Growth plan pays off for Bedford Heights Olympic Steel metal service center
Olympic Steel Inc. had its most profitable quarter in its history in the second quarter of 2021.
The Bedford Heights Metals Service Center reported net income for the quarter of $ 29.6 million. Adjusted EBITDA was $ 51.7 million and sales were $ 556 million.
The metals industry has seen record prices, but Olympic Steel CEO Richard T. Marabito thinks there is more to be said.
“Of course the steel business is really strong, but we do a lot of good blockings, good tackles and disciplines within the company and then the strategy and the investments that we make on top of that, I thinks we’re really starting to harness a lot of the power of Olympic Steel. And sticking to strategy and disciplines is paying off, “said Marabito.
Marabito has been with Olympic Steel since 1994, assuming the role of CEO in early 2019.
About 10 years ago, almost all – around 95% to 97% – of Olympic Steel’s business was done in the carbon dish, Marabito said. The company decided it wanted to focus on growth, adding more products like stainless steel and more processing services.
The company acquired Chicago Tube and Iron, entering the tube and pipe business in 2011. This also offered expansion in specialty metals, as the company had stainless steel and carbon in its portfolio.
Today, Olympic Steel has three segments: Carbon Flats, Pipe & Tubes, and Specialty Metals, which are made of flat rolled aluminum and stainless steel. Carbon flat, the company’s original core business, now accounts for around 50% of its business, Marabito said. While Olympic Steel has continued to invest in its carbon business, its other segments have grown comparatively.
And as the company began to offer more processing services, it made sense to add an end product to its portfolio. In early 2019, Olympic Steel acquired McCullough Industries Inc., a manufacturer of industrial hoppers. Later that year, it also acquired assets from a company called EZ-Dumper, which makes hydraulic dump inserts for pickup trucks.
More recently, Olympic Steel acquired the assets of Georgian-based Shaw Stainless & Alloy Inc. The acquisition in early October is the company’s fifth in four years, and it aligns almost perfectly with its growth strategy. Marabito said the company was expanding the stainless steel business of Olympic Steel, adding a lot of “high-end manufacturing” to its offerings and bringing another end product on board. Shaw manufactures bollards, which are used in street planning or road design.
“We love it. We think it will be a great platform for growth for us,” said Marabito. “We believe that we are adding a lot of synergies from the base of Olympic Steel to be able to develop this business.”
Olympic Steel also recently sold its Detroit assets, choosing to liquidate that business and reinvest the funds in areas like the Shaw acquisition. The acquisition, the terms of which were not disclosed, used only a portion of the funds from the Detroit sale, but Marabito said he expects it to fill the “profitability hole. “left by the surrender.
Ultimately, Olympic Steel’s merger and acquisition strategy focuses on companies that can offer an “immediate accretive return” and whose value is well above the cost of capital, Marabito said.
“What we’re investing in are, I believe, the needle drivers for us going forward, in terms of portfolio returns,” he said.
In addition to acquisitive growth, the company also worked on organic growth. Olympic Steel has around 40 locations, and the goal is for all of them to grow by adding new markets and customers and investing in new equipment. Marabito noted that there is a particular emphasis on adding automation solutions for safety and efficiency reasons. And, as the job market remains tight, he said he believes adding more automation will allow the company to continue growing.
Traditionally, Olympic Steel’s margins have been slim because it is a buy-sell business, said Phil Gibbs, director and equity research analyst at KeyBanc Capital Markets Inc. But his investments in end products in recent years could generate higher returns.
Gibbs has been covering steel since 2006 and said he has never seen a pricing cycle with the “pace and scale” of inflation like the current one. The price of hot-rolled coils has averaged around $ 650 per tonne over the past 10 years, he said. Last summer, that number fell to around $ 450 per tonne before increasing to around $ 1,900 per tonne in the past 52 to 60 weeks. And that was a particularly long growth cycle, as those cycles typically last around 15 to 20 weeks with far fewer changes, Gibbs said.
All of this means that the steel was extremely strong. Gibbs said he believed the pricing cycle ended about four to eight weeks ago, leveling off and starting to decline as supply began to better meet demand. And he said he expects prices to drop “sharply” once the supply becomes available.
The gains on inventory have been big for steel service centers like Olympic Steel, Gibbs said, but costs have been high as well. As prices go down, the centers should see their profits go down, but “bring out” more money, he said.
Marabito is not concerned about the upcoming market. In the short term, Marabito said he believes there is a lot of “pent-up demand” in the market. The supply chain won’t be fixed overnight, but as the challenges ease over time, he believes American manufacturing will be strong.
“The dynamic that we are seeing is that our customers have a demand that they just cannot produce due to all the supply chain disruptions,” said Marabito.