Market Overview

Olympic Steel Reports Record Quarterly and First-Half Net Sales

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Second-Quarter 2018 Net Income More than Triples, on 27% Higher Sales

Board Declares Regular Quarterly Cash Dividend

Olympic Steel Inc. (NASDAQ:ZEUS), a leading national metals
service center, today announced significantly improved financial results
for the three- and six-month periods ended June 30, 2018.

Net sales increased 27% in 2018's second quarter, to $453 million, which
is the highest quarterly sales level posted in the Company's history.
This compared with $356 million in net sales during the same quarter of
2017. Year-to-date net sales rose 20% over the same period in 2017,
reaching a record $829 million in 2018's first half, versus $691 million
in the first half of 2017. Higher shipping volume and higher average
prices drove the year-over-year growth.

"Record sales tonnage of specialty metals products helped us achieve
record revenue in the quarter and six-month period," said Chairman and
Chief Executive Officer Michael D. Siegal. "In addition, our strong
margins have substantially improved this year's financial results."

Second-quarter net income in 2018 increased 230% to $15.8 million, or
$1.39 per diluted share, compared with net income of $4.8 million, or
$0.42 per diluted share, in 2017's same quarter. Net income was
negatively impacted in the second quarter of 2018 by $1.5 million in
LIFO expense, which reduced earnings by $0.10 per diluted share in the
quarter. In the second quarter of the prior year, LIFO expense reduced
net income by $0.4 million, or $0.02 per diluted share. Adjusting for
LIFO impacts in both periods, second quarter 2018 net income improved to
$1.49 per diluted share, up from $0.44 per diluted share in 2017's
second quarter. The table that follows provides a reconciliation of
non-GAAP measures to measures prepared in accordance with GAAP.

"Our stainless-steel sales were already at all-time highs prior to our
acquisition of Berlin Metals in April," Siegal said. "We have
successfully integrated Berlin's business into our existing specialty
metals operating segment and we continue to evaluate additional
strategic acquisition opportunities."

In the first half of 2018, GAAP net income grew to $23.5 million, or
$2.06 per diluted share, up from $12.5 million, or $1.10 per diluted
share in 2017's comparable period. LIFO expense totaled $2.0 million, or
$0.13 per diluted share in the first half of 2018, compared with $0.8
million, or $0.05 per diluted share in last year's first half. In the
first quarter of 2017, an out-of-period income tax adjustment resulted
in a one-time reduction of income tax expense, which increased net
income by $1.9 million, or $0.17 per diluted share in last year's first
half. Adjusting for LIFO expense and last year's tax benefit, net income
grew to $2.19 per diluted share in the first half of 2018, up from $0.98
per diluted share in the same period of 2017.

"Demand for metal products remains elevated," Siegal added. "Despite the
international trade issues, our customers are anticipating strong
business conditions to continue in the second half of the year."

The Company's Board of Directors also approved a regular quarterly cash
dividend of $0.02 per share, which is payable on Sept. 17, 2018, to
shareholders of record on Sept. 4, 2018.

   
Olympic Steel, Inc.
Reconciliation of Net Income Per Diluted Share to Adjusted Net
Income Per Diluted Share

The following table reconciles adjusted net income per diluted
share to the most directly comparable GAAP financial measure:

 

Three Months Ended Six Months Ended
June 30, June 30,
2018   2017 2018   2017
 
(unaudited) (unaudited)
Net income per diluted share (GAAP): $ 1.39 $ 0.42 $ 2.06 $ 1.10
Excluding the following items:
Tax adjustment on retirement plan - - - (0.17 )
LIFO expense   0.10   0.02   0.13 0.05  

Adjusted net income per diluted share (non-GAAP):

$ 1.49 $ 0.44 $ 2.19 $ 0.98  
 

Conference Call and Webcast

A simulcast of Olympic Steel's 2018 second-quarter earnings conference
call can be accessed via the Investor Relations section of the Company's
website at www.olysteel.com.
The simulcast will begin at 9 a.m. EDT on Aug. 2, and a replay of the
call will be available for approximately 14 days thereafter.

