Samuel Manu-Tech Inc. reports second quarter 2010 results

TORONTO, Aug. 3 /PRNewswire-FirstCall/ - Samuel Manu-Tech Inc. (TSX - SMT), a leading North American industrial products and technology company, today reported results for the three months ended June 30, 2010.

CORPORATE DEVELOPMENTS

On July 26, 2010, Samuel Manu-Tech Inc. announced that it had entered into a definitive agreement with its majority shareholder, Samuel, Son and Co., Limited ("SSCL") which provides for a proposed transaction in which SSCL would effectively acquire all of the outstanding shares in the capital of the Samuel Manu-Tech Inc. that SSCL does not already own for $7.50 per common share.

    2010 2nd QUARTER SUMMARY

    -   Sales for the quarter increased 17.3% compared to Q2 2009 due to
        higher volumes and selling prices partially offset by the negative
        impact of the stronger Canadian dollar on U.S. based sales
    -   Operating profit of $3.6 million for the quarter reflected a gradual
        recovery in economic and market conditions
    -   Packaging segment reported an operating profit of $2.7 million
    -   Metal Processing segment generated an operating profit of
        $3.7 million
    -   Net income of $1.0 million or $0.03 per share

"We are pleased with the gradual recovery that we have experienced in terms of sales and profitability this quarter. Following an extended period of under performance, all of our operating units have now returned to profitability," commented Mark C. Samuel, Chairman and CEO. "Our outlook remains cautious however as ongoing margin pressure and the sustainability of the recovery in the North American economy remain uncertain", he added.

Sales

Sales for the second quarter ended June 30, 2010 were $184.9 million, which represents an increase of $27.3 million or 17.3% over the $157.6 million achieved in the comparable period of last year. The increase in the second quarter resulted from higher overall volumes and selling prices partially offset by the unfavourable impact of foreign exchange translation. The increase in volumes is reflective of signs of a gradual economic recovery in certain of the Company's served markets, particularly the automotive sector. The transportation, residential and non-residential construction and forestry sectors have seen very little recovery. The average exchange rate of the U.S. dollar in the second quarter of 2010 was Cdn. $1.03 compared to Cdn. $1.17 in the second quarter of last year. Compared to the first quarter of this year sales are up 14%.

Operating Performance

Operating profit for the second quarter amounted to $3.6 million compared to an operating loss of $14.0 million in the comparable quarter of last year. Both the Packaging and Metal Processing segments generated operating profits in the second quarter compared to operating losses in the comparable periods of last year.

The Packaging segment generated an operating profit of $2.7 million in the second quarter, compared to an operating loss of $5.7 million last year, with both the Canadian and the U.S. operations profitable in the quarter. The profit earned reflects a gradual recovery in economic conditions in North America and the impact of higher margins, as well as the positive impact of cost reduction and consolidation initiatives implemented last year. Compared to the first quarter of this year, the Packaging Segment operating profit increased 48.5%.

The Metal Processing segment generated an operating profit of $3.7 million compared to an operating loss of $8.0 million in the comparable quarter of last year with all groups reporting operating profits. Profitability from steel pickling operations showed strong improvement in the quarter reflecting higher overall volumes in both Canada and the U.S. and the positive impact of prior year downsizing. Roll formed products operations returned to profitability in the quarter with profitability in the U.S. operations exceeding operating losses experienced in the Canadian operations. Costs relating to consolidation initiatives had a negative impact on Canadian operational results in the quarter. Carbon steel tubular operations were profitable in the quarter with both Tube.tec and Tubular Products Company reporting profitable results. Steel pressure vessel operations were profitable in the quarter despite continued weakness in demand and unfavourable product mix. Stainless steel tubular operations achieved a small profit in the second quarter of the current year compared to losses incurred in the prior year, with the improvement attributable to higher sales and pricing levels as compared to the same period last year.

Compared to the first quarter of this year, operating profit for the Metal Processing segment was up 114%.

Including corporate costs of $2.8 million, total operating profit in the quarter was $3.6 million.

Net income for the second quarter was $1.0 million or $0.03 per share compared to a net loss of $10.0 million or $0.31 per share in the comparable quarter of last year. Restructuring had no impact on results in the second quarter of 2010 or 2009.

