Northwest Pipe Back in Black for 2011 as Prices, Volumes Substantially Improve

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Researched by Industrial Info Resources (Sugar Land, Texas)--Northwest Pipe Company (NASDAQ:NWPX) (Vancouver, Washington), a leading manufacturer of welded steel pipes, made a surprising return to profitability in 2011, reporting record annual net sales. The company announced its results much later than usual, after Nasdaq threatened to delist the company if it did not make its annual report by the end of April. Net income was reported to be $12.66 million, compared with a net loss of $5.44 million in 2010.

Net sales totaled $511.67 million, a 32.3% increase from the previous year. The Tubular Products segment reported 202,000 tons sold, a 29% increase from 2010, driven strongly by sales of energy pipe, which were attributed to demand in the natural gas and oil-drilling markets. The segment also saw a 14% increase in the average selling price per ton. The Water Transmission segment benefited from a 3% increase in volumes and a 19% increase in prices.

Still, bidding activity for the Water Transmission segment declined in the second half of 2011, cutting the backlog to $175 million at the end of the year, compared with $258 million at the end of 2010. However, the backlog increased to $198 million by the end of March 2011.

Industrial Info is tracking $30 million in active Northwest Pipe projects, including a $6.5 million expansion at a steel mill for tubular products in Atchison, Kansas. The project involves expanding operations to improve the production and throughput of additional standard wall pipe products, as well as upgrading and rebuilding an annealing furnace, upgrading material handling equipment, and relocating some supporting equipment.

"The increase in gross profit was driven by a more favorable mix of contracts and by the favorable impact of higher volumes on the fixed portion of our cost of goods sold," said Richard Roman, the president and chief executive officer of Northwest Pipe, in a conference call. "The more favorable mix is partly the result of the completion of lower-margin contracts awarded in 2009, which flowed to the income statement in 2010, and which were replaced by higher-margin contracts bid in 2010 and reflected in the 2011 income statement."

The positive results in both segments reflect the significant improvements in prices and volumes during the year:

• The Water Transmission segment reported $271.89 million in net sales, a 22.89% increase from 2010, and $43.18 million in gross profits, compared with $19.43 million in the previous year.
• The Tubular Products segment reported $239.78 million in net sales, compared with $27.7 million in 2010, and $15.96 million in gross profits, a 55.55% increase from the previous year.

Northwest Pipe executives expect the Tubular Products segment to continue its climb in 2012, as the energy markets to which the segment caters are anticipated to show strength. Roman said that Tubular Products results will be driven by the expansion and improvement of the company's production capabilities, as well as the continued strength of energy drilling.

"We expect the Water Transmission market through 2012 will continue to be impacted by governmental and public agency budgetary pressures, although we also note the strengthening of Water Transmission backlogs in the first quarter of 2012," Roman said in the conference call.

The U.S. Securities and Exchange Commission (SEC) has begun an investigation into Northwest Pipe, and a shareholder class-action lawsuit has been filed against the company. Northwest Pipe has acknowledged past errors in its estimates of salvage value, and has acknowledged that it should have reevaluated in 2009 the assumptions underlying accounting estimates used in its units of production depreciation method. The company also identified errors in relation to the disposal of machinery and equipment assets in prior years, weaknesses in internal controls in relations to financial reporting, and other problems. To address these problems, the company has restated previously issued financial statements. In the conference call, executives did not comment on these matters beyond statements made in the SEC filing.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.