Synalloy Corporation, a producer of stainless steel pipe, fabricator of stainless and carbon steel piping systems, and producer of specialty chemicals based in Spartanburg, S.C., announced that the second quarter of 2012 produced net sales of $46.9 million, up 13% compared to net sales of $41.4 million for the second quarter of 2011. Net earnings for the second quarter of 2012 were $1.09 million or $0.17 per share. This compares to net earnings of $1.71 million or $0.27 per share for 2011’s second quarter.
For the first six months, net sales for 2012 were $94.25 million up 12% compared to net sales of $84.1 million for the first six months of 2011. Net earnings were $2.4 million or $0.38 per share for the first six months of 2012 compared to $4.2 million or $0.66 per share for the same period of 2011.
Inventory losses in the company’s Metals Segment had a negative impact on the company’s reported earnings in this year’s second quarter and first six months, while inventory profits increased the company’s reported earnings in the second quarter and first six months last year. The approximate effect of inventory losses on this year’s second quarter and first six months results was a reduction of reported earnings by $0.14 and $0.23 per share, respectively, while the inventory profits increased reported earnings per share for the same periods of the prior year by $0.03 and $0.06 per share, respectively.
Sales in the second quarter of 2012 totaled $34.6 million, an increase of 13% over the same quarter last year. Operating income was $1.46 million and $2.5 million for the second quarters of 2012 and 2011, respectively. The sales increase resulted from a 20% increase in unit volumes partially offset by a 5% decrease in average selling prices. The Segment experienced a favorable product mix for the second quarter with higher priced non-commodity unit volume increasing 30% while commodity unit volume increased 13%. The volume growth was due to continued strength in special alloys and non-commodity stainless steel pipe as projects and distributor restocking remain strong. After experiencing a decline in the first quarter of 2012, large diameter and project pipe orders and shipments increased during the second quarter of 2012. During the second quarter, large diameter pipe sales returned to 2011 levels. The Segment is also focusing on international sales efforts, which continue to show year over year sales growth.
Sales for the first six months of 2012 increased 14% to $70.65 million and operating income of $3.03 million was 53% lower compared to the same period of the prior year. Similar to the second quarter, the sales increase for the first six months was comprised of a 20% increase in unit volumes and a 5% decrease in average selling price.
Operating income for the second quarter and first six months declined from the same period last year due to two factors:
a) Declining nickel prices resulted in inventory losses in the second quarter and first six months of this year of approximately $1.3 million and $2.2 million respectively. For the same periods last year, rising nickel prices produced inventory profits of $249,000 and $557,000, respectively. The impact to reported earnings was a negative swing of approximately $0.17 per share for the second quarter 2012 and $0.29 for the first six months of 2012.
b) In the second quarter and first six months of the prior year, operating income for the fabrication unit of our Metals Segment was favorably affected by higher unit selling prices associated with the completion of several large scale lump-sum jobs. The unit realized $926,000 and $4,119,000 of additional billings during the second quarter and first six months of 2011, respectively, from these completed jobs which added approximately $0.09 per share and $0.42 per share, respectively.
Demand for manufactured pipe remains relatively strong, while the fabrication unit continues to deal with excess capacity in the industry which results in margin compression, which impacts our sales and profits.
Specialty Chemicals Segment
Sales for the Specialty Chemicals Segment in the second quarter of 2012 were $12.25 million an increase of $1.4 million or 13% from the second quarter of 2011. Overall selling prices increased 8% during the second quarter of 2012 compared to the same quarter of 2011 and pounds shipped were up 5% over that same period. Sales for the first six months of 2012 increased 6% from the same period of 2011, with selling prices increasing 9% while pounds sold decreased 3%.
Operating income for the second quarter of 2012 was $1.1 million, up $217,000 or 25% from 2011 and was $2.2 million for the first six months of 2012 compared to $1.6 million for the same period of 2011, an increase of 35%. The increase in operating income resulted from the Segment increasing contract sales and strengthening textile / carpet sales. The Segment is benefiting from a change in product mix to higher margin products and is focusing on controlling operating and support costs.
After approximately one year of product development, testing and production trials by the segment’s management team, the tegment was selected by a global chemical manufacturer to produce a line of defoamer products for applications in the water and paint industries. Production began in late May and will continue to ramp up over the next 60 days. Sales and operating income for the second quarter were favorably affected by this additional business.
Management is pleased with the on-going performance of its Metals and Chemicals Segments. Improvements in sales volumes, cost efficiencies and product mix should continue into the next several quarters.
The Metals Segment’s business is highly dependent on its customers’ capital expenditures which have just begun to show improvement. Excess capacity in the fabrication units continues to present a difficult operating environment. Stainless steel surcharges, which affect our costs of raw materials and selling prices, continue to decrease, however the company has begun to see some stabilization of these prices. It believes it is the largest and most capable domestic producer of non-commodity stainless steel pipe and an effective producer of commodity stainless steel pipe which should serve the company well in the long run. Its market position remains strong in the commodity pipe market and it is experiencing an upswing in project and special alloy demand. It also continues to be optimistic about the fabrication business over the long term. The sales team for fabricated products has been expanded and the current backlog remains satisfactory for scheduling and production control. Approximately 81% of fabrication’s current backlog comes from paper and wastewater treatment projects. Total fabrication backlog was $20 million at 30 June 2012, $22.7 million at 31 December 2011 and $23.6 million at 2 July 2011. The company estimates that approximately 80% of the backlog should be completed over the next 12 months.
Specialty Chemicals Segment’s sales and profits should show significant improvement for the third and fourth quarters of 2012 as it ramps up to full production for the additional defoamer products. The company believes that the potential for this additional business will approximate $18 million in annual sales and increase throughput by 30%. The company also expects sales levels to continue to improve throughout the remainder of 2012 as the result of aggressive product pricing and increased growth in textile and contract sales. Management expects operating margins to hold steady at current levels in spite of the anticipation of raw material price increases over the next quarter.