10-Q: Friedman Industries Reports Mixed Q3 Results Amidst Market Volatility

Friedman Industries' Q3 2025 results reveal a net loss despite hedging gains, influenced by declining sales volume and average selling prices.

Summary

• Friedman Industries reported a net loss of $1.15 million for the three months ended December 31, 2024, compared to a net earning of $1.18 million for the same period in 2023.
• Net sales decreased to $94.07 million from $115.97 million year-over-year.
• The company experienced a decline in both sales volume and average selling prices.
• For the nine months ended December 31, 2024, the company reported net earnings of $740,000 compared to $12.39 million for the same period in 2023.
• Net sales for the nine-month period decreased to $315.38 million from $384.02 million year-over-year.
• The company's flat-roll segment saw a decrease in sales to $286.91 million from $352.15 million year-over-year for the nine-month period.
• The tubular segment also experienced a decrease in sales to $28.47 million from $31.87 million year-over-year for the nine-month period.
• The company's ABL Facility had a balance of $32.5 million with an interest rate of 6.5% as of December 31, 2024.
• The company's borrowing base calculation supported access to approximately $99.2 million of the ABL Facility as of December 31, 2024.

Sentiment

Score: 4

Explanation: The report indicates a challenging quarter with a net loss and declining sales, although hedging gains and cost reductions offer some positive aspects. The outlook suggests potential improvement in the next quarter, but overall, the sentiment is cautiously negative.

Positives

• The company recognized hedging related gains of approximately $5.8 million for the nine months ended December 31, 2024.
• Selling, general and administrative costs decreased approximately $2.6 million for the nine months ended December 31, 2024, compared to the same period in 2023.
• The company's current ratio amounted to 3.5 at December 31, 2024 and 3.1 at March 31, 2024.

Negatives

• The company reported a net loss of $1.15 million for the three months ended December 31, 2024.
• Net sales decreased to $94.07 million from $115.97 million year-over-year.
• The company experienced a decline in both sales volume and average selling prices.
• For the nine months ended December 31, 2024, the company reported net earnings of $740,000 compared to $12.39 million for the same period in 2023.
• Net sales for the nine-month period decreased to $315.38 million from $384.02 million year-over-year.
• The tubular segment recorded an operating loss of approximately $2.0 million for the nine months ended December 31, 2024 compared to recording operating profit of approximately $2.2 million for the same period in 2023.

Risks

• The company's operating results are significantly impacted by the market price of hot-rolled steel coil (HRC).
• The company's flat-roll and tubular segments purchase their inventory from a limited number of suppliers, and the loss of any of these suppliers could have a material adverse effect on the company's business.
• Challenging conditions for some of the company's customers, extended planned downtime for equipment upgrades, and political uncertainty may continue to impact sales volume.

Future Outlook

The company expects sales volume for the fourth quarter of fiscal 2025 to be higher than the third quarter volume due to stronger order activity and the impact of holidays on third quarter volume, and expects fourth quarter sales margins to improve compared to the third quarter.

Management Comments

• The decline in sales volume for the 2024 period was related to a combination of challenging conditions for some of our customers, extended planned downtime for equipment upgrades, and political uncertainty leading up to the presidential election.
• The decline in sales volume for the 2024 quarter was related to a combination of weaker demand among some customers and hesitancy among others given political uncertainty during the quarter.

Industry Context

The steel industry is highly cyclical and sensitive to macroeconomic factors, including changes in demand, raw material prices, and government policies. Friedman Industries' performance reflects these industry dynamics, with fluctuations in hot-rolled steel coil prices significantly impacting their operating results.

Comparison to Industry Standards

• It's difficult to provide a precise comparison to industry standards without more specific data on Friedman Industries' competitors and their performance metrics.
• However, generally, steel processors and distributors like Reliance Steel & Aluminum Co. and Ryerson Holding Corporation are often benchmarked against metrics such as sales volume, gross margin, and inventory turnover.
• Friedman's adjusted gross profit margin of 16.5% for the quarter ended December 31, 2024, would need to be compared against these peers to assess its relative performance.
• Additionally, their ability to manage inventory and leverage their ABL facility effectively would be key areas of comparison.

Stakeholder Impact

• Shareholders will likely be concerned about the net loss and declining sales.
• Employees may be affected by potential cost-cutting measures.
• Customers may experience changes in pricing and availability of products.
• Suppliers may face pressure to reduce prices or adjust delivery schedules.
• Creditors will monitor the company's ability to meet its debt obligations.

Next Steps

• The company expects sales volume for the fourth quarter of fiscal 2025 to be higher than the third quarter volume.
• The company expects fourth quarter sales margins to improve compared to the third quarter.

Key Dates