Synalloy Updates Full Year 2019 Guidance
The reduced guidance is primarily the result of the following items:
- Average selling prices for welded stainless steel pipe are down approximately 15% from last year, pressuring contribution margins by about 9%. Prices are falling due to lower surcharges and what we believe to be a temporary surplus of inventory in the supply chain. Recent consolidation among master distribution companies has resulted in higher than normal inventory levels. This coupled with declining surcharges, has Bristol Metals’ customers reducing the size and frequency of their stock buys, while at the same time looking for more aggressive pricing. Smaller shipments and more frequent stops have increased the freight cost per pound as well.
- Average selling prices for galvanized tube are also down from the prior year. Our customer contracts are based on the CRU Index for hot-dipped galvanized, which fell to a 52-week low in May. We believe the index has bottomed and should start to increase over the balance of the year.
- Heavy wall, seamless carbon tube volume at our
Houstondistribution center is running about 33% behind last year. Demand for larger diameter tube from the energy market has softened in the past several months.
Helping to offset these negative factors, we are seeing a strong performance from our new ornamental stainless steel tube acquisition, improving results in our storage tank product line and continued steady growth in our Specialty Chemicals segment. While pricing has been a challenge in our welded stainless steel pipe business, we have increased our market share by 320 basis points over last year.
“Since our letter dated
This press release includes and incorporates by reference "forward-looking statements" within the meaning of the federal securities laws. All statements that are not historical facts are "forward-looking statements." The words "estimate," "project," "intend," "expect," "believe," "should," "anticipate," "hope," "optimistic," "plan," "outlook," "should," "could," "may" and similar expressions identify forward-looking statements. The forward-looking statements are subject to certain risks and uncertainties, including without limitation those identified below, which could cause actual results to differ materially from historical results or those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements. The following factors could cause actual results to differ materially from historical results or those anticipated: adverse economic conditions; the impact of competitive products and pricing; product demand and acceptance risks; raw material and other increased costs; raw materials availability; employee relations; ability to maintain workforce by hiring trained employees; labor efficiencies; customer delays or difficulties in the production of products; new fracking regulations; a prolonged decrease in oil and nickel prices; unforeseen delays in completing the integrations of acquisitions; risks associated with mergers, acquisitions, dispositions and other expansion activities; financial stability of our customers; environmental issues; unavailability of debt financing on acceptable terms and exposure to increased market interest rate risk; inability to comply with covenants and ratios required by our debt financing arrangements; ability to weather an economic downturn; loss of consumer or investor confidence and other risks detailed from time-to-time in the Company's
Reconciliation of 2019 Net Income to Adjusted EBITDA (1)
|2019 Forecast Comparison|
|(unaudited)||Latest Forecast||Prior Forecast|
|Stock option / grant costs||1,270,000||1,292,000|
|Shelf Registration Costs||10,000||—|
|(Gain)Loss on investments||(273,000||)||(273,000||)|
|Straight line lease cost - sale-leaseback||297,000||404,000|
|Adjusted EBITDA (1)||$||21,904,000||$||30,037,000|
|Other favorable (unfavorable) impacts to income (2):|
|Inventory price change gain (loss)||$||(4,858,999||)||$||(3,375,470||)|
|Inventory cost adjustments||175,754||161,561|
|Aged inventory adjustment||(16,208||)||(16,208||)|
|Total other favorable (unfavorable) impacts||(5,001,888||)||(3,931,998||)|
(1) The term Adjusted EBITDA is a non-GAAP financial measure that the Company believes is useful to investors in evaluating its results to determine the value of a company. An item is included in the measure if its periodic value is inconsistent and sufficiently material that not identifying the item would render period comparability less meaningful to the reader or if including the item provides a clearer representation of normalized periodic earnings. The Company includes in Adjusted EBITDA two categories of items: 1) Base EBITDA components, including: earnings before discontinued operations, interest (including change in fair value of interest rate swap), income taxes, depreciation and amortization, and 2) Material transaction based items that have no relationship to earnings from operations of past, current or future periods, including: goodwill impairment, acquisition costs, acquisition related retention costs, shelf registration costs, earn-out adjustments, gain on excess death benefit, (gains) losses associated with Sale-leaseback, realized and unrealized gains and losses on investments, stock option/grant costs, and other adjustments (lesser value items meeting the criteria, where cumulative impact in a period is material). For a reconciliation of this non-GAAP measure to the most comparable GAAP equivalent, refer to the Reconciliation of Net Income to Adjusted EBITDA as shown on the next page.
(2) Other favorable (unfavorable) impacts to income - listed to provide investors with insight into financial impacts, that cannot be included in the Non-GAAP measure Adjusted EBITDA, but management believes can provide insight into underlying operational earnings associated with the respective period's activity level. The items include a) inventory price change - the calculated value that profits improved (declined) due to the increase (decrease) in metal and alloy pricing indices during the period, and b)inventory valuation adjustments - value of periodic adjustment to inventory carrying value unrelated to periodic earnings including i) reserve for lower of cost or net realizable value, ii) reserve for aged inventory and iii) manufacturing variances - the calculated value of manufacturing absorption deferred into inventory to be amortized in a later period, rather than being shown in the period that created the benefit or cost.
Source: Synalloy Corporation