BRIDGEVILLE, Pa. - Universal Stainless & Alloy Products, Inc. reported that net sales for the second quarter of 2013 were $42.9 million compared with $67.9 million in the second quarter of 2012 and $49.1 million in the first quarter of 2013, primarily due to lower shipment volumes.
Compared with the first quarter of 2013, tons shipped to the aerospace market remained level, while tons shipped to the power generation, oil and gas, and heavy equipment markets were lower by 8 percent, 19 percent, and 5 percent, respectively, reflecting weaker demand in those end markets.
Operating income for the second quarter of 2013 was $0.4 million compared with $7.3 million in the second quarter of 2012 and $0.2 million in the first quarter of 2013. The company's second quarter 2013 operating income was negatively impacted by a severance charge of $0.4 million related to the departure of a senior executive.
Net income for the second quarter of 2013 was $0.5 million, or $0.06 per diluted share, compared with $4.5 million, or $0.62 per diluted share, in the second quarter of 2012, and $0.04 million, or $0.01 per diluted share, in the first quarter of 2013. The company's first and second quarter 2013 results were favorably impacted by tax benefits of $0.6 million and $0.8 million, respectively, as a result of favorable state tax apportionment factors as well as research and development tax credits. The tax benefit in the second quarter of 2013 represented approximately $0.11 per diluted share, which favorably impacted the company's second quarter net income.
For the first six months of 2013, net sales were $92.0 million and net income was $0.5 million, or $0.06 per diluted share. That compares with net sales of $142.5 million and net income of $10.8 million, or $1.48 per diluted share, in the first six months of 2012. Shipment volume for the first six months of 2013 decreased 33 percent from the first six months of 2012.
"Demand and volumes were lower than anticipated in the second quarter as supply channel destocking continued and declining nickel prices and short industry lead-times encouraged customers to delay new orders. While we saw a pick-up in order entry volume for the quarter and are encouraged that our backlog was up 5 percent from the end of the first quarter, normal channel demand has not yet returned, even adjusting for the slow summer months," Chairman, President and CEO Dennis Oates commented.
"Despite our lower shipment volume, our gross margin improved to 12.4 percent of sales in the second quarter from 9.5 percent of sales in the first quarter. With the lower volumes, management enacted aggressive cost control measures and flexed production levels to these market conditions. The margin improvement also reflects the fact that some of the major start-up costs at our North Jackson facility are now behind us," Oates added.
"The addition of our North Jackson operation two years ago launched our strategic plan to move to higher margin premium alloys. We made further progress in that plan in the second quarter by achieving required heat treat accreditation for the balance of our facilities. This is essential for reaching our next objective, which is to win approvals of our processes and products from leading OEMs in aerospace and oil and gas, which also progressed in the quarter," Oates said.
"Although it is difficult to pinpoint when channel demand will fully recover, the longer-term outlook for our end markets remains strong and it is generally expected that demand will begin to gain traction in the fourth quarter. In the meantime, we are continuing to move forward with our plan to position Universal to capture broader and higher margin opportunities in our end markets," he concluded.
Despite these market conditions, during the second quarter and first six months of 2013, the company generated positive cash flow from operations of $5.3 million and $9.7 million, respectively, compared with a use of cash of $0.5 million and $4.3 million for the second quarter and first six months of 2012, respectively. Capital expenditures for the first six months of 2013 were $7.0 million compared to $20.1 million for the first six months of 2012. Backlog at June 30 was $49.2 million compared with $46.6 million at March 31 and $51.7 million at December 31, 2012. At June 30, the Company reduced its total debt by $1.3 million to $103.4 million from March 31.