Friedman Industries Inc. (FRD) research, news, and more from GeoInvesting

Company description

Wed, 30 Jul 2008 04:00:00 GMT

FRIEDMAN INDUSTRIES is engaged in the steel processing and distribution business. Friedman has two product groups: coil processing and tubular products. Co. purchases domestic and foreign hot-rolled steel coils, processes the coils into steel sheet and plate and sells these products on a wholesale, rapid- delivery basis in competition with steel mills, importers and steel service centers. Co. also processes customer-owned coils on a fee basis.

Research

Fri, 22 Mar 2024 14:16:09 GMT

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."

Research

Fri, 16 Nov 2018 16:51:53 GMT

Closed out FRD Trade

Friedman Industries Inc. (NYSEAMEX:FRD) ($8.11; $56.8M market cap)

On June 29, 2018, we established a swing trade position in FRD when the stock was trading at $8.46. Then, we moved the stock to our select long portfolio after a good interview with management. Shares reached $11.47 during our coverage period. We have now decided to move on from FRD, as mentioned in yesterday’s alert.

Like Q1, the Company warned that Q2 margins would decline. This sentiment was also echoed in the related 10Q along with verbiage indicating that volumes would be down in some areas of the business. After posting nearly 100% revenue growth and sequentially stronger sales than Q1, the company only managed to post EPS of $0.29 vs. $0.51 for Q2.

As we mentioned in our initial coverage of FRD, we’ve tracked FRD for years and they have a difficult time sustaining positive business momentum, partly due to the cyclical nature of the industries they serve. In times of overall market uncertainty, we are focusing on stories that offer more certainty. It is, however, worth mentioning that nice long term catalysts do exist for the company due to some shifts in their business plan and the addition of new product lines. Deep value investors may still be attracted to the story as the company is trading well below its tangible book value of $10.51.

Research

Thu, 15 Nov 2018 15:59:15 GMT

Friedman Industries Inc. (NYSEAMEX:FRD) ($8.73; $61.1M market cap) is a company that engages in steel processing, pipe manufacturing and processing, and steel and pipe distribution activities in the United States, announcedQ2 2019 results:

Sales of $53.4 million vs $26.1 million in the prior year
EPS of $0.29 vs $0.05 in the prior year

While the results are strong on a year over year basis, the EPS results were down sequentially from Q1 ( $0.51 on $48.1 million revenue) and highlights the dramatic impact that margin variability inherent in the Company’s business can have on bottom line performance. It is worth noting the company has given less color on its near term business prospects then it has in the prior couple quarters.

Research

Wed, 15 Aug 2018 14:46:10 GMT

Friedman Industries Inc. (NYSE AMEX:FRD) ($11.21; $78.5M market cap) is a company that engages in steel processing, pipe manufacturing and processing, and steel and pipe distribution activities in the United States announced Q1 2019 results:

Sales of $48.1 million vs $23.0 million in the prior year
EPS of $0.51 vs $0.05

This was the 2nd really strong quarter for the company in a row, as it continues to benefit from tariff developments. However, FRD still sees growth and revenue going forward in the near term but with some margin compression. Unfortunately, the company wasn’t specific as to how serious of an issue this margin compression could be, which could lead to some near term uncertainty. Obviously, we plan to take a closer look at the company's 10-Q for any information arbitrage, which can sometimes be the case with FRD.

“Management expects sales volumes in the second quarter to be similar to the first quarter volumes but expects both coil segment and tubular segment margins to contract somewhat.”

Research

Fri, 20 Jul 2018 15:31:29 GMT

**Call To Action Update - FRD

Friedman Industries Inc. (NYSE AMEX:FRD) ($9.24; $64.7M market cap) is a company that engages in steel processing, pipe manufacturing and processing, and steel and pipe distribution activities in the United States. On June 29, 2018, We established a swing trade position in FRD when the stock was trading at $8.46. After further due diligence, which included reading the 10-K closer and an interview with management, we are moving FRD from our swing trade portfolio to our Select Longs portfolio.

