Olympic Steel, Inc.
Q4 2008 Earnings Call Transcript

Published: 12 Feb 2009

[Operator:]

Good day everyone and welcome to the Olympic Steel Fourth Quarter 2008 Conference Call. Today's call is being recorded. At this time for opening remarks and introductions I would like to turn the call over to Michael Siegal Chairman and CEO. Please go ahead sir.

[Michael D. Siegal:]

Yes. Good morning and welcome to our call. Sorry for the little delay, we're having a little phone problem on our -- in the sense -- I apologize for that and on the call with me this morning is David Wolfort, our President and Chief Operating Officer and Richard Marabito our Chief Financial Officer. I want thank you all of you for your participation and for your interest in Olympic steel. Before we begin our discussion I want to remind everyone that during this call we will provide forward-looking statements that we do not undertake to update, or that may not reflect actual results. Changes in assumptions or changes in other factors affecting such forward-looking statements or assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those set forth in the forward-looking statements can be found in our filings with the Securities and Exchange Commission, including our annual report on Form 10-K. Pleased to report record 2008 financial performance. In 2008, we achieved record sales and earnings while gaining market share even with the rapid and deep economic decline experienced in the fourth quarter. We are particularly proud of our strong balance sheet and our ability to significantly lower our operating expenses as the industry wide decline in sales volume continues. Let me review some of the details from our earnings released today this morning. Our fourth quarter sales totaled $254 million, up 7.4% from the $236 million recorded in the fourth quarter of 2007. For the full year our sales increased 19% to a record of 1.230 billion compared to 1.003 billion for 2007. Our sales increase was due to higher selling prices for steel in 2008 than the prior year. Our fourth quarter sales volume total 229,000 tons compared to 291,000 tons shipped in the fourth quarter of 2007. For the year, our shipments totaled 1.17 million tons compared 1.25 million tons in 2007. Our 2008 tonnage volume decreased by 6.6%, which compares favorably to the decline in the total steel service centre shipments of 10.6% for 2008, as reported in the Metals Service Center Institute, Metals Activity Report. Our fourth quarter net income totaled $776, 000 or $0.07 per diluted share compared to $4.5 million or $0.42 per diluted share for the fourth quarter of 2007. For 2008 we earned record net income of 67.7 million of $6.21 per diluted share, compared to 25.3 million or $2.35 per diluted share last year. While the economic and financial environment is certainly challenging, and it's uncertain when business levels will improve, we believe we are well positioned to weather the difficult climate with a strong low leveraged balance sheet, and a proven approach to working capital management and cash turnover. At the end of the fourth quarter, we had shareholders equity of $29.73 per share, and only $40 million of debt and over $88 million of borrowing availability on our bank credit line. We entered 2009 with a strong balance sheet and significantly lower expense base that David will discuss later on the call. We believe that our approach to running the business, sound disciplined working capital and cash turnable principals have favorably positioned us to take advantage of the market, once steel demand returns. I also want to reiterate that we have a strong and easy understandable balance sheet with no defined benefit plans, no pension on post retirement liabilities, no financial derivatives or hedges, no off-balance sheet transactions other than the normal operating leases we have on some equipment, and only $6.6 million of goodwill. Again I just want to turn the call over to David and thank you all for your interest.

[David A. Wolfort:]

Before, I get started Rick why don't you go through some of the balance sheet and income statements. That'd be great

[Richard T. Marabito:]

Sure. No problem.

[David A. Wolfort:]

