LOS ANGELES Metal stocks have built up faster than expected in the supply chain as A.M. Castle & Co. "moderates" its own inventory levels.
The Oak Brook, Ill.-based service center saw the year start out "robustly, but weve seen a softening in the past six weeks," president and chief executive officer Michael Goldberg told securities analysts during a quarterly earnings conference call.
A.M. Castle had reported earlier that despite a $4.3-million first-quarter net loss associated with a convertible note issue, its metals business chalked up a strong sales increase over the same period last year, with higher rates of tons sold per day, paced mainly by the energy and general industrial markets.
But vice president and chief financial officer Scott Stevens told analysts that Castles days sales of inventory (DSI) grew to 155.1 days in the first quarter from 144.8 days at the end of last year. He noted that while A.M. Castle expected an increase, this was nevertheless "a bit higher" than anticipated, and before the first quarter was over "we began to take steps to moderate our inventory levels."
Goldberg said A.M. Castles sales rate in March was slightly lower than in February, reflecting a slowdown that began in the middle of the month and continued into April. Such a slowdown in March was "unusual" compared with previous years, he noted.
Goldberg, who estimated the sales slowdown at 3 to 4 percent, said A.M. Castle also had seen the emergence of "holes in some of our suppliers scheduling," which he regards as a "telling signal of a softer environment."
He emphasized that the comparative weakness wasnt due to any decline in manufacturing activity or to an "adjustment in underlying demand," but rather to heavy supply chain restocking earlier in the year. He pointed out that A.M. Castles customers dont expect a "significant slowdown." But Goldberg now sees a "pause or softening to reflect higher inventory levels throughout the supply chain."
While he still expects sales to end 2012 about 10 percent ahead of last years $1.1 billion, Goldberg acknowledged that hes "more cautious" today than he was a couple of months ago. "People are very conscious now of building up too much inventory, even when their outlook is good," he said.
Energy and oil and gas, as well as industrial markets, still have a "significant upside," Goldberg said. He cited strength in special bar quality (SBQ) and alloy steel bar, carbon and alloy plate, and stainless steel products. Castles plastics business also is healthy, the company said, although start-up costs for some automotive projects have squeezed profit margins.