Friedman Industries, Incorporated Announces Third Quarter Results
- Strong financial performance with sales of $116.0 million and net earnings of $1.2 million for the third fiscal quarter of 2023
- 11% increase in sales volume over the prior year quarter
- Working capital balance of $116.3 million at quarter-end
- Flat-roll segment operations recorded operating profits of $8.7 million for the 2023 quarter
- Tubular segment operations faced a decrease in sales due to lower average selling prices
- Expectation of a strong fourth quarter for fiscal year 2024
- Loss on hedging activities of approximately $4.1 million for the third quarter
- Operating loss of approximately $0.1 million in the tubular segment for the 2023 quarter
Insights
The reported increase in sales volume and improved physical margins for Friedman Industries highlight a positive trend in demand and operational efficiency. This is particularly relevant given the competitive nature of the steel industry, where margins can be heavily influenced by raw material costs and market pricing dynamics. The 11% sales volume increase suggests that the company is successfully expanding its market share or benefiting from an uptick in industry demand.
Moreover, the expansion of the Sinton, TX facility and the reported increase in the hot-rolled coil (HRC) pricing point to strategic growth initiatives and favorable market conditions. However, the mention of hedging losses could indicate a risk management strategy that may need reevaluation in light of the changing market conditions, especially as it partially offset the gains from increased HRC pricing.
Analyzing the financials, the slight decrease in net earnings year-over-year despite higher sales could raise questions about cost control and the impact of hedging activities on the bottom line. The reported net earnings of approximately $1.2 million on sales of $116.0 million, compared to $1.4 million on sales of $111.9 million in the previous year, suggest that while the company is growing its top line, it is not fully translating into net income growth. This could be a point of concern for investors focused on profitability.
Furthermore, the increase in working capital to $116.3 million is a strong indicator of the company's liquidity and ability to meet short-term obligations. However, it is essential to monitor whether this capital is being efficiently leveraged to generate returns or if it's indicative of inventory buildup that could become a liability if market conditions shift.
The mention of higher HRC prices is significant, as it reflects broader commodity trends that can impact various industries reliant on steel. The reported increase in the market value of inventory suggests that Friedman Industries could benefit from higher steel prices in the short term. However, this also exposes the company to volatility, as shifts in steel prices can rapidly alter inventory values and affect margins.
Understanding the dynamics of HRC futures is crucial for stakeholders. The $4.1 million loss in hedging activities underscores the risks associated with commodity hedging strategies. While these strategies aim to protect against price fluctuations, they can also lead to substantial losses when market predictions do not align with actual trends. Stakeholders should consider the effectiveness of the company's risk management strategies in the context of an unpredictable commodities market.
LONGVIEW, Texas, Feb. 14, 2024 (GLOBE NEWSWIRE) -- Friedman Industries, Incorporated (NYSE American: FRD) today announced its results of operations for the third fiscal quarter ended December 31, 2023.