We are not going to write an extensive report on the Company, but identified some near term positive growth drivers for the Company. We want to be clear that FRD operates in two highly cyclical commodity type markets where the outlook can change almost instantly.

Coil Products: The coil product segment consists of the operation of two hot-roll coil processing facilities. The Company maintains an extensive inventory of prime and secondary hot rolled coils ranging in thickness from 14 gauge to ½” and ranging in width from 36” to 72”. Their inventory also consists of both smooth surface and tread plate coils with mill edges or slit edges. The products serve a variety of customers in the Steel industry, such as steel buildings, railroad cars, barges, tanks and containers, trailers, component parts and other fabricated steel products.
Tubular Products: The Tubular Division operates under the trade name Texas Tubular Products. Texas Tubular manufactures API 5L Line Pipe, ASTM A53B Pipe and ASTM A500B Pipe on its two Electric Resistance Welded pipe mills. Texas Tubular also maintains an extensive stock of new mill reject / new secondary pipe. Texas Tubular also operates a pipe finishing facility that is focused on threading oil country tubular goods with semi-premium connections. The Tubular segment’s end user is typically in the energy markets.

Here are some of the positive catalysts we see moving forward:

Both segments are benefiting from the sharp increase in the price of steel, and a portion of the increase is coming from the tariff sanctions.
- Coil: The average per ton selling price related to these shipments increased from approximately $572 per ton in fiscal 2017 to approximately $674 per ton in fiscal 2018
- Tubular: The average per ton selling price related to these shipments increased from approximately $582 per ton in fiscal 2017 to approximately $651 per ton in fiscal 2018.
Even though the company operates in a low gross margin industry, margins can improve when production volumes increase. This is important because over the longer term, an increase in selling prices can not be the sole driver of growth because Company’s inventory will eventually start to reflect higher material costs if steel prices remain elevated. In the short run, the increase in steel prices is benefiting the company because:
- They are selling off old inventory that was purchased at lower prices.
- There has been an increase in the average selling price of their products.
  
  “Management believes this improved demand is primarily related to the sustained recovery in the U.S. energy industry and the segment’s new product offering of API line pipe. Historically, the tubular segment has produced and sold API line pipe through an exclusive customer arrangement. Late in the third quarter of fiscal 2018, TTP began actively producing, marketing and selling line pipe directly to distributors.”
  
  “Management expects line pipe sales to be a significant component of total tubular segment sales moving forward and expects segment operating results to be positively impacted by the increased sales and mill production related to line pipe.”
We learned from management that the average selling price for their products in the early 2000’s was at $1000, so there is still room to go if the industries FRD serves continue to improve.
A positive wildcard catalyst would be if Trump is able to increase the budget for building out U.S. infrastructure.
We get most excited with commodity industries when a company experiences higher overall demand for its products (increase in volumes). This is when a company can experience a “double whammy” effect that could impact operating margins in a meaningfully positive way, even if its inventory starts to reflect higher input costs and if gross margins stabilize. This occurs because many commodity companies have decent operating leverage, where SG&A does not rise nearly as fast as revenues. For example, in 2018 on $121.1 million in revenue, SG&A expense was $4.1 million, and on only $77.7 million in sales in 2017 , SG&A was $4.0 million. (Q4 2018 SG&A expenses echoed this trend).
After reading the 10-K and talking to the Company, we gather that improvements in the business are not just from the positive pricing environment, but also from the increase in demand/volumes from current and new customers. While management didn’t provide too much color on volume/demand, the 10-K sheds some light on this topic. Both segments are not only experiencing an increase in price, but an increase in volume as well.
- Inventory tons sold increased from approximately 22,500 tons in fiscal 2017 to approximately 44,500 tons in fiscal 2018. (Tubular)
- Inventory tons sold increased from approximately 111,000 tons in fiscal 2017 to approximately 132,000 tons in fiscal 2018. (Coil)
Additionally, the tubular segment is benefiting from a new product offering (API line pipe) that the Company recently introduced, giving it greater exposure to the energy market and access to new customers, as well as increased wallet share from current customers.

