The Company announced today its results of operations for the
fiscal second quarter. For the quarter ended September 30, 2021
(the “2021 quarter”), the Company recorded net earnings of
$13,177,614 ($1.91 diluted earnings per share) on sales of
$92,570,895 compared to a net loss of $250,005 ($0.04 diluted loss
per share) on sales of $24,861,680 for the quarter ended September
30, 2020 (the “2020 quarter”). The 2021 quarter results make it the
most profitable quarter in Company history. Results for the 2021
quarter were positively impacted by strong margins primarily
associated with a historic rise in steel prices. The 2021 quarter
was also positively impacted by the continued ramp up of the
Decatur, Alabama facility’s new stretcher leveler cut-to-length
line.
“We continued to position our business to take
advantage of opportunities in an unprecedented industry environment
during the second fiscal quarter,” said Michael J. Taylor,
President and Chief Executive Officer. “Hot-rolled steel prices for
the 2021 quarter were approximately 280% higher than prices for the
2020 quarter. Our coil segment sales volume was solid and exceeded
pre-pandemic levels while our tubular segment sales volume was
below pre-pandemic levels but improved from the prior year quarter.
Physical margins across all products remained at historic
levels.”
SUMMARY OF OPERATIONS (unaudited) |
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Three Months Ended September 30, |
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Six Months Ended September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net Sales |
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$ |
92,570,895 |
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$ |
24,861,680 |
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$ |
158,487,334 |
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$ |
48,386,280 |
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Total costs and other |
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income or loss |
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75,078,581 |
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25,174,401 |
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126,726,343 |
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49,835,631 |
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Earnings (loss) before |
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income taxes |
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17,492,314 |
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(312,721 |
) |
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31,760,991 |
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(1,449,351 |
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Provision for (benefit from) |
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income taxes |
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4,314,700 |
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(62,716 |
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7,271,580 |
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(340,484 |
) |
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Net earnings (loss) |
$ |
13,177,614 |
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$ |
(250,005 |
) |
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$ |
24,489,411 |
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$ |
(1,108,867 |
) |
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Weighted average shares outstanding: |
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Basic |
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6,903,450 |
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7,067,898 |
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6,901,504 |
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7,074,137 |
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Diluted |
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6,903,450 |
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7,067,898 |
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6,901,504 |
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7,074,137 |
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Net earnings (loss) per share: |
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Basic |
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$ |
1.91 |
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$ |
(0.04 |
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$ |
3.55 |
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$ |
(0.16 |
) |
Diluted |
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$ |
1.91 |
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$ |
(0.04 |
) |
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$ |
3.55 |
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$ |
(0.16 |
) |
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COIL SEGMENT OPERATIONS
Coil segment sales for the 2021 quarter totaled
$78,323,927 compared to $18,456,086 for the 2020 quarter. The
increase in sales was driven by an increase in the average selling
price associated with higher hot-rolled steel prices and an
increase in sales volume. The average per ton selling price of coil
segment inventory increased from approximately $548 per ton in
the 2020 quarter to approximately $1,884 per ton in the 2021
quarter. Inventory tons sold increased from approximately
33,000 tons in the 2020 quarter to approximately 43,000 tons in the
2021 quarter. Sales volume for the 2020 quarter was impacted by the
onset of the COVID-19 pandemic with volume for the 2020 quarter
being down approximately 13% compared to pre-pandemic volumes.
Volume for the 2021 quarter was approximately 13% higher than
pre-pandemic volumes. Volume for the 2021 quarter benefitted from
the continued ramp up of new equipment at the Decatur facility
which was placed into service in March 2021. The prior equipment at
the Decatur facility was removed in June 2020 for the equipment
replacement project. Coil segment operations recorded an operating
profit of approximately $24,273,000 for the
2021 quarter compared to an operating profit of approximately
$751,000 for the 2020 quarter. Operating results for the
2021 quarter benefitted from a significant increase in steel prices
and associated improvement in our margins. The 2020 quarter was
negatively impacted by low margins associated with declines in
hot-rolled steel prices.