Also Michael if you'd (ph) just cover the dividend. We're pleased to report that (Technical Difficulty) dividend in this environment; our Board of Directors have prove the regulatory cash dividend of $0.05 per share net on March 16 2009 the shareholders of record March 2, 2009. Let me cover some more of the financial information that Michael did not cover. We ended 2008 with a total gross margin of $250 per ton and a fourth quarter margin of $172 a ton. On the annual margins were the result of higher steel and scrap prices in the nine months of the year. Growth in our value-add business and a sales mix of total processing business as compared to 2007. The margins deteriorate on the fourth quarter and that was due to market price for steel declining about 50% from September to December. For the year our operating expenses totaled $187 million in 2008 compared to 158 million in 2007. However our operating expenses totaled 36.5 million in the fourth quarter; that was down $13.7 million or 27% from the 50.2 million of operating expenses incurred in the third quarter of 2008. Fourth quarter 2008 expenses were also down 4.4 million or 11% from the 40.9 million incurred in the fourth quarter of 2007. So, these expense declines in the fourth quarter highlight just how quickly we've reacted to market downturn in terms of cutting our cost. Our operating income for the fourth quarter of 2008 total $9 million or 1.1% of sales, versus 7.4 million or 3.1% of sales last year. The full year of 2008 operating income totaled a record $109.2 million or 8.9% of sales, compared to 43.3 million or 4.2% of sales in 2007. Interest expense for the fourth quarter was 611,000; that compares to 299,000 last year and for the full year of 2008 interest totaled to 1.1 million compared to 2.8 million in 2007. Looking at our effective cash rate for 2008, it was 37.4% that compares to 37.6% last year. When you look at the fourth quarter rate the effective rate was higher and that was just as we trued up the rate for the year we had slightly higher expense, being booked in the fourth quarter. Turning to our balance sheet, we continue to manage credit and receivables closely, given the current financial environment and we ended the year with $77.7 million of receivables that is $10.7 million lower than were we ended 2007. Lower 2008 receivable level was due to lower December sales, faster collection. Our day sales outstanding improved by two full days; from 38 days in 2007 to 36 days in 2008. Our inventory totaled $255million at year-end, which is $76 million more than 2007 year-end levels. During the fourth quarter we did reduce our inventory by 58 million or 19% from the $314 million recorded as of September 30th. And for 2008 we turned our inventory in average of four times, which is below our preferred turnover range, and that was due to weaker than expected sales in the fourth quarter particularly in December. Decreased our debt during the quarter by $49 million, ended the year with $40 million of borrowings outstanding, and as Michael said we're in strong position with low leverage. Our current $130 million asset based revolver is committed through December of 2011, and we have no term debt and we have no futures scheduled equity. During 2008 in addition to achieving record sales and earnings at $34 million on capital expenditures to invest in future growth of Olympic steel, these projects included a new location in Dover, Ohio. Commencement of construction for a new facility in South Carolina, new space is line to Georgia, a facility expansion that's in process at our chambers for Pennsylvania location and a new stretcher-leveler line in Minneapolis, as well as the continued investment in our IT system, which successfully went live in our Cleveland operations in January. Our capital structure remains strong. The debt-to-equity ratio year-end is zero, 0.12 to 1and our debt to EBITDA ratio is 0.3 times. Now, I'll turn the call over to David.

[David A. Wolfort:]

Thank you, Rick, and good morning. 2008 certainly was an extraordinary year and that's probably an understatement both up and down. However, on our prior calls we've discussed our focus on strategically building a strong balance sheet as Rick has outlined, and Michael discussed earlier. Some criticize us for not using high leverage as a growth technique. In today's turbulent financial and economic environment a low leverage to financial position is serving us very well. No one including Olympic Steel is immune to the effects of steel pricing falling by 50% between September and December. The service centre ship -- steel shipments dropping by about 48% from the second quarter year-end. However, we believe that our ability to continue purchasing steel in the fourth quarter of 2008, first quarter of 2009; buying with our healthy balance sheet positions us well, take it through this downturn, and take advantage of the market when conditions improve. Mid-September to mid-December we reduced our inventory tonnage by about 28%, and Rick took us through the financial end of that a moment ago. And we reduced that 28% into the headwinds of the declining steel demand. This reduction allowed us to participate in purchasing steel during the weak, months of December and January. As Rick highlighted, we spent $34 million in capital expenditures in 2008 and in 2009, we've committed to completing (ph) those capital expenditures that are in process. This would include the rollout of our IT system locations, beyond Cleveland, completion of our new construction that we started in 2008 including an 80,000 square foot addition to our Chambersburg location, 9600 square feet addition in Winder, Georgia, and new construction of a 110,000 square foot facility in Sumter, South Carolina. We'll also complete the installation of equipment purchased in 2008, such as fabrication equipment in Iowa, and a new blanking line in Connecticut. We expect to self fund our 2009 capital spending with cash flows from operations and working capital reductions. We also made some significant improvements in our operations in 2008 through the upgrade of the inside and outside of all of our physical facilities. As recently announced, we are proud to have achieved the ISO 14001 environmental certification in all of our operating facilities, and to have one of the first lead environmentally certified buildings in the state of Georgia. We also continued to add to an already strong management team with the promotions of John Brieck to Regional Vice President of our newly established Southern Region, Dan Shepard's promotion to General Manager of the Carolinas and Steve Larson's promotion to Director of Operations and Facilities. We also just announced the hiring of the Andy Greiff, new position of Vice President of Specialty Metals. We look forward to Andy's leadership to continue the growth for our stainless steel and non-carbon product sales. Next I'd like to highlight our efforts to reduce our operating expenses to align our spending the current depressed levels of the steel industry shipments. As Rick indicated we quickly reacted to the decline in business at the end of 2008, our fourth quarter expenses decreased at $13.7 million or 27% sequentially on the third quarter of 2008. We have also made further expense adjustments in 2009. Our initiatives include the elimination of temporarily labor, elimination of overtime hours, except for customer service requirements, reduced work weeks and lay offs. To date we have reduced our labor by 213 full-time equivalents which equates to about 15% of our workforce. We instituted a 2009 wait release (ph) to all non-contractual employees and our senior management team voluntarily took a 10% salary reduction. We also have a highly variable compensation program throughout Olympic Steel that is performance based and tied to the sales and margins of our sales personnel and pre-tax profitability of our management and staff. Expense reduction initiatives to date bought in a savings of about 13% or $25 million annually from our 2008 levels. Obviously, we will continue to monitor business conditions closely and adjust further if need be. In summary, we're very pleased with our record of 2008 financial performance and the exceptional efforts of the Olympic Steel employees. We built a company with a strong foundation and a tested and experienced management team, which will serve us well in this difficult marketplace. We're confident that we will see -- that we will successfully navigate with this business cycle and emerge an even stronger company, if steel demand returns. This concludes our formal comments and we will now open the call to your questions. Thank you.

