Olympic Steel - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered sequential profitability improvement: Adjusted EBITDA rose to $14.5M from $13.0M in Q3, with all three segments EBITDA-positive despite soft pricing and demand.
• Revenue declined to $418.8M (vs $470.0M in Q3 and $489.4M in Q4’23), while GAAP diluted EPS increased to $0.33 (vs $0.23 in Q3; $0.64 in Q4’23); Adjusted EPS was $0.13 reflecting LIFO and acquisition-related items.
• Strategic execution advanced via the immediately accretive Metal Works acquisition (Nov 2024) and continued automation investments; 2025 capex guided to ~$35M, focused on throughput, safety, and fabrication growth.
• Capital returns strengthened with a 7% dividend increase to $0.16 per share; effective tax rate guided to ~27–28% for 2025, supporting cash planning.
• Consensus estimates from S&P Global were unavailable for Q4 2024; key stock reaction catalysts include dividend hike, sequential EBITDA improvement, and end-products/fabrication mix resilience. S&P Global consensus unavailable due to data access limitations.

What Went Well and What Went Wrong

What Went Well

• Sequential profitability improvement: “sequential improvement in fourth quarter 2024 earnings versus third quarter” with adjusted EBITDA up Q/Q.
• Mix and diversification: Growth in galvanized participation (+17% in 2024; +24% in 2023) and expanded fabrication supported margins in Carbon; all segments posted positive EBITDA every quarter of 2024.
• Strategic M&A: Metal Works acquisition was “immediately accretive,” strategically aligned to higher-value end products and supply-chain synergies via sourcing/first-stage processing.

What Went Wrong

• Top-line pressure: Net sales fell to $418.8M vs $470.0M in Q3 and $489.4M in Q4’23 on weaker OEM demand and lower metals pricing; EPS down YoY to $0.33 from $0.64.
• Macro headwinds: Hot-rolled carbon pricing fell >40% across 2024’s first seven months; nickel at 4-year lows pressured stainless surcharges; PMI <50 for 11 of 12 months.
• Leverage higher post-deal: Revolver rose to $272.5M at year-end; debt-to-equity increased to 0.47 from 0.34; debt subsequently at ~$250M per call update.

Transcript

Operator (participant)

Good morning and welcome to the Olympic Steel 2024 Fourth Quarter Financial Results Conference Call. At this time, all participants are on a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. At this time, I'd like to hand the conference call over to Richard Manson, Chief Financial Officer at Olympic Steel. Please go ahead, sir.

Richard Manson (CFO)

Thank you, Operator. Welcome to Olympic Steel's earnings call for the fourth quarter of 2024. Our call this morning will be hosted by our Chief Executive Officer, Richard Marabito, and we will also be joined by our President and Chief Operating Officer, Andrew Greiff. Before we begin, I have a few reminders. Some statements made on today's call will be predictive and are intended to be made as forward-looking within the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and may not reflect actual results. The company does not undertake to update such statements, changes in assumptions, or changes in other factors affecting such forward-looking statements. Important assumptions, risks, uncertainties, and other factors that could cause actual results to differ materially are set forth in the company's reports on Forms 10-K and 10-Q and the press releases filed with the Securities and Exchange Commission.

During today's discussion, we may refer to adjusted net income per diluted share, EBITDA, and adjusted EBITDA, which are all non-GAAP financial measures. A reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures is provided in the press release that was issued last night and can be found on our website. Today's live broadcast will be archived and available for replay on Olympic Steel's website. At this time, I'll turn the call over to Rick.

Richard Marabito (CEO)

Thank you, Rich, and good morning, everyone. Thank you for joining us today to discuss Olympic Steel's 2024 fourth quarter and full year results. I'll begin with an overview of our 2024 performance and talk about our recent and exciting acquisition of Metal Works. I'll close my prepared remarks with some additional thoughts on our near-term outlook.

