Friedman Industries, Incorporated (FRD) is a leading manufacturer and processor of steel products, operating in two distinct segments - flat-roll products and tubular products. With a rich history spanning over five decades, this Texas-based company has weathered the ups and downs of the cyclical steel industry, emerging as a resilient force in the market.
Company Overview
Friedman Industries, Incorporated has been engaged in steel processing, pipe manufacturing, and steel and pipe distribution since its founding in 1965. The company operates in two reportable segments - flat-roll products and tubular products. The flat-roll product segment consists of the operation of five hot-rolled coil processing facilities located in Arkansas, Alabama, Indiana, Illinois, and Texas. These facilities use equipment like temper mills and cut-to-length lines to improve the flatness and surface quality of steel coils and cut them into prescribed sheet and plate lengths. The vast majority of the flat-roll segment's revenue comes from the sale of company-owned inventory, with a smaller portion generated from processing or storing customer-owned coils.
The tubular product segment operates under the Texas Tubular Products division located in Lone Star, Texas. This division operates two electric resistance welded pipe mills that manufacture line pipe, oil country pipe, and other pipes that meet recognized industry standards. All of the tubular segment's revenue is generated from the sale of company-owned inventory. Over the years, Friedman Industries has faced a number of challenges common to steel companies. Fluctuations in the price and availability of raw materials like steel coils have impacted the company's operations and financial performance. The company has also had to navigate changes in demand from its customers in various end markets.
Financials
Friedman Industries' financial performance has been marked by a mix of successes and challenges, reflective of the cyclical nature of the steel industry. In the fiscal year ended March 31, 2024, the company reported net earnings of $17.3 million, the second-most profitable year in its history. This impressive feat was driven by a 19% increase in sales volume over the prior fiscal year, highlighting the company's ability to capitalize on favorable market conditions.
However, the company's more recent performance has been impacted by industry-wide pricing pressures and macroeconomic factors. For the nine months ended December 31, 2024, Friedman Industries reported a decline in net sales to $315.4 million, compared to $384.0 million in the corresponding period of the previous year. This decrease was primarily attributed to a combination of lower sales volume and a decrease in the average selling price per ton.
In the most recent fiscal year (2024), Friedman Industries reported annual revenue of $516.3 million, annual net income of $17.3 million, annual operating cash flow of $63.9 million, and annual free cash flow of $47.4 million. These figures demonstrate the company's ability to generate substantial cash flow despite challenging market conditions.
The company's performance in the most recent quarter (Q3 2025) reflects the ongoing challenges in the steel industry. Revenue for the quarter was $94.1 million, with a net loss of $1.2 million. The decrease in sales was associated with both a decline in sales volume and a decrease in the average selling price per ton. Sales volume for Q3 2025 consisted of approximately 112,500 tons from inventory and another 18,000 tons of toll processing customer-owned material, compared to Q3 2024 volume consisting of approximately 118,000 tons from inventory and 22,000 tons of toll processing.
The decline in sales volume for Q3 2025 was related to a combination of weaker demand among some customers and hesitancy among others given political uncertainty during the quarter. Adjusted gross profit was approximately $15.6 million for Q3 2025 compared to approximately $24.0 million for Q3 2024. Adjusted gross profit as a percentage of sales was approximately 16.5% for Q3 2025 compared to approximately 20.7% for Q3 2024.
Liquidity
Despite these headwinds, Friedman Industries has maintained a strong financial position, with a current ratio of 3.5 as of December 31, 2024, and a working capital balance of $107.0 million. The company's debt management has also been prudent, as evidenced by the 9% reduction in debt during the third quarter of fiscal 2025.
Friedman Industries' liquidity position remains robust, with a debt-to-equity ratio of 0.021 and cash holdings of $1.1 million. The company has access to a $150 million asset-based lending facility, with $99.2 million available as of Q3 2025. This strong liquidity position provides Friedman Industries with financial flexibility to navigate market fluctuations and pursue growth opportunities.
Business Segments and Strategy
Friedman Industries' diversified product portfolio and strategic geographic footprint have been integral to its resilience. The flat-roll segment, which accounted for 91% of the company's total net sales in the nine months ended December 31, 2024, has demonstrated its ability to navigate challenging market conditions. Meanwhile, the tubular segment, while facing its own set of obstacles, has contributed to the overall stability of Friedman's operations.
The flat-roll product segment operates five hot-rolled coil processing facilities located in Hickman, Arkansas; Decatur, Alabama; East Chicago, Indiana; Granite City, Illinois; and Sinton, Texas. The Hickman, Granite City, and East Chicago facilities operate temper mills and cut-to-length lines, while the Decatur and Sinton facilities operate stretcher leveler cut-to-length lines. On a combined basis, these facilities are capable of cutting sheet and plate with thicknesses ranging from 16 gauge to 1 inch thick in widths ranging from 36 inches to 96 inches.
The tubular product segment consists of the Company's Texas Tubular Products division (TTP) located in Lone Star, Texas. TTP operates two electric resistance welded pipe mills with a combined outside diameter (OD) size range of 2 inches to 8-5/8 inches OD. Both pipe mills are American Petroleum Institute (API) licensed to manufacture line pipe and oil country pipe, and also manufacture pipe for structural purposes that meets other recognized industry standards.
During the nine months ended December 31, 2024, the flat-roll segment generated sales of $286.9 million, down from $352.2 million in the prior year period, while the tubular segment generated sales of $28.5 million, down from $31.9 million in the prior year period. The flat-roll segment recorded operating profits of $6.6 million in the 2024 period, down from $23.7 million in the 2023 period, while the tubular segment recorded an operating loss of $2.0 million in the 2024 period compared to operating profits of $2.2 million in the 2023 period.
The company's operating results are significantly impacted by the market price of hot-rolled steel coil (HRC). During the 2024 period, HRC prices were on a predominantly declining trend, leading to compressed physical margins throughout the period. To manage its exposure to commodity price risk, the Company utilizes HRC futures, recognizing gains of $5.8 million in the 2024 period and $0.7 million in the 2023 period related to these hedging activities.
Future Outlook
Looking ahead, Friedman Industries remains cautiously optimistic about its future prospects. The company has reported an 11% higher sales backlog volume at the end of the third quarter of fiscal 2025 compared to the prior year, suggesting a potential uptick in demand. Additionally, the company's management has expressed confidence in its ability to manage the ongoing challenges, citing its focus on cost control and operational efficiency.
The global steel market is expected to grow at a compound annual growth rate (CAGR) of 5-7% from 2023 to 2025, driven by increased demand from regions like Southeast Asia, Turkey, Europe, the United States, and Brazil. This positive industry outlook provides potential growth opportunities for Friedman Industries in the coming years.
Conclusion
In conclusion, Friedman Industries, with its long-standing history, diversified business model, and prudent financial management, has proven its mettle as a formidable player in the steel industry. While navigating the cyclical nature of the market remains a constant challenge, the company's proven track record and strategic initiatives position it well to weather the storms and capitalize on future growth opportunities. The company's strong liquidity position, low debt levels, and available credit provide a solid foundation for navigating market fluctuations and pursuing potential growth avenues in the evolving steel industry landscape.