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Olympic Steel Inc (ZEUS) (Q1 2024) Earnings Call Transcript Highlights: Robust Sales and ...

GuruFocus Research
·3-min read

  • First Quarter Sales: $527 million

  • Net Income: $8.7 million

  • Adjusted EBITDA: $23.7 million

  • Shipping Volumes: Increased 9% sequentially from Q4 2023

  • Carbon Segment EBITDA: $12.7 million

  • Pipe and Tube Segment Adjusted EBITDA: $10.3 million

  • Specialty Metals Segment EBITDA: $4.9 million

  • Consolidated Operating Expenses: $103.2 million

  • Debt: $197 million

  • Capital Expenditures: $4.8 million

  • Effective Income Tax Rate: 27%

  • Quarterly Dividend: $0.15 per share

Release Date: May 03, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

  • Olympic Steel Inc (NASDAQ:ZEUS) reported strong first quarter sales of $527 million and net income of $8.7 million, demonstrating solid profitability despite market challenges.

  • The company's diversification and expansion into higher value-added processing and manufactured metal products have provided a countercyclical benefit, enhancing profitability in varying market conditions.

  • Olympic Steel Inc (NASDAQ:ZEUS) experienced a 9% increase in shipping volumes sequentially from the fourth quarter of 2023, indicating robust operational performance.

  • Strategic investments in fabrication capabilities and new equipment automation are beginning to yield benefits, positioning the company for accelerated growth.

  • The company maintains a strong balance sheet with $366 million in available capital, supporting ongoing investments in organic growth and potential mergers and acquisitions.

Negative Points

  • Despite overall strong performance, Olympic Steel Inc (NASDAQ:ZEUS) faced declining pricing dynamics in the first quarter, with index pricing for hot-rolled steel falling more than 31%.

  • Net income for Q1 2024 was slightly lower at $8.7 million compared to $9.9 million in the first quarter of 2023.

  • The company anticipates some margin compression on carbon products in the second quarter, potentially impacting profitability.

  • Lead times for equipment remain long, which could delay the full realization of benefits from capital investments.

  • The company's effective borrowing rate in the first quarter of 2024 was impacted by the expiration of an interest rate hedge, potentially increasing financial costs.

Q & A Highlights

Q: Can you discuss the current lead times in your business and how they are affecting your operations? A: Andrew Greiff, President and Chief Operating Officer of Olympic Steel, noted that lead times are stable, with carbon products seeing four to five weeks, and specialty products like stainless steel and aluminum also around four to five weeks. He highlighted that the company has established just-in-time (JIT) delivery programs with some customers, allowing for same-day deliveries in certain cases.

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Q: How should we think about price momentum going into Q2 and beyond? A: CEO Richard Marabito mentioned stability in carbon market index pricing and expressed optimism about stainless steel and aluminum, noting recent strength in nickel and aluminum prices. He anticipates more stability through the second quarter.

Q: Can you provide insights into your capital expenditure plans, particularly regarding maintenance and growth investments? A: CFO Richard Manson explained that maintenance CapEx is typically between $7 million and $10 million annually, with total CapEx expected to be about $30 million for the year, driven by long lead times for processing equipment.

Q: What is the current status of the M&A market and Olympic Steel's strategy in this area? A: CEO Richard Marabito observed a recent uptick in M&A activity, attributing it to adjustments in business valuations and interest rates. He emphasized Olympic Steel's continued focus on strategic, accretive acquisitions and noted an increase in opportunities entering their pipeline.

Q: How are inventory levels managed, and what are the expectations for the year? A: Andrew Greiff stated that inventory levels are appropriate across the board, with expectations of normalizing inventory turns to about five times per year, indicating efficient inventory management going forward.

Q: Could you comment on the quarterly cadence for capital expenditures for the upcoming quarters? A: CFO Richard Manson affirmed that the annual CapEx is projected at $30 million, with significant equipment orders already placed. He noted the challenge of long lead times but assured that the planned expenditure is on track.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.