[Operator:]

(Operator Instructions) We will take our first question from Michelle Applebaum with FMI Research (ph). Please go ahead.

[Michelle Applebaum:]

Hi.

[David Wolfort:]

Hi Michelle.

[Michelle Applebaum:]

You beat (ph) my number. Okay. Some of the -- there's a lot of static on the line; I couldn't hear everything in the presentation. So I had a couple of questions, you may have gone through some of this and I apologize for that.

[David Wolfort:]

Okay. Go ahead.

[Michelle Applebaum:]

First liquidity covenants they're kind of soft (ph), can you put that to rest?

[Michael Siegal:]

The rest I didn't know it was an issue. But we have no covenant violations and at least 85, 80 almost $90 million liquidity availability, if we do not reduce the working capital which we expect to do. There's plenty of liquidity and no covenant violation.

[Michelle Applebaum:]

Okay. My question was and I apologize, it wasn't clear. On a go forward basis at the rate of performance that the company showed in the fourth quarter, there when would you get into covenant problems et cetera?

[Richard Marabito:]

Michelle this is Rick. We are -- if you look at our covenants we basically have a three or four financial covenants. One is a liability to equity covenant, we have tons of room there. I couldn't imagine even getting closer to that one. We have a rolling fourth quarter interest coverage task which, as you can see at our interest levels as big charges were very low. So, I don't anticipate even at these run rates we can go quarters without having even -- have a concern there. And, then we have a minimum availability requirement under our loan agreement and same there as Michael said, we don't envision being bumping up into that one. So, as we look out at 2009, covenants are not an issue for Olympic.

[Michelle Applebaum:]

So you can go on at this run rate, into perpetuity no covenant problems?

[Richard Marabito:]

That's our expectation.

[Michelle Applebaum:]

Okay. Then, my next question is, in terms of what's going on in the credit markets in general, and impact on the steel industry. You got competitors who are clearly having liquidity issues. A; does that -- what does that do to the marketplace, B; does that present a market share opportunity for you, C; does that protect -- present a potential growth opportunity for you, to step in where someone else is having a problem?

[Richard Marabito:]

Well, the guys having liquidity issues and credit problems probably is not a real opportunity for us to discuss selling and the credit problem.

[Michelle Applebaum:]

Okay.

[Michael Siegal:]

But our strategy Michele is not to worry about the other person's issue. Our issue is really focused on trying to discuss the choice in the locations, where they assembled our product. So if in fact there is an opportunity to move into a new location for us, or what we've probably shelved (ph) as a conserve. Certainly, we'd continue to do that on our growth initiatives. But, I don't see a swooping in and taking somebody's business in a market where that market is performing poorly, because it's already performing poorly for a reason. As we indicated on other calls, we have bypassed a lot of sales in 2008, because of our tight credit policies Michele. So, there are others out there who use credit insurance to back start something's. We've never done that. We handle our own credit internally, and we are very pleased by our low level participation so far in credit bankruptcies.

