Synalloy Updates Full Year 2019 Guidance
June 19 2019 - 2:15PM
Synalloy Corporation (Nasdaq:SYNL), today announced reduced
guidance for the full year 2019 results. Net sales are now
expected to total $329 million, down from the previous forecast of
$340 million. Adjusted EBITDA for the year is estimated at
$22 million, down from the prior forecast of $30 million.
Adjusted EBITDA reflects inventory price change losses and negative
manufacturing variances that are projected to total approximately
$5 million. A reconciliation of Net Income to Adjusted EBITDA
is provided as an exhibit to the press release.
The reduced guidance is primarily the result of the following
items:
- Average selling prices for welded stainless steel pipe are down
approximately 15% from last year, pressuring contribution margins
by about 9%. Prices are falling due to lower surcharges and
what we believe to be a temporary surplus of inventory in the
supply chain. Recent consolidation among master distribution
companies has resulted in higher than normal inventory
levels. This coupled with declining surcharges, has Bristol
Metals’ customers reducing the size and frequency of their stock
buys, while at the same time looking for more aggressive
pricing. Smaller shipments and more frequent stops have
increased the freight cost per pound as well.
- Average selling prices for galvanized tube are also down from
the prior year. Our customer contracts are based on the CRU
Index for hot-dipped galvanized, which fell to a 52-week low in
May. We believe the index has bottomed and should start to
increase over the balance of the year.
- Heavy wall, seamless carbon tube volume at our Houston
distribution center is running about 33% behind last year.
Demand for larger diameter tube from the energy market has softened
in the past several months.
Helping to offset these negative factors, we are seeing a strong
performance from our new ornamental stainless steel tube
acquisition, improving results in our storage tank product line and
continued steady growth in our Specialty Chemicals segment.
While pricing has been a challenge in our welded stainless steel
pipe business, we have increased our market share by 320 basis
points over last year.
“Since our letter dated May 29, 2019, the Executive Committee of
Synalloy’s Board of Directors has been in contact with
representatives of the Privet Fund,” said Craig C. Bram, Synalloy’s
President and CEO. “Privet has requested additional diligence
information, which we will be providing in a data room later this
week.” Bram continued, “The Board of Directors of Synalloy
remains committed to doing what is best for all shareholders and
will consider any and all good faith offers made to purchase the
Company.”
Synalloy Corporation (Nasdaq: SYNL) is a growth oriented company
that engages in a number of diverse business activities including
the production of stainless steel pipe and tube, galvanized pipe
and tube, fiberglass and steel storage tanks, specialty chemicals
and the master distribution of seamless carbon pipe and tube.
For more information about Synalloy Corporation, please visit our
website at www.synalloy.com.
This press release includes and incorporates by reference
"forward-looking statements" within the meaning of the federal
securities laws. All statements that are not historical facts are
"forward-looking statements." The words "estimate," "project,"
"intend," "expect," "believe," "should," "anticipate," "hope,"
"optimistic," "plan," "outlook," "should," "could," "may" and
similar expressions identify forward-looking statements. The
forward-looking statements are subject to certain risks and
uncertainties, including without limitation those identified below,
which could cause actual results to differ materially from
historical results or those anticipated. Readers are cautioned not
to place undue reliance on these forward-looking statements. The
following factors could cause actual results to differ materially
from historical results or those anticipated: adverse economic
conditions; the impact of competitive products and pricing; product
demand and acceptance risks; raw material and other increased
costs; raw materials availability; employee relations; ability to
maintain workforce by hiring trained employees; labor efficiencies;
customer delays or difficulties in the production of products; new
fracking regulations; a prolonged decrease in oil and nickel
prices; unforeseen delays in completing the integrations of
acquisitions; risks associated with mergers, acquisitions,
dispositions and other expansion activities; financial stability of
our customers; environmental issues; unavailability of debt
financing on acceptable terms and exposure to increased market
interest rate risk; inability to comply with covenants and ratios
required by our debt financing arrangements; ability to weather an
economic downturn; loss of consumer or investor confidence and
other risks detailed from time-to-time in the Company's Securities
and Exchange Commission filings. The Company assumes no obligation
to update the information included in this release.
