Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Overview

Friedman Industries, Incorporated is a manufacturer and processor of metals and operates in two reportable segments: flat-roll products and tubular products.

The flat-roll product segment consists of flat-roll processing facilities located in Hickman, Arkansas; Decatur, Alabama; Miami, Florida; East Chicago, Indiana; Granite City, Illinois and Sinton, Texas and a flat-roll distribution facility located in Orlando, Florida. The Hickman, Granite City and East Chicago facilities operate temper mills and cut-to-length lines. The Decatur and Sinton facilities operate stretcher leveler cut-to-length lines. The Miami facility operates a corrective leveling cut-to-length line and a coil slitting line. The processing equipment improves the quality of the material and cuts the material into sheet, plate or slit coil. On a combined basis, the facilities are capable of cutting sheet and plate with thicknesses ranging from 30 gauge to 1" thick in widths ranging from 11" wide to 96" wide. The flat-roll segment is able to produce slit coil with thickness ranging from 32 gauge to 10 gauge in widths ranging from 1/2" wide to 60" wide. The vast majority of flat-roll product segment revenue is generated from sales of Company owned inventory but the segment also generates revenue from the processing or storage of customer owned material on a fee basis.

The tubular product segment consists of the Company's Friedman Tubular division located in Lone Star, Texas. The segment operates two electric resistance welded pipe mills with a combined outside diameter ("OD") size range of 2 3/8" OD to 8 5/8" OD. Both pipe mills are American Petroleum Institute ("API") licensed to manufacture line pipe and oil country pipe and also manufacture pipe for structural purposes that meets other recognized industry standards. All of the tubular segment's revenue is generated from sales of Company owned inventory.

Results of Operations

Six Months Ended September 30, 2026 Compared to Six Months Ended September 30, 2025

During the six months ended September 30, 2026 (the "2026 period"), sales, cost of materials sold and adjusted gross profit increased approximately $239.6 million, $164.3 million and $75.4 million, respectively, compared to the amounts recorded during the six months ended September 30, 2025 (the "2025 period"). Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold. The increase in sales was due to an increase in the average selling price per ton and an increase in sales volume. Sales volume for the 2026 period consisted of approximately 388,000 tons from inventory and another 37,500 tons of toll processing customer owned material compared to the 2025 period volume consisting of approximately 296,500 tons from inventory and 43,500 tons of toll processing. The Company's legacy facilities demonstrated substantial year-over-year growth, generating approximately 64,000 additional tons of sales volume independent of the Century Metals & Supplies acquisition. This growth was complemented by approximately 21,500 tons of incremental volume attributable to Century, which contributed a full six months of operations in the 2026 period compared to only September in the 2025 period. Adjusted gross profit was approximately $130.7 million for the 2026 period compared to approximately $55.4 million for the 2025 period. Adjusted gross profit as a percentage of sales was approximately 24.8% for the 2026 period compared to approximately 19.3% for the 2025 period.

The Company's operating results are influenced by fluctuations in market prices for metals, particularly hot-rolled steel coil ("HRC"), as the majority of the Company's revenue is generated from processing HRC and products derived from HRC. During the 2026 period, the Company benefited from a sustained upward trend in HRC prices. Market prices increased approximately 28% between the end of the 2025 period and the beginning of the 2026 period, followed by an additional increase of approximately 22% during the 2026 period. This upward pricing trend, combined with solid demand and constrained supply, contributed to substantial margin expansion during the 2026 period. In contrast, HRC prices were near a cyclical peak at the beginning of the 2025 period and remained relatively stable before declining modestly toward the end of the period. These market conditions supported favorable margins early in the 2025 period, followed by margin compression as the period progressed. The benefit of the favorable pricing environment during the 2026 period was partially offset by hedging-related charges, including approximately $10.5 million of unrealized mark-to-market charges associated with open derivative positions intended to mitigate the Company's exposure to future fluctuations in metals prices.

