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

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A. M. Castle & Co. (CAS)

Q4 2012 Earnings Call

February 26, 2013 11:00 am ET

Executives

Scott J. Dolan - Chief Executive Officer, President and Director

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

Analysts

Brett M. Levy - Jefferies & Company, Inc. Fixed Income Research

Edward Marshall - Sidoti & Company, LLC

Daniel M. Whalen - Topeka Capital Markets Inc., Research Division

Philip Gibbs - KeyBanc Capital Markets Inc., Research Division

Presentation

Operator

Good morning. Thank you, everyone, for joining us for A.M. Castle's Fourth Quarter 2012 Earnings Conference Call. My name is Sandra, and I'll be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. By now, you should have received a copy of this morning's press release. The press release and the slides accompanying this presentation are available on the company's Investor Relations website and in the company's Form 8-K filed this morning with the SEC. With us from the management of Castle this morning is Scott Dolan, 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 during 2012 and is 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 related GAAP measures in accordance with the SEC rules. You will find the reconciliation in the financial information attached in today's release and in the slides accompanying this presentation, which are available on the company's website at www.amcastle.com under the Investors tab and in the company's Form 8-K filed this morning with the SEC.

And now we'll turn the call over to Scott Dolan. Go ahead, Scott.

Scott J. Dolan

.

Thank you, Sandra. Good morning, everyone, and thank you for joining the call today. Let me outline how we have structured today's call. I will provide a brief overview of our fourth quarter and full year 2012 results, as well as an operations update. Scott Stephens will discuss the fourth quarter and full year 2012 results and current business conditions. I will then comment on our outlook for 2013 and then we will open up the call for questions.

For the full year 2012, our sales increased $138 million or 12.2% to $1.27 billion. EBITDA for 2012 was $74.2 million or 5.8% of net sales compared to $37.4 million or 3.3% of net sales in 2011. Adjusted non-GAAP net income was $6.3 million or $0.26 per diluted share in 2012 compared to $12.4 million or $0.53 per diluted share in 2011.

In the fourth quarter, net sales were $274 million compared to $282.2 million for the same period last year. EBITDA was $8.8 million or 3.2% of net sales in the fourth quarter of 2012 compared to $3.9 million or 1.4% of net sales in the prior year period.

The fourth quarter demand environment was weaker than we had expected. Sequentially, tons sold per day in the fourth quarter were 9% lower than the third quarter of 2012 and 16.3% lower than the fourth quarter last year, excluding Tube Supply. As the overall market conditions deteriorated throughout the fourth quarter, we implemented appropriate cost actions. The company reported gross material margins of 25.3% for the quarter and 27% for the full year of 2012. During the fourth quarter, we leveraged our operations and reduced inventory levels by approximately $54 million on a replacement cost basis.

Tube Supply's performance remains strong and contributed significantly to the bottom line. We remain focused on executing the global growth opportunities that we envisioned with the combination of Tube Supply with our existing Oil & Gas business.

As the company continues to execute its continuous improvement and cost-reduction strategy, we're realizing operating efficiencies and experiencing improved operating margins. Our operating execution around pricing and cost management continued -- contributed to an improvement in EBITDA as a percent of net sales to 3.2% in the fourth quarter compared to 1.4% in the prior year quarter. As expected, due to seasonality in the business, EBITDA as a percent of net sales was down sequentially from 6.6% in the third quarter. In analyzing our business, we see opportunities to further improve the company's operating efficiency and inventory management, as well as to leverage the company's position in our end markets and with key customers. We announced our plan to improve performance in January and we established the key elements and milestones for 2013 in that announcement.

We are advancing our strategy which specifically focused on key areas of opportunity, including realigning our footprint of domestic and international facilities, our network, efficiency, strategic sourcing and our general and administrative spend in targeted areas.

Several slides that provide an update on our progress over the past few weeks were posted in the Investor Relations section of our website and filed with the SEC on Form 8-K this morning.

Read the rest of this transcript for free on seekingalpha.com