Contact: Dennis Loughran at (804) 822-3266
Reconciliation of 2019 Net Income to
Adjusted EBITDA (1)
|
|
2019 Forecast Comparison |
(unaudited) |
|
Latest Forecast |
|
Prior Forecast |
Consolidated |
|
|
|
|
Net income |
|
$ |
2,779,000 |
|
|
$ |
9,331,000 |
|
Adjustments: |
|
|
|
|
Interest expense |
|
3,799,000 |
|
|
3,613,000 |
|
Income taxes |
|
823,000 |
|
|
2,632,000 |
|
Depreciation |
|
7,658,000 |
|
|
7,436,000 |
|
Amortization |
|
3,573,000 |
|
|
3,613,000 |
|
EBITDA |
|
18,632,000 |
|
|
26,625,000 |
|
Earn-out adjustments |
|
160,000 |
|
|
201,000 |
|
Acquisition costs |
|
1,660,000 |
|
|
1,640,000 |
|
Stock option / grant costs |
|
1,270,000 |
|
|
1,292,000 |
|
Shelf Registration Costs |
|
10,000 |
|
|
— |
|
(Gain)Loss on investments |
|
(273,000 |
) |
|
(273,000 |
) |
Straight line lease cost - sale-leaseback |
|
297,000 |
|
|
404,000 |
|
Retention expense |
|
148,000 |
|
|
148,000 |
|
Adjusted EBITDA
(1) |
|
$ |
21,904,000 |
|
|
$ |
30,037,000 |
|
|
|
|
|
|
Other favorable (unfavorable)
impacts to income (2): |
|
|
|
|
Inventory price change gain (loss) |
|
$ |
(4,858,999 |
) |
|
$ |
(3,375,470 |
) |
Inventory cost adjustments |
|
175,754 |
|
|
161,561 |
|
Aged inventory adjustment |
|
(16,208 |
) |
|
(16,208 |
) |
Manufacturing variances |
|
(302,435 |
) |
|
(701,881 |
) |
Total other favorable
(unfavorable) impacts |
|
(5,001,888 |
) |
|
(3,931,998 |
) |
(1) The term Adjusted EBITDA is a non-GAAP
financial measure that the Company believes is useful to investors
in evaluating its results to determine the value of a company. An
item is included in the measure if its periodic value is
inconsistent and sufficiently material that not identifying the
item would render period comparability less meaningful to the
reader or if including the item provides a clearer representation
of normalized periodic earnings. The Company includes in Adjusted
EBITDA two categories of items: 1) Base EBITDA components,
including: earnings before discontinued operations, interest
(including change in fair value of interest rate swap), income
taxes, depreciation and amortization, and 2) Material transaction
based items that have no relationship to earnings from operations
of past, current or future periods, including: goodwill impairment,
acquisition costs, acquisition related retention costs, shelf
registration costs, earn-out adjustments, gain on excess death
benefit, (gains) losses associated with Sale-leaseback, realized
and unrealized gains and losses on investments, stock option/grant
costs, and other adjustments (lesser value items meeting the
criteria, where cumulative impact in a period is material). For a
reconciliation of this non-GAAP measure to the most comparable GAAP
equivalent, refer to the Reconciliation of Net Income to Adjusted
EBITDA as shown on the next page.
(2) Other favorable (unfavorable) impacts
to income - listed to provide investors with insight into financial
impacts, that cannot be included in the Non-GAAP measure Adjusted
EBITDA, but management believes can provide insight into underlying
operational earnings associated with the respective period's
activity level. The items include a) inventory price change - the
calculated value that profits improved (declined) due to the
increase (decrease) in metal and alloy pricing indices during the
period, and b)inventory valuation adjustments - value of periodic
adjustment to inventory carrying value unrelated to periodic
earnings including i) reserve for lower of cost or net realizable
value, ii) reserve for aged inventory and iii) manufacturing
variances - the calculated value of manufacturing absorption
deferred into inventory to be amortized in a later period, rather
than being shown in the period that created the benefit or
cost.
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