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All eyes on inventories.

Article Excerpt
Despite concerns over rising inventory levels, metals distributors report strong sales and earnings through the third quarter, and look optimistically toward 2007

A.M. Castle & Co.

Transtar Acquisition Leads to Record Sales

The completed acquisition of Transtar Metals contributed to record quarterly sales for A.M. Castle & Co.

The Franklin Park, Ill.-based company posted record net sales of $300.8 million during the quarter ended Sept. 30. The figure was 28.2 percent better than the $234.5 million recorded during the same period a year earlier.

Year-to-date sales totaled $855.6 million, 16.9 percent better than the first nine months of 2005.

"We continue to experience strong demand for our products and services," President and CEO Michael Goldberg told analysts and investors during Castle's third-quarter conference call. "Of the 28 percent increase in our third-quarter revenues, 8 percent was attributable to volume, 12 percent to price increases and 8 percent to our acquisition of Transtar."

Net income for the third quarter was $15.3 million, a 50 percent increase compared to $10.1 million in the third quarter of 2005. Year-to-date net income was $45.2 million, compared to $34.9 million for the same period of 2005.

In the company's metals segment, Castle reported 30 percent sales growth for the third quarter and 18 percent on a year-to-date basis.

"Sales of nickel alloy products were particularly robust, with tonnage in that product family growing 60 percent compared to the third quarter of last year, reflecting the strong oil and gas market. Year-to-date revenues were 17 percent ahead of last year, of which 7 percent was attributable to volume, 7 percent to price and 3 percent to Transtar."

On Sept. 5, the company completed its acquisition of Transtar, a distributor of high-performance alloys to the aerospace and defense industries worldwide. The total purchase price was $173.3 million plus the assumption of $1 million of foreign debt.

With the Transtar acquisition, Castle's business in the aerospace sector now represents more than 30 percent of total revenue. The strength of that market, plus Castle's limited participation in the softer automotive and residential construction markets, suggests strong revenue growth potential in 2007, Goldberg said.

Goldberg affirmed Castle's plans to allow Transtar to continue to operate as it had been leading up to the acquisition.

"Much of Transtar's success is due to its dedicated focus on the aerospace market. We don't fully intend to merge the two businesses, but there are a number of benefits that can be derived from integration. Some are longer term. In the short term, we are working together to look at our international platform, both in Europe and maybe even more significantly in Asia."

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