Andrew will then review our segment performance and some of our latest investments in the business, and following that, Rich will discuss our financial results in more detail, and then, as always, we'll move into your questions. As I reflect on our 2024 performance, I'm proud of our team and how we've evolved Olympic Steel into a stronger, more resilient company, and that's evidenced by our sequential improvement in fourth quarter 2024 earnings versus third quarter, an exception in the current metals environment.

We successfully navigated a difficult year for the metals industry as we faced a wide range of macroeconomic challenges, including a greater than 40% decline in hot-rolled carbon pricing during the first seven months of 2024, nickel hitting a four-year low, which reduced stainless surcharges, and a demand environment that saw the Purchasing Managers' Index for manufacturing below 50 for 11 of the 12 months of the year. Despite these recessionary challenges, Olympic Steel successfully grew market share across our portfolio. We maintained shipping volumes within 1% of our 2023 levels, which outperformed industry shipment levels. We executed on our strategy to be profitable in all market conditions, with each of our segments earning positive EBITDA in every quarter of 2024. Total sales for the year were $1.9 billion. Net income was $23.0 million, with Adjusted EBITDA of $72.5 million.

Our ability to deliver profitable results in this environment is a testament to the success of our diversification and growth strategy, our commitment to operational discipline, and our employees' mindset to focus on what we can control while driving profitability regardless of market conditions. And we continue to make strategic investments in our business while closely managing our operating expenses. During 2024, these investments were mostly related to automation and capacity expansion, which enables us to enhance throughput, safety, and productivity. We announced a number of significant projects that are expected to become operational in 2025 or early 2026. Andrew will talk more about these in a moment. We also continue to profitably grow through M&A.

In November, we further advanced our position in manufactured metal products with the immediately accretive acquisition of Metal Works, a leading manufacturer of components for service station canopies, deck clips, long gutters, trim, and boat docks, as well as solar canopy and ground racking components. These products are primarily made from coated carbon steel and aluminum, which creates an excellent strategic fit with our service center business. The Metal Works team has built a respected brand with an exceptional reputation for high-quality customer service and a culture that aligns really well with ours. This is our eighth acquisition in the past seven years, and we're thrilled to have Metal Works as part of the Olympic team. Our investments are always balanced with the importance of returning capital to our shareholders.

We're pleased that the board has increased our quarterly dividend by 7%, taking our quarterly dividend from $0.15 to $0.16 per share as we continue to reward our valued shareholders. As we turn our focus to 2025, we're all digesting the ever-changing market dynamics, including tariffs on steel and aluminum and potentially on end products, as well as new steel capacity and potential investments in legacy integrated steel mills. We'll remain focused on what is in our control with an ability to remain nimble and adaptive. We remain optimistic about the long-term outlook for Olympic Steel and the overall metals industry, and we're confident we will continue to create value for our shareholders as we invest in automation, product diversity, and quality solutions for our customers. Now, I'll turn the call over to Andrew for his comments on our segment performance.

Andrew Greiff (President and COO)

Thank you, Rick, and good morning, everyone. I'd like to start by echoing Rick's sentiments on the resilience of today's Olympic Steel. It was another challenging quarter for the metals industry, and once again, our team delivered with all three segments achieving EBITDA-positive results in the fourth quarter. In fact, our segments collectively outperformed the third quarter of 2024, reporting a sequential $1.5 million improvement in adjusted EBITDA. Now, let's take a look at each segment's results in a little more detail. In our carbon segment, we continue to see lower demand from our contractual OEM customers, especially in the heavy equipment sector. However, we were able to maintain our shipping volumes despite this lower OEM demand by winning new business and adding new customers, outpacing our industry shipments in hot roll, cold roll, and coated products.

We again grew our galvanized participation by 17% in 2024, following a 24% increase in 2023. Despite these challenges, the carbon segment earned $7.2 million in EBITDA in the fourth quarter, helped by the strategic countercyclical nature of our end products businesses. Our pipe and tube segment had another good quarter, delivering adjusted EBITDA of $7.2 million. The team's focus on fabricated product growth is driving positive results. Our specialty metal segment contributed $4 million of EBITDA, a solid fourth quarter for this group, despite nickel surcharges hitting a four-year low during the fourth quarter of 2024. For the full year, specialty metals made great strides by gaining market share in both stainless and aluminum. We also continue to see strength in our manufactured products group, with both Metal-Fab and McCullough Industries finishing the year strong.

