Friedman Industries Inc. (NYSE:FRD)

Friedman Industries Inc. (NYSEAMEX:FRD) ($17.29; $120.6M market cap) offered bullish comments on its dividend in its latest press release. Management of this company engaged in steel processing and distribution business said:

“Our future has never been brighter.  We are increasing Friedman's dividend based on our favorable outlook for consistent earnings and further growth," said Mike Taylor, Chairman and Chief Executive Officer.  "Friedman's strategic transformation gives us room to grow using our industry leading assets and favorable geographic reach.  Our high-quality products are now a vital part of the defined supply chain for many of the country's top steel consumers."

On 12/03/2010 we added FRD to the GeoSpecial list @ $8.37

Catalyst: On 11/19/2010 we began traking the FRD story @ $7.70 as a high risk steal/coil play.  Stock was selling below book value of $8.64 and put together three straigh quarters of impressive EPS growth after four consecutive quarters of losses.  Full research note.

We are now removing FRD from the GeoSpeicial List @ $10.43

Potential road block: Weak third quarter 2011 results and tough near-term EPS comparisons could lead to a low GeoPowerRanking (GPR).

Performance

• Peak performance: Reached a high of $12.95 on 07/26/2011 for a maiximum potential return of 55% 
• Current Price: $10.43

HOUSTON--(BUSINESS WIRE)--Friedman Industries, Incorporated (NYSE-Amex:FRD), a Houston-based company engaged in pipe manufacturing, steel coil processing and steel and pipe distribution, announced today its results of operations for the first quarter. For the quarter ended June 30, 2011, the Company recorded net earnings of $1,831,411 ($0.27 per share diluted) on sales of $38,935,456. During the quarter ended June 30, 2010, the Company recorded net earnings of $1,435,137 ($0.21 per share diluted) on sales of $29,222,232

We will code FRD a GeoSpecial @ today's opening price which looks to be around $8.50 . This mornings news...

The Board of Directors of Friedman Industries, Incorporated (NYSE-Amex: FRD), a Texas-based company engaged in pipe manufacturing, steel processing and steel and pipe distribution, declared on December 2, 2010, a quarterly cash dividend of $0.11 per share on the Common Stock of the Company. The Company will pay the cash dividend on February 18, 2011, to shareholders of record at the close of business on January 21, 2011.

In other dividend action, the Board of Directors declared a special cash dividend of $0.50 per share on the Common Stock of the Company. The Company will pay this special cash dividend on December 28, 2010, to shareholders of record at the close of business on December 17, 2010.

...may give investors confidence in the company's near-term outlook.  We had previously profiled the company on November 19, 2010 @ $7.70

We will track FRD as a high risk steel/coil play: $7.70

• Tubular product division is recovering nicely.
• Order rates from tubular side have increased since February.
• Coil division is still a drag on profits, but could offer a nice upside surprise as the economy improves.
• SG&A and sales relationship is less than linear, meaning that profits can increase at a greater rate than revenues.
• Selling below book value per share of $8.64 and a trailing P/E of 11.52
• After four consecutive quarters of losses, FRD has put together three straight quarters of impressive EPS growth.

Period (Fiscal year end in March)	Fiscal 2011	Fiscal 2010	Fiscal 2009
June	$0.21	$(0.05)	$0.58
September	$0.26	$(0.05)	$0.80
December	TBA	$0.00	$0.67
March	TBA	$0.20	$-0.04
Year	TBA	$0.10	$2.09

Points to ponder:

• Company has virtually no investor relations campaign
• Profits are highly dependent on the price of steel.
• Low valuation multiples are typical in FRD's industry
• We are not sure if growth can persist past its fiscal March 2011 fourth quarter

Interested investors should also read the following passage from the latest 2010 fiscal 2nd quarter 10Q to access the many risks associated with this company:

"Three Months Ended September 30, 2010 Compared to Three Months Ended September 30, 2009 

During the three months ended September 30, 2010, sales, costs of goods sold and gross profit increased $13,266,932, $10,005,177 and $3,261,755, respectively, from the comparable amounts recorded during the three months ended September 30, 2009.

