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Webco Industries, Inc. Reports Fiscal 2010 Second Quarter Results

Posted by Dana in March 7th 2010

Webco Industries, Inc. (OTC: WEBC) reported results for its fiscal 2010 second quarter, which ended January 31, 2010.

For its fiscal 2010 second quarter, the Company reported net income of $124,000, or $0.16 per diluted share, compared to a net loss of $4,993,000, or a loss of $6.55 per diluted share, for the same quarter in fiscal 2009. Net sales for the second quarter of fiscal 2010 were $64.5 million, a 24.1 percent decrease from the $84.9 million of sales in last year’s second quarter. Current quarter results included a $0.2 million non-cash pre-tax loss in the value of interest rate swap contracts versus a non-cash pre-tax loss of $5.0 million in the same quarter in fiscal 2009. The prior year’s second fiscal quarter included a $3.7 million pre-tax charge for inventory reserves. The significant decline in current quarter to same prior year quarter sales reflects the global economic crisis that affected business levels for most of our customers.

For the first six months of fiscal year 2010, the Company generated net income of $626,000, or $0.82 per diluted share, compared to net income of $90,000, or $0.12 per diluted share, for the same period in fiscal 2009. Net sales for the first six months of the current year amounted to $132.5 million, a 32.3 percent decrease from the $195.6 million in sales for the same six-month period of last year. The current and prior year six-month results reflect $0.9 million and $6.3 million, respectively, in non-cash pre-tax charges related to the interest rate swap contracts. The prior year’s six month results were also impacted by $6.6 million in inventory reserve charges. The first quarter in the prior year six-month period, which preceded the onset of the global economic crisis, was one of the most profitable quarters in the Company’s history.

Gross profit for the second quarter of fiscal 2010 was $5.6 million, or 8.8 percent of net sales, compared to $1.9 million, or 2.2 percent of net sales, for the second quarter of fiscal 2009. Gross profit for the first six months of fiscal 2010 was $11.8 million, or 8.9 percent of net sales, compared to $18.4 million, or 9.4 percent of net sales, in the same six-month period in 2009. The current quarter’s gross profit percentage increased from the comparable prior year quarter because of the impacts of high priced inventories on the prior year quarter. The prior year six-month gross profit percentage and amount were higher because steel cost declines only affected the second half of that prior year six-month period.

Selling, general and administrative expenses in the second quarter of fiscal 2010 were $4.3 million, compared to $3.5 million in the second quarter of the prior year. SG&A costs in the first six-months of fiscal 2010 decreased to $8.1 million, from the $10.0 million reported for the same six-month period in 2009. SG&A expenses remain at low levels due to continued cost reductions related to current financial performance.

Interest expense, which includes monthly settlements on interest swap contracts, was $0.9 million and $1.0 million in the current and prior year quarter, respectively. Interest expense totaled $1.9 million in each of the first six-month periods in fiscal 2010 and 2009. In the spring of 2008, the Company entered into a five-year swap arrangement that changed the variable interest rate for $75 million of the Company’s debt to a fixed rate, concluding that the fixed rates available for that period were preferred to the exposure to significant interest rate increases in the future. The global economic crisis that began in October 2008 resulted in significant decreases in interest rates and, therefore current rates are less than the swapped rates. Because of significant debt reductions, the $75 million swap exceeds the outstanding long-term debt on which the interest rate was swapped. Monthly swap settlements, which are included in interest expense, amounted to $0.7 million and $0.4 million in the current and prior year quarter, respectively, and $1.4 million and $0.4 million in the current and prior year six-month periods, respectively. The Company records interest rate swap contracts at fair market value and the non-cash changes in value from period to period are reported as unrealized gains or losses on interest contracts. During the second quarter of fiscal year 2010 and 2009, fair value adjustments on the interest contracts resulted in non-cash charges of $0.2 million and $5.0 million, respectively. At January 31, 2010, the Company had a liability of $5.3 million related to the negative fair value of the interest rate swap contracts.

Capital expenditures incurred equaled $3.1 million for the second quarter of fiscal 2010. We expect incurred capital spending for fiscal year 2010 to be in the range of $7 million to $8 million.