[Michelle Applebaum:]

That's interesting. And other cycles it was slightly different, where you gained share and you were willing to step up. But, this cycle is different?

[Michael Siegal:]

Well, the bank, liquidity issues are affecting our customers, as well as our competitors. Obviously, nobody has been here before to the depth of the lack of liquidity. But, we have some major customers Michele that I would tell you are going to struggle through this liquidity crisis.

[Michelle Applebaum:]

Interesting. Can I do one more?

[Michael Siegal:]

Sure.

[Michelle Applebaum:]

Okay. Where if -- or maybe it's even a week ago, before there were four steel makers did to calls -- did each of their call in the same day, it was overwhelming. And this was what we were told the view was by the four guys who actually all compete with each other. One said things had turned up already. Another one said that there were going to turn up by the second quarter, and then later said, late in the first. A third laid out a couple of statistics that might be inferred to be optimistic. And then, the fourth guy said things suck. So, I'm just wondering if you could give me -- since it's essentially two weeks later, if you have any view -- if your view is somewhere in there, or if you can pick one of those, which describes the steel market right now?

[David Wolfort:]

Michelle this is David. I'll take that question. I certainly won't -- we won't give any privilege to the fourth quotation. But what we do see is -- complements of a number of issues Michelle. We see a continuing lowering of inventory at the service center levels. We see production at the steel mills continuing to wane, and we see a severe lack of imports. I think if you calculate all three of those somewhere in the context of one of those four comments that was made you'll find that our sentiment is that we believe that inventories will be dreadfully low, as they continued to go down. And at some point in time, probably in the near second quarter we expect some demand to increase over these very low threshold, and to that and that will correspond with low inventory levels, no imports and a frail production statistic, which I think will give a little bit of buoyancy to the market place. Not huge, but we do expect a little bit of recovery. We still think the market place will be fragile throughout the year.

[Michelle Applebaum:]

So you're of the apparent demand, which means purchases, without inventory liquidation will pick up as a result of the elimination of inventory liquidation. But, you're not saying -- do you think real demand consumption will see any pick up in the second quarter?

[David Wolfort:]

I think real demand as it's compared to first quarter, will show some pick up. But from an overall perspective of 2009, we're going to see a much smaller consumption than we saw in 2008; and so, just matching second quarter to first quarter, little bit stronger demand but overall '09 weaker demand across the board.

[Michelle Applebaum:]

Okay. And, thank you. I appreciate you actually giving a real answer. So, thanks a lot David and Michael.

[Michael Siegal:]

You're welcome.

[Operator:]

We'll take our next question from Bob Richard with Longbow Research. Please go ahead.

[Bob Richard:]

Good morning, and thanks for taking our call.

[Michael Siegal:]

Sure Bob.

[Bob Richard:]

Any lower cost of market issues Rick, for inventory is some of that higher priced inventory still hanging around if you will?

[Richard Marabito:]

Well obviously, we gave our inventory turn numbers, so we are turning our inventory four times. And we are on actual earn (ph) basis. So, the inventory is a mixture of new buys as David talked about in December and January, at lower prices. And inventory at the previous number price. So, it's the mix of all that stuff Bob; and we just, as we move through the quarter and sell, we'll continue to move through the inventory.

[Bob Richard:]

Okay. Moving after that the OEM inventories, could you maybe talk about where the inventory levels are at your customer?

[Michael Siegal:]

To the extent that they give us visibility into that, we'd tell you it's exceeding low, and going lower.

[Bob Richard:]

Yeah.

[Michael Siegal:]

So, in an extension of plant shutdowns that is highly unusual, because selling from inventory, and not reproducing that material. So, we expect a very low level. How low -- it's low.

[David Wolfort:]

Bob, David here. Finished goods at most of our OEMs are being exhausted. We've had some long-term shutdowns at many of our OEMs, as they've continued to dissolve their finished goods. And obviously, during those shutdowns they've not taking in any raw materials that would allow them to produce. On the other side of the spectrum, and I know it's always dangerous to answer a question that hasn't been asked. But, on the other side of the spectrum, which is the middle side we also see a reduction in raw materials at our producers. We are aware that producers -- some producers are moving raw materials from facility-to-facility, in order to eliminate those. And so, on both ends of the spectrum we see inventories getting very low. And then of course, on the service center side of the equation we see the inventories dropping based on MSCI statistics.

