Business Overview
Olympic Steel, Inc. (NASDAQ:ZEUS) is a leading national metals service center that has weathered numerous industry cycles through strategic diversification and operational excellence. With a history spanning over seven decades, the company has transformed itself from a general steel service center into a diversified provider of specialty metals, carbon flat-rolled products, and tubular and pipe solutions.
Olympic Steel was founded in 1954 as a general steel service center. In the late 1980s, the company shifted its focus from warehousing and distributing steel from a single facility to geographic and product growth, customer diversity, and value-added processing. Acquisitions and investments in processing equipment became an integral part of Olympic Steel's growth strategy. The company completed an initial public offering in 1994 and a follow-on offering in 1996, marking significant milestones in its corporate history.
Today, Olympic Steel operates in three reportable segments: specialty metals flat products, carbon flat products, and tubular and pipe products. Through a series of strategic acquisitions over the past seven years, Olympic Steel has expanded its geographical footprint, enhanced its product offerings, and strengthened its position in higher-margin manufactured metal products.
The specialty metals flat products segment, established in 2015, has since expanded significantly. This segment focuses on the direct sale and distribution of processed aluminum and stainless flat-rolled sheet and coil products, flat bar products, prime tin mill products, and fabricated parts. Notable acquisitions in this segment include Shaw Stainless Alloy, Inc. in 2021 and Action Stainless Alloys, Inc. in 2020, which have enhanced the company's capabilities in stainless steel and aluminum products. The segment has also expanded its offerings to include stainless steel and aluminum plate, sheet, angles, rounds, flat bar, tube and pipe, as well as the manufacturing and distribution of stainless steel bollards and water treatment systems.
The carbon flat products segment has grown through strategic acquisitions such as EZ Dumper hydraulic dump inserts and McCullough Industries in 2019, and Berlin Metals, LLC in 2018. These acquisitions have expanded the segment's product offerings to include self-dumping metal hoppers, steel and stainless-steel dump inserts for pickup truck and service truck beds, and various other metal-intensive products. The segment has further expanded to include venting, micro air and clean air products for residential, commercial and industrial applications, as well as the manufacturing of service station canopies, deck clips, long gutters, trim, boat docks, and solar canopy and ground racking components.
The tubular and pipe products segment focuses on the distribution of metal tubing, pipe, bar, valves, and fittings, as well as the fabrication of parts supplied to various industrial markets. This segment has expanded its geographic footprint and extended its value-added contract manufacturing capabilities through the acquisition of Central Tube and Bar, Inc. in 2023.
Financial Performance and Liquidity
Over the past three years, Olympic Steel has demonstrated its ability to navigate challenging market conditions. In 2024, the company reported net income of $23.0 million on revenue of $1.94 billion, despite facing a more than 40% decline in hot-rolled carbon pricing during the first seven months of the year and a weakening demand environment.
The company's diversification strategy has helped it maintain profitability, with each of its three segments contributing positive EBITDA in every quarter of 2024. Olympic Steel's focus on value-added processing and manufactured metal products has also supported its financial performance, as evidenced by the improved gross profit margins in its carbon flat products and tubular and pipe products segments.
In 2024, the specialty metals flat products segment reported net sales of $496.9 million, accounting for 25.6% of the company's total net sales. The segment's sales decreased 12.5% year-over-year, primarily due to a 13.9% decrease in average selling prices, partially offset by a 1.7% increase in sales volume. Gross profit as a percentage of net sales increased to 18.2% in 2024 from 16.5% in 2023. Operating income for this segment totaled $19.7 million, or 4.0% of net sales, in 2024 compared to $22.9 million, or 4.0% of net sales, in 2023.
The carbon flat products segment reported net sales of $1.11 billion in 2024, accounting for 57.1% of the company's total net sales. Segment net sales decreased 9.2% year-over-year, driven by a 7.6% decrease in average selling prices and a 1.7% decrease in sales volume. Gross profit as a percentage of net sales increased to 22.0% in 2024 from 21.1% in 2023. Operating income for this segment totaled $16.4 million, or 1.5% of net sales, in 2024 compared to $34.6 million, or 2.8% of net sales, in 2023.
The tubular and pipe products segment reported net sales of $335.7 million in 2024, accounting for 17.3% of the company's total net sales. Segment net sales decreased 9.1% year-over-year, due to an 11.4% decrease in average selling prices, partially offset by a 2.6% increase in sales volume. Gross profit as a percentage of net sales increased to 34.6% in 2024 from 33.1% in 2023. Operating income for this segment totaled $28.8 million, or 8.6% of net sales, in 2024 compared to $40.7 million, or 11.0% of net sales, in 2023.
