Business Overview
Friedman Industries, Incorporated (NYSE:FRD) is a diversified steel manufacturer and processor that has demonstrated its ability to navigate the cyclical nature of the steel industry. With a focus on flat-roll and tubular products, the company has leveraged its operational expertise and strategic investments to deliver solid financial performance amidst the industry's volatility.Friedman Industries operates in two reportable segments: Flat-roll and Tubular. The Flat-roll segment consists of five hot-rolled coil processing facilities located in Hickman, Arkansas; Decatur, Alabama; East Chicago, Indiana; Granite City, Illinois; and Sinton, Texas. These facilities are equipped with state-of-the-art equipment, including temper mills and cut-to-length lines, that enable the company to process sheet and plate ranging from 16 gauge to 1" thick and 36" to 96" wide. The Tubular segment, operated by the Texas Tubular Products division, manufactures and sells pipe products ranging from 2 3/8" to 8 5/8" in outside diameter.
Financial Performance
For the fiscal year ended March 31, 2023, Friedman Industries reported annual net income of $17.3 million on revenue of $516.7 million. The company's annual operating cash flow was $5.0 million, while free cash flow was negative $0.8 million. These results demonstrate the company's ability to generate solid profitability and cash flow, even in the face of industry challenges.Quarterly Highlights
In the most recent quarter ended December 31, 2023, Friedman Industries reported net sales of $116.0 million, up from $111.9 million in the prior-year quarter. Gross profit increased to $10.4 million, or 9.0% of net sales, compared to $6.1 million, or 5.5% of net sales, in the same period last year. The company's Flat-roll segment was the primary driver of this improvement, with operating profits of $8.7 million, up from $3.3 million in the prior-year quarter.Segmental Performance
The Flat-roll segment, which accounts for the majority of Friedman Industries' revenue, has been a key contributor to the company's success. During the nine months ended December 31, 2023, the Flat-roll segment generated $352.1 million in sales, down from $372.8 million in the prior-year period, primarily due to a decline in the average selling price per ton. However, sales volume increased, with the segment selling approximately 351,000 tons from inventory and an additional 72,000 tons of toll processing customer-owned material, compared to 306,500 tons from inventory and 34,000 tons of toll processing in the prior-year period.The Tubular segment, while smaller in scale, has also played a role in Friedman Industries' performance. During the nine months ended December 31, 2023, the Tubular segment reported sales of $31.9 million, down from $50.5 million in the prior-year period, due to a decrease in both the average selling price per ton and the volume sold.
Operational Highlights
Friedman Industries has made strategic investments to enhance its operational capabilities and expand its footprint. In October 2022, the company completed its new facility in Sinton, Texas, which is part of the Flat-roll product segment. This $22.2 million facility is equipped with a state-of-the-art stretcher leveler cut-to-length line and has expanded the company's production capacity and geographic reach.Additionally, in April 2022, Friedman Industries acquired certain assets and liabilities of Plateplus, Inc., a steel coil processing company, for $76.5 million. This acquisition added two new facilities in the Midwest, further strengthening the company's Flat-roll segment and improving its distribution capabilities.