Bear of the Day: Olympic Steel (ZEUS) - Bear of the Day

About the Company
 
Headquartered in Cleveland, Ohio, Olympic Steel ZEUS is a U.S. metals service center focused on the direct sale and distribution of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The company operates from 34 facilities in North America.
 
Disappointing Fourth Quarter Results
 
The company reported its Q4 results on February 27. The quarter resulted in a net loss of $1.4 million, or $0.12 per diluted share, substantially worse than the Zacks Consensus Estimate of earnings of $0.13 per share.
 
Consolidated net sales in the quarter were $291 million and the full year sales were 8.7% lower compared with 2012. According to the management, sales volumes suffered from weakness in certain end markets including the mining industry and the defense sector.
 
While the company had made significant progress in deleveraging, debt-to-equity ratio is still very high at 67% at the end of 2013 (though down from 83% at the end of 2012).
 
Downward Revisions
 
After disappointing guidance, estimates for the company have moved downwards. Zacks Consensus Estimates for the current year and next year are now down to $1.28 per share and $1.84 per share respectively, from $1.56 per share and $1.92 per share, 60 days back.
 
The following “Price & Consensus” chart shows the declining estimates trend for ZEUS.


 
The company has missed in three out of last four quarters, with an average negative surprise of 63.13%. Declining estimates sent ZEUS to a Zacks Rank #5 (Strong Sell) this week.
 
Better Play?
 
Steel industry is currently facing significant headwinds and is ranked 245 out of 265 (bottom 8%). No steel producer is ranked #1 (Strong Buy) or #2 (Buy) by Zacks, as of now. As such, investors may like to avoid the industry for the time being.

Bottom Line

Continued decline in the demand and pricing for steel may keep this stock under pressure.

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