Newly acquired Metal Works also had an immediate positive impact on our results, and we are excited to welcome their team to the Olympic Steel family. As Rick mentioned earlier, we are committed to making the right investments in higher margin opportunities to accelerate growth. You can see this reflected in our CapEx spend, which was $29.5 million in 2024 and is expected to be $35 million in 2025. We have undertaken a number of organic growth initiatives designed to improve automation, safety, and throughput.

The projects, which we expect to come online in late 2025 and early 2026, include a new cut-to-length line at our Minneapolis coil facility to support our growing galvanized business, a new high-speed specialty metal slitter to expand our Berlin's capacity outside Gary, Indiana, a new white metals cut-to-length line in Schaumburg, Illinois, and the automation of our Chambersburg fabrication operation to improve safety, efficiency, and expand capacity by over 30%. In addition, we recently relocated our Action Stainless Houston facility to a 70,000 sq ft building with additional equipment to support our growing white metals distribution and fabrication business in the south and the west. We remain well-positioned to continue making strategic investments in organic growth opportunities, as well as additional acquisitions that enhance our higher-value product and processing offerings and further support our diversification strategy. Now, I'll turn the call over to Rich to go through the financials.

Richard Manson (CFO)

Thank you, Andrew. As Rick and Andrew stated, all three segments withstood the challenges facing the metals industry to deliver profitable results in the fourth quarter with sequential adjusted EBITDA improvement over the third quarter of 2024. Before I discuss the results in more detail, I want to remind everyone that year-over-year comparisons are impacted by the October 2023 acquisition of Central Tube and Bar, whose results are included in the pipe and tube segment, and the November 2024 acquisition of Metal Works, whose results are included in the carbon segment. For the fourth quarter, net income totaled $3.9 million compared with $7.4 million in the fourth quarter of 2023. The results include $3.1 million of LIFO pre-tax income in the fourth quarter of 2024 compared with $5.3 million of LIFO pre-tax income in the fourth quarter of 2023.

Adjusted EBITDA for the fourth quarter was $14.5 million compared with $16.7 million in the prior year period and higher than the $13 million for the third quarter of 2024. As a reminder, in November 2024, we acquired Metal Works in an all-cash transaction for $80 million. The purchase price reflects a multiple of approximately 6.15 times trailing 12-month adjusted EBITDA. Consolidated operating expenses for the fourth quarter totaled $96.5 million compared with $100.4 million in the fourth quarter of 2023. Our fourth quarter operating expenses reflect the additional Metal Works, which does not reflect tons sold. Therefore, operating expenses per ton at the consolidated level and the carbon segment will appear higher year-over-year. As a reminder, we also do not report tons sold for McCullough Industries, EZ-Dumper, Metal-Fab, Shaw Stainless, or the entire pipe and tube segment.

Consolidated operating expenses for the fourth quarter included $1.8 million of Metal Works operating and acquisition-related expenses and $1.8 million of lower incentive expenses when compared with the fourth quarter of 2023. We ended the quarter with total debt of approximately $272 million, an increase of $82 million from the third quarter. The increase in debt was the result of the Metal Works acquisition in November. Our debt position today is approximately $250 million, and we continue to have availability of more than $200 million under our loan facility to support investments in higher return opportunities. Our capital expenditures for the full year of 2024 totaled $29.5 million compared with depreciation of $24.5 million. We estimate that the 2025 capital expenditures will be approximately $35 million as we continue to invest in automation and other growth initiatives that Andrew outlined.

Our fourth quarter 2024 effective income tax rate was 18.9% compared with 23.3% in the same period last year. We expect our 2025 tax rate to approximate 27% to 28%. In addition, we paid a quarterly dividend of $0.15 per share in the fourth quarter. As we announced in our earnings release last night, our board of directors approved an increase in our regular quarterly cash dividend to $0.16 per share. This marks the fourth dividend increase since 2022, cumulatively raising our quarterly dividend from $0.02 per share to $0.16 per share. The dividend is payable on March 17th, 2025, to shareholders of record as of March 3rd, 2025. The company has paid a regular quarterly dividend since March 2006.

