The Company announced today its results of operations for the
fiscal third quarter. For the quarter ended December 31, 2021 (the
“2021 quarter”), the Company recorded a net loss of $2,961,833
($0.43 diluted loss per share) on sales of $51,655,943 compared to
net earnings of $2,129,745 ($0.30 diluted earnings per share) on
net sales of $28,502,049 for the quarter ended December 31, 2020
(the “2020 quarter”). The 2021 quarter results were impacted by the
recognition of a net loss of $12,995,160 related to hot-rolled coil
futures.
“The historic rise in steel prices reached a
peak in September 2021 and we experienced declining steel prices
throughout the 2021 quarter,” said Michael J. Taylor, President and
Chief Executive Officer. “With prices starting to decline, we
experienced physical margin contraction during the quarter but
margins remained well above historical averages. Our sales volume
for the 2021 quarter was negatively impacted by customer reactions
to the shift in steel prices. Physical results for the quarter were
not enough to overcome the loss associated with our financial
hedges. Early in calendar 2021, we placed the majority of our
hedges to protect against increasing exposure to inventory due to
historic high prices and extended mill lead-times. The hedges
helped manage the price risk in 2021 but squeezed margins in the
2021 quarter given the backwardation of the forward curve. As
historic margins came under pressure the net result from hedging
resulted in a loss for the quarter. We remain committed to
utilizing hot-rolled coil futures to mitigate the commodity price
risk inherent in our business. The utilization of risk management
gave us the ability to keep sufficient inventory levels during this
historic price cycle which was critical in maintaining customer
relationships, capitalizing on opportunities and enabling what will
be the most profitable fiscal year in our history.”
SUMMARY OF OPERATIONS
(unaudited)
|
Three Months Ended December 31, |
|
Nine Months Ended December 31, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
|
|
|
|
|
|
Net Sales |
$ |
51,655,943 |
|
|
$ |
28,502,049 |
|
|
$ |
210,143,277 |
|
|
$ |
76,888,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other income |
|
55,585,457 |
|
|
|
25,733,152 |
|
|
|
182,311,800 |
|
|
|
75,568,783 |
|
|
|
|
|
|
|
|
|
Earnings (loss) before |
|
|
|
|
|
|
|
income taxes |
|
(3,929,514 |
) |
|
|
2,768,897 |
|
|
|
27,831,477 |
|
|
|
1,319,546 |
|
|
|
|
|
|
|
|
|
Provision for (benefit from) |
|
|
|
|
|
|
income taxes |
|
(967,681 |
) |
|
|
639,152 |
|
|
|
6,303,899 |
|
|
|
298,668 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
$ |
(2,961,833 |
) |
|
$ |
2,129,745 |
|
|
$ |
21,527,578 |
|
|
$ |
1,020,878 |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
Basic |
|
6,906,891 |
|
|
|
7,039,736 |
|
|
|
6,903,306 |
|
|
|
7,062,628 |
|
Diluted |
|
6,906,891 |
|
|
|
7,039,736 |
|
|
|
6,903,306 |
|
|
|
7,062,628 |
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share: |
|
|
|
|
|
|
Basic |
$ |
(0.43 |
) |
|
$ |
0.30 |
|
|
$ |
3.12 |
|
|
$ |
0.14 |
|
Diluted |
$ |
(0.43 |
) |
|
$ |
0.30 |
|
|
$ |
3.12 |
|
|
$ |
0.14 |
|
COIL SEGMENT OPERATIONS
Coil segment sales for the 2021 quarter totaled
$41,795,586 compared to $21,672,147 for the 2020 quarter. Total
coil segment sales increased due to increased average selling
prices partially offset by a slight decrease in tons sold. The
average selling price increased from approximately $665 per ton in
the 2020 quarter to approximately $1,899 per ton in the 2021
quarter. Inventory tons sold decreased from approximately 32,000
tons in the 2020 quarter to approximately 29,000 tons in the 2021
quarter. Coil segment operations recorded an operating loss of
approximately $4,032,000 for the 2021 quarter compared to an
operating profit of approximately $3,238,000 for the 2020 quarter.
The operating loss for the 2021 quarter includes recognized net
losses on hedging activities of $13,120,220 while the 2020 quarter
operating profit included recognized net gains on hedging
activities of $396,720.
TUBULAR SEGMENT OPERATIONS
Tubular segment sales for the 2021 quarter
totaled $9,860,357 compared to $6,829,902 for the 2020 quarter.
Tubular segment sales increased due to increased average selling
prices partially offset by a slight decrease in tons sold. The
average selling price per ton increased from approximately $616 per
ton in the 2020 quarter to approximately $1,111 per ton in the 2021
quarter. Tons sold decreased from approximately 11,000 tons in the
2020 quarter to approximately 10,500 tons in the 2021 quarter.
Tubular segment operations recorded an operating loss of
approximately $647,000 for the 2021 quarter compared to an
operating profit of approximately $269,000 for the 2020 quarter.
The operating loss for the 2021 quarter included recognized net
losses on hedging activities of $1,596,640 while the Company did
not have any significant hedging related gains or losses affecting
operating results for the 2020 quarter.
SINTON, TEXAS FACILITY
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 August 2022 and estimates the total cost of the
project to be $21 million. The Company previously expected the
facility to commence operations in April 2022 but has received
notification from the electricity provider that electrical
infrastructure necessary to operate the facility is not expected to
be complete until July 2022. At December 31, 2021, the construction
in process balance was approximately $13 million consisting of $7.4
million in cash payments and $5.6 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, we expect the facility’s
annual shipments could be in the range of 110,000 tons to 140,000
tons for fiscal 2024. 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 overall physical margins to
decline slightly during its fiscal fourth quarter ending March 31,
2022 but to remain at a level above historical average margins. The
Company expects fourth quarter sales volume for both the coil
segment and tubular segment to increase slightly compared to the
third quarter sales volumes. At the end of the third quarter, the
Company’s hedging positions with income statement recognition
deferred under hedge accounting consisted of total losses of
approximately $10.2 million associated with closed hedging
positions and total gains of approximately $1.2 million associated
with open hedging positions. The Company expects to reclassify
approximately $9 million of these hedging losses into earnings
during the fourth quarter.
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 August 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, future
hedging activity, expected annual EBITDA for our Sinton facility,
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 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, the results of our hedging
activities, 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 February 14, 2022 or
contact Alex LaRue, Chief Financial Officer – Secretary and
Treasurer, at (903)758-3431.
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