Friedman Industries, Incorporated (NYSE American: FRD) announced
today its results of operations for the quarter and fiscal year
ended March 31, 2023.
March 31, 2023 Quarter
Highlights:
- Net
earnings of approximately $6.3 million
- Sales of
approximately $124.2 million
- 152%
increase in sales volume over prior year quarter
volume
- 17%
increase in sales volume over the preceding third quarter
volume
Fiscal Year March 31, 2023
Highlights:
- Most
profitable fiscal year in Company history with net earnings of
approximately $21.3 million
-
Acquisition of steel processing facilities in East Chicago,
Indiana and Granite City, Illinois
-
Completion of newly constructed steel processing facility
in Sinton, Texas
- Sales of
approximately $547.5 million
- 134%
increase in sales volume over prior fiscal year
volume
“Strong fourth quarter results put an
exclamation mark on a monumental fiscal year for Friedman,” said
Michael J. Taylor, President and Chief Executive Officer. “In April
2022, we made our first acquisition in the Company’s history
acquiring two steel processing facilities in East Chicago, Indiana
and Granite City, Illinois. This was followed up by our newly
constructed facility in Sinton, Texas, which commenced operations
in October 2022. These strategic investments contributed to our
most profitable year in Company history, and we believe they will
have a profound impact on the future of Friedman. We expect strong
performance for our first quarter of fiscal 2024, providing a good
foundation as we aim to deliver record earnings for three years in
a row,” Taylor concluded.
For the quarter ended March 31, 2023 (the “2023
quarter”), the Company recorded net earnings of approximately $6.3
million ($0.86 diluted earnings per share) on sales of
approximately $124.2 million compared to a net loss of
approximately $7.5 million ($1.11 diluted loss per share) on net
sales of approximately $75.1 million for the quarter ended March
31, 2022 (the “2022 quarter”). The 2023 quarter saw a significant
increase in sales driven by volume growth from approximately 52,500
tons for the 2022 quarter to approximately 132,000 tons for the
2023 quarter. Sales volume increased due primarily to a combination
of the East Chicago, Indiana and Granite City, Illinois facilities
the Company acquired from Plateplus, Inc. (“Plateplus”) in April
2022 and the newly constructed Sinton, Texas facility which
commenced operations in October 2022. These facilities combined
represented approximately 84,000 tons of the quarter’s sales
volume. Hot-rolled coil (“HRC”) prices were on the rise entering
the 2023 quarter and continued to rise throughout the quarter
resulting in margin improvement as the 2023 quarter progressed.
For the year ended March 31, 2023 (“fiscal
2023”), the Company recorded net earnings of approximately $21.3
million ($2.91 diluted earnings per share) on sales of
approximately $547.5 million. For the year ended March 31, 2022
(“fiscal 2022”), the Company recorded net earnings of approximately
$14.1 million ($2.04 diluted earnings per share) on sales of
approximately $285.2 million. Sales volume increased from
approximately 200,000 tons for fiscal 2022 to approximately 467,000
tons for fiscal 2023. The facilities acquired from Plateplus and
the newly constructed Sinton facility accounted for approximately
234,000 tons of the volume growth in fiscal 2023. As part of the
Plateplus transaction we also acquired all of the inventory at
their Loudon, TN and Houston, TX processing facilities but did not
acquire the fixed assets at these locations. Plateplus provided
toll processing to us for a period of time following the
transaction and sales of material from these facilities under the
processing arrangement account for approximately 31,000 tons of the
fiscal 2023 volume growth. At the conclusion of these toll
processing services, Plateplus closed their Loudon and Houston
locations and Friedman has been successful in transferring most of
the customer relationships handled at these locations to our
Decatur and Sinton facilities which are in the same competitive
geographical areas as the former Plateplus facilities. For fiscal
2023, the Company recorded a gain of approximately $9.3 million on
economic hedges of risk with this amount consisting of realized
gains on closed positions of approximately $9.8 million partially
offset by a mark-to-market loss of $0.5 million associated with
open positions. For fiscal 2023, sales were reduced by
approximately $4.1 million related to hedging activities designated
for hedge accounting. In total, hedging activities contributed
approximately $5.2 million to earnings before income taxes for
fiscal 2023.
