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Positioning for a very different year: high steel prices and solid demand early in 2008 sustained leading service centers through a disastrous fourth quarter. In their year-end financial reports to analysts and investors, service center executives describe how they are girding for the tough year ahead.

Article Excerpt
Metals USA

Gains Market Share, Despite Tough 4Q

Metals USA suffered a $7.0 million loss in the fourth quarter of 2008, but still posted the best year in company history. The Houston-based service center company reported net earnings of $72.6 million, nearly $60 million more than the $13.9 million reported in 2007.

Net sales for the quarter totaled $456.4 million, more than 5.5 percent better than the same three months in 2007 despite the industry-wide demand collapse during the quarter. For the year, the company reported net sales of $2.16 billion, 16.8 percent more than the previous year.

Lourenco Goncalves, president, chairman and CEO, said the company's improved performance was a result of gaining market share, as overall service center shipments declined 10 percent in 2008. "Despite the recessionary environment and challenging conditions for business, 2008 was Metals USA's best year ever, which translated into record revenues and record profits," he told investors and analysts at the company's quarterly conference call.

As with others in the supply chain, Metals USA's performance fell considerably in the fourth quarter compared to the third. Metals USA had reported third-quarter sales of $617.7 million and quarterly earnings of $36.0 million.

Metals USA responded to the decline in demand from its end-use customers by dramatically reducing its inventory. Inventory tonnage was reduced more than 20 percent during the quarter. "The fourth quarter seemed like an appropriate time to drastically reduce our inventories and get ready for 2009," Goncalves said.

But the distribution market is adapting to this level in a new way, Goncalves said. Service centers are keeping inventory positions low by dealing more frequently with each other. "If we have an order for five items and we only have four on hand, instead of going back to the mill to buy the fifth, I go to another service center. That way I'm helping the entire service center system stay low in inventories. And I'm not the only one doing that."

Goncalves said his hesitancy to rely on...