Universal Stainless & Alloy Products Inc. USAP provided preliminary third-quarter 2015 results, wherein it anticipates net sales to be around $43.4 million. The company also expects to record a loss in the range of $2.40–$2.45 per share.
The reported loss will include a goodwill impairment charge of $13.2 million, or $1.87 per share, and after-tax charges of $2.3 million, or 32 cents per share related to temporary idling of plant capacity, non-cash inventory write-downs, reduction in hourly and salaried workforce, and damages due to the unauthorized substitution by a vendor of a critical supply part for the melting process.
Barring all the above-mentioned charges, Universal Stainless & Alloy anticipates its third-quarter loss to range between 21 to 26 cents per share.
The company’s share price has fallen since Jun 2015, leading its market capitalization to fall below book value. This required an interim goodwill impairment review under generally accepted accounting principles. The non-cash goodwill impairment charge will adversely impact reported earnings for the third quarter of 2015. However, it will not have any impact on the company’s cash balances, liquidity position, cash flow from operations, or tangible book value, which amounted to around $187 million, or $26 per share as of Sep 30, 2015.
Additionally, the company considerably lowered its working capital for the quarter ended Sep 30, 2015, for repaying $10 million of its outstanding debt.
According to Universal Stainless & Alloy, challenging conditions in the specialty steel industry in 2015 adversely affected its share price and operating performance. Moreover, the continuous slump in the oil and gas market resulted in inventory destocking by customers. Further, falling nickel and other commodity prices led to delayed purchases by customers. This declining trend in commodity prices has resulted in reduced margins for the company.
Per management, the company has undertaken several initiatives to combat the challenges in the steel industry. Universal Stainless & Alloy remains focused on adjusting mill output, efficient working capital management and debt reduction to generate positive cash flow in the third quarter. The company also successfully reduced inventories by $10 million in the quarter.
However, amid the prevailing tough steel market conditions, Universal Stainless & Alloy reported that order bookings for its premium alloys in September shot up 64% from the previous two month average.
Other notable companies in the basic material sector include ThyssenKrupp AG TYEKF, NovaGold Resources Inc. NG and Asanko Gold Inc. AKG.
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