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  • The company beat 2Q consensus on the top line, but missed the bottom line.
  • We still remain bearish on the company, noting the valuation is even more expensive now despite the pullback in shares.
  • We felt the miss in earnings was anticipated given the company’s over reliance on steel prices and non-flexibility in its cost structure.

Olympic Steel (NASDAQ:ZEUS) posted 2Q earnings of $0.32 a share (missing $0.42 consensus), but revenues were $386 million (topping $368 million consensus). Sales were up 16.7% y/y for 2Q, and representing record sales in a quarter for the company. Net income was up 38% y/y. But shares are flat over the last month.

There's just not much to get excited about. Despite the strong quarter (on a y/y basis), full-year 2014 EPS consensus has still fallen from $1.30 a month ago to $1.14 currently.

Shares are down 22% since we initially covered the company back in October. The stock is still 11% higher than our $21.50 price target. Its EV/EBITDA multiple has expanded to 12x, well above our justified 7x multiple. As we noted in October:

As mentioned, debt at Olympic is troublesome, and the company hasn't had any meaningful results with controlling costs. It has implemented headcount reductions that should save $4 million in operating costs annually. Which, in reality, is small beans compared to the $300 million plus in costs the company has every quarter.

Its debt is still 94% of its market cap and its profit margin is a mere 0.47%. Its net debt is 92% of its market cap, which is up from the 66% when we covered ZEUS back in October.

Source: Update: Olympic Steel Earnings

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