Webco Industries, Inc. Reports Fiscal 2017 Third Quarter Results

SAND SPRINGS, Okla.--()--Webco Industries, Inc. (OTC: WEBC) today reported results for our third quarter of fiscal year 2017, ended April 30, 2017.

For our third quarter of fiscal year 2017, we generated net income of $1.3 million, or $1.44 per diluted share, compared to a net loss of $0.2 million, or a loss of $0.29 per diluted share, for the third quarter in fiscal 2016. Net sales for the third quarter of fiscal 2017 were $98.3 million, a 25.3 percent increase from the $78.5 million of sales in last year’s third quarter. The current quarter includes a non-cash gain of $0.1 million related to our interest swap contract, whereas the prior year third quarter includes a nominal non-cash gain related to the interest swap contract.

For the first nine months of fiscal year 2017, we generated net income of $4.2 million, or $4.91 per diluted share, compared to a net loss of $2.6 million, or a loss of $3.19 per diluted share, for the same period in fiscal 2016. Net sales for the first nine months of the current year amounted to $278.3 million, a 13.0 percent increase over the $246.3 million in sales for the same nine-month period of last year. Results for the first nine months of the current year include a $1.5 million non-cash gain related to the interest swap contract, whereas the prior year same nine-month period contained a $0.7 million non-cash loss on the contract.

In the third quarter of fiscal year 2017, we generated income from operations of $2.5 million, after depreciation of $2.8 million. The third fiscal quarter of the prior year generated income from operations of $0.3 million, after depreciation amounting to $2.9 million. Gross profit for the third quarter of fiscal 2017 was $8.9 million, or 9.0 percent of net sales, compared to $6.3 million, or 8.0 percent of net sales, for the third quarter of fiscal 2016.

Our income from operations for the first nine months of fiscal year 2017 was $5.9 million, after depreciation expense of $8.5 million, while we generated a loss from operations for the same period in fiscal 2016 of $1.6 million, after depreciation expense of $8.8 million. Gross profit for the first nine months of fiscal 2017 was $24.4 million, or 8.8 percent of net sales, compared to $15.7 million, or 6.4 percent of net sales for the same period in fiscal year 2016.

Dana S. Weber, Chief Executive Officer, commented, “While shipment volumes are up in certain product groups relative to the same period last year, demand is still diminished from a historical standpoint. Our results also have not been burdened by the combination of high cost inventories, relative to replacement cost, combined with low demand for tubing products. The steel industry, for a number of micro and macro reasons, continues to have cost volatility for both stainless and carbon steel. The tubing industry continues to deal with low market prices and sluggish demand associated with low oil prices, commodity volatility, a strong U.S. dollar, and foreign competition. We are hopeful that the trade case involving certain steel tubular products will reduce low market price pressures associated with foreign importers from the countries named in the case. We have been investing in our core strengths, including quality, efficiency, yield improvement and capabilities.”

Selling, general and administrative expenses were $6.4 million in the third quarter of fiscal 2017 and $6.0 million in the third quarter of fiscal 2016. Selling, general and administrative charges were $18.5 million in the first nine months of the current fiscal year, an increase over the $17.3 million in such expenses in the same period of fiscal 2016. The increase in SG&A reflects increased costs associated with increased business levels.

Interest expense was $0.5 million and $0.6 million, respectively, in each of the third quarters of fiscal years 2017 and 2016. Interest expense was $1.9 million in the first nine months of both fiscal year 2017 and fiscal year 2016. During the third quarter of fiscal year 2017, we amended our senior credit facility to extend the maturity an additional five years, until March 2022.

We are party to an arrangement that swaps the variable interest rate for $50 million of our debt to a fixed rate through December 2019. We record the interest swap contract at fair value on our balance sheet and non-cash changes in value are reported as unrealized gains or losses on interest contracts. The non-cash income and charges from adjusting the interest swap contract value to market value create volatility in our income statement; however, they have no bearing on cash flow for the quarter because the actual monthly cash swap payments are reflected in interest expense, and therefore earnings.

At April 30, 2017, we had $8.1 million in cash in addition to $31.5 million of available borrowing under our senior revolving credit facility, which had $56.8 million drawn. The amended revolver continues to have a $120 million cap with availability primarily subject to advance rates on eligible accounts receivable and inventories.

Capital expenditures incurred amounted to $6.1 million in the third fiscal quarter and $13.5 million for the first nine months of fiscal year 2017. Our fiscal 2017 capital investments are focused on improving efficiencies, yields, quality and capabilities. The first quarter fiscal 2017 adoption of a change in balance sheet presentation of deferred taxes has resulted in current deferred tax assets being netted against long-term deferred income tax liabilities, and presented as a single element on our balance sheet; however, since we changed for future presentation only, our July 31, 2016, balance sheet was not changed.

