Synalloy Corporation, a producer of stainless steel pipe, fabricator of stainless and carbon steel piping systems, and producer of specialty chemicals, announces that the first quarter of 2011 produced net earnings of USD 2,500,000, on a 21% sales increase to USD 42,742,000. This compares to net earnings of USD 82,000 on sales of USD 35,201,000, in 2010's first quarter.
Metals Segment
Sales in the first quarter of 2011 totaled USD 31,417,000, an increase of 26% over the same quarter last year. Operating income was USD 3,955,000 for the first quarter 2011 compared to an operating loss of USD 402,000 for 2010. The sales increase resulted from a 3% increase in unit volumes and a 21% increase in average selling prices. First quarter 2011's selling prices, as compared to the prior year, reflects higher prices for both commodity, up by 23% and non commodity products, up by 32%. Special alloy product shipments were higher in 2011 as a result of increased projects and distributor restocking. International sales efforts are continuing to show year over year sales growth.
The increase in operating income resulted from improved product mix and increased selling prices across all product categories. Both pipe manufacturing and fabricated piping systems showed substantial operating margin improvement over the prior year. Included in the 2010 operating loss was USD 500,000 of product claims expense which resulted from a Metals Segment customer alleging that the Segment delivered defective pipe in 2006 which the customer removed and replaced. The Company settled this claim in May 2010.
Specialty Chemicals Segment
Sales for the Specialty Chemicals Segment in the first quarter were USD 11,325,000, an increase of 11% over the first quarter of 2010. Pounds sold during the first quarter of 2011 were down 2.4% from the prior year. While average selling prices for the first quarter were up 13% over the prior year, raw material costs increased 17%. Operating income for the first quarter of 2011 was USD 773,000, down 29% from 2010. The Segment experienced higher raw material costs beginning in the third quarter of 2010 and management increased selling prices whenever possible to help offset the increased costs. The decrease in operating income during the quarter resulted from the inability to pass all of the raw material cost increases along to our customers plus higher shipping container costs. Profits were also impacted as some key accounts experienced market weakness with their products resulting in the Segment shipping a larger amount of lower margin products during the current quarter.
Other Items
Unallocated corporate expenses increased USD 203,000 for the first quarter 2011 to USD 765,000 compared to the same quarter a year ago primarily due to higher projected performance based incentive bonuses for corporate personnel.
The company's cash balance increased during the first quarter from USD 109,000 at the end of 2010 to USD 889,000 as of April 2nd 2011. As a result of the higher sales activity during the first quarter of 2011, accounts receivable and inventory levels increased at April 2nd 2011 by USD 20,078,000, when compared to the prior year end. These amounts were partially offset by an increase in accounts payable at the end of the first quarter of 2011 of USD 8,976,000 when compared to the 2010 year end balance. The company borrowed USD 5,119,000 during the first quarter of 2011. The company had USD 5,338,000 of bank debt outstanding as of the end of the first quarter of 2011.
Outlook
Management is pleased with the surge in results in the Metals Segment and with the company's overall performance in the first quarter, with each of our business units generating profitable results in a challenging economy.
The Metals Segment's business is highly dependent on its customers' capital expenditures which have just begun to show some improvement. Excess capacity in the pipe manufacturing industry continues to present a difficult operating environment. Stainless steel surcharges, which affect our costs of raw materials and selling prices, increased during the first quarter of 2011 and are projected to increase further during the second quarter of 2011. We believe we are the largest and most capable domestic producer of non-commodity stainless steel pipe and an effective producer of commodity stainless steel pipe which should serve us well in the long run. Our market position remains strong in the commodity pipe market and we are experiencing a significant upswing in project and special alloy demand. We also continue to be optimistic about the piping systems business over the long term. Approximately 80% of the piping systems backlog comes from paper and wastewater treatment projects. Piping systems' backlog was USD 27,842,000 at April 2nd 2011, USD 25,306,000 at January 1st 2011 and USD 37,132,000 at April 3rd 2010. We estimate that approximately 80% of the backlog should be completed over the next 12 months.
The higher sales levels that the Specialty Chemicals Segment experienced during the first quarter should continue into the remainder of 2011. Maintaining first quarter 2011 profitability levels during the remainder of 2011 will depend on our ability to pass on to our customers cost increases associated with petroleum based and commodity chemicals.
