Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=220749
Story Retrieval Date: 9/2/2014 4:10:32 AM CST
Jordan M. Schultz/MEDILL/Institute for Supply Management data
A.M. Castle CEO, Scott Dolan interpreted that a recent PMI uptick indicated upcoming industry demand increase. Yet, the PMI fell in March.
A.M. Castle reports huge losses, is restructuring
Falling well below analysts’ expectation, A.M. Castle & Co. reported that its first-quarter loss more than doubled, despite pursuing plans to restructure and reduce its workforce by 10 percent. Nevertheless, the stock popped 5 percent, up 86 cents to $17.30. One analyst speculated that A.M. Castle "will be taken out."
The metals manufacturer's net loss widened to $10.6 million, or 46 cents per diluted share, from $4.3 million, or 19 cents per diluted share, in the year-earlier quarter. Analysts estimated a 9-cents loss per diluted share.
First-quarter revenues slumped 19 percent to $293 million from $363 million in 2012.
President and CEO Scott Dolan attributed the staggering sales to soft metal markets. In A.M. Castle’s metal segment, first-quarter sales drooped to $258.4 million, down 19.6 percent compared with 2012.
The firm also reported EBITDA--earnings before interest, taxes, depreciation and amortization--of $4.8 million, down 83 percent from $27.8 million in the same quarter a year earlier. A.M. Castle shelled out more than $10 million in interest during the quarter.
Despite the first-quarter loss and revenue decline in comparison with the year-earlier quarter, the company noted that its first-quarter sales were 7 percent greater than the $293 million in the preceding quarter.
“During a difficult demand environment, our performance quarter-over-quarter is in line with our peers as the restructuring has had a minimal effect on our revenue,” Dolan said in a conference call.
The company expects demand to improve in the latter part of 2013, Dolan said. An improving purchasing managers index and growth between the fourth and first quarters indicate a bubbling market uptick, he commented.
But Brett Levy, an analyst at Jefferies Group LLC who does not have a publicly available rating on Castle, questioned industry optimism about the second half of the year. “A lot of the folks in this earnings season have said that the back half of the year is better, and there’s not a lot of meat on the bones there,” he averred.
In January, the Oak Brook firm announced its restructuring plans to streamline its commercial unit and operations structure, realign its branch fulfillment network and implement a continuous improvement program across the enterprise. The plan generated $32.6 million in positive cash by reducing inventory levels by over $33 million, according to a company statement.
“Although the first quarter was challenging from a top-line sales perspective,” said Dolan, “we proceeded as planned with our restructuring efforts announced in January and made significant progress toward our goals to improve our operating efficiency, improve customer satisfaction and reduce our costs.”
Dolan said he believes that Castle’s new commercial structure should enable it to grow its market share and drive profits in the future. While that optimism may have influenced the stock's rise on Tuesday, an analyst who declined to be quoted by name suggested that investors seeking "takeout opportunities" may be buying.