Olympic Steel Reports Improved 2017 Full-Year and Fourth-Quarter Results

Full-Year Net Sales Climb 26% in 2017 and by 21% in Fourth-Quarter, Versus 2016

Full-Year 2017 Operating Income of $24 Million, Highest in Six Years

Company Achieves Record High Market Share in All Three Operating Segments in 2017

CLEVELAND--()--Olympic Steel Inc., (Nasdaq: ZEUS), a national metals service center, today announced improved financial results for the full year and three months ended Dec. 31, 2017.

Full-Year 2017 Results

Full-year 2017 net sales climbed 26%, reaching $1.3 billion, compared with $1.1 billion in 2016. Increased year-over-year shipping volume and higher average selling prices throughout 2017 contributed to the net sales increase. Full-year 2017 net income (GAAP) improved to $19.0 million, or $1.67 per diluted share, compared with a net loss of $1.1 million, or $0.10 per share in 2016.

“Demand for metals improved during 2017, driven by stronger GDP growth in the U.S. and abroad,” said Chairman and Chief Executive Officer Michael Siegal. “Olympic Steel was, and remains, ideally positioned to support this rebound in U.S. industrial activity. The determined execution by our operations and sales teams resulted in our most profitable year since 2011.”

Strong pricing dynamics for metals and healthy demand have continued in early 2018, he added.

“Improving economic conditions have revitalized the U.S. manufacturing sector. Our customers are currently benefiting from recent tax legislation and higher capital equipment spending, and stand to gain further from potential infrastructure investments,” Siegal said. “We enter 2018 primed for growth and expect to prosper in this environment. With diversified products and superior customer service, combined with a strong balance sheet and an energized management team, we are poised for continued success.”

Fourth-Quarter 2017 Results

Fourth-quarter net sales increased 21% in 2017, to $308 million, which was up from $255 million in the same quarter of 2016. GAAP net income rose to $4.2 million in the fourth quarter of 2017, or $0.37 per diluted share, compared with a net loss of $2.1 million, or $0.19 per share in 2016’s fourth quarter.

In addition to increased shipping volume and higher sales prices, 2017 net income also benefited from a fourth-quarter $6.2 million deferred tax liability revaluation related to the Tax Cuts and Jobs Act. This was partially offset in the 2017 fourth quarter by $2.7 million in LIFO expense, a $1.0 million commercial settlement, and a write-off of $0.2 million in deferred financing expenses related to the Company’s new 5-year $400 million credit facility.

After adjusting for unusual items in 2017, and LIFO income in 2016, the adjusted net loss narrowed to $0.04 per share in 2017’s fourth quarter, compared with an adjusted net loss of $0.23 per share in the same quarter of 2016. Similarly, full-year 2017 adjusted net income increased to $1.18 per diluted share, up from an adjusted loss of $0.18 per share in 2016.

     
Olympic Steel, Inc.
Reconciliation of Net Income (Loss) Per Diluted Share
to Adjusted Net Income (Loss) Per Diluted Share

The following table reconciles adjusted net income (loss) per diluted share to the most directly comparable GAAP financial measure:

 
Three Months Ended Twelve Months Ended
Dec. 31, Dec. 31,
2017 2016 2017 2016
(unaudited) (unaudited)

Net income (loss) per diluted share (GAAP):

$ 0.37 $ (0.19 ) $ 1.67 $ (0.10 )
Excluding the following items:
Tax adjustment on retirement plan - - 0.16 -

Deferred tax liability adjustment from Tax Cuts and Jobs Act

0.54 - 0.54 -
LIFO (expense) income (0.07 ) 0.04 (0.15 ) 0.08
Commercial settlement cost (0.06 ) - (0.06 ) -
Deferred financing fee write-off   (0.01 )   -     (0.01 )   -  

Adjusted net income (loss) per diluted share (non-GAAP):

$ (0.04 ) $ (0.23 ) $ 1.18   $ (0.18 )
 