The table below provides our unaudited
statements of operations for the quarters and fiscal years ended
March 31, 2023 and 2022:
SUMMARY OF
OPERATIONS (unaudited) |
(In thousands,
except for per share data) |
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
Year Ended March 31, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
|
|
|
|
|
|
|
|
Net Sales |
|
$ |
124,186 |
|
|
$ |
75,091 |
|
|
$ |
547,542 |
|
|
$ |
285,235 |
|
|
|
|
|
|
|
|
|
|
Cost of
products sold |
|
|
(110,582 |
) |
|
|
(77,525 |
) |
|
|
(504,457 |
) |
|
|
(244,247 |
) |
Selling, general and administrative expenses |
|
(6,350 |
) |
|
|
(1,833 |
) |
|
|
(22,011 |
) |
|
|
(12,467 |
) |
|
|
|
|
|
|
|
|
|
Earnings (loss) from operations |
|
7,254 |
|
|
|
(4,267 |
) |
|
|
21,074 |
|
|
|
28,521 |
|
|
|
|
|
|
|
|
|
|
Gain (loss) on economic hedges of risk |
|
1,980 |
|
|
|
(5,138 |
) |
|
|
9,306 |
|
|
|
(11,636 |
) |
Interest
expense |
|
|
(720 |
) |
|
|
(101 |
) |
|
|
(2,218 |
) |
|
|
(255 |
) |
Other
income |
|
|
3 |
|
|
|
5 |
|
|
|
27 |
|
|
|
1,702 |
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before income taxes |
|
8,517 |
|
|
|
(9,501 |
) |
|
|
28,189 |
|
|
|
18,332 |
|
|
|
|
|
|
|
|
|
|
Income tax (expense) or benefit |
|
(2,206 |
) |
|
|
2,040 |
|
|
|
(6,845 |
) |
|
|
(4,264 |
) |
|
|
|
|
|
|
|
|
|
Net earnings
(loss) |
|
$ |
6,311 |
|
|
$ |
(7,461 |
) |
|
$ |
21,344 |
|
|
$ |
14,068 |
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) per share: |
|
|
|
|
|
|
|
Basic |
|
$ |
0.86 |
|
|
$ |
(1.11 |
) |
|
$ |
2.91 |
|
|
$ |
2.04 |
|
Diluted |
|
$ |
0.86 |
|
|
$ |
(1.11 |
) |
|
$ |
2.91 |
|
|
$ |
2.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table below provides summarized unaudited
balance sheets as of March 31, 2023 and 2022:
SUMMARIZED BALANCE SHEETS (unaudited) |
(In thousands, except for per share data) |
|
|
|
|
|
|
|
March 31, 2023 |
|
March 31, 2022 |
ASSETS: |
|
|
|
|
|
Current
Assets |
143,656 |
|
|
125,362 |
|
Noncurrent
Assets |
55,655 |
|
|
33,913 |
|
Total
Assets |
199,311 |
|
|
159,275 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY: |
|
|
|
Current
Liabilities |
45,088 |
|
|
60,811 |
|
Noncurrent
Liabilities |
38,792 |
|
|
18,777 |
|
Total
Liabilities |
83,880 |
|
|
79,588 |
|
|
|
|
|
|
|
Total
Stockholders' Equity |
115,431 |
|
|
79,687 |
|
|
|
|
|
|
|
Total
Liabilities and Stockholders' Equity |
199,311 |
|
|
159,275 |
|
|
|
|
|
|
|
COIL SEGMENT OPERATIONS
Coil segment sales for the 2023 quarter totaled
approximately $112.8 million compared to approximately $57.6
million for the 2022 quarter. The increase in sales was driven
primarily by an increase in sales volume partially offset by a
decline in the average selling price of inventory. Inventory tons
sold increased from approximately 41,000 tons in the 2022 quarter
to approximately 124,000 tons in the 2023 quarter. The significant
increase in sales volume was primarily attributable to the
additional facilities acquired from Plateplus, Inc. on April 30,
2022 and the new Sinton, Texas facility becoming operational in
October 2022 which combined account for approximately 84,000 tons
of the 124,000 tons sold in the 2023 quarter. The average per ton
selling price of coil segment inventory decreased from
approximately $1,581 per ton in the 2022 quarter to
approximately $915 per ton in the 2023 quarter. Coil segment
operations recorded an operating profit of approximately $7.7
million for the 2023 quarter compared to an operating
loss of approximately $1.7 million for the 2022 quarter.
