Webco Industries, Inc. Reports Fiscal 2016 Second Quarter Results

SAND SPRINGS, Okla.--(BUSINESS WIRE)--

Webco Industries, Inc. WEBC today reported results for our fiscal 2016 second quarter ended January 31, 2016.

For our fiscal 2016 second quarter, we incurred a net loss of $1.2 million, or a loss of $1.43 per diluted share, compared to a net loss of $1.0 million, or $1.27 per diluted share, for the second quarter in fiscal 2015. Net sales for the second quarter of fiscal 2016 were $75.5 million, a 28.8 percent decrease from the $106.0 million of sales in last year's second quarter. The current quarter includes a $0.4 million non-cash loss related to our interest swap contract, whereas the prior year second quarter includes a $1.2 million non-cash loss related to the interest swap contract.

For the first six months of fiscal year 2016, we generated a net loss of $2.3 million, or $2.90 per diluted share, compared to a net loss of $0.7 million, or $0.92 per diluted share, for the same period in fiscal 2015. Net sales for the first six months of the current year amounted to $167.8 million, a 20.9 percent decrease from the $212.1 million in sales for the same six-month period of last year. Results for the first six months of the current year include a $0.8 million non-cash loss related to the interest swap contract, whereas the prior year same six-month period contained a $1.9 million non-cash loss on the contract.

In the second quarter of fiscal year 2016, we had a loss from operations of $1.0 million, including depreciation of $2.9 million. Income from operations in the second fiscal quarter of the prior year was $0.2 million, with depreciation amounting to $3.0 million. Gross profit for the second quarter of fiscal 2016 was $4.5 million, or 5.9 percent of net sales, compared to $6.2 million, or 5.8 percent of net sales, for the second quarter of fiscal 2015.

We had a loss from operations for the first six months of fiscal year 2016 of $1.9 million, after depreciation expense of $5.9 million, while income from operations for the same period in fiscal 2015 was $2.2 million, after depreciation expense of $5.9 million. Gross profit for the first six months of fiscal 2016 was $9.4 million, or 5.6 percent of net sales, compared to $14.6 million, or 6.9 percent of net sales for the same period in fiscal year 2015.

Dana S. Weber, Chief Executive Officer, commented, "The current industrial economy is difficult for almost all that are associated with the metal and energy industries. Lower oil and commodity prices and the strength of the dollar have reduced volume demand, and therefore selling prices, for most metal tubing products; however, rapid declines in the price of our metal raw materials has had the most immediate negative impact on our profitability. Lower raw material prices have not yet fully worked their way through our inventories. While lower sales prices naturally compress total gross margins, lower selling prices matched against high cost inventories produce an even more significant negative impact in short-term margins. Visibility is difficult in this current market; however, it appears metal raw material price declines have subsided. In response to this overall market, we have reduced our expenses and working capital to a level that we believe is sustainable in the absence of the overhang from higher cost raw materials. Over the last twelve months, we have reduced our inventories by $55.1 million, substantially on tonnage reductions, and our debt by $45.2 million."

Selling, general and administrative expenses were $5.5 million in the second quarter of fiscal 2016 and $5.9 million in the second quarter of fiscal 2015. Selling, general and administrative charges were $11.3 million in the first six months of the current fiscal year, a decrease from the $12.4 million in such expenses in the same period of fiscal 2015. The decline in SG&A results from our expense reduction efforts.

Interest expense was $0.6 million in the second quarter of fiscal year 2016 and $0.7 million in the second quarter of fiscal 2015. Interest expense decreased to $1.3 million in the first six months of fiscal year 2016 from $1.6 million in the same period in fiscal year 2015. The decline in interest expense reflects lower debt levels. Subsequent to January 31, 2016, we amended our senior credit facility to extend the maturity an additional year, until March 2018.

We are party to an arrangement that swaps the variable interest rate for $50 million of our debt to a fixed rate through December 2019. We record the interest swap contract at fair value on our balance sheet and non-cash changes in value are reported as unrealized gains or losses on interest contracts. The non-cash income and charges from adjusting the interest swap contract value to market value create volatility in our income statement; however, they have no bearing on cash flow for the quarter because the actual monthly cash swap payments are reflected in interest expense, and therefore earnings.

At January 31, 2016, we had $5.2 million in cash in addition to $29.7 million of available borrowing under our senior revolving credit facility, which had $41.5 million drawn and a $120 million cap at that date.