TUBULAR SEGMENT OPERATIONS
Tubular segment sales for the 2021 quarter
totaled $14,246,968 compared to $6,405,594 for the 2020 quarter.
Sales increased due to both an increase in the volume
sold and an increase in the average selling price per ton. The
average per ton selling price of tubular segment inventory
increased from approximately $634 per ton in the 2020 quarter
to approximately $1,223 per ton in the 2021 quarter. Tons sold
increased from approximately 10,000 tons in the 2020 quarter
to approximately 11,500 tons in the 2021
quarter. Sales volume for the 2020 quarter was significantly
impacted by the onset of the COVID-19 pandemic with volume for the
2020 quarter being down approximately 29% compared to pre-pandemic
volumes. Volume for the 2021 quarter was approximately 15% lower
than pre-pandemic volumes. The tubular segment operations
recorded an operating profit of approximately $1,997,000 for
the 2021 quarter compared to an operating loss of approximately
$344,000 for the 2020 quarter. Operating results for the
2021 quarter benefitted from a significant increase in steel prices
and associated improvement in our margins. The 2020 quarter was
negatively impacted by low margins associated with declines in
hot-rolled steel prices and weak energy industry
conditions.
SINTON, TEXAS FACILITY
UPDATE
The Company broke ground on the construction of
its new coil processing facility in Sinton, Texas during August
2021. The new facility will be on the campus of Steel Dynamics,
Inc.'s ("SDI") new flat roll steel mill currently under
construction in Sinton, Texas. The Company's new location will
consist of an approximately 70,000 square foot building located on
approximately 26.5 acres leased from SDI under a 99-year agreement.
The Company has selected Red Bud Industries to build one of the
world’s largest stretcher leveler cut-to-length lines, capable of
handling material up to 1” thick, widths up to 96” and yields
exceeding 100,000 psi. The Company expects the location to commence
operations in April 2022 and estimates the total cost of the
project to be $21 million. At September 30, 2021, the construction
in process balance was approximately $6 million consisting of $2.8
million in cash payments and $3.2 million of accrued capital
expenditures.
“We are excited about the future of our new
Sinton facility and the growth opportunity it provides for the
Company,” said Mr. Taylor. “We continue to be encouraged by our
customers and prospects that share in our excitement about the new
facility. After an initial ramp up period during calendar 2022, we
expect the facility’s annual shipments could be in the range of
110,000 tons to 140,000 tons for calendar 2023. Based on these
volumes and historical average margins, we currently believe annual
EBITDA for our Sinton facility could be in the range of $4.5
million to $5.5 million.”
OUTLOOK
The Company expects physical margins to decline
slightly during its fiscal third quarter ending December 31, 2021
but to remain at a level well above historical average margins. A
modest decline in sales volume is expected due to a combination of
typical demand seasonality around the holidays and customer
hesitancy with steel prices showing decline in the third quarter.
The Company also expects to reclassify a loss of approximately
$14.7 million into earnings during the third quarter related to
derivatives designated for hedge accounting.
“The COVID-19 pandemic and related supply chain
disruptions have had a profound impact on the steel industry and
our operations,” Mr. Taylor commented. “We have mitigated the
downside through hedges and captured the upside by securing
additional supply and expanding production capacity. During the
outset of the pandemic steel pricing declined but then increased on
a historic magnitude by approximately 350%. At the apex of the
increase, steel prices were approximately 80% higher than the prior
historic level. With these circumstances, we have seen physical
margins higher than we ever expected and have also experienced
hedging-related losses as a result. We do not believe that the
magnitude and timing of hedging-related losses we expect to
recognize in the third quarter will be indicative of our future
operations. I strongly believe that our Company is executing a
long-term strategy that will create growth and value for the
Company and its shareholders across a range of market conditions
and despite short-term fluctuations in prices. The foundation is
being laid for the Company to double its coil segment sales volume
with successful execution of our investments in Decatur, Alabama
and Sinton, Texas. We are actively evaluating additional growth
opportunities and expect our fiscal year ended March 31, 2022 to be
the most profitable fiscal year in Company history. I look forward
to the opportunities that lie ahead for Friedman Industries.”