TUBULAR SEGMENT OPERATIONS
Tubular segment sales for the 2023 quarter
totaled approximately $11.4 million compared to approximately $17.5
million for the 2022 quarter. Sales decreased due to a decline
in the average selling price per ton and a decrease in tons
sold. The average per ton selling price of tubular segment
inventory decreased from approximately $1,704 per ton in the
2022 quarter to approximately $1,404 per ton in the 2023
quarter. Tons sold decreased from approximately 11,000 tons in
the 2022 quarter to approximately 8,000 tons in
the 2023 quarter. The decline in sales volume was primarily
related to a decline in mill reject pipe sales partially offset by
an increase in manufactured pipe sales. U.S. Steel's Lone Star
Tubular Operations was the Company's sole source of supply for mill
reject pipe. With U.S. Steel's idling of their Lone Star
Operations, the Company's receipts of mill reject pipe ceased in
August 2020 and the inventory balance started to decline
steadily each quarter. The Company sold out of mill reject pipe
during the quarter ended June 30, 2022. Mill reject pipe sales were
approximately 2,000 tons for the 2022 quarter. All of the 2023
quarter's sales volume of approximately 8,000 tons was from
manufactured pipe sales compared to approximately 9,000 tons for
the 2022 period. The Company will continue to focus on the
expansion of its manufactured pipe operations to counteract the
impact of mill reject pipe sales ending. The tubular segment
recorded an operating profit of approximately $2.5 million for the
2023 quarter compared to an operating loss of approximately $1.5
million for the 2022 quarter.
OUTLOOK
The Company expects sales volume for its first
quarter of fiscal 2024 to be approximately the same as sales volume
for the fourth quarter of fiscal 2023. The Company expects margin
improvement for the first quarter compared to the fourth quarter
due to the rising hot-rolled coil prices entering the first
quarter. Overall, the Company expects the first quarter to be one
of the more profitable quarters in Company history.
FORM 10-K UPDATE
As a non-accelerated filer, the Company’s Form
10-K for the fiscal year ending March 31, 2023 was due June 29,
2023. Today, the Company filed a Form NT 10-K with the SEC
providing notice of the Company being unable to file its Form 10-K
on the prescribed due date. The Form NT provides relief for the
filing to occur on or before the fifteenth calendar day following
the prescribed due date. Such relief date is July 14, 2023 and the
Company expects to have filed its Form 10-K on or before this date.
The Company is unable to file timely due primarily to the unique
circumstances associated with the acquisition during the year. For
fiscal 2023, the Company operated its business in two different ERP
systems after the acquisition and until February 2023 when all coil
segment operations were merged into a single ERP system. With
business information being split between two systems, producing
much of the audit related support was more cumbersome and complex
than usual. The Company recognizes that making regulatory filings
timely is essential. The consolidation of our business into a
single ERP system will make accounting processes much more
efficient going forward and the Company expects future filings to
be made timely. The Company and its independent auditors will
continue to work diligently to allow the Form 10-K to be filed as
soon as possible.
ABOUT FRIEDMAN INDUSTRIES
Friedman Industries, Incorporated (“Company”),
headquartered in Longview, Texas, is a manufacturer and processor
of steel products with operating plants in Hickman, Arkansas;
Decatur, Alabama; East Chicago, Indiana; Granite City, Illinois;
Sinton, Texas 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, Decatur, East
Chicago, Granite City and Sinton where the Company processes
hot-rolled steel coils. The Hickman, East Chicago and Granite City
facilities operate temper mills and corrective leveling cut-to
length lines. The Sinton and Decatur facilities operate stretcher
leveler cut-to-length lines. The Sinton facility is a newly
constructed facility with operations commencing in October 2022.
The East Chicago and Granite City facilities were acquired from
Plateplus, Inc. on April 30, 2022. The tubular product segment
consists of the operations in Lone Star where the Company
manufactures electric resistance welded pipe and distributes pipe
through its Texas Tubular Products division.
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, expected financial
results for the quarter ended June 30, 2023, everything under the
header “Outlook” above, including sales volumes, margins, hedging
results, and potential price increases, expectations as to
financial results during the Company’s upcoming fiscal quarters,
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, 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 regarding this release,
please contact Alex LaRue, Chief Financial Officer – Secretary and
Treasurer, at (903)758-3431.
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