Forward-Looking Statements

It is the Company's policy not to endorse any analyst's sales or
earnings estimates. Forward-looking statements in this release are made
pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are typically
identified by words or phrases such as "may," "will," "anticipate,"
"should," "intend," "expect," "believe," "estimate," "project," "plan,"
"potential," and "continue," as well as the negative of these terms or
similar expressions. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to
differ materially from those implied by such statements. Readers are
cautioned not to place undue reliance on these forward-looking
statements. Such risks and uncertainties include, but are not limited
to: the recent inflation in metals pricing provides risks of falling
metals prices and inventory devaluation; general and global business,
economic, financial, and political conditions; competitive factors such
as the availability, global production levels and pricing of metals,
industry shipping and inventory levels and rapid fluctuations in
customer demand and metals pricing; cyclicality and volatility within
the metals industry; fluctuations in the value of the U.S. dollar and
the related impact on foreign steel pricing, U.S. exports, and foreign
imports to the United States; the levels of imported steel in the United
States and the tariffs initiated by the U.S. government in 2018 under
Section 232 of the Trade Expansion Act of 1962 and newly imposed tariffs
and duties on exported steel; the availability and rising costs of
transportation and logistical services; the successes of our efforts and
initiatives to increase sales and earnings, maintain or improve working
capital turnover and free cash flows, improve our customer service, and
achieve cost savings; our ability to generate free cash flow through
operations and repay debt within anticipated time frames; events or
circumstances that could impair or adversely impact the carrying value
of any of our assets; risks and uncertainties associated with intangible
assets, including impairment charges related to indefinite lived
intangible assets; events or circumstances that could adversely impact
the successful operation of our processing equipment and operations; the
amounts, successes and our ability to continue our capital investments
and strategic growth initiatives, including acquisitions and our
business information system implementations; our ability to successfully
integrate Berlin Metals, LLC, or Berlin Metals, into our business and
risks inherent with the Berlin Metals acquisition in the achievement of
expected results, including whether the acquisition will be accretive
and within the expected timeframe; the success of our operational
initiatives to improve our operating, cultural and management systems
and reduce our costs; the ability to comply with the terms of our
asset-based credit facility; the ability of our customers and third
parties to honor their agreements related to derivative instruments;
customer, supplier and competitor consolidation, bankruptcy or
insolvency; increased labor costs and tighter employment markets related
to tighter employment markets; reduced production schedules, layoffs or
work stoppages by our own, our suppliers' or customers' personnel; the
impacts of union organizing activities and the success of union contract
renewals; the timing and outcomes of inventory lower of cost or market
adjustments and last-in, first-out, or LIFO, income or expense; the
ability of our customers (especially those that may be highly leveraged,
and those with inadequate liquidity) to maintain their credit
availability; the inflation or deflation existing within the metals
industry, as well as product mix and inventory levels on hand, which can
impact our cost of materials sold as a result of the fluctuations in the
LIFO inventory valuation; the adequacy of our existing information
technology and business system software, including duplication and
security processes; the adequacy of our efforts to mitigate cyber
security risks and threats; access to capital and global credit markets;
our ability to pay regular quarterly cash dividends and the amounts and
timing of any future dividends; our ability to repurchase shares of our
common stock and the amounts and timing of repurchases, if any;
unanticipated developments that could occur with respect to
contingencies such as litigation, arbitration and environmental matters,
including any developments that would require any increase in our costs
for such contingencies; and changes in laws or regulations or the manner
of their interpretation or enforcement could impact our financial
performance and restrict our ability to operate our business or execute
our strategies.