Overall, the company's net sales decreased 10.0% year-over-year to $1.94 billion in 2024, due to a 9.2% decrease in consolidated average selling prices and a 0.9% decrease in consolidated volume. Gross profit as a percentage of net sales increased to 23.2% in 2024 from 21.9% in 2023. The company's net income totaled $23.0 million, or $1.97 per basic and diluted share, in 2024 compared to $44.5 million, or $3.85 per basic and diluted share, in 2023.
As of December 31, 2024, Olympic Steel had total debt of $272.5 million and availability of more than $200 million under its $625 million asset-based credit facility. The company's sound liquidity position and financial flexibility allow it to continue investing in organic growth initiatives and strategic acquisitions to further strengthen its competitive position.
Olympic Steel's financial health is further demonstrated by its key financial ratios. The company's debt-to-equity ratio stands at 0.066, indicating a low level of leverage. With $11.9 million in cash and approximately $192.8 million available under its credit facility, Olympic Steel maintains strong liquidity. The company's current ratio of 4.38 and quick ratio of 1.43 further underscore its ability to meet short-term obligations.
Strategic Investments and Acquisitions
Olympic Steel has been actively investing in its business to drive growth and improve operational efficiency. In 2024, the company spent $29.5 million on capital expenditures, primarily for processing equipment and automation upgrades at its existing facilities. Looking ahead to 2025, the company plans to invest approximately $35 million in initiatives such as a new cut-to-length line in Minneapolis to support its growing galvanized business, a high-speed specialty metal slitter outside Gary, Indiana, a new white metals cut-to-length line in Schaumburg, Illinois, and the automation of its Chambersburg, Pennsylvania fabrication operation to improve safety, efficiency, and expand capacity by over 30%.
The company's acquisition strategy has also been a key driver of its growth and diversification. In November 2024, Olympic Steel acquired Metal Works, a leading manufacturer of components for service station canopies, deck clips, long gutters, trim, and boat docks, as well as solar canopy and ground racking components. This acquisition further expanded the company's portfolio of metal-intensive end-use products and strengthened its position in the carbon flat products segment.
Prior to the Metal Works acquisition, Olympic Steel had completed seven other acquisitions in the past seven years, including Central Tube and Bar, Inc. in 2023 and Metal-Fab, Inc. in 2023. These strategic transactions have enabled the company to enhance its geographical footprint, expand its product offerings, and increase its exposure to higher-margin, value-added services.
Risks and Challenges
Despite Olympic Steel's successful navigation of industry challenges, the company faces several risks and uncertainties that could impact its future performance. These include ongoing volatility in metals prices, potential changes in trade policies and tariffs, supply chain disruptions, labor shortages, and the cyclical nature of the metals industry.
The company's reliance on a limited number of large customers, who accounted for approximately 9% of consolidated net sales in 2024, also exposes it to customer concentration risk. Additionally, the company's ability to successfully integrate acquired businesses and achieve the expected synergies and cost savings is critical to its continued growth and profitability.
Outlook and Conclusion
As Olympic Steel looks to the future, the company remains focused on executing its diversification strategy and capitalizing on strategic growth opportunities. The company's recent investments in automation, capacity expansion, and value-added processing capabilities position it to better serve its customers and navigate the evolving industry landscape.
Despite the challenges faced in 2024, Olympic Steel demonstrated its resilience by delivering profitable results in each of its three segments. The company's strong liquidity position and financial flexibility provide a solid foundation for continued investment in organic initiatives and strategic acquisitions.
Olympic Steel remains optimistic about the long-term outlook for the company and the overall metals industry. The company expects to continue making strategic investments in 2025, with capital expenditures estimated at approximately $35 million. These investments are aimed at improving automation, safety, and throughput across various facilities.
The company has also recently relocated its Action Stainless Houston facility to a larger 70,000 square foot building with additional equipment to support its growing white metals distribution and fabrication business. This move aligns with Olympic Steel's strategy of expanding its value-added services and strengthening its market position.
Looking ahead, Olympic Steel expects its 2025 effective income tax rate to approximate 27% to 28%. Additionally, the company's board of directors has approved an increase in the quarterly dividend from $0.15 to $0.16 per share, marking the fourth dividend increase since 2022. This decision reflects the company's commitment to delivering value to its shareholders and its confidence in its financial stability and future prospects.
Overall, Olympic Steel's diversified business model, operational excellence, and strategic focus position the company well to create long-term value for its shareholders. As the metals industry continues to evolve, Olympic Steel's ability to adapt and capitalize on emerging trends will be key to its ongoing success. Throughout its history, the company has faced various challenges, including industry consolidation, metals price volatility, and global economic conditions. Olympic Steel has navigated these challenges by focusing on operational discipline, diversifying its product offerings and customer base, and making strategic investments in its business. The company's commitment to safety, quality, and customer service has enabled it to build strong relationships and gain market share across its operating segments.