[Bob Richard:]

And just intuitively that reduction of inventories at your customer would seem to give you guys some tailwind with your value-added strategy. Is that a little too optimistic?

[David Wolfort:]

No. I think that's right on. Bob, I think you're right on. I think that the economic engine, no matter how slow it becomes when it starts needs to be fueled by some product. And we think we are in an ideal position to react to the customers that we've earned their participation. We have the front end of their production. And as we just discussed, their finished goods have been liquidated and when they get going, we think we'll be in great position. And we can get going as sometime in the late first quarter or early second quarter.

[Michael Siegal:]

Bob, let me also comment with the recent (ph) stimulus package that was passed, there is an incentive that's been passed to give customers cash credits for reduction of debt. Our strategy is to become an outsourced manufacturing, and how our customers return a higher yield on their balance sheet and their investment is a perfect strategy for -- unfortunately, it is very troubled (ph) its not even recognized in the incentive package that was passed.

[Bob Richard:]

Okay, thanks for that color, and very helpful, and good luck.

[Michael Siegal:]

Thank you.

[Operator:]

(Operator Instructions) We will take our next question from Tim Hayes with Davenport. Please go ahead.

[Timothy Hayes:]

Good morning, guys.

[Michael Siegal:]

Hi.

[Timothy Hayes:]

Couple of questions; on the inventory tonnage you said that you were able to decrease inventory tonnage by 58% (ph) that's from the end of December, did I hear that right?

[Richard Marabito:]

We decreased from peak to trough of September to mid-December by 28%. Quarter-to-quarter, September 30 to December 31 it was 19%.

[Timothy Hayes:]

Okay. And, what about -- your inventory turns in the fourth quarter, how did that -- how quickly did you turn your inventories in Q4?

[Richard Marabito:]

Well, the obviously -- I don't have that right in front of me Tim. But obviously, we turned for the year at four and I know we were turning closer to five times, which is our internal objective through most of 2008. So, however that math...

[Timothy Hayes:]

Right.

[Richard Marabito:]

But I haven't (ph) got in front me but obviously it slowed down.

[Michael Siegal:]

Yeah. December sales were significantly really lower than we anticipated which obviously effects our inventory turns.

[Timothy Hayes:]

Sure. And on that note how was January shaping up? Is that at least better than December?

[Michael Siegal:]

Not measurably; no.

[Timothy Hayes:]

And, last question any idea where your gross profit per ton might be in Q1 in terms of the higher or lower than what you were able to do in Q4?

[Richard Marabito:]

We would anticipate probably the same or a little bit lower.

[Timothy Hayes:]

Okay. Thank you.

[Richard Marabito:]

You're welcome.

[Operator:]

And we'll take our next from Charles Bradford with Bradford Research. Please go ahead.

[Charles Bradford:]

Good morning.

[Michael Siegal:]

Hi.

[Charles Bradford:]

Could you tell us what you're seeing from the imported steel side, are they offers in the foreign from the traders of the foreign mills getting more attractive. Is there anything worth buying and do you get any impact from the Buy America?

[David Wolfort:]

Hi Chuck. David here. Yeah, I think we would be impacted with Buy America on the plate side of the equation. As it went to infrastructure, so I'll answer that first. I don't how we would be disadvantaged, so we'd obviously be at only advantage done something along those lines although I don't think it would be dramatic. But on the foreign side Chuck, the offerings they really have not amounted too much and there really has been a there's a reluctancy from our perspective quite frankly to take advantage of any of those that come along because there isn't -- the vagaries of dealing with imports to this country versus where the marketplace is today. Just too much risk involved and we see very little participation on the foreign side, very few offers that warrant our attention.

[Charles Bradford:]

What are you seeing currently as far as hot band or plate pricing in the U.S. Looked like several weeks ago some signs that may be prices would be picking up, now we're hearing, on they're actually weakening, what are you seeing?

[David Wolfort:]

I think they're pretty much the same. I think they're low, Chuck. I think the prices are low, I think there's very few buyers out there today and we are one of the very few buyers in the marketplace today just as Rick and Mike both indicated; we were able to reduce our inventory dramatically from middle September to middle December. A fact that our inventory moved up in the latte part of December was because we were active buyers and buying at the reduced transaction price. We see those prices as staying a little bit longer than we had originally anticipated. We would've expected pricing to may be move up in the later part of first quarter and it doesn't appear that it is.