In addition to financial information prepared in accordance with GAAP,
this document also contains adjusted earnings per diluted share, which
is a non-GAAP financial measure. Management's view of the Company's
performance includes adjusted earnings per share, and management uses
this non-GAAP financial measure internally for planning and forecasting
purposes and to measure the performance of the Company. We believe this
non-GAAP financial measure provides useful and meaningful information to
us and investors because it enhances investors' understanding of the
continuing operating performance of our business and facilitates the
comparison of performance between past and future periods. This non-GAAP
financial measure should be considered in addition to, but not as a
substitute for, the information prepared in accordance with GAAP. A
reconciliation of this non-GAAP measure to the most directly comparable
GAAP financial measure is provided above.

About Olympic Steel

Founded in 1954, Olympic Steel is a leading U.S. metals service center
focused on the direct sale and distribution of large volumes of
processed carbon, coated and stainless flat-rolled sheet, coil and plate
steel, aluminum, and tin products. The Company's CTI subsidiary is a
leading distributor of steel tubing, bar, pipe, valves and fittings, and
fabricates pressure parts for the electric utility industry.
Headquartered in Cleveland, Ohio, Olympic Steel operates from 31
facilities in North America.

For additional information, please visit the Company's website at www.olysteel.com
or http://ir.olysteel.com/Contact_Us?BzID=2195

   
Olympic Steel, Inc.

Consolidated Statements of Comprehensive Income

(in thousands, except per-share data)

 
Three Months Ended June 30,

Six Months Ended June 30,

2018   2017 2018   2017
(unaudited) (unaudited)
Net sales $ 452,917   $ 356,195 $ 828,515   $ 691,088
 
Costs and expenses

Cost of materials sold (excludes items shown separately below)

356,061 283,041 650,838 541,495
Warehouse and processing 23,813 21,838 47,249 45,339
Administrative and general 21,523 17,887 40,396 36,052
Distribution 13,386 10,568 25,525 20,933
Selling 7,107 6,496 14,335 13,007
Occupancy 2,297 2,191 4,852 4,501
Depreciation 4,164 4,319 8,187 8,633
Amortization   247     222     469     444  
 
Total costs and expenses   428,598     346,562     791,851     670,404  
 
Operating income 24,319 9,633 36,664 20,684
 
Other income (loss), net   (93 )   (28 )   (139 )   (54 )

Income before interest and income taxes

24,226 9,605 36,525 20,630
Interest and other expense on debt   2,670     1,788     4,656     3,414  
Income before income taxes 21,556 7,817 31,869 17,216
Income tax provision   5,708     3,020     8,392     4,720  
 
Net income $ 15,848   $ 4,797   $ 23,477   $ 12,496  
 
Earnings per share:
 
Net income per share - basic $ 1.39   $ 0.42   $ 2.06   $ 1.10  
 

Weighted average shares outstanding - basic

  11,435     11,383     11,419     11,382  
 
Net income per share - diluted $ 1.39   $ 0.42   $ 2.06   $ 1.10  
 

Weighted average shares outstanding - diluted

 

11,435

 

 

11,390

 

 

11,419

 

 

11,387

 
 

   
Olympic Steel, Inc.
Consolidated Balance Sheets

(in thousands)

 
At June 30, 2018 At Dec. 31 2017
(unaudited)
Assets
 
Cash and cash equivalents $ 5,501 $ 3,009
Accounts receivable, net 205,245 132,737
Inventories, net (includes LIFO debit of $3,337 as of June 30, 2018
and $5,337 as of Dec. 31, 2017)
363,595 275,307
Prepaid expenses and other 5,273 8,333
Assets held for sale   750     750  
Total current assets   580,364     420,136  
 
Property and equipment, at cost 394,470 376,710
Accumulated depreciation   (236,962 )   (229,062 )
Net property and equipment   157,508     147,648  
 
Intangible assets, net 27,766 22,980
Other long-term assets   13,318     13,394  
Total assets $ 778,956   $ 604,158  
 
