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

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A.M. Castle & Co. (CAS)

Q1 2010 Earnings Call

April 27, 2010 11:00 AM ET

Executives

Usman Ahmed – FD Ashton Partners, IR

Mike Goldberg – President and CEO

Scott Stephens – Vice President, Finance and CFO

Analysts

Yvonne Varano – Jefferies and Company

Tim Hayes – Davenport and Company

Phil Gibbs – KeyBanc Capital Markets

Presentation

Operator

Thank you for standing by. And welcome to the A.M. Castle & Company’s First Quarter 2010 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, April 27, 2010.

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

Usman Ahmed

Thanks. Good morning. Thank you everyone for joining us for A.M. Castle's 2010 first quarter conference call. By now you should have all received a copy of this morning's press release. If anyone 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 results that will be discussed during today's call may be characterized as forward-looking under the Private Securities Litigation Reform Act of 1995. Those statements are based on the 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 Investors tab and in the Form 8-K submitted to the SEC.

And now, I’ll turn the call over to Mike Goldberg. Please go ahead, Mike.

Mike Goldberg

Thank you. Good morning, everyone. Thanks for joining us on today's call. Scott and I will review our first quarter results, give some commentary on the current business environment and the outlook for the year. First, a quick recap of our financial results.

First quarter consolidated net sales were $223 million, which is $29.2 million or 11.6% lower than the first quarter of last year. Company reported a first quarter net loss of $4.6 million or $0.20 per diluted share, compared to net earnings of $0.5 million or $0.02 per diluted share in the first quarter of last year. First quarter results this year include a $2 million charge for LIFO, which Scott will talk about shortly.

First quarter net sales in our metals segment were $199.7 million, compared to $231.1 million in 2009. Overall tons sold per day were down 10.9% from the comparable period in 2009, but increased 22% over the fourth quarter of 2009. The largest increases were in our alloy bar and nickel products, reflecting the pickup in our core and oil and gas businesses.

Sales for our plastics segment were $23.3 million, which is $2.2 million or 10.2% higher than the first quarter of 2009 and 5.8% higher than the fourth quarter.

Business activity was stronger than we had anticipated. In general, customers are more optimistic. However, we believe that the majority of the volume growth experienced in the first quarter resulted from the end of the de-stocking cycle rather than the increased customer production.

In other words, we don't believe that most of our customers made 20% more units in the first quarter. Rather their manufacturing activity required them to buy raw materials instead of depleting their inventories. We also believe the majority of our customers are keeping their inventories lean and are not restocking or building inventories.

With all that said, we see this as a first step of recovery in the industrial economy. For the balance of the year, we anticipate a slow increase in demand but at modest levels, which we would call kind of step two and then step three would be an inflection point where demand will begin to increase substantially. We do not anticipate reaching that stage until at least 2011.

Now I’d like to discuss what we are seeing in the current market environment. Overall business activity was a little stronger than anticipated and picked up sequentially each month throughout the quarter. In fact for the first time since mid 2008, we saw a year-over-year increase in volumes in the month of March.

Customer optimism seemed to increase throughout the quarter but as we said in our last call, our various end markets are recovering at different rates. Pricing -- prices are rising pretty much across the board, in carbon and alloy bar and plate, tubing, stainless bar and nickel products and aluminum, as well as, in most plastics. Scrap surcharges are also trending upwards and we anticipate that to continue for the second quarter. Supplier lead-times are steady or extended.

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