Armco Metals Holdings Announces Financial Results for the Second Quarter of 2015

SAN MATEO, Calif., Aug. 14, 2015 (GLOBE NEWSWIRE) -- Armco Metals Holdings, Inc. ("Armco Metals Holdings") (NYSE MKT: AMCO), a U.S. based company that engages in the import, sale, and distribution of metal ore and non-ferrous metals in the People's Republic of China, recycles scrap metals used by steel mills in the production of recycled steel and provides sourcing and pricing services for various metals to its network of customers, today announced its financial results for the second quarter of 2015.

SUMMARY FINANCIALS

Second Quarter of 2015 Financial Results

For the second quarter of 2015 ended June 30, 2015, net revenue was $36.9 million, a 12% increase compared to net revenue of $32.9 million recorded in the second quarter of 2014. The increase in revenue in the second quarter of 2015 is mainly due to a $9.2 million increase in sales of raw wood, partially offset by a $2.7 million decrease in sales of chrome ore, a $1.3 million decrease in sales of scrap metals and a $1.0 million decrease in sales of billet. Our recycling business generated revenue of $25.7 million while our trading business generated revenue of $11.2 million, accounting for 70% and 30% of our total revenue, respectively. Revenue from our recycling business declined by 15% compared to Q2 2014 revenues of $30.3 million. Revenue from our trading business increased significantly by 330% comparing same period of prior year primarily due to the sales from the new product, raw wood, brought into our trading business this year. Gross profit for the second quarter of 2015 was $(8.0) million as compared to gross profit of $3.1 million in the second quarter of 2014. Gross margin in the second quarter of 2015 was (21.8)% compared to 9.3% in the second quarter of 2014. The significant decrease in gross profit and gross margin was due to a large inventory write-down of $10.6 million in our recycling business.

Total operating expenses for the second quarter of 2015 decreased slightly by 6% to $1.2 million as compared to the second quarter of 2014 of $1.3 million. We recorded operating loss of $(9.2) million in the second quarter of 2015, compared to operating income of $1.8 million in the second quarter of 2014. Our results of operations in the second quarter of 2015 resulted in a net loss of $(7.6) million or $(1.18) per basic and diluted share on 6.5 million weighted average shares outstanding. This compared to net loss of $(0.8) million or $(0.15) per basic and diluted share on 5.1 million weighted average shares outstanding in the same period of 2014.

First Six Months of 2015 Financial Results

Armco Metals' revenues in the first half of 2015 increased substantially to $80.0 million compared to revenues for the same period of 2014 of $42.8 million, primarily due to a $18.0 million increase in sales of raw wood, a $15.9 million increase in sales of barley, a $12.1 million increase in sales of scrap metals, and a $1.2 million increase in sales of billet, partially offset by a $7.4 million decrease in sales of chromium ore, and a $2.2 million decrease in sales of manganese ore. Gross profit for the first six months of 2015 was $(11.9) million compared to $1.9 million in the 2014 period. The decline in gross profit was attributable to a large inventory write-down in our recycling business as a result of adverse market conditions in the scrap metal industry. In the first six months of 2015 our recycling business and trading business contributed 51% and 49% of our net revenue respectively.

Operating expenses decreased to $2.6 million from $ 3.5 million, primarily due to a decrease in general and administrative expenses of $0.5 million, a decrease in operating cost of idle manufacturing facility of $0.18 million resulting from increased production and a decrease in selling expenses of $0.18 million. Net loss and per share loss were $(8.65) million and $(1.41), respectively, in the first half of 2015. The weighted average diluted shares outstanding were 6.1 million as of June 30, 2015, a 52% increase from 4.0 million in the same period of 2014. Net loss and per share loss were $(4.4) million and $(1.09), respectively, in the first half of 2014.

In reviewing the financial performance for the second quarter of 2015, Mr. Kexuan Yao, Chairman and CEO of Armco Metals, remarked that, "In the second quarter of 2015, we experienced a substantial adverse market change in our metal recycling business resulted in a large inventory write-down and the worst quarterly financial result for our company so far. While the market is expected to remain weak, management further believe that the implementation of our "platform strategy" sales model in this business is the right strategy for the company, where we can work with our customers more closely, lower our market risks by sharing them with our customers and increase our sales with less or without additional working capital.  As an endeavor to the strategy, as disclosed before, we are creating an OTO platform for scrap recycling business which could lead the business transition for the Company from solely selling steel scrap products in traditional methods to providing both services and products in the steel scrap business through the online platform. Once the platform grows to certain scale, we believe the greater sales revenue and profit for our steel scrap business could be expected."

Select Balance Sheet Items

As of June 30, 2015, the Company had $0.92 million in cash and cash equivalents, compared to $1.88 million at year-end of 2014. The Company's current ratio was 1.23:1 at June 30, 2015 as compared to 1.38:1 on December 31, 2014. As of June 30, 2015, shareholders' equity decreased to $49.4 million compared to $54.6 million at December 31, 2014 as a result of the net loss for the first half of 2015.

Business Update

In the third quarter so far, in our recycling business we have delivered non-ferrous scrap metals of approximately 4,800 metric tons generating estimated revenue approximately of $10.5 million and gross profit approximately of $5.6 million; in addition we have delivered scrap steel of 28,335 metric tons generating estimated revenue of approximately $5.3 million. Overall, the estimated revenue and gross profit in our recycling business in the third quarter so far is approximately $15.8 million and $4.2 million, respectively. And for the third quarter, so far in our trading business we have delivered raw wood estimated amounted to approximately $17.0 million with gross profit approximately of $20,000.

And for the update on the creating OTO platform, as of the report date, we have received business certificates for the new joint venture created for operating OTO platform and we are currently working on obtaining the license for operating internet services in China for the new joint venture. 

ABOUT ARMCO METALS HOLDINGS, INC.

Armco Metals Holdings, Inc. is engaged in the sale and distribution of metal ore and non-ferrous metals throughout China and is in the recycling business in China. Armco Metals' customers include some of the fastest growing steel producing mills and foundries throughout China. Raw materials are acquired from a global group of suppliers located in various countries, including, but not limited to, Brazil, India, Indonesia, Ukraine and the United States. Armco Metals' product lines include ferrous and non-ferrous ore, iron ore, chrome ore, nickel ore, magnesium, copper ore, manganese ore, steel billet, recycled scrap metals, raw wood and barley. For more information about Armco Metals, please visit http://www.armcometals.com.

SAFE HARBOR STATEMENT

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Armco Metals Holdings, Inc., is hereby providing cautionary statements identifying certain important factors that could cause our actual results to differ materially from those projected in forward-looking statements (as defined in such act). Any statements that are not historical facts and that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, indicated through the use of words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intends," "plans," "believes" and "projects") are forward-looking and involve estimates and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. These statements include, but are not limited to, our expectations regarding our net revenues and production related to our scrap metal recycling operations, including our ability to operate the facility efficiently and profitability, the sufficiency of our working capital, pricing and volatile demand for our product lines, and the extent of government imposed energy and monetary policy restrictions and resulting blackouts and associated impact on our trading and recycling operations.

We caution that investors should not place undue reliance on any forward-looking statements herein. Further, any forward-looking statement speaks only as of the date on which such statement is made.  We qualify all of our forward-looking statements in this press release by these cautionary statements including those made in Part II, Item 1A. Risk Factors appearing in our Quarterly Report on Form 10-Q for the period ended March 31, 2015, as well as in Part I. Item 1A. Risk Factors appearing in our Annual Report on Form 10-K for the year ended December 31, 2014 and our other filings with the Securities and Exchange Commission. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

Financial Statements