Business Overview and History

Friedman Industries was founded in 1965 and has since grown to become a respected name in the steel industry. The company operates in two key business segments: Flat-Roll and Tubular. The Flat-Roll segment, which accounts for the majority of Friedman’s revenues, consists of five hot-rolled coil processing facilities located across the United States. These facilities are located in Arkansas, Alabama, Indiana, Illinois, and Texas, and are equipped with state-of-the-art equipment, enabling the company to process steel coils into high-quality sheet and plate products to meet the diverse needs of its customers. The facilities are capable of cutting sheet and plate with thicknesses ranging from 16 gauge to 1 inch in widths ranging from 36 inches to 96 inches. While the majority of the flat-roll segment’s revenue comes from sales of company-owned inventory, it also generates revenue from processing or storing customer-owned coils.

The Tubular segment, operated under the Texas Tubular Products division located in Lone Star, Texas, comprises two electric resistance welded pipe mills that manufacture line pipe, oil country pipe, and structural pipe to stringent industry standards. All of the tubular segment’s revenue is generated from sales of company-owned inventory. This diversified business model has allowed Friedman to weather industry downturns and capitalize on emerging opportunities in both the flat-rolled and tubular steel markets.

Throughout its history, Friedman Industries has faced various challenges. In 2022, the company had to navigate global supply chain issues and rising raw material costs. In 2021, the company weathered the economic impacts of the COVID-19 pandemic. Despite these challenges, Friedman Industries has remained a consistent performer, reporting its second most profitable fiscal year in company history in 2024.

Financial Performance and Ratios

Friedman Industries has demonstrated a consistent track record of financial stability and profitability. In the fiscal year ended March 31, 2024, the company reported net earnings of $17.3 million, marking the second most profitable year in its history. This strong performance was driven by a 19% increase in sales volume compared to the prior fiscal year.

The company’s balance sheet remains robust, with a current ratio of 4.10 as of September 30, 2024, indicating a strong ability to meet its short-term obligations. Friedman’s debt-to-equity ratio stands at 0.28, suggesting a prudent capital structure that provides financial flexibility. The company’s return on equity (ROE) of 6.32% for the six months ended September 30, 2024, demonstrates its ability to generate solid returns for its shareholders.

Quarterly Performance and Outlook

For the second quarter of fiscal 2025, which ended on September 30, 2024, Friedman Industries reported net sales of approximately $106.8 million, a decline of 18.3% from the year-ago period. The company also reported a net loss of $0.7 million, or a diluted loss per share of $0.10, compared to net income of $3.5 million, or $0.48 per share, in the same quarter of the previous fiscal year.

The company attributed the decline in performance to a combination of softer demand and pricing pressure in the steel industry. However, Friedman’s management remains cautiously optimistic about the company’s long-term prospects, citing the strength of its diversified business model and strategic initiatives to enhance operational efficiency and capture market opportunities.

Risks and Challenges

Like any steel industry participant, Friedman Industries is exposed to various risks and challenges. Fluctuations in raw material prices, particularly hot-rolled coil, can have a significant impact on the company’s profitability. Additionally, the cyclical nature of the steel industry and the highly competitive landscape pose ongoing challenges.

The company’s reliance on a limited number of suppliers for its raw materials also presents a potential risk, as the loss of any of these suppliers could disrupt Friedman’s operations. Furthermore, the company’s geographic concentration, with the majority of its facilities located in the southern United States, exposes it to regional economic and environmental factors.

Financials

Friedman Industries’ financial performance has been solid over the years. The company’s revenue for the fiscal year ended March 31, 2024, was $516.25 million, representing a significant increase from the previous year. This growth was primarily driven by higher sales volumes in both the Flat-Roll and Tubular segments. The company’s gross profit margin for the same period was 8.5%, reflecting its ability to manage costs effectively in a challenging market environment.

For the fiscal year 2024, Friedman Industries reported net income of $17.34 million, operating cash flow of $63.89 million, and free cash flow of $47.44 million. These figures demonstrate the company’s ability to generate substantial cash flows from its operations.

In the most recent quarter (Q2 2025), the company reported revenue of $106.76 million, a decrease of 18.3% compared to the same quarter last year. The net loss for the quarter was $0.675 million, down from a net income of $3.51 million in the prior year period. Operating cash flow decreased to $10.783 million from $15.58 million, and free cash flow declined to $9.937 million from $16.08 million in the same quarter last year. The decrease in sales was attributed to both lower sales volume and a decrease in the average selling price per ton.

Liquidity

As of September 30, 2024, Friedman Industries maintained a strong liquidity position. The company had cash and cash equivalents of $18.2 million, providing a solid cushion for operational needs and potential investment opportunities. Additionally, the company had access to a $150 million asset-based lending (ABL) facility, further enhancing its financial flexibility. As of September 30, 2024, the company had $35.9 million outstanding on the ABL facility, with an applicable interest rate of 7.0%. The company’s borrowing base calculation supported access to approximately $104.7 million of the ABL facility.

The company’s current ratio of 4.10 and quick ratio of 1.18 as of September 30, 2024, further underscore its strong liquidity position. This robust liquidity allows Friedman to navigate market fluctuations and pursue strategic growth initiatives when opportunities arise.

Segment Performance

In the flat-roll segment, which comprises the majority of Friedman’s business, sales for the six months ended September 30, 2024, totaled $200.77 million, down from $245.72 million in the same period of the prior year. This decrease was due to both lower sales volume and a decline in the average selling price per ton. Sales volume consisted of approximately 221,500 tons from inventory and 42,000 tons of toll processing, compared to 241,000 tons from inventory and 50,000 tons of toll processing in the prior year period. The segment’s operating profits decreased to $5.33 million from $14.96 million, primarily due to compressed margins resulting from declining hot-rolled steel coil (HRC) prices.

The tubular segment, operated by the Texas Tubular Products division, reported sales of $20.54 million in the six months ended September 30, 2024, down from $22.32 million in the prior year period. This decrease was primarily due to a decline in the average selling price per ton from $1.29 thousand to $1.09 thousand, while tons sold increased from 17,500 to 19,000. The tubular segment recorded an operating loss of $1.77 million, compared to operating profit of $2.28 million in the same period of the prior year.

Industry and Market Position

Friedman Industries operates exclusively within the United States steel market, which has seen a compound annual growth rate (CAGR) of 3-5% over the past five years. In comparison, Friedman’s revenue has grown at a slightly lower rate of 2-3% annually over the same period. This suggests that while the company has maintained steady growth, there may be opportunities to capture additional market share in the future.

Conclusion

Friedman Industries, Incorporated (FRD) has established itself as a diversified player in the steel industry, leveraging its Flat-Roll and Tubular segments to navigate the cyclical nature of the market. The company’s consistent financial performance, robust balance sheet, and strategic initiatives have positioned it well to weather industry headwinds and capitalize on emerging opportunities. While challenges remain, including recent declines in revenue and profitability due to market conditions, Friedman’s long-standing history, experienced management team, and commitment to operational excellence suggest it is well-equipped to navigate the evolving steel landscape. The company’s strong liquidity position and access to credit facilities provide a solid foundation for future growth and stability in the competitive steel processing and pipe manufacturing industry.

Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.