Liabilities
 
Current portion of long-term debt $ - $ 930
Accounts payable 127,113 84,034
Accrued payroll 15,378 11,999
Other accrued liabilities   15,543     14,184  
Total current liabilities   158,034     111,147  
Credit facility revolver 297,674 196,235
Other long-term liabilities 11,898 12,048
Deferred income taxes   14,562     12,145  
Total liabilities   428,168     331,575  
 
Shareholders' Equity
 
Preferred stock - -
Common stock 130,417 129,453
Treasury stock (132 ) (337 )
Retained earnings   166,503     143,467  
Total shareholders' equity   296,788     272,583  

Total liabilities and shareholders' equity

$ 778,956   $ 604,158  
 

 
Olympic Steel, Inc.
Segment Financial Information

(In thousands, except tonnage and per-ton data. Figures may not
foot to consolidated totals due to Corporate expenses.)

 

Three Months Ended June 30:
(unaudited)
Carbon Flat   Specialty Metals Flat   Tubular and Pipe
Products Products

Products1

2018   2017 2018   2017 2018   2017
Tons Sold1   304,361   308,458   38,806   22,539 NA NA
 
Net Sales

$

279,292

$ 237,058 $ 97,354 $ 58,280 $ 76,271 $ 60,857
Average selling price per ton 918 769 2,509 2,586 NA NA
Cost of materials sold2   217,143   189,650   82,667   50,046   56,251   43,345
Gross profit3 62,149 47,408 14,687 8,234 20,020 17,512
Operating expenses4   43,845   40,169   9,163   5,375   15,470   15,168
Operating income

$

18,304

$ 7,239 $ 5,524 $ 2,859 $ 4,550 $ 2,344
 
Depreciation and Amortization 2,580 2,905 335 198 1,469 1,412
 
Six Months Ended June 30:
(unaudited)
Carbon Flat Specialty Metals Flat Tubular and Pipe
Products Products

Products1

2018 2017 2018 2017 2018 2017
Tons Sold1   601,965   612,250   63,669   45,732 NA NA
 
Net Sales $ 520,185 $ 453,974 $ 162,884 $ 116,235 $ 145,446 $ 120,879
Average selling price per ton 864 741 2,558 2,542 NA NA
Cost of materials sold2   406,917   358,823   138,799   98,330   105,122   84,342
Gross profit3 113,268 95,151 24,085 17,905 40,324 36,537
Operating expenses4   86,859   80,537   15,548   11,061   31,508   31,706
Operating income

$

26,409

$

14,614

$ 8,537 $ 6,844 $ 8,816 $ 4,831
 
Depreciation and Amortization 5,140 5,794 540 424 2,925 2,808

1

 

Tonnage is less meaningful for the Tubular and Pipe Products
segment and therefore, is not reported.

2

Includes LIFO expense for the Tubular and Pipe Products segment
of $1.5 million, and $2.0 million, for the three and six months
ended June 30, 2018; and $0.4 million, and $0.8 million for the
three and six months ended June 30, 2017.

3

Gross profit is calculated as net sales less the cost of
materials sold.

4

Operating expenses are calculated as total costs and expenses
less the cost of materials sold.

 

 
Olympic Steel, Inc.
Segment Financial Information Cont.

(In thousands, unaudited)

 
 

At June 30,
2017

 

At Dec. 31,
2017

Assets
Flat products $ 569,775 $ 409,116
Tubular and pipe products 208,605 194,787
Corporate   576     255  
Total assets $ 778,956   $ 604,158  
 
 

Other Information:

(audited, in thousands, except per-share data)
At June 30, At Dec. 31,
2018   2017  
 
Shareholders' equity per share $ 26.96 $ 24.80
 

Debt-to-equity ratio

1.00 to 1

0.72 to 1

 
 
Six Months Ended
June 30,
2018   2017  
 
Net cash from (used for) operating activities $ (61,883 ) $ (38,483 )
 
Cash dividends per share $ 0.04 $ 0.04

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