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

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A. M. Castle & Co. (CAS)

Q3 2010 Earnings Call Transcript

November 4, 2010 11:00 am ET

Executives

Usman Ahmed – IR, FD Ashton Partners

Mike Goldberg – President and CEO

Scott Stephens – VP Finance, CFO and Treasurer

Analysts

Edward Marshall – Sidoti & Co.

Tim Hayes – Davenport & Company

Mark Parr – KeyBanc Capital Markets

Presentation

Operator

Thank you for standing by, and welcome to the A.M. Castle & Co. third 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, Friday, November 5, 2010. I would now like to turn the conference over to Katie Pyra with FD. Please go ahead.

Usman Ahmed

Good morning. Thank you everyone for joining us for A.M. Castle's 2010 third 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 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 the 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 with that, I'll turn the call over to Mike Goldberg. Go ahead, Mike.

Mike Goldberg

Thank you. Good morning, everyone, and thanks for joining us on today’s call. I will start with a recap of our third quarter highlights, and comment on the current business environment, share our outlook for the year, fourth quarter and beyond. And after that Scott will speak to our third quarter year-to-date results in greater detail and then we will obviously have the Q&A session.

As you have seen from the press release, third quarter consolidated net sales were $244.9 million, or 33.1% higher than the third quarter of last year. The company reported net income of $0.1 million for a quarter or break even on an earnings per share basis, compared to a net loss of $6.3 million or $0.28 loss per diluted share in the third quarter of 2009.

Third quarter net sales in our metals segment rose by 34.7% to $218 million, compared to $161.8 million for the same period last year, primarily driven by stronger sales volumes as tons sold per day were up 30.5% from the comparable period last year.

The larger sales increase were in our alloy and carbon bar products, primarily reflecting continued improvement in our general industrial and our oil and gas markets. Sequentially, third quarter metals tons sold per day were up 1.6% versus the second quarter.

Net sales for our plastics segment were $26.9 million, an increase of $4.7 million or 21.2% over the third quarter of 2009. So, as we look back upon the third quarter, it was a real study in contrast. As you remember from the last call, we started 2010 with four constitutive months of growth. Then business activity slowed at the end of the second quarter, and we recorded sequential declines in volumes in May and June.

The decline continued in July, and in fact July matched January as the weakest month of 2010 from a volume perspective. After July, we saw business activity pick again. In the metal business daily volumes increased sequentially from July to August, and from August to September, and our September volumes were actually the best that we have recorded thus far in 2010, and the best since February of 2009.

Somewhat difficult to explain all the ups and downs, but we think that the lack of inventory in the manufacturing and supply chain is the likely cause of this variability of demand.

From a product volume perspective, the market for carbon and alloy bar showed the most strength in the third quarter, and lead times from their suppliers continues to extend. The mills are seeing strong order books and most of the key bar markets are also forecasting better results into 2011. Stainless bar has not been as strong, but there are pockets within the specialty grades where lead times are extending as well.

Pricing in the general market place increased slightly in the third quarter, and we saw increases in carbon and alloy bar and low pricing, whereas plate remained stable. Scrap surcharges rose a bit in the third quarter, but we expect it to drop in the fourth. Nickel pricing moved higher throughout the quarter.

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