Financial Position

Overall cash generated from operating activities for the second quarter was $1.3 million, compared to $13.3 million of cash generated last year. The change reflects increased requirements for non-cash working capital, partially offset by improved earnings as compared to last year. Cash used in investing activities at $2.0 million was below last year's $2.6 million due to reduced spending on capital assets. Cash generated from financing activities amounted to $3.3 million in the second quarter of 2010 compared to $15.5 million used last year. There was a net increase in long-term debt of $3.9 million this year as compared to a net reduction in long-term debt of $15.3 million in the comparable period of last year.

Working capital at June 30, 2010 was $200.0 million, an increase of $22.6 million from the year-end position of $177.4 million, with an increase in receivables and inventories offset in part by lower income taxes receivable and higher payables. Overall, the working capital ratio was 3.4 to 1, consistent with the year-end position, but decreased compared to the end of the second quarter last year when it was 4.1 to 1.

The Company's net borrowings as at June 30, 2010 amounted to $101.9 million, an increase of $9.3 million from $92.6 million at December 31, 2009. This increase is primarily related to a higher investment in working capital and also reflects the impact of exchange rates. Net borrowings to capitalization at the end of the quarter increased to 27.8% from 26.1% at the year-end position, but decreased compared to the second quarter last year when it was 28.4%.

Outlook

Carbon steel pricing levels which increased in the first quarter continued their upward trend during the early part of the second quarter before leveling off and reducing somewhat at the end of the quarter. The initial increase in pricing continued to be driven mainly by higher steel input costs and slightly improved demand, primarily from the automotive sector, which saw base prices increase by almost 30% in the first five months of the year. The more recent price reductions however appear to be the result of industry capacity finally catching up to and possibly exceeding demand. Capacity utilization rates increased from approximately 70% at the end of the first quarter to approximately 73% at the end of the second quarter. Real demand is also beginning to show signs of weakening as a result of the traditional seasonal summer slowdown. Global demand for steel appears to be slowing due in part to certain government stimulus programs, including those in China, coming to an end. It remains to be seen if there can be a successful transition from growth due to government stimulus initiatives to consumption driven growth. The outlook is for continued downward pressure on carbon steel pricing levels in the third quarter.

After increasing in the first quarter stainless steel pricing levels continued to increase in the second quarter. These increases were driven by higher nickel premiums which are now falling from recent highs due to lower consumption and increased availability. The outlook is for stainless pricing levels to reduce further in the second half of the year due in part to reduced seasonal demand and lower surcharges.

The Canadian dollar which strengthened relative to the U.S. dollar throughout all of 2009 and the first quarter of 2010 continued to strengthen in the second quarter. This continued increase in the Canadian dollar relative to the U.S. dollar had a negative impact on the Company's results in the second quarter. Based on current economic forecasts it is anticipated that the Canadian dollar will remain strong for at least the short to medium term.

As a result of these overall improved market conditions and the positive impact of the Company's ongoing cost reduction initiatives, the Company posted a small profit in the second quarter which represents a significant improvement over the loss incurred in the comparable period of last year. This also marks the Company's first profitable quarter after six consecutive quarters of losses. Based on the current economic forecast the Company expects to perform slightly better in the third quarter with another profitable result. There remains, however, concern of the potential for a double-dip recession which would have a negative impact on the Company's results.

    Financial Highlights

    ($ millions except per share amounts)                   Three Months
    Period ended June 30,                               2010            2009
    -------------------------------------------------------------------------

    Net Sales                                         $184.9          $157.6

    Earnings (Loss) from Operations*                  $3.6          ($14.0)

    Net Income (Loss)                                   $1.0          ($10.0)

    Basic Earnings (Loss) per Share                    $0.03          ($0.31)

    Cash Flows From Operating Activities                $1.3           $13.3

    * before restructuring, interest and income taxes

The Company's Second Quarter Report to Shareholders can be found on the Company's website at www.samuelmanutech.com and has been filed on SEDAR at www.sedar.com.

About Samuel Manu-Tech Inc.

Samuel Manu-Tech Inc. (SMT-TSX) is a leading North American industrial products and technology company producing and distributing a wide range of steel, plastic and related industrial products and services from locations in Canada, United States and Mexico.

Forward looking information

Some of the statements contained in this release are forward-looking statements, such as estimates and statements that describe the Company's future plans, objectives or goals, including words to the effect that the Company or management expects a stated condition or result to occur. Since forward-looking statements address future events and conditions, by their very nature, they involve inherent risks and uncertainties. Actual results in each case could differ materially from those currently anticipated in such statements. We do not intend to update this information and disclaim any legal obligation to the contrary.

SOURCE Samuel Manu-Tech Inc.