Caveats:

Inventory - Raw material cost will catch up to the price of steel and, at some point, the increase in cost that the Company can pass on to its customers will have its limits. Ultimately, growth will have to come from continued positive growth trends from its customers (volume).
The outlook for both segments can change dramatically and quickly.
There is uncertainty over President Trump’s day to day position on tariffs.

For more color on the FRD story, we encourage you to read a Seeking Alpha article titled, “Friedman Industries: Q1 Earnings Should Provide A Major Catalyst For Near Term Share Appreciation”.

Research

Mon, 02 Jul 2018 14:42:36 GMT

We issued the following tweet on Friday:

Friedman Industries Inc. (NYSE AMEX:FRD) ($8.04; $56.3M market cap) - Last Friday morning, Friedman, a company that engages in steel processing, pipe manufacturing and processing, and steel and pipe distribution activities in the United States, reported strong Q4 2018 results:

Sales of $43.9 million vs $21.0 million in the prior year
EPS of $0.31 vs a loss of $0.06 in the prior year

Management comments suggest these strong results should continue into Q1 2019:

“The Company experienced improved demand throughout fiscal 2018 with a more notable increase during the fourth quarter associated with reactions to the Section 232 steel trade actions and the first full quarter of marketing API line pipe. Management expects results for the first quarter of fiscal 2019 to be positively impacted by the continuation of these conditions.”

We plan to interview management to determine if FRD can become a select long position. Three factors we plan to hone in on are:

How much of the company’s strength in this quarter was due to recent tariffs?
How much is from the company’s restructuring efforts?
The improved market environment

We interviewed FRD management in the past and found the company standoffish. We hope our attempts this time around will reveal their increased willingness to speak with us so as to shed more light on the company’s current situation.

On a related note, in early May we highlighted the strong guidance from Synalloy Corporation (NASDAQ:SYNL) ($19.95, $174.7M market cap), a company engaged in a number of diverse business activities including the production of stainless steel pipe and tubing, fiberglass and steel storage tanks and specialty chemicals. With FRD’s recent strong results, we’ll track SYNL’s to see if its momentum can carry into the coming quarters. The company’s recent run has it up 50% year to date.

GeoSpecial Notes

Tue, 13 Mar 2012 04:00:00 GMT

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

Comments & Business Outlook

Mon, 15 Aug 2011 04:00:00 GMT

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

Comments & Business Outlook

Mon, 27 Jun 2011 04:00:00 GMT

SUMMARY OF OPERATIONS
	(unaudited)
	THREE MONTHS ENDED MAR. 31,				YEAR ENDED MAR. 31,
	2011		2010		2011		2010

Net sales	$	41,998,111	$	23,328,900	$	131,709,492	$	65,132,170
Total costs, and expenses		37,367,132		21,578,496		119,595,779		63,961,098

Earnings before income taxes		4,630,979		1,750,404		12,113,713		1,171,072
Income taxes		1,428,404		688,146		3,958,076		519,048
Net earnings	$	3,202,575	$	1,062,258	$	8,155,637	$	652,024

Weighted average shares outstanding:
Basic		6,799,444		6,799,444		6,799,444		6,799,444
Diluted		6,799,444		6,799,444		6,799,444		6,799,444
Earnings per share:
Basic	$	0.47	$	0.16	$	1.20	$	0.10
Diluted	$	0.47	$	0.16	$	1.20	$	0.10

Comments & Business Outlook

Mon, 14 Feb 2011 05:00:00 GMT

For the quarter ended December 31, 2010, the Company recorded:

Net earnings of $1,733,494 ($0.25 per share diluted) on sales of $31,135,887. During the quarter ended December 31, 2009, the Company recorded a net loss of ($41,239, $0.01 loss per share diluted) on sales of $13,470,721.

GeoSpecial Notes

Fri, 03 Dec 2010 05:00:00 GMT

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

Research

Fri, 19 Nov 2010 05:00:00 GMT

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. "