Northwest Pipe Co. released its third-quarter earnings report on Wednesday evening, posting substantial gains despite challenges in the market including a 35 percent rise in steel prices due to tariffs.
The Vancouver company specializes in welded steel pipeline systems such as water and sewer networks, and supplies piping for projects nationwide. In a Thursday morning conference call with investors, CEO Scott Montross fielded questions from analysts about the impacts on everything from local weather at project sites to the results of this week’s midterm elections.
Tom Spiro of Spiro Capital asked for an update on steel and labor pricing, and Montross responded that steel prices have dropped slightly from a high point in the middle of 2018, but are still approximately 35 percent higher than they were at the end of the third quarter in 2017. The price increase is driven primarily by tariffs on steel imports, he said.
“When you effectively cut off imports for a period of time, you’re certainly going to cause steel pricing to move up, and really that’s what’s happened,” he said.
Montross said he expected the price of steel to remain high moving into 2019. The high pricing on its own isn’t a problem from Northwest Pipe’s perspective, he added — the more important factor is price stability, which makes it easier to bid on jobs.
Labor costs are also on the rise, he said, reflecting a general decline in the number of people choosing to enter skilled labor professions such as welding.
“It’s harder to find them,” he said, “and you really have to work to keep the ones that you have and put apprenticeship programs together.”
Spiro asked whether the company had seen any instances of projects being put on hold in order to wait for more favorable steel prices. Montross replied that he hadn’t heard about any major delays. Most of the company’s steel piping contracts tend to be for multi-year projects that have to stick to previously established timelines, he added.
Spiro also asked about whether any significant initiatives passed in Tuesday’s election that could affect the steel piping market. Montross said the company was monitoring Proposition 3 in California, which would have authorized $9 billion in general obligation bond for water projects, but said the measure appears to have been defeated.
He also noted that Democratic leaders in the U.S. House of Representatives have expressed an interest in pursuing infrastructure legislation in 2019, an area in which he said they might find bipartisan support. However, he added, given the time scale of most infrastructure projects, anything initiated next year would likely be years from directly impacting Northwest Pipe.
Despite the challenges discussed in the call, the report illustrated a strong third quarter for Northwest Pipe with a net income per share of $2.68, compared to a net loss of 59 cents per share in the previous quarter and a net loss of 16 cents per share in the third quarter of 2017.
Net sales were $52.5 million, a 35.2 percent increase over the third quarter of 2017. The company’s backlog of successful project bids, including projects with signed contracts, reached $201 million as of the end of September, its highest level since the third quarter of 2012.
The gains were propelled by the company’s $38 million acquisition of Ameron Water Transmission Group in July, Montross said, as well as an exceptionally strong quarter for bidding on projects. The fourth quarter is expected to be the largest bidding quarter of the year, he added, so the upward trend is expected to continue into 2019.
“When you look at 2018, this is really turning out to be a huge bidding year,” he said. “To expect another year just like we’re having in 2018 is probably not a reasonable thing, but I do think that based on what we’re seeing, demand is going to be strong in 2019.”
Northwest Pipe’s stock, which trades on the Nasdaq as NWPX, rose 14.87 percent on Thursday to close at $22.48.
Anthony Macuk: 360-735-4547; anthony.macuk@columbian.com; twitter.com/anthonymacuk
