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Winter chills A.M. Castle’s 1st-qtr. results

Keywords: Tags  A.M. Castle, Scott J. Dolan, aluminum, steel, metal prices, bar, plate, aerospace mining


PITTSBURGH — A.M. Castle & Co. bled more red ink in the first quarter after being hit by a one-two combination of harsh winter weather and "uneven" economic growth.

But the Oak Brook, Ill.-based specialty metals distributor predicted that metal prices and activity levels could improve later in the year as business rebounds and poor weather subsides.

Price decreases were most pronounced for aluminum, stainless and alloy bar products, while special bar quality (SBQ) and nickel products saw improved pricing, Castle president and chief executive officer Scott J. Dolan said during an earnings conference call April 29. Plate product volumes were "flat" because of "continued softness" at some mining and heavy machinery customers.

Price declines came as end markets such as aerospace performed in line with expectations while others—such as oil and natural gas—lagged, Dolan said. But oil and natural gas drilling activity is expected to pick up in future quarters thanks to higher energy prices, he added.

While the first quarter was chilled by cold weather, costing the company about $1 million, activity improved in late March and April business followed that positive trend, Dolan said. "If markets continue to improve, we are optimistic that there will be modest sales growth in 2014."

Meanwhile, Castle continues to look to improve sales by boosting commodity sales to customers, Dolan said. Specialty metals will always be the "core" of Castle’s business, although the company needs to become more flexible to address the "various cycles of the market."

Castle also is keeping up the push to reduce inventories and to change who manages them, company executives said, including having more material shipped directly from mills to branches instead of to hubs.

"We have traditionally held way too much inventory in Cleveland, Franklin Park (Ill.) and Houston. And what we are trying to do is redeploy that out to the market locally so that we can serve the customer the next day," Dolan said.

Doing that should reduce double-handling of material as well as cut lead times, company executives said. As those efforts kick in, sale inventories should drop from about 160 to 170 days at present to 150 days by the second half of 2014 and to as low as 120 days by 2015, they said.

Castle also will continue to consolidate operations, including those in Houston, Wichita, Kan., and Edmonton, Alberta (amm.com, Oct. 30), company executives said.

Analysts questioned whether Castle might consider further restructuring, but company executives suggested that—while possible—it was too early to take such action.

"Our transportation network, the number of plants we have out there, the global footprint—being across Asia, in Europe, Mexico, Canada—lends itself to a company that is much larger than we are today," Dolan said. But he added that the company’s current platform presents the opportunity for logging as much as $2 billion in annual revenue.

"If you start to take out facilities, you are taking yourself out of geographies," Dolan said. "And we are not ready to give up on any geographies." However, "we could act on that all very quickly if we saw the market turning."

The company said its metal segment recorded first-quarter net sales of $219.1 million, down 15.2 percent from the same period last year due primarily to a 10.5-percent drop in average selling prices and a 4.5-percent volume decline.


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