Steel Mills
Olympic Steel Reports “Unusual” Second-Quarter
Written by Tim Triplett
August 1, 2019
Olympic Steel executives expressed positive sentiments about the company’s performance during an “unusual” second quarter despite declines in both sales and income compared with the same period last year. The Cleveland-based service center reported quarterly net sales of $429 million, 5 percent lower than in second-quarter 2018. Net income for the quarter totaled $2.1 million, down from $15.8 million in Q2 2018.
“For those of us who have been in the service center sector for some time, the second quarter was very unusual,” said Olympic President David Wolfort. During the second quarter, steel prices were under immense pressure after months of declines and customers slowed their orders as they waited for prices to hit bottom. In addition, trade relations and general economic concerns weighed on the manufacturing sector including such key end markets as automotive and agriculture. Removal of Section 232 tariffs on Canada and Mexico sent steel prices plunging in June.
“Typically, metal prices and volumes are up in what is normally a seasonally strong quarter. This year the industry saw steel prices drop and shipments of carbon products decline by more than 7 percent, as reported by the MSCI,” he said. “Even with the pressure on shipping volumes and gross margins during the quarter, we were profitable. While we cannot control the market price of steel or U.S. trade and tariff policies, we have remained focused to best position Olympic Steel in a rebounding market.”
Olympic’s carbon steel business faced the toughest headwinds in the quarter, while its specialty metals flat products segment and tubular and pipe products segment reported strong results.
Executives noted progress on the financial front. Olympic has reduced inventory levels by $81 million, increasing inventory turns to a healthy five per year. The company also reduced its debt by $49 million during the second quarter.
Pointing to the success of its January acquisition of McCullough Industries, Olympic is committed to further diversification through downstream investment in metal-intensive manufacturing companies. The company plans to announce a similar, though smaller, acquisition later this summer. “In line with our long-term growth strategy, we continue to evaluate other acquisition opportunities in the metal-intensive branded products industry, which are countercyclical to the dynamics of steel pricing,” said Olympic CEO Richard Marabito.
Looking ahead, Olympic expects to benefit from steel prices that improved substantially in July. However, the company anticipates a seasonally slower third quarter. “While we are turning our inventory quickly at five times, we expect it will take the first half of the third quarter to work through the carbon segment margin pressure. We anticipate specialty metals and pipe and tube to continue showing resiliency, but third-quarter shipments and earnings are expected to be softer compared with the first half of 2019,” Marabito said.
Tim Triplett
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