Conference Call and Webcast

A simulcast of Olympic Steel’s 2017 fourth-quarter and full-year earnings conference call can be accessed via the Investor Relations section of the Company’s website at www.olysteel.com. The simulcast will begin at 10 a.m. EST on March 2, and a replay of the call will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Company’s policy not to endorse any analyst’s sales or earnings estimates. Forward-looking statements in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words or phrases such as “may,” “will,” “anticipate,” “should,” “intend,” “expect,” “believe,” “estimate,” “project,” “plan,” “potential,” and “continue,” as well as the negative of these terms or similar expressions. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those implied by such statements. Readers are cautioned not to place undue reliance on these forward-looking statements. Such risks and uncertainties include, but are not limited to: general and global business, economic, financial and political conditions; competitive factors such as the availability, global production levels and pricing of metals, industry shipping and inventory levels and rapid fluctuations in customer demand and metals pricing; cyclicality and volatility within the metals industry; fluctuations in the value of the U.S. dollar and the related impact on foreign steel pricing, U.S. exports, and foreign imports to the United States; the levels of imported steel in the United States and any associated and threatened tariffs and duties; the availability and rising costs of transportation and logistical services; the successes of our efforts and initiatives to increase sales and earnings, maintain or improve working capital turnover and free cash flows, improve our customer service, and achieve cost savings; our ability to generate free cash flow through operations and repay debt within anticipated time frames; events or circumstances that could impair or adversely impact the carrying value of any of our assets; risks and uncertainties associated with intangible assets, including additional impairment charges related to indefinite lived intangible assets; events or circumstances that could adversely impact the successful operation of our processing equipment and operations; the amounts, successes and our ability to continue our capital investments and strategic growth initiatives, including acquisitions and our business information system implementations; the successes of our operational initiatives to improve our operating, cultural and management systems and reduce our costs; the ability to comply with the terms of our asset-based credit facility; the ability of our customers and third parties to honor their agreements related to derivative instruments; customer, supplier and competitor consolidation, bankruptcy or insolvency; reduced production schedules, layoffs or work stoppages by our own, our suppliers’ or customers’ personnel; the impacts of union organizing activities and the success of union contract renewals; the timing and outcomes of inventory lower of cost or market adjustments and last-in, first-out, or LIFO, income or expense; the ability of our customers (especially those that may be highly leveraged, and those with inadequate liquidity) to maintain their credit availability; the inflation or deflation existing within the metals industry, as well as our product mix and inventory levels on hand, which can impact our cost of materials sold as a result of the fluctuations in the LIFO inventory valuation; the adequacy of our existing information technology and business system software, including duplication and security processes; the adequacy of our efforts to mitigate cyber security risks and threats; access to capital and global credit markets; our ability to pay regular quarterly cash dividends and the amounts and timing of any future dividends; our ability to repurchase shares of our common stock and the amounts and timing of repurchases, if any; unanticipated developments that could occur with respect to contingencies such as litigation, arbitration and environmental matters, including any developments that would require any increase in our costs for such contingencies; and changes in laws or regulations or the manner of their interpretation or enforcement could impact our financial performance and restrict our ability to operate our business or execute our strategies.

In addition to financial information prepared in accordance with GAAP, this document also contains adjusted earnings per diluted share, which is a non-GAAP financial measure. Management’s view of the Company’s performance includes adjusted earnings per share, and management uses this non-GAAP financial measure internally for planning and forecasting purposes and to measure the performance of the Company. We believe this non-GAAP financial measure provides useful and meaningful information to us and investors because it enhances investors’ understanding of the continuing operating performance of our business and facilitates the comparison of performance between past and future periods. This non-GAAP financial measure should be considered in addition to, but not as a substitute for, the information prepared in accordance with GAAP. A reconciliation of this non-GAAP measure to the most directly comparable GAAP financial measure is provided above.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center focused on the direct sale and distribution of large volumes of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The Company’s CTI subsidiary is a leading distributor of steel tubing, bar, pipe, valves and fittings, and fabricates pressure parts for the electric utility industry. Headquartered in Cleveland, Ohio, Olympic Steel operates from 30 facilities in North America.

For additional information, please visit the Company’s website at www.olysteel.com or http://ir.olysteel.com/Contact_Us?BzID=2195

-Financial Tables Follow-

     
Olympic Steel, Inc.
Consolidated Statements of Operations

(in thousands, except per-share data)

 
Three Months Ended Dec. 31, Twelve Months Ended Dec. 31,
2017   2015 2017   2016
(unaudited) (audited)
Net sales $ 308,166 $ 254,904 $ 1,330,696 $ 1,055,116
 
Costs and expenses

Cost of materials sold (excludes items shown separately below)

248,366 203,494 1,055,212 820,040
Warehouse and processing 21,555 17,960 87,425 79,521
Administrative and general 16,960 15,001 69,659 63,054
Distribution 10,282 8,728 41,789 36,490
Selling 6,481 5,699 26,285 23,060
Occupancy 2,211 2,088 8,862 8,718
Depreciation 4,073 4,365 16,589 17,596
Amortization   222     222     889     889  
 
Total costs and expenses   310,150     257,557     1,306,710     1,049,368  
 
Operating income (loss) (1,984 ) (2,653 ) 23,986 5,748
 
Other income (loss), net   (42 )   (13 )   (118 )   (55 )
 

Income (loss) before interest and income taxes

(2,026 ) (2,666 ) 23,868 5,693
Interest and other expense on debt   2,138     1,378     7,518     5,273  
Income (loss) before income taxes (4,164 ) (4,044 ) 16,350 420
Income tax provision (benefit)   (8,351 )   (1,940 )   (2,613 )   1,498  
 
Net income (loss) $ 4,187   $ (2,104 ) $ 18,963   $ (1,078 )
 
Earnings per share:
 
Net income (loss) per share - basic $ 0.37   $ (0.19 ) $ 1.67   $ (0.10 )
 

Weighted average shares outstanding - basic

  11,389     11,221     11,381     11,210  
 

Net income (loss) per share - diluted

$ 0.37   $ (0.19 ) $ 1.67   $ (0.10 )
 

Weighted average shares outstanding - diluted

  11,391     11,221     11,381     11,210  
 

 
Olympic Steel, Inc.
Consolidated Balance Sheets

(in thousands)

