Olympic Steel Inc (ZEUS) 2003 Q2 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Olympic Steel, Incorporated Reports 2003 Second Quarter and First Half Results conference call. At this time, all participants are in a listen-only mode. Following today’s presentation, instructions will be given for the question-and-answer session. (Caller instructions.)

I would like to now turn the conference over to Mr. Michael Siegal, CEO of Olympic Steel. Please go ahead sir.

Thank you. Good morning. Welcome to our call. On the call with me this morning are David Wolfort, our President and Chief Operating Officer, and Rick Marabito, our Chief Financial Officer.

First I want to thank all of you for your participation this morning, and your interest in Olympic Steel. Before we begin, let me remind you that forward-looking statements in this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. And please refer to Olympic Steel’s SEC filings for further information regarding that.

As you may have read in our release this morning, Olympic Steel reported a net loss of $554,000 or $0.06 per share in the second quarter, compared to a net loss of $0.06 per share in the year ago period. For the first half, we reported a net loss of $0.11 a share, compared to a net loss of $0.26 per share the first half of 2002.

Last year’s results include the losses associated with discontinued tubing operations, and the one-time non-cash charge to write off good will. These prior year charges totaled $0.50 per share. Continued weak customer demand during the second quarter, specifically in April, virtually impacted our sales, gross margins and earnings results. In response to the weak market environment, we have continued our aggressive management of expenses and inventory management.

Second quarter operating expenses were reduced by 12.8%. Employment costs have been reduced by 11% during the first half of 2003, with the full benefit of some of the employment actions still yet to be realized in the second half of the year.

Our new credit facility, which we started the year with, is yielding savings. Interest expense declined by $1.4m, or 40% from last year’s first half. Although the year-end 2002 inventory was high as a result of weaker than expected demand, we have responded by reducing inventory in the first half by $15m. This reduction, unfortunately, also adversely impacted our first half results via some lower gross margins, as we aggressively pursued an inventory reduction plan.

We have no belief that the market demand is going to improve dramatically in the second half of 2003. That’s exacerbated by the seasonal slowdowns, July and December particularly, and the shut-downs that customers have in those periods of time.

We intend to remain diligent in managing our balance sheet, our cash flows, and continue further reductions in operating expenses. David will comment a little further on some of those specific actions. But most importantly, we are focusing our management efforts on increasing our sales volume. I will now turn it over Rick, to comment on some financial details.

Thanks. And good morning. I’d like to focus just on a few selected items from our second quarter results. First, as we noted, we are pleased with our continued efforts to manage expenses. Operating expenses were reduced by $3.5m in the second quarter, and $5.9m in the first half of the year. Employment costs are down $3.1m in the first half. And that’s largely due to a head count percentage that’s 13% lower at the end of June of ’03 compared to June of ’02.

Second quarter income taxes were recorded as a 32% benefit on pre-tax loss. Going forward, income taxes are expected to be recorded at 40% of pre-tax income, or 32% of pre-tax losses. We’re in compliance with all of our loan covenants. And our bank filing availability approximated $23m at the end of June.

Capital spending in the first half totaled $237,000. And that was primarily related to some equipment upgrades. And, as we mentioned earlier, our capital spending budget for the year is expected to be low. And we would expect that to be under $1m for the entire year. I will now turn the presentation over to David.

Thanks Rick. Let me focus a little bit on the sales aspect. As Michael indicated earlier, we are committed to the ongoing management of expenses and our balance sheet. The third leg of this stool is the continual diligent focus on our management efforts and securing greater market share. A year ago, July of ’02, we streamlined our approach to the marketplace by eliminating one of our four regions, and consolidating those regions into our now existing three regions.

We finalized that process, and the regionalization of our entire sales force, and its management in January of ’03. This streamlining has allowed us to reduce employment costs, as Mike had indicated, raise the caliber of individuals representing us, and is a realization of a consolidation and a consolidating trend in our customer and vendor base.

On that same theme, we orchestrated an entire management change in our automotive region in the first half of ’03. At the three locations that comprise our automotive group, we replaced each general manager, and many of their subordinate managers, with experienced personnel from our industry. This new management team is headed by a 30 plus year veteran, Dave Frank, as its Vice-President. We are beginning to realize favorable progress and market share growth in this region.

These actions are being complimented by a deepening and strengthening of our customer relationships, through executive and senior management selling. We are optimistic that our approach to the market will yield future sales growth, in spite of a steel consuming marketplace that remains weak.

At this point, this concludes our presentation. And we will now open the call for questions and answer session.

Thank you sir. (Caller instructions.) One moment please for our first question. Our first question comes from Mark Parr from McDonald Investments. Please go ahead.

Hey, good morning guys.

Good morning Mark.

One question. I am curious if you have seen any evidence of ISG following Newcorp and U.S. Steel moves to raise base prices on hot rolled to $300 for September?

Mark, they announced yesterday, where they raised it to $290. From $280 to $290. They did not go along with Newcorp and U.S. Steel’s announcement. Their announcement came out yesterday. They announced a $10 increase on hot-rolled, $15 on cold-roll and coated, as opposed to $20 across the board that U.S. Steel announced the day before that.

And that is a published letter Mark.

Okay. Also, any sense of timing of the start-up of another blast furnace here in Cleveland?

I think it’s reflective of demand. And, at least from the little we know, it doesn’t look like their production rates indicate that would be any time soon. But certainly that’s their business, not ours.

Mark, what we do know is that their lead times have moved out at ISG. And we’re not quite sure whether that’s representative of additional order flow, or what that represents, as Mike talked about.

U.S., on the other hand, is seeing their lead times move out, and seeing a fulfillment of the Great Lakes operation of National, which they acquired, as you well know. However, some of these less than robust suppliers are running underneath that current of price announcement and fulfillment of their mills.

Okay. All right. I appreciate your comments. Thank you very much.

Thank you Mark.

(Caller instructions.)

Okay. Maybe there are no more questions. So again, we’d like to thank you for your interest in Olympic Steel. Our third quarter earnings release date is tentatively scheduled for October 30. Again, thank you for your time and your interest. And I guess this is goodbye. Thank you.

Ladies and gentlemen, this concludes the Olympic Steel, Incorporated Reports 2003 Second Quarter and First Half Results conference call. We appreciate your participation on today’s teleconference. You may now disconnect.