Universal Stainless & Alloy Products, Inc. (USAP) has delivered an exceptional performance in the second quarter of 2024, showcasing its ability to capitalize on the surging demand in the aerospace industry. The company reported record sales of $82.8 million, a 19.9% increase compared to the same period last year. This impressive top-line growth was driven by a robust 34% year-over-year increase in aerospace sales, which reached a record $68.6 million and accounted for 82.9% of total sales.
Business Overview
The company's strategic focus on the aerospace market and its premium alloy products has been the key driver of its success. Universal Stainless has made significant investments in its North Jackson facility, adding a second 18-ton furnace shell for its vacuum induction melting (VIM) operations and a new box furnace to support growth at the forge. These investments have enabled the company to expand its premium alloy production capacity, which now accounts for 25% of total sales, up from 18.6% in the prior-year quarter.
The company's ability to deliver a richer product mix and secure a broader base of customer approvals in the aerospace market has been transformational. The combination of this strategic focus and targeted margin improvement projects has resulted in a structural change in the company's profitability. In the second quarter, Universal Stainless reported a record gross margin of 25.4%, a significant improvement from the 14.3% reported in the same period last year.
Financials
The company's net income for the second quarter reached a record $8.9 million, or $0.90 per diluted share, more than doubling the $0.10 per diluted share reported in the prior-year quarter. This impressive bottom-line performance was driven not only by the strong top-line growth but also by the company's successful execution of its cost improvement initiatives, which have resulted in higher yields and lower material costs.
Universal Stainless' financial performance for the first half of 2024 has been equally impressive. The company reported annual net income of $13.0 million, annual revenue of $160.4 million, annual operating cash flow of $17.5 million, and annual free cash flow of $6.6 million. These results demonstrate the company's ability to generate substantial cash flow, which it plans to use to fund strategic capital investments and further reduce its debt.
The company's backlog remained solid at $297 million at the end of the second quarter, down from $325 million at the end of the first quarter. This decrease is primarily due to the company's efforts to work with customers to manage order entries and pull in lead times, which better serves their needs while strengthening Universal Stainless' competitiveness.
Outlook
Looking ahead, the company remains highly optimistic about its growth prospects. The strong fundamentals in the aerospace industry, including the recovery in air travel, the need for more fuel-efficient aircraft, and the ongoing geopolitical conflicts driving increased military spending, are expected to continue driving demand for the company's premium alloy products.
In the energy market, Universal Stainless plans to increase its sales in future quarters as its production capacity continues to expand. The company is also poised to benefit from the long-term prospects in the general industrial market, particularly in the semiconductor manufacturing industry, as the CHIPS Act helps drive the return of semiconductor manufacturing to the United States.
Conclusion
The company's management team has demonstrated its ability to navigate the challenges of the past few years and position the company for sustained growth. With its strategic focus on the aerospace market, investments in capacity and efficiency, and a strong financial position, Universal Stainless is well-positioned to capitalize on the significant opportunities ahead.