 
At Dec. 31,
2017     2016
(audited)
Assets
 
Cash and cash equivalents $ 3,009 $ 2,315
Accounts receivable, net 132,737 101,902

Inventories, net (includes LIFO debit of $5,337 and $8,045 as of Dec. 31, 2017, and 2016, respectively)

275,307 254,526
Prepaid expenses and other 8,333 6,197
Assets held for sale   750     -  
Total current assets   420,136     364,940  
 
Property and equipment, at cost 376,710 374,242
Accumulated depreciation   (229,062 )   (218,476 )
Net property and equipment   147,648     155,766  
 
Intangible assets, net 22,980 23,869
Other long-term assets   13,394     11,493  
Total assets $ 604,158   $ 556,068  
 
Liabilities
 
Current portion of long-term debt $ 930 $ 1,825
Accounts payable 84,034 79,458
Accrued payroll 11,999 8,445
Other accrued liabilities   14,184     15,170  
Total current liabilities   111,147     104,898  
Credit facility revolver 196,235 164,599
Other long-term liabilities 12,048 10,062
Deferred income taxes   12,145     23,119  
Total liabilities   331,575     302,678  
 
Shareholders' Equity
 
Preferred stock - -
Common stock 129,453 128,619
Treasury stock (337 ) (609 )
Retained earnings   143,467     125,380  
Total shareholders' equity   272,583     253,390  

Total liabilities and shareholders' equity

$ 604,158   $ 556,068  
 

 
Olympic Steel, Inc.
Segment Financial Information

(In thousands, except tonnage and per-ton data. Figures may not foot to consolidated totals due to Corporate expenses.)

 
Three Months Ended Dec. 31:
(unaudited)
Carbon Flat   Specialty Metals Flat   Tubular and Pipe
Products Products Products(1)
2017   2016 2017   2016 2017   2016
Tons sold1   258,074     244,938     21,175   19,012 NA   NA
 
Net sales $ 199,811 $ 167,055 $ 53,411 $ 45,032 $ 54,944 $ 42,817
Average selling price per ton 774 682 2,522 2,369 NA NA
Cost of materials sold2   161,359     136,979     45,786   37,452   41,221     29,063
Gross profit3 38,452 30,076 7,625 7,580 13,723 13,754
Operating expenses4   38,878     34,327     5,303   5,065   15,594     13,189
Operating income (loss) $ (426 ) $ (4,251 ) $ 2,322 $ 2,515 $ (1,871 ) $ 565
 
Depreciation and Amortization 2,619 2,953 202 211 1,448 1,398
 
 
Twelve Months Ended Dec. 31:
(audited)
Carbon Flat Specialty Metals Flat Tubular and Pipe
Products Products Products(1)
2017 2016 2017 2016 2017 2016
Tons sold1   1,147,750     1,026,768     90,160   82,285 NA   NA
 
Net sales $ 869,628 $ 670,983 $ 227,200 $ 189,930 $ 233,868 $ 194,203
Average selling price per ton 758 653 2,520 2,308 NA NA
Cost of materials sold2   693,742     529,021     194,199   160,185   167,271     130,834
Gross profit3 175,886 141,962 33,001 29,745 66,597 63,369
Operating expenses4   158,000     146,333     21,761   19,904   62,029     55,656
Operating income (loss) $ 17,886   $ (4,371 ) $ 11,240 $ 9,841 $ 4,568   $ 7,713
 
Depreciation and amortization 10,906 11,690 811 797 5,659 5,897
 
1   Tonnage is less meaningful for the Tubular and Pipe Products segment and therefore, is not reported.
2 Includes $1.2 million, and $2.7 million, of LIFO expense for the three and twelve months ended Dec. 31, 2017, respectively; and $0.8 million, and $1.5 million, of LIFO income for the three and twelve months ended Dec. 31, 2016, respectively .
3 Gross profit is calculated as net sales less the cost of materials sold.
4 Operating expenses are calculated as total costs and expenses less the cost of materials sold.
 

 
Olympic Steel, Inc.
Segment Financial Information Cont.

(audited, in thousands, except per-share data)

 
At Dec. 31,
2017   2016
Assets
Flat products $ 409,116 $ 363,626
Tubular and pipe products 194,787 192,088
Corporate   255     354  
Total assets $ 604,158   $ 556,068  
 
 

Other Information:

At Dec. 31,
2017 2016
 
Shareholders' equity per share $ 24.80 $ 23.11
 
Debt-to-equity ratio 0.72 to 1 0.66 to 1
 
 
Twelve Months Ended
Dec. 31,
2017 2016
 
 
Net cash (used for) operating activities $ (19,041 ) $ (9,813 )
 
Cash dividends per share $ 0.08 $ 0.08
 

Contacts

IR Contact:
Olympic Steel Investor Relations
Matthew J. Dennis, CFA, 216-672-0522

Release Summary

Olympic Steel Reports Improved 2017 Full-Year and Fourth-Quarter Results

Contacts

IR Contact:
Olympic Steel Investor Relations
Matthew J. Dennis, CFA, 216-672-0522