Participants

Richard Manson; Chief Financial Officer; Olympic Steel Inc

Richard Marabito; Chief Executive Officer, Director; Olympic Steel Inc

Andrew Greiff; President, Chief Operating Officer; Olympic Steel Inc

Samuel McKinney; Analyst; KeyBanc Capital Markets

Dave Storms; Analyst; Stonegate Capital Partners

Christopher Sakai; Analyst; Singular Research

Presentation

Operator

Good morning and welcome to the Olympics deal 2024 fourth quarter financial results conference call.
(Operator Instructions) As a reminder, this conference is being recorded.
At this time I'd like to hand the conference call over to Rich Manson, Chief Financial Officer at Olympic Steel. Please go ahead, sir.

Richard Manson

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, Rick Merabito, and we will also be joined by our President and Chief Operating Officer, Andrew Greife.
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, EBDA, and adjusted EBITDA, which are all non-gap financial measures.
A reconciliation of these non-gap 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

Thank you, Rich, and good morning, everyone. Thank you for joining us today to discuss Olympic steals 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 metalworks. 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 medals 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 roll carbon pricing during the first 7 months of 2024, nickel hitting a four-year low which reduced stainless surcharges in a demand environment that saw the purchasing manager's 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 maintain shipping volumes within 1% of our 2023 levels, which outperformed industry shipment levels, and we executed on our strategy to be profitable in all market conditions with each of our segments earning positive EA DA in every quarter of 2024.
Total sales for the year were $1.9 billion.
Net income was $23.0 million with adjusted EDA 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. In 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 metalworks, 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 Metalworks 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 8th acquisition in the past seven years, and we're thrilled to have metalworks 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

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 dollar improvement in adjusted EADA.
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, coal roll, and coded 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 EADA 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 EADA, a solid fourth quarter for this group, despite nickel surcharges hitting a 4-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 Metalworks 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 Schomburg, Illinois. In 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 square foot 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

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 EBTA 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 metalworks, 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 EBDA 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 Metalworks in an all cash transaction for $80 million. The purchase price reflects a multiple of approximately 6.15 times trailing 12 month adjusted EADA. Consolidated operating expenses for the fourth quarter to $96.5 million compared with $100.4 million in the fourth quarter of 2023.
Our fourth quarter operating expenses reflect the additional metalworks 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, Ey Dumper, metal fab, Shaw stainless, or the entire pipe and tube segment. Consolidated operating expenses for the fourth quarter included $1.8 million of metalworks 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 metalworks 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 improved 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 17, 2025 to shareholders of record as of March 3, 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.

Question and Answer Session

Operator

(Operator Instructions)
Samuel McKinney from KeyBanc Capital Markets.

Samuel McKinney

Hey, good morning guys.

Richard Manson

Morning.

Samuel McKinney

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 and gross profit to increase that $35 a ton quarter on quarter?

Richard Manson

Hey SAM, it's Rich. And so as we've been expanding our end use or and metal products companies, and as I noted in my comments that we don't report on sold for those companies because it's different than the distribution business, but things like metalworks 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

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 is a nice adder as well. So 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

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

Samuel McKinney

Yeah, that all make sense. Thank you. And then shifting over to the pipe and tube segment, the 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 24. What are you seeing in that segment that first you think kind of pushed sales down in the fourth quarter, and how strongly do you think you can recover moving into the first quarter?

Andrew Greiff

Hey SAM, it's 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 2nd 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 blazers due to some customers that we've picked up.

Samuel McKinney

Okay. And then last one for me, moving to specialty metals. To date, 1st 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 this?

Andrew Greiff

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 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 24 again picking up some really good opportunities in 25. Most of those are going to be on the contractual side, so we do have, we have spot opportunities, but the bulk of really what we're doing today is on the contractual side of it.

Samuel McKinney

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

Richard Manson

Thank you, SAM.

Operator

Dave Storms from Stonegate Capital Partners

Dave Storms

Morning everyone.

Richard Manson

Morning, Dave.

Dave Storms

Just want to start with the metalworks transaction and see if there's anything where you could tell us about anticipated synergies maybe in the back office. I know you mentioned this in carbon flats and we may play nice for some of your other.
Shops, just anything more you could tell us there.

Richard Marabito

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 are the, 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 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 call them synergies, but what we will be able to do is to integrate metalworks 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 and work closer together. So those are the main areas.

Dave Storms

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

Andrew Greiff

So Dave, this is Andrew. What I would tell you is we've seen our greatest growth in the last two years in coded 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 we 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.

Dave Storms

Understood thank you and then just one more for me.
There's been a lot of discussion, and rhetoric in the news recently about tariffs. Are you seeing any early indications, from that talk and what could soon be, the robber hand in the road there?

Andrew Greiff

Yeah, sure, so I'll 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 roll 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, 850, and since that time we've come right about 900, so pretty big jump at that point.
The the crew, which is the index price, same thing. So if you take a look at June through December, you had the hot roll crew 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, 7 down 90 800, 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 from certainly from lead time where prior to the announcement you had hot rolls somewhere in the 3 to 4 week time period and now you're closer to, I would say six to eight weeks on the coal roll and then the coated, it's more like 8 to 10.
And so you saw this immediate rush from transactional players to TRY to jump in 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's 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.

Dave Storms

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

Operator

(Operator Instructions)
Christopher Sakai from Singular Research.

Christopher Sakai

Yes, hi, good morning.
I just had a follow up sort of the tariff question. I mean, how will the tariffs affect profitability and for com competitors, will this make a great, season or greater valuations for acquisitions?

Richard Manson

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.

Richard Marabito

Yeah, and then I think your your question Chris on M&A and valuations and you know so certainly as we look at the M&A market and we talked about it in our prepared remarks we've made 8 acquisitions and. 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 A 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 24 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 quarters of some results. So I do anticipate in the back half seeing a little more activity.

Andrew Greiff

Hey, and Kristen, let me just add one more thing on the tariff side of it. So the other thing that we saw relatively quick when President Trump came into office in the discussion of energy, we did see a lot of the lime pipe jobs really jump and so that was good for the hot roll producers that that produced the lime pipe.
A simultaneously you saw plates 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, so you're actually seeing plate start to climb very quickly and so that was probably the one area that that surprised us the most to see how fast that really was going.

Christopher Sakai

Oh okay, thanks for that and you mentioned for 2025 though there's going to be an increase in CapEx with different projects that you mentioned. How about a second margins? Will we see some improvement there?

Richard Manson

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 spent 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

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

Richard Manson

Sure, Chris, it's rich and as we have put in the prepared comments, we're 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 the fourth quarter of 2024 versus fourth quarter of 2023, you're going to see that decrease.

Operator

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

Richard Marabito

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

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