Castle (A.M.) & Co. (CAS)

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A. M. Castle & Co. (CAS)

Q3 2009 Earnings Call

October 27, 2009 11:00 AM ET

Executives

Usman Ahmed - Analyst, FD Ashton Partners

Michael H. Goldberg - President and Chief Executive Officer

Scott F. Stephens - Vice President, Finance, Chief Financial Officer and Treasurer

Analysts

Nat Kellogg - Next Generation Equity Research

Timothy Hayes - Davenport & Company

Jason Brocious - KeyBanc Capital Markets

Presentation

Operator

Thank you for standing by. And welcome to the A. M. Castle & Company's Third Quarter 2009 Earnings 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. As a reminder, this conference call is being recorded today, Tuesday October 27th of 2009.

I would now like to turn the conference over to Usman Ahmed with FD. Please go ahead.

Usman Ahmed

Thank you and good morning. Thank you everyone for joining us for A.M. Castle's 2009 Third Quarter Conference Call. By now, you should have all received a copy of this morning's press release. If any one still needs one, please call my office at 312-553-6731 and we'll send you a copy immediately following the conference call.

With us from the management of Castle this morning are Mike Goldberg, President and CEO and Scott Stephens, Vice President of Finance and CFO.

As a reminder, this call is being recorded. Certain information relating to projections of the company's result that will be discussed during today's call, maybe characterized as forward-looking under the Private Securities Litigation Reform Act of 1995.

Those statements are based on current expectations and assumptions that are subject to a number of factors that could cause actual results to differ materially. Additional information concerning these factors is contained in the risk factors section of the company's most recent form 10-K and other reports and filings with the SEC. And also in the cautionary statement contained in today's release.

The company does not undertake any duty to update any forward-looking statements. This presentation also includes certain non-GAAP financial measures in an effort to provide additional information to investors. All non-GAAP measures have been reconciled to their related GAAP measures in accordance with SEC rules.

You will find the reconciliation in the financial information attached to today's release which is available on the company's website at www.amcastle.com, under the investor's tab and in the form 8-K submitted to the SEC.

And with that, I'll turn the call over to Mike Goldberg. Please go ahead Mike.

Michael H. Goldberg

Thank you. Good morning everyone and thanks for joining us today's call. In a few minutes, Scott will speak to our third quarter and year-to-date results in greater detail. But first, I'd like to share few highlights with you.

As you've seen from the press release, third quarter consolidated net sales were 184 million or 53% lower than last year's record $388.9 million. The company reported a net loss for the quarter of $6.3 million or $0.28 per diluted share compared to net earnings of $11.5 million or $0.50 per diluted share for the prior year's third quarter.

For the year-to-date, the net loss is $11.4 million or $0.50 per diluted share compared to net earnings of $36.5 million or $1.62 per diluted share in 2008. Although business remained at very depressed levels and we're disappointed by our lack of earnings for the third quarter, we do have a decree of optimism about the future. We saw our daily sales trends improve sequentially throughout the quarter, having bottomed out in June. We would expect to that trend to continue, seasonal factors aside.

There more economic data offers us some encouragement, U.S. industrial production modes and our annual rate of 5.2% in the third quarter. First quarterly gains since the first quarter of 2008 are the largest gains since the first quarter of 2005. And the PMI index improved in July and August finally crossing the 50 threshold and settling at 52.6 in September. I think evidence that the manufacturing sector has begun to expand again.

In the past, we have found our businesses correlated with these two indicators, normally lagging by about six to 12 months. At Castle, after bottoming out in June, business activity has begun to improve. We expected things to be particularly slow in July, given anticipated wide spread cut and shutdowns.

But activity was not as bad as expected and unusually, July was better than June. So further small signs of market improvement in August and September. We attribute this improvement primarily to the de-stocking cycle running its course rather than any underlying increase of demand for finished products.

However, our third quarter volumes were still 6.7% less per day than the second quarter meaning that the rate of increase in the third quarter was less than the rate of decrease experienced in the second quarter.

Year-to-date, our volumes are up 45%, similar to MSCI's latest data which has year-to-date member service center shipments declining 47% through September for representative of mix of Castle products. The MSCI reported a 41.2% overall decline which includes a significant amount of flat role products.

We believe that a significant portion of our decline and the industry's decline is due to de-stocking which should grade itself next year. Exactly how much is difficult to determine. It will vary by customers and by market.

But we believe that the inventory cycle would actually have a bigger impact on our recovery that improves demand in the next few quarters. We aren't improving modestly throughout the third quarter, demand remained weak across almost all end user's markets with a few exceptions.

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