Staff Report

Published April 26, 2011

Synalloy Corp., a producer of stainless steel pipe, fabricator of stainless and carbon steel piping systems, and producer of specialty chemicals, said net income soared in the first quarter to $2.5 million, compared with $82,000 in the first quarter of 2010.

Sales for the Spartanburg-based company rose 21% to $42.7 million from $35.2 million a year earlier.

In the metals segment, sales rose 26% to $31.4 million in the quarter.

The sales increase resulted from a 3% increase in unit volumes and a 21% increase in average selling prices. First quarter 2011's selling prices, as compared to the prior year, reflects higher prices for both commodity (up 23%) and non-commodity products (up 32%). Special alloy product shipments were higher in 2011 as a result of increased projects and distributor restocking. International sales efforts are continuing to show year over year sales growth.

An increase in operating income resulted from improved product mix and increased selling prices across all product categories. Both pipe manufacturing and fabricated piping systems showed substantial operating margin improvement over the prior year. Included in the 2010 operating loss was $500,000 of product claims expense which resulted from a metals segment customer alleging that the segment delivered defective pipe in 2006 which the customer removed and replaced. The company settled this claim in May 2010.

Sales for the specialty chemicals segment in the first quarter were $11.3 million, an increase of 11% over the first quarter of 2010. Pounds sold during the first quarter of 2011 were down 2.4% from the prior year. While average selling prices for the first quarter were up 13% over the prior year, raw material costs increased 17%. Operating income for the first quarter of 2011 was $773,000, down 29% from 2010. The segment experienced higher raw material costs beginning in the third quarter of 2010 and management increased selling prices whenever possible to help offset the increased costs. The decrease in operating income during the quarter resulted from the inability to pass all of the raw material cost increases along to our customers plus higher shipping container costs. Profits were also impacted as some key accounts experienced market weakness with their products resulting in the Segment shipping a larger amount of lower margin products during the current quarter.

Synalloy’s management said it was pleased with the surge in results in the metals segment and with the company's overall performance in the first quarter, with each of our business units generating profitable results in a challenging economy.

The higher sales levels that the specialty chemicals segment experienced during the first quarter should continue into the remainder of 2011. Maintaining first quarter 2011 profitability levels during the remainder of 2011 will depend on our ability to pass on to our customers cost increases associated with petroleum-based and commodity chemicals, the company said.