[Charles Bradford:]

Thank you, very much.

[David Wolfort:]

You're welcome.

[Operator:]

And we'll take our next question from Sal Tharani with Goldman Sachs. Please go ahead.

[Sal Tharani:]

Hey, guys.

[David Wolfort:]

Hi, Sal.

[Sal Tharani:]

I think I asked this question last time also that in the slowdown how does your strategy of opening small satellite offices or satellite shops near your customer is looking out, is it positive or negative?

[Michael Siegal:]

Well I would say -- again if the customer is open and bring back their demand and look for more outsourced solutions I think it fits perfectly. Those small facilities sell take very little investment. It's a lot of variable cost and we do that only where being asked by the customer for the support. So, I would tell you -- although we haven't seen it yet because a lot of guys are still worrying about cut backs and slowdowns, but we would anticipate still opening up some more of those facilities this year.

[Sal Tharani:]

And looking at your balance sheet, it's a very un-levered balance sheet. You're trading at about 0.5, 0.6 times your book value. When the thinks turn, I mean how fast you want to go where do you think this company can go over the next couple of years?

[Michael Siegal:]

Well, I think even at your conference Sal, we laid out sort of vision of the next three to four, five years of -- sort of a cash flow, some cash flow generated growth plan that incorporated by $140 million CapEx, just on new facilities, not even including anything that we might replace internally. So, as we look out and you look at the map that we've presented on our -- and which you can see on the website we would anticipate in the next four, five years having probably at least two major facilities and a number of smaller facilities.

[Sal Tharani:]

And is there any region you think you will be you are going to go more than the other?

[Michael Siegal:]

Yeah. Well, Dave, go ahead.

[David Wolfort:]

Sal, you will see us in some new geography. We've -- not that we've necessarily saturated the geography that we're in. But as Mike started out earlier some of the satellite plants as we get closer to larger OEMs and enabled the larger OEM -- I repeat enable that larger OEM to be a lean manufacturer that's the primary purpose for these -- for these small regional facilities. The expansion that Mike talks about that he's talked about your conferences are some new geography in terms of extensive steel processing, so not on a small scale, but on a larger scale similar to some of our larger bulk (ph) breaking facilities that we currently have. Those are still on the horizon, we haven't differed at all from where our perspective is, and when will be there. We are servicing customers in those regions from longer destinations than we really -- than we choose to and we're giving up too much margin with freight. So, we want to move closer and secure those regions.

[Sal Tharani:]

And, in the in this stress time is it added opportunity is to buy versus built?

[David Wolfort:]

Again it depends on the -- I mean I don't want to sound like the guys in front of Congress yesterday. But obviously it's to buy distressed company in a very low valuation, you probably don't want to buy it, to buy a good company, it probably isn't going to sell at the low valuation. And then a question if you do something else significant Sal, obviously it's going to depend on the credit markets opening up from where they're presently at. It's literally what these guys said yesterday in front of Congress, I mean the credit markets have to change from the current environment for anybody to look at anything that substantial because you're not going to do it all on a cash transaction, there's going to be leverage on it. And as it was appropriate for the leverage, but those -- that market doesn't seem to be very frothy at the moment. So, not yet is probably the best answer I can give you.

[Sal Tharani:]

Okay. And also there's one quick question on the operating expense side. You expect operating expense I mean not only that it came out in absolute number, but as a percentage of sale on a lower sale it came down. Is that a trend we should expect going forward also, I mean there must be a minimum level where you have to...?

[David Wolfort:]

Yeah. I mean 15% of sales is sort of the number.

[Sal Tharani:]

Okay. Great, thank you, very much.

[Michael Siegal:]

Thank you.

[Operator:]

(Operator Instructions) And we will take our next question from Mark Parr with Keybanc Capital Markets. Please go ahead.

[Mark Parr:]

Hey, good morning, guys.

[Michael Siegal:]

Morning, Mark.

[Mark Parr:]

A lot of good color on this call, I appreciate it thanks.

[Michael Siegal:]

We're barely up to it, Mark.

[Mark Parr:]

Well it's nice to know you don't have any covenant violations upcoming so that...?

[Michael Siegal:]

Well, we've been there before and we don't like being there ever again.