ABOUT FRIEDMAN INDUSTRIES
Friedman Industries, Incorporated, headquartered
in Longview, Texas, is a manufacturer and processor of steel
products with operating plants in Hickman, Arkansas; Decatur,
Alabama and Lone Star, Texas. The Company has two reportable
segments: coil products and tubular products. The coil product
segment consists of the operations in Hickman and Decatur where the
Company processes hot-rolled steel coils. The Hickman facility
operates a temper mill and corrective leveling cut-to length line.
The Decatur facility operates a stretcher leveler cut to length
line. The Company has a third coil segment location under
construction in Sinton, Texas with operations expected to commence
in April 2022. The tubular product segment consists of the
operations in Lone Star where the Company manufactures electric
resistance welded pipe and distributes pipe.
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This news release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
and Section 21E of the Exchange Act, and such statements involve
risk and uncertainty. Forward-looking statements include those
preceded by, followed by or including the words “will,” “expect,”
“intended,” “anticipated,” “believe,” “project,” “forecast,”
“propose,” “plan,” “estimate,” “enable,” and similar expressions,
including, for example, statements about our business strategy, our
industry, our future profitability, growth in the industry sectors
we serve, our expectations, beliefs, plans, strategies, objectives,
prospects and assumptions, future production capacity, product
quality and estimates and projections of future activity and trends
in the oil and natural gas industry. These forward-looking
statements may include, but are not limited to, future changes in
the Company’s financial condition or results of operations, future
production capacity, product quality and proposed expansion plans.
Forward-looking statements may be made by management orally or in
writing including, but not limited to, this news
release.
Forward-looking statements are not guarantees of
future performance. These statements are based on management’s
expectations that involve a number of business risks and
uncertainties, any of which could cause actual results to differ
materially from those expressed in or implied by the
forward-looking statements. Although forward-looking statements
reflect our current beliefs, reliance should not be placed on
forward-looking statements because they involve known and unknown
risks, uncertainties and other factors, which may cause our actual
results, performance or achievements to differ materially from
anticipated future results, performance or achievements expressed
or implied by such forward-looking statements.
Actual results and trends in the future may
differ materially depending on a variety of factors including, but
not limited to, changes in the demand for and prices of the
Company’s products, the continuing impact of the COVID-19 pandemic,
changes in government policy regarding steel, changes in the demand
for steel and steel products in general and the Company’s success
in executing its internal operating plans, including the timing of
the completion and successful commissioning of our new stretcher
leveler line in Decatur, the cost, timing and successful
commissioning of our new stretcher leveler line in Sinton, changes
in and availability of raw materials, our ability to satisfy our
take or pay obligations under certain supply agreements, unplanned
shutdowns of our production facilities due to equipment failures or
other issues, increased competition from alternative materials and
risks concerning innovation, new technologies, products and
increasing customer requirements. Accordingly, undue reliance
should not be placed on our forward-looking statements. Such risks
and uncertainty are also addressed in our Management’s Discussion
and Analysis of Financial Condition and Results of Operations and
other sections of the Company’s filings with the U.S. Securities
and Exchange Commission (the “SEC”) under the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), including the Company’s Annual Report
on Form 10-K and its other Quarterly Reports on Form 10-Q. We
undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events, changed circumstances or otherwise, except to the
extent law requires.
For further information, please refer to the
Company's Form 10-Q as filed with the SEC on November 19, 2021 or
contact Alex LaRue, Chief Financial Officer – Secretary and
Treasurer, at (903)758-3431.
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