• The increase in sales was related primarily to a substantial increase in tons sold which increased from approximately 28,000 tons in the 2009 quarter to approximately 40,000 tons in the 2010 quarter. Also, the average per ton selling price increased from approximately $577 per ton in the 2009 quarter to $730 per ton in the 2010 quarter.
• The increase in costs of goods sold was related primarily to the increase in tons sold and an increase in average per ton cost which rose from approximately $554 per ton in the 2009 quarter to $633 per ton in the 2010 quarter.
• Gross profit benefited from the sales increase as well as a significant increase in gross margins. Gross profit as a percentage of sales increased from approximately 3.9% in the 2009 quarter to approximately 13.2% in the 2010 quarter.

During the 2009 quarter, the Company experienced a significant economic downturn in the U.S. economy and the Company’s operations were adversely affected by extremely soft market conditions for durable goods and energy-related products. In the 2010 quarter, the Company experienced improved market conditions for its tubular products but market demand for coil products remained soft. Accordingly, the improvement in results of operations during the 2010 quarter was related primarily to the tubular product segment of the Company. 

Coil product segment sales increased approximately $2,830,000 during the 2010 quarter. This increase resulted primarily from a significant increase in the average selling price per ton which increased from approximately $554 per ton in the 2009 quarter to $710 in the 2010 quarter. The Company sold approximately 19,000 tons of coil product in both the 2009 and 2010 quarters. Even though the coil segment experienced a small operating profit in the 2010 quarter, margins earned on sales of coil products were adversely impacted in both the 2009 quarter and the 2010 quarter by soft demand. Management believes that market conditions for coil products will not improve until the U.S. economy improves and generates significant improvement in demand for durable goods. 

The Company is primarily dependent on NSC for its supply of coil inventory. In the 2010 quarter, NSC continued to supply the Company with steel coils in amounts that were adequate for the Company’s purposes. The Company does not currently anticipate any significant change in such supply from NSC. Loss of NSC as a supplier could have a material adverse effect on the Company’s business. 

Tubular product segment sales increased approximately $10,437,000 during the 2010 quarter. This increase primarily resulted from an increase in tons sold which increased from approximately 9,000 tons in the 2009 quarter to approximately 22,000 tons in the 2010 quarter. The average per ton selling price of tubular products increased from approximately $624 per ton in the 2009 quarter to $748 in the 2010 quarter. Tubular product segment operating profits as a percentage of segment sales were approximately 8.6% and 19.0% in the 2009 and 2010 quarters, respectively. Extremely soft market conditions were experienced in the 2009 quarter as compared to stronger market conditions in the 2010 quarter. Also, since February 2010, the Company has received an increase in orders for finished tubular products from USS. 

In recent years, USS has been the Company’s primary supplier of tubular products and coil material used in pipe manufacturing and has been a major customer of finished tubular products. Certain finished tubular products used in the energy business are manufactured by the Company and sold to USS. Beginning in December 2008, USS reduced orders for these finished tubular products. Also, in February 2009, USS announced that it was temporarily idling its plant in Lone Star, Texas, due to weak market conditions. From February 2009 until February 2010, the Company received few orders from USS and a significantly reduced supply of pipe and coil material from USS. During this period, USS reopened its Lone Star facility, and since February 2010, the Company has received from USS an increase in orders for finished tubular products and an increase in supply of tubular products and coil material used in the production of pipe. Loss of USS as a supplier or customer could have a material adverse effect on the Company’s business. The Company can make no assurances as to orders from USS or the amounts of pipe and coil material that will be available from USS in the future.

From February 2009 until February 2010, the Company downsized its tubular division to a level more commensurate with operations. Since February 2010, the Company increased the level of operations of the tubular division to support modest increases in production requirements. "