December 31, 2023 Quarter Highlights:
- Sales of approximately
$116.0 million - Earnings from operations of approximately
$6.2 million - Net earnings of approximately
$1.2 million 11% increase in sales volume over prior year quarter volume- Working capital balance at quarter-end of approximately
$116.3 million
“We experienced higher hot-rolled coil (“HRC”) pricing during the third quarter which increased our physical margins, particularly during the second half of the quarter,” said Michael J. Taylor, President and Chief Executive Officer. “Our gross margin percentage increased to
For the quarter ended December 31, 2023 (the “2023 quarter”), the Company recorded net earnings of approximately
The table below provides our unaudited statements of operations for the three- and nine-month periods ended December 31, 2023 and 2022:
| SUMMARY OF OPERATIONS (unaudited) | |||||||||||||||
| (In thousands, except for per share data) | |||||||||||||||
| Three Months Ended December 31, | Nine Months Ended December 31, | ||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||
| Net Sales | $ | 115,973 | $ | 111,860 | $ | 384,019 | $ | 423,356 | |||||||
| Cost of products sold | 105,531 | 105,730 | 351,427 | 393,876 | |||||||||||
| Selling, general and administrative expenses | 4,269 | 4,701 | 15,007 | 15,662 | |||||||||||
| Earnings from operations | 6,173 | 1,429 | 17,585 | 13,818 | |||||||||||
| Gain (loss) on economic hedges of risk | (4,126 | ) | 822 | 706 | 7,326 | ||||||||||
| Interest expense | (790 | ) | (448 | ) | (2,135 | ) | (1,498 | ) | |||||||
| Other income | 1 | 4 | 17 | 24 | |||||||||||
| Earnings before income taxes | 1,258 | 1,807 | 16,173 | 19,670 | |||||||||||
| Income tax expense | 74 | 431 | 3,786 | 4,639 | |||||||||||
| Net earnings | $ | 1,184 | $ | 1,376 | $ | 12,387 | $ | 15,031 | |||||||
| Net earnings per share: | |||||||||||||||
| Basic | $ | 0.16 | $ | 0.19 | $ | 1.69 | $ | 2.06 | |||||||
| Diluted | $ | 0.16 | $ | 0.19 | $ | 1.69 | $ | 2.06 | |||||||
The table below provides summarized unaudited balance sheets as of December 31, 2023 and March 31, 2023:
| SUMMARIZED BALANCE SHEETS (unaudited) | |||||
| (In thousands) | |||||
| December 31, 2023 | March 31, 2023 | ||||
| ASSETS: | |||||
| Current Assets | 170,897 | 143,656 | |||
| Noncurrent Assets | 58,058 | 55,656 | |||
| Total Assets | 228,955 | 199,312 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY: | |||||
| Current Liabilities | 54,601 | 45,088 | |||
| Noncurrent Liabilities | 51,611 | 38,792 | |||
| Total Liabilities | 106,212 | 83,880 | |||
| Total Stockholders' Equity | 122,743 | 115,432 | |||
| Total Liabilities and Stockholders' Equity | 228,955 | 199,312 | |||
FLAT-ROLL SEGMENT OPERATIONS (previously referred to as the “coil segment”)
Flat-roll product segment sales for the 2023 quarter totaled approximately
TUBULAR SEGMENT OPERATIONS
Tubular product segment sales for the 2023 quarter totaled approximately
HEDGING ACTIVITIES
We utilize HRC futures to manage price risk on unsold inventory and longer-term fixed price sales agreements. We typically account for our hedging activities under mark-to-market (“MTM”) accounting treatment and all hedging decisions are intended to protect the value of our inventory and produce more consistent financial results over price cycles. With MTM accounting treatment it is possible that hedging related gains or losses might be recognized in a different fiscal quarter than the corresponding improvement or contraction in our physical margins. For the third quarter, we recognized a loss on hedging activities of approximately
OUTLOOK
The Company expects to conclude fiscal year 2024 with a strong fourth quarter characterized by solid margins associated with a substantial increase in HRC price entering the fourth quarter. Sales volume for the fourth quarter of fiscal 2024 is expected to be slightly higher than the third quarter volume.
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: flat-roll products and tubular products. The flat-roll 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, 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, 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, please refer to the Company's Form 10-Q as filed with the SEC on February 14, 2024 or contact Alex LaRue, Chief Financial Officer – Secretary and Treasurer, at (903)758-3431.
FAQ
What were Friedman Industries' (FRD) sales for the third fiscal quarter ended December 31, 2023?
What was the net earnings for Friedman Industries (FRD) in the third fiscal quarter ended December 31, 2023?
What was the percentage increase in sales volume for Friedman Industries (FRD) over the prior year quarter?
What were the operating profits in the flat-roll segment for Friedman Industries (FRD) in the 2023 quarter?
What was the operating loss in the tubular segment for Friedman Industries (FRD) in the 2023 quarter?
What was the loss on hedging activities for Friedman Industries (FRD) in the third quarter?
What is the outlook for Friedman Industries (FRD) for the fourth quarter of fiscal year 2024?