Webco is a manufacturer and value-added distributor of high-quality carbon steel, stainless steel and other metal tubular products designed to industry and customer specifications. Our tubing products consist primarily of pressure tubing, including heat exchanger and boiler tubing, and specialty tubing for use in durable and capital goods. Webco's long-term strategy involves the pursuit of niche markets within the metal tubing industry through the deployment of leading-edge manufacturing and information technology. We have five tube production facilities in Oklahoma and Pennsylvania and six value-added facilities in Oklahoma, Texas, Illinois and Michigan, serving customers globally.

Forward-looking statements: Certain statements in this release, including, but not limited to, those preceded by or predicated upon the words "anticipates," "appears," "available," "believes," "can," "considering," "expects," "hopes," "intended," "plans," "projects," "pursue," "should," "would," or similar words constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied herein. Such risks, uncertainties and factors include the factors discussed above and, among others: general economic and business conditions, including any global economic downturn, reduced oil prices, competition from foreign imports, including any impacts associated with dumping or the strength of the U.S. dollar, changes in manufacturing technology, banking environment, including availability of adequate financing, monetary policy, changes in tax rates and regulation, raw material costs and availability, appraised values of inventories which can impact available borrowing under the Company’s credit facility, industry capacity, domestic competition, loss of or reductions in purchases by significant customers and customer work stoppages, the costs associated with providing healthcare benefits to employees, customer claims, technical and data processing capabilities, and insurance costs and availability. The Company assumes no obligation to update publicly such forward-looking statements.

 
WEBCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands, except per share data)

(Unaudited)

 
 

Three Months Ended
April 30,

 

Nine Months Ended
April 30,

  2017       2016     2017       2016  
 
Net sales $ 98,316 $ 78,488 $ 278,278 $ 246,280
Cost of sales   89,421     72,226     253,890     230,592  
 
Gross profit 8,895 6,262 24,388 15,688
Selling, general & administrative   6,350     5,989     18,509     17,271  
 
Income (loss) from operations 2,545 273 5,880 (1,583 )
Interest expense 541 607 1,861 1,895
Unrealized (gain) loss on interest contracts   (148 )   (37 )   (1,462 )   723  

Income (loss) before income taxes

2,151

(298

)

5,480

(4,201

)

Income tax expense (benefit)   860     (64 )   1,288     (1,619 )
 
Net income (loss) $ 1,291   $ (234 ) $ 4,192   $ (2,581 )

 

Net income (loss) per common share:
Basic $ 1.49   $ (0.29 ) $ 5.04   $ (3.19 )
Diluted $ 1.44   $ (0.29 ) $ 4.91   $ (3.19 )
 
Weighted average common shares outstanding:
Basic   866,600     812,100     831,000     809,400  
Diluted   896,600     812,100     854,500     809,400  
 

Note: Amounts may not sum due to rounding.

 
WEBCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET HIGHLIGHTS

(Dollars in thousands, except par value)

(Unaudited)

   

April 30,
2017

July 31,
2016

 
Cash $ 8,131 $ 6,261
Accounts receivable, net 49,496 39,871
Inventories, net 115,247 113,354
Other current assets   3,426   9,804
Total current assets 176,300 169,289
 
Property, plant and equipment, net 96,892 92,575
Other long-term assets   2,049   1,299
 
Total assets $ 275,241 $ 263,164
 
Other current liabilities $ 29,084 $ 30,166
Current portion of long-term debt   56,813   43,367
Total current liabilities 85,898 73,533
 
Long-term debt 12,000 12,000
Deferred income tax liability 11,095 17,009
 
Total equity (891,600 common shares, par value $0.01, outstanding at April 30, 2017)  

166,249

 

160,622

 
Total liabilities and equity $ 275,241 $ 263,164
 
Note: Prior amounts have not been changed to conform to current deferred tax presentation.
 
CASH FLOW DATA

(Dollars in thousands)

(Unaudited)

     

Three Months Ended
April 30,

Nine Months Ended
April 30,

  2017       2016   2017   2016
Net cash provided by (used in)

operating activities

$

(5,986

)

$

9,792

$

260

$

39,950

 
Depreciation and amortization $ 2,870   $ 2,983 $ 8,691 $ 8,916
 
Cash paid for capital expenditures $ 5,653   $ 3,146 $ 12,924 $ 8,184
 

Note: Amounts may not sum due to rounding.

Contacts

Webco Industries, Inc.
Mike Howard, 918-241-1094
Chief Financial Officer
mhoward@webcoindustries.com

Contacts

Webco Industries, Inc.
Mike Howard, 918-241-1094
Chief Financial Officer
mhoward@webcoindustries.com