prices continue to rise.
Robert: Understood. Thank you for taking my questions and good luck in Q1.
Thank you.
Speaker Change: As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Robert: One moment, please while we poll for questions.
Speaker Change: Our next question comes from Chris Sakai with singular research. Please proceed with your question.
Chris Sakai: Hi, good morning.
Robert: Good morning, Chris.
Speaker Change: Sure.
Speaker Change: A follow up sort of the tariff question, how will the tariffs affect profitability.
Speaker Change: Competitors will this make it great.
Speaker Change: The season.
Speaker Change: Greater valuations for acquisitions.
Speaker Change: Hey, Chris It's rich, yes, and so what Andrew walked you through is on the supply chain side, certainly we're seeing the prices go up as far as the tariffs impacting first quarter, you've not seen a whole lot happen here in January and February and I think we are closely monitoring what's going to happen on March 12 to see if the tariffs do go.
Speaker Change: Through which then would increased transactional pricing. So this would be a late first quarter more early second quarter item in terms of the impact on profitability.
Speaker Change: Yes, and then I think your question, Chris on M&A and valuations and.
Speaker Change: So certainly as we look at the M&A market and we talked about it in our prepared remarks, we've made eight acquisitions in the last seven years. So we've obviously been acquisitive we continue to.
Speaker Change: B and active seeker of more acquisitions, but what we've seen in 2020 for especially in the back half was really a pull back.
Speaker Change: In terms of potential.
Speaker Change: Potential sellers and <unk>.
Speaker Change: Potential candidates, who we are.
Speaker Change: Looking to sell the business and I think a lot of that was to your question I think it was a rougher year in terms of the metals industry and the performance in.
Speaker Change: In 'twenty four for most was down summit was significantly down so.
Speaker Change: I anticipate.
Speaker Change: And it is cyclical.
Speaker Change: But I anticipate as we move through 2025, I think we'll start to see.
Speaker Change: Improved results.
Speaker Change: From basically the universe.
Speaker Change: Of.
Speaker Change: Metal companies as well as metal manufacturers and I think that just lends itself to we will see more activity and we will see more potential sellers.
Speaker Change: Interested in entering the M&A market, but that will probably take a little bit of time they'll want to have a couple of quarters of.
Speaker Change: Some results so I do anticipate in the back half seeing a little more activity and Christian let me just add one more thing on the tariff side of it. So the other thing that we saw relatively quick win.
Speaker Change: When President Trump came into office and the discussion of energy we.
Speaker Change: We did see a lot of the line pipe jobs really jump in so that was good for the hot rolled producers that produce the line pipe.
Speaker Change: Simultaneously you saw plate really start to jump in scrap started to jump about the same time as there's been a lot of bridge work. That's finally coming.
Speaker Change: That has been on the docket for quite some time and so you are actually seeing plate start decline very quickly and so that was probably the one area that <unk>.
Speaker Change: That surprised us the most to see how fast that really was going.
Speaker Change: Okay. Thanks for that.
Speaker Change: You mentioned for.
Speaker Change: For 2025, there's going to be an increase in capex.
Speaker Change: With different.
Speaker Change: Projects that you mentioned.
Speaker Change: How about margins will we see some improvement there.
Speaker Change: Hey, Chris it's rich and so as we outlined in the comments. Most of these are going to become operational late fourth quarter of 2025 early first quarter of 2026, So I wouldn't anticipate a lot of.
Speaker Change: Impact in 2025, but yes, definitely we think that the.
Speaker Change: The cumulative spend on these things was meant to increase capacity, it's increasing efficiency, increasing safety and we do expect it to have a very positive impact on 2026 margins.
Okay, Thanks and last for me.
Speaker Change: It looks like there was.
Speaker Change: A decrease in.
Speaker Change: Selling and.
Speaker Change: General expense, if that's alright.
Speaker Change: From a year ago.
Speaker Change: Can you comment on what was that.
Speaker Change: Forward.
Speaker Change: Sure Chris it's rich.
Put it in the prepared comments, we were about $1 $8 million less in.
Speaker Change: Variable incentive expenses year over year, and Thats really kind of tied to profitability and so our incentive plans are highly tied to our profitability and so in a quarter like this where we're down a little bit in the fourth quarter of 2024 versus fourth quarter of 2023, youre going to see that decrease.
Speaker Change: Okay. Thanks.
Speaker Change: Okay.
Speaker Change: We have reached the end of our question and answer session I would now like turn the call back over to Richard <unk> for closing comments.
Speaker Change: Thank you operator, and thank you all for joining us today on our call. We appreciate your continued interest in Olympic Steel and we look forward to speaking with you again next quarter have a great day.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Speaker Change: Okay.