[Mark Parr:]

I just its like -- Michelle didn't really have to bring that up you know.

[Michael Siegal:]

We're happy to talk about, being advantaged.

[Mark Parr:]

Alright; I guess it's a good thing you don't have to worry about it this time it really is. One of the things that we're trying to figure out here is from an inflection perspective, could -- Michael could you give us some color on the difference in shipping volume between October and December. And I don't know if you want to give any color on if you think that March could be as strong as October. But I am trying to get a sense of what you think your tonnage might be for the first quarter, any color you can give there it'd be really helpful?

[Michael Siegal:]

Well from our mouth to God's here (ph), I can only hope that shipments in March are as good as they were in October. There was a -- I would tell you Mark, without being specific material differences on a day shipment level. And so the data that's out there reflected in the MSCI data pretty much indicate the dramatic shift in the shipment levels. We do anticipate as David said earlier now that as people start to reopen their facilities on a normalized basis, that activity will pickup. But I also think that there could be this scenario of price spike because of the lack of inventory, and the lack of ability of steel production to occur. But, we don't have great expectations Mark -- this market as David indicated is going to recover in the near-term to any 2008 level, other than maybe in the November and December levels. But, it's going to be substantially lower regardless.

[Mark Parr:]

Okay. Just it sounds like you guys really don't look for any sort of demand pickup until maybe the end of March at the earliest, and the current visibility just isn't there?

[Michael Siegal:]

Look if we're wrong and we're thrilled. We have the inventory to take care of it. If we're but we're gearing ourselves to mange with business through the deep trough that we're in, and unlike some others, we do have the ability to buy steel. We think we're very well positioned to take care of our customers, at whatever level they come through. But, on the other side we're -- I think the low leverage is does give us that opportunity to do a quick reaction.

[Mark Parr:]

Okay. One thing I'd just also like to get your thoughts on, questions -- getting questions from clients about when you talk about the supply discipline, that's kind of ongoing in the weekly steel production numbers continuing to languish here. The industry really is operating from a position of strength, this time; and that's first time in many downturns that they've been able to do that. But along with that, comes the question how long can it really last. And I just wonder do you see any difference in the resolve of the industry to maintain pricing and to maintain the supply discipline, say versus a month ago or two months ago.

[David Wolfort:]

Hey Mark, this is David. I think the paradigm continues to change. I think that today's economic climate compels everyone whether they're a steel service center, or a steel mill producer to be very tactical today. Not necessarily abandoning strategies or vision, but living on a day-to-day basis. And I think that you will find that while there is discipline amongst bigger players there are -- there is not discipline amongst the smaller players. And because that lack of discipline exist -- doesn't exist in the smaller players, I think it forces the larger players to have to demonstrate more flexibility than they originally anticipated.

[Mark Parr:]

You talk of -- the EAF (ph) guys have got a lot lower costs in this environment, because of the scrap position at least on the surface. They've got higher cost scrap on the ground. But their cost is moving much more aggressively to the downside than the integrated guys. So, I can see why that would be happening.

[David Wolfort:]

Yeah, that's true. The mini mill concept was predicated on low energy cost and low scrap cost and variable labor cost. And that's where we are at today.

[Michael Siegal:]

I think when you look at public entities that are producing steel Mark, I think there is a realization that they have to serve their shareholders. And serving their shareholders comes beyond servicing the marketplace. And I think that there is a realization of that at least bubbling up here today.

[Mark Parr:]

Okay, just one last question. And Rick, did you give a -- put a number around CapEx for '09?

[Richard Marabito:]

No. But, what I can tell you is as obviously as David took us through, we are going to finish -- our plan is to finish everything that's in process.

[Mark Parr:]

Yeah.

[Richard Marabito:]

That would be depending on various stages. There are certain things we could ramp back. But, it would be between 20 and $30 million to do that. So, 20 million is committed in terms of things that are being constructed. And there's another 10 that if need be -- the market really got bad, we could obviously taper back. So, that's the range.

[Mark Parr:]

Okay, terrific. Thanks again for all the color, and congratulations on the achieving profitability in this kind of environment.

[Michael Siegal:]

Thank you.

[Operator:]

We will take our next question from Nat Kellogg with Next Generation Equity. Please go ahead.