Capital expenditures incurred amounted to $2.4 million in the second fiscal quarter of fiscal 2016 and amounted to $5.3 million for the six month period then ended. The capital investments we are making are focused on improving efficiencies, yields and quality rather than plant capacities.

Webco is a manufacturer and value-added distributor of high-quality carbon steel, stainless steel and other metal tubular products designed to industry and customer specifications. Our tubing products consist primarily of pressure tubing, including heat exchanger and boiler tubing, and specialty tubing for use in durable and capital goods. Webco's long-term strategy involves the pursuit of niche markets within the metal tubing industry through the deployment of leading-edge manufacturing and information technology. We have seven production facilities in Oklahoma and Pennsylvania and five value-added distribution facilities in Oklahoma, Texas, Illinois and Michigan, serving customers globally.

Forward-looking statements: Certain statements in this release, including, but not limited to, those preceded by or predicated upon the words "anticipates," "appears," "available," "believes," "can," "considering," "expects," "hopes," "intended," "plans," "projects," "pursue," "should," "would," or similar words constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied herein. Such risks, uncertainties and factors include the factors discussed above and, among others: general economic and business conditions, including any global economic downturn, reduced oil prices, competition from imports, including any impacts associated with the strength of the U.S. dollar, changes in manufacturing technology, banking environment, including availability of adequate financing, monetary policy, changes in tax rates and regulation, raw material costs and availability, appraised values of inventories which can impact available borrowing under the Company's credit facility, industry capacity, domestic competition, loss of or reductions in purchases by significant customers and customer work stoppages, the costs associated with providing healthcare benefits to employees, customer claims, technical and data processing capabilities, and insurance costs and availability. The Company assumes no obligation to update publicly such forward-looking statements.

WEBCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
			Three Months Ended January 31,											Six Months Ended January 31,
			2016					2015						2016					2015
Net sales			$	75,511				$	106,001					$	167,792				$	212,111
Cost of sales				71,046					99,842						158,365					197,548
Gross profit				4,465					6,159						9,426					14,563
Selling, general & administrative				5,461					5,943						11,282					12,354
Income (loss) from operations				(996	)				217						(1,856	)				2,209
Interest expense				575					696						1,287					1,581
Unrealized (gain) loss on interest contracts				385					1,231						760					1,853
Income (loss) before income taxes				(1,956	)				(1,710	)					(3,903	)				(1,225	)
Income tax expense (benefit)				(800	)				(683	)					(1,556	)				(488	)
Net income (loss)			$	(1,155	)			$	(1,027	)				$	(2,347	)			$	(737	)
Net income (loss) per common share:
Basic			$	(1.43	)			$	(1.27	)				$	(2.90	)			$	(0.92	)
Diluted			$	(1.43	)			$	(1.27	)				$	(2.90	)			$	(0.92	)
Weighted average common shares outstanding:
Basic				808,300					806,700						808,000					805,700
Diluted				808,300					806,700						808,000					805,700
Note: Amounts may not sum due to rounding.

WEBCO INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET HIGHLIGHTS
(Dollars in thousands, except par value)
(Unaudited)
			January 31, 2016				July 31, 2015
Cash			$	5,160			$	6,900
Accounts receivable, net				34,555				40,885
Inventories, net				112,011				139,191
Other current assets				10,256				8,466
Total current assets				161,982				195,443
Property, plant and equipment, net				90,592				91,226
Other long-term assets				1,315				2,505
Total assets			$	253,888			$	289,174
Other current liabilities			$	23,043			$	27,443
Current portion of long-term debt				41,520				69,959
Total current liabilities				64,563				97,402
Long-term debt				12,000				12,000
Deferred income tax liability				16,651				17,561
Total equity (809,700 common shares, par value $0.01, outstanding at January 31, 2016)				160,674				162,211
Total liabilities and equity			$	253,888			$	289,174

CASH FLOW DATA
(Dollars in thousands)
(Unaudited)
			Three Months Ended January 31,										Six Months Ended January 31,
			2016				2015						2016				2015
Net cash provided by (used in) operating activities			$	19,889			$	(649	)				$	30,158			$	(6,569	)
Depreciation and amortization			$	2,938			$	3,024					$	5,933			$	5,967
Cash paid (refunded) for capital expenditures			$	2,228			$	(504	)				$	5,037			$	3,116
Note: Amounts may not sum due to rounding.

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