Our long-term strategy for diversification, coupled with our focus on controlling expenses and managing working capital, enabled us to remain resilient and profitable over the course of a very difficult year for the metals industry. As we monitor the macroeconomic factors that will be shaping our industry in the coming year, we remain confident that these strategic initiatives enable us to deliver profitable results for our shareholders. Operator, we are now ready for questions.

Operator (participant)

Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from Samuel McKinney with KeyBank Capital Markets. Please proceed with your question.

Samuel McKinney (Assistant VP)

Hey, good morning, guys.

Andrew Greiff (President and COO)

Morning, Sam.

Samuel McKinney (Assistant VP)

Hey, starting in carbon flat, I mean, a typical seasonal volume decline in the fourth quarter, but what I really want to focus on is that impressive gross profit per ton of $314, the best figure you guys have posted in more than a year. What drove such strength in gross profit to increase that $35 a ton quarter on quarter?

Richard Manson (CFO)

Hey, Sam, it's Rich. And so, as you know, we've been expanding our end-use or end-metal products companies. And as I noted in my comments, we don't report tons sold for those companies because it's different than the distribution business. But things like Metal Works and Metal-Fab, McCullough Industries, they do roll up into the carbon segment. And so you're seeing that countercyclical nature of those goods. So you're seeing an increase in gross margin, but not necessarily a difference in tonnage.

Richard Marabito (CEO)

And the other thing, Sam, it's Rick. I'd say also is, and we talked about it, I think, last call, is really a concerted effort and success in growing our fabrication business. And that fabrication business is a nice adder as well. And we'll continue to do that. And that looks like an area of strength as we move into 2025 in terms of volume.

Richard Manson (CFO)

Yeah, and as Andrew also noted in his comments that we've had a nice growth in galvanized over the last two years, and that certainly helps the margin as those products tend to be better than just the black or pickled and oiled hot rolled items.

Samuel McKinney (Assistant VP)

Yeah, that all makes sense. Thank you. And then shifting over to the pipe and tube segment, a two-part question here. I know the first quarter is typically the peak sales quarter, but you'll be coming off a pretty low sales base from the fourth quarter of 2024. What are you seeing in that segment that first, you think, kind of push sales down in the fourth quarter? And how strongly do you think you can recover moving into the first quarter?

Andrew Greiff (President and COO)

Hey, Sam, it's Andrew. So I think the first quarter is going to be traditional. I think they've started the year kind of as expected. And I think as we come through the first quarter and even coming into the second quarter, there's some great opportunities and new customers that they picked up starting the end of 2024. The other thing that you'll continue to see is a shift into greater fabrication. Their objective is to really have about a 50/50 mix between pure tube and pipe distribution versus the fabrication. And we're continuing to see that. We've invested in some more tube lasers due to some customers that we've picked up.

Samuel McKinney (Assistant VP)

Okay. And then last one for me, moving to specialty metals. To date, first quarter aluminum prices have been fairly steady versus the fourth quarter average. However, the Midwest transaction premium has really shot up in February. Can you talk about, through your contract versus spot exposure in that market, and how an increase in the Midwest transaction price might impact ZEUS?

Andrew Greiff (President and COO)

Yeah, great question. So you're right. I mean, Midwest certainly has jumped up since the announcement of the tariffs. A number of our customers in the bulk of that business still today is contractual. So we have customers that have locked in the ingot. Spot clearly has jumped because of that. But I think that just the overall growth for our aluminum business continues to grow each year. We had another good year in 2024, again, picking up some really good opportunities in 2025. Most of those are going to be on the contractual side. So we have spot opportunities, but the bulk of really what we're doing today is on the contractual side of it.

Samuel McKinney (Assistant VP)

Okay. Thank you, guys, and congrats on the strong end of the year.

Andrew Greiff (President and COO)

Thanks, Sam.