[Nat Kellogg:]

Hi guys. Thanks for taking my question. Most things have been answered. But, just on the inventory side I mean, given where pricing is today and the volumes are; I guess, if you could just -- it sound like maybe you had some opportunistic buys in late December. But, just if you could help us think about maybe where inventories are going; balancing the idea that it looks like things are going to be a little bit subdued appear for a while. Would the fact that obviously, I would think as you add some of these new facilities you will need to have some additional inventory, just because you've got to put some steel in the new facilities?

[Michael Siegal:]

Well we have shown over the cycles Nat, a great ability to have good working capital turnover. So, rather than pick our a net number, I would tell you that it's about just if we could get back five inventory turns.

[Nat Kellogg:]

Okay.

[Michael Siegal:]

Or close thereof, it will take us sometime at these low depressed levels, because we still continue to buy.

[Nat Kellogg:]

Right.

[Michael Siegal:]

But, I would tell you it's still our objective to get back to our normalized working capital turnover in inventory.

[Nat Kellogg:]

Okay, okay. That's helpful. And then, Michael I just wonder, if you I know in past calls you've given us I mean I realize you guys don't have perfect look through when exactly where all your product goes. But maybe if you could just give us a little color on sort of some end markets that are stronger versus weaker or things that are looking worse than they were or better than they were, given that some sort of that higher level of color in the past (ph) I think that tends to be helpful?

[Michael Siegal:]

Of course; my 13th consecutive year I am saying automotive is not good. Our automotive is its not just challenges as we read about the clearly the cascading effect of the potential bankruptcies. And no dip financing, really puts all unsecures at very, very risk positions. And so clearly automotive is probably the worst. I won't say the word it's the most risky place to be because of the lack of demand and the lack of credit availability for the consumer. I would tell you that all industries today are depressed other than perhaps the military side is still doing a fairly robust build, a lot shifting in terms of models for from heavy units to the lighter units and back again. And beyond the military, there are some opportunities in some of the alternative energy markets that have potential as opposed, there's a lot of quoting going; lots of different kinds of solar and wind tower fields that are out there that we hope to participate in. And so those give us sort of a greatest uptick, but pretty much any all the road construction is waiting, the farm equipment is waiting, all the export markets are waiting; you read about the mines being shutdown in Australia. So I would tell you there the two industries that look good are alternative energies and military, automotive probably being the worse market that we participate in. I'm sure there's -- are other bad markets out there. And everybody is depressed and nobody wants to be the first guys to say things are good and its sort of everybody's waiting for the guy to make the first move and maybe there'll be some followable (ph) leader but everybody is very concerned about liquidity, impairments bank covenant and all the questions we've got asked...

[Mark Parr:]

Right.

[Michael Siegal:]

Is probably true for all of our customers, and clearly the highly leveraged acquisitive companies, my end users particularly in the who have high debt have high issues as it relates to the go forward look out of how they're going to operate, so.

[Mark Parr:]

I'm sorry. No, I appreciate it. It seems like nobody wants to be here and its here in environment and because you can't blame them. Alright guys thanks very much. That color was great, and definitely appreciate that.

[Operator:]

(Operator Instructions) And we will take a follow-up question from Sal Tharani with Goldman Sachs. Please go ahead.

[Sal Tharani:]

Hey, Michael just a quick question on your resumption of purchasing steel in December and January. Can you give us some color -- is that -- you're seeing some hold in inventory or is it just averaging out your cost better, what's the reason for that?

[David Wolfort:]

Hi Sal, this is David, I will answer that.

[Sal Tharani:]

Yeah.

[David Wolfort:]

The reason is we continue to sell steel. So we continue to sell steel and we continue replenish the steel we sell at a lower cost; therefore expanding our margin once again.

[Michael Siegal:]

Plus indeed (inaudible) to your question both.

[Sal Tharani:]

Yeah.

[Michael Siegal:]

For the average and it clearly how we sell steel, so we get hold (ph).

[Sal Tharani:]

Right. Thank you, very much.

[Michael Siegal:]

Thank you.

[Operator:]

And gentlemen at this time there are no further questions. Great. Thank you, operator; as a reminder it's not our policy to provide forward-looking earnings estimates for the upcoming quarter over year and not to endorse any analyst sales or earnings estimate. We anticipate releasing our first quarter 2009 earnings around April 29. This concludes our call. And again thank you all for staying with us for a very long conference call appreciate your interest. Bye-bye.

[Operator:]

Ladies and gentlemen this will conclude the Olympic Steel fourth quarter 2008 conference call. We thank you for your participation and you may disconnect at this time.