Richard Marabito (CEO)

Thank you, Sam.

Operator (participant)

Our next question comes from David Storms with Stonegate. Please proceed with your question.

David Storms (Analyst)

Good morning, everyone.

Andrew Greiff (President and COO)

Morning, Dave.

David Storms (Analyst)

Just wanted to start with the Metal Works transaction and see if there's anything more you could tell us about anticipated synergies, maybe in the back office. I know you mentioned that in carbon flats, and it will maybe play nice with some of your other shops. Just anything more you could tell us there.

Richard Marabito (CEO)

Yeah, Dave, it's Rick. Thanks for the question. So like most of our end-manufactured metal products, the real synergy is the integration into the Olympic Steel supply chain and our ability to, whether it's our sourcing relationships or our ability to do some first-stage processing. Those would be the real synergies. So they do start with a cut metal product versus a coil. So we obviously have lots of processing capabilities where we can do the first-stage processing. But I would say the sourcing and the first-stage processing would be the real synergies. And then you mentioned on the expense side, in terms of, I don't know if I'd call them synergies, but what we will be able to do is to integrate Metal Works into Olympic in terms of things like systems and accounting and some of the back office areas. Not really sure we'll get cost synergies.

I think we'll just really be able to move that company to our platform, which will obviously gain efficiencies, and it'll allow us to communicate and work closer together. So those are the main areas.

David Storms (Analyst)

Understood. That's very helpful. Thank you. And then in your remarks, and then just recently, you kind of mentioned a couple of times now that you picked up a couple of customers. Going into 2025, how would you characterize your market share in your various end markets?

Andrew Greiff (President and COO)

So, Dave, this is Andrew. What I would tell you is we've seen our greatest growth in the last two years in coated products, so galvanized is up significantly. We've had really good growth as well in hot roll, cold roll. Plate, we lagged a little bit in 2024, but starting off this year and for 2025, plate will be very strong, and certainly, in what we're seeing in stainless and aluminum, we continue to pick up market share, continue to grow. Stainless has been very steady, but really the growth in aluminum has really been terrific, and the bulk of the aluminum that we bring in is domestic, so we have great domestic support, certainly in all of our products, but specific to aluminum, the same thing with stainless.

So I would say all of our key products, we have seen year-over-year improvement and certainly outperforming the market in pretty much every segment.

David Storms (Analyst)

Understood. Thank you. And then just one more for me. There's been a lot of discussion in the news recently about tariffs. Are you seeing any early indications from that talk and what could soon be the rubber hits the road right there?

Andrew Greiff (President and COO)

Yeah, sure. So I'll pick up on that, and then maybe Rick or Rich will jump in. But certainly, since the announcements, the key one on stainless and aluminum right around the 10th, we saw almost an immediate impact, Dave. So if you took a look at hot rolled futures, kind of go back to the beginning of the year where they were at $725 to $730 a ton. Kind of the Friday right before the announcement, it was up to $780. And then almost immediately, you saw a jump to about $840 to $850. And since that time, we've come right about $900. So pretty big jump at that point. The CRU, which is the index price, same thing. So if you take a look at June through December, you had the hot rolled CRU somewhere in the $650-$680 range.

And then once we got into January, right around the inauguration, we were right around $680, and now we're up to just about $800, $799, but $800. And the anticipation is that it's going to continue to go up. The announcements that we have seen on the spot side from the domestic hot roll producers all have been week over week continuing to raise prices on the spot side of it. And we've seen that certainly from lead time, where prior to the announcements, you had hot rolls somewhere in the three- to four-week time period, and now you're closer to, I would say, six to eight weeks on the cold roll. And on the coated, it's more like eight to 10 weeks.

And so you saw this immediate rush from transactional players to try to jump in anticipation of the March 12th announced time by the president, that that's when they were going to go into effect. And then I think we'll continue to see an increase until we see otherwise. If there are some deals that are cut, if something happens, certainly between now and then. But we do expect that we'll see prices continue to rise.

David Storms (Analyst)

Understood. Thank you for taking my questions, and good luck in Q1.

Andrew Greiff (President and COO)

Thank you.

Richard Marabito (CEO)

Thank you.

Operator (participant)

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Chris Sakai with Singular Research. Please proceed with your question.

Christopher Sakai (Analyst)

Yes, hi, good morning.

Andrew Greiff (President and COO)

Good morning, Chris.

Christopher Sakai (Analyst)

I just have a follow-up sort of to the tariff question. I mean, how will the tariffs affect profitability, and for competitors, will this make a greater season or greater valuations for acquisitions?

Richard Manson (CFO)

Hey, Chris, it's Rich. Yeah. And so what Andrew walked you through is on the supply chain side, certainly we're seeing the prices go up. As far as the tariffs impacting first quarter, you've not seen a whole lot happen here in January and February. And I think we're closely monitoring what's going to happen on March 12th to see if the tariffs do go through, which then would increase transactional pricing. So this would be a late first quarter, more early second quarter item in terms of the impact on profitability.

Andrew Greiff (President and COO)

Yeah, and then I think your question, Chris, on M&A and valuations, and so certainly, as we look at the M&A market, and we talked about it in our prepared remarks, we've made eight acquisitions in the last seven years. So we've obviously been acquisitive. We continue to be an active seeker of more acquisitions, but what we've seen in 2024, especially in the back half, was really a pullback in terms of potential sellers and potential candidates who were looking to sell the business, and I think a lot of that was to your question. I think it was a rougher year in terms of the metals industry and the performance. In 2024, for most, was down. Some of it was significantly down.

So I anticipate, and it's cyclical, but I anticipate as we move through 2025, I think we'll start to see improved results from basically the universe of metal companies as well as metal manufacturers. And I think that just lends itself to we'll see more activity, and we'll see more potential sellers interested in entering the M&A market. But that'll probably take a little bit of time. They'll want to have a couple of quarters of some results. So I do anticipate in the back half seeing a little more activity.

Richard Marabito (CEO)

Chris, let me just add one more thing on the tariff side of it. The other thing that we saw relatively quick when President Trump came into office and the discussion of energy, we did see a lot of the line pipe jobs really jump. That was good for the hot roll producers that produced the line pipe. Simultaneously, you saw plate really start to jump, and scraps started to jump about the same time as there's been a lot of bridge work that's finally coming that had been on the docket for quite some time. You're actually seeing plate start to climb very quickly. That was probably the one area that surprised us the most to see how fast that really was going.

Christopher Sakai (Analyst)

Okay. Thanks for that, and you mentioned for 2025, there's going to be an increase in CapEx with different projects that you mentioned. How about affecting margins? Will we see some improvement there?

Richard Manson (CFO)

Hey, Chris, it's Rich, and so as we outlined in the comments, most of these are going to become operational late fourth quarter of 2025 or early first quarter of 2026, so I wouldn't anticipate a lot of impact in 2025, but yeah, definitely, we think that the cumulative spend on these things was meant to increase capacity, it's increasing efficiency, increasing safety, and we do expect it to have a very positive impact on 2026 margins.

Christopher Sakai (Analyst)

Okay. Thanks. And last for me, looks like there was a decrease in selling and general expense, if that's right, from a year ago. Can you comment on that? What was the decrease for?

Richard Manson (CFO)

Sure, Chris. It's Rich. And as we had put in the prepared comments, we were about $1.8 million less in variable incentive expenses year over year, and that's really kind of tied to profitability. And so our incentive plans are highly tied to our profitability. And so in a quarter like this, where we're down a little bit in fourth quarter of 2024 versus fourth quarter of 2023, you're going to see that decrease.

Christopher Sakai (Analyst)

Okay. Thanks.

Operator (participant)

We have reached the end of the question and answer session. I'd now like to turn the call back over to Richard Marabito for closing comments.

Richard Marabito (CEO)

Thank you, Operator. And thank you all for joining us today on our call. We appreciate your continued interest in Olympic Steel, and we look forward to speaking with you again next quarter. Have a great day.

Operator (participant)

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.