Flat-roll Segment

Flat-roll product segment sales for the 2026 period totaled approximately $488.3 million compared to approximately $267.4 million for the 2025 period. For a more complete understanding of the average selling prices of goods sold, it is helpful to exclude any sales generated from processing or storage of customer owned material. Sales generated from processing or storage of customer owned material totaled approximately $2.6 million for the 2026 period and $2.9 million for the 2025 period. Sales generated from flat-roll segment inventory totaled approximately $485.7 million for the 2026 period compared to approximately $264.5 million for the 2025 period. The average per ton selling price related to these shipments increased from approximately $946 per ton in the 2025 period to approximately $1,347 per ton in the 2026 period. Sales volume for the 2026 period consisted of approximately 360,500 tons from inventory and another 37,500 tons of toll processing customer owned material compared to the 2025 period volume consisting of approximately 280,000 tons from inventory and 43,500 tons of toll processing. The increase in sales volume for the 2026 period was related to a combination of stronger demand among some customers, successful commercial efforts to increase capacity utilization and the acquisition of Century. Flat-roll segment operations recorded earnings from operations of approximately $65.5 million and $14.5 million for the 2026 period and 2025 period, respectively.

The Company's flat-roll segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company's business.

Tubular Segment

Tubular product segment sales for the 2026 period totaled approximately $38.5 million compared to approximately $19.8 million for the 2025 period. Sales increased due to a combination of sales volume growth and an increase in the average selling price per ton. Tons sold increased from approximately 16,500 tons in the 2025 period to approximately 27,500 tons in the 2026 period. The average per ton selling price increased from approximately $1,196 per ton for the 2025 period to approximately $1,398 per ton for the 2026 period. The tubular segment recorded earnings from operations of approximately $4.5 million and $2.2 million for the 2026 period and 2025 period, respectively.

The tubular segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company's business.

Income Taxes

Income taxes increased from a provision for the 2025 period of approximately $2.4 million to a provision for the 2026 period of approximately $9.2 million. This increase was primarily related to increased earnings before taxes for the 2026 period. The income tax provision as a percentage of earnings before tax was approximately 24.5% for both the 2026 period and 2025 period. For both periods, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

Three Months Ended September 30, 2026 Compared to Three Months Ended September 30, 2025

During the three months ended September 30, 2026 (the "2026 quarter"), sales, cost of materials sold and adjusted gross profit increased approximately $134.4 million, $85.7 million and $48.7 million, respectively, compared to the amounts recorded during the three months ended September 30, 2025 (the "2025 quarter"). Adjusted gross profit is a non-GAAP measure calculated as sales minus cost of materials sold. The increase in sales was due to an increase in the average selling price per ton and an increase in sales volume. Sales volume for the 2026 quarter consisted of approximately 199,500 tons from inventory and another 20,000 tons of toll processing customer owned material compared to the 2025 quarter volume consisting of approximately 154,500 tons from inventory and 24,500 tons of toll processing. The Company's legacy facilities generated approximately 31,000 additional tons of sales volume, accounting for approximately 77% of the year-over-year increase. This growth was complemented by approximately 9,000 tons of incremental volume attributable to Century Metals & Supplies, which contributed three months of operations in the 2026 quarter compared to only one month in the 2025 quarter. Adjusted gross profit was approximately $75.0 million for the 2026 quarter compared to approximately $26.3 million for the 2025 quarter. Adjusted gross profit as a percentage of sales was approximately 26.1% for the 2026 quarter compared to approximately 17.3% for the 2025 quarter.

The Company's operating results are influenced by fluctuations in market prices for metals, particularly hot-rolled steel coil ("HRC"), as the majority of the Company's revenue is generated from processing HRC and products derived from HRC. During the 2026 quarter, the Company benefited from the continued upward trend in HRC prices. This favorable pricing environment, combined with solid demand and constrained supply, contributed to substantial margin expansion during the 2026 quarter. In contrast, declining HRC prices during the 2025 quarter contributed to compressed physical margins. The benefit of the favorable pricing environment during the 2026 quarter was partially offset by hedging-related charges, including approximately $9.8 million of unrealized mark-to-market charges associated with open derivative positions intended to mitigate the Company's exposure to future fluctuations in metals prices.

Flat-roll Segment

Flat-roll product segment sales for the 2026 quarter totaled approximately $266.6 million compared to approximately $143.3 million for the 2025 quarter. For a more complete understanding of the average selling prices of goods sold, it is helpful to exclude any sales generated from processing or storage of customer owned material. Sales generated from processing or storage of customer owned material totaled approximately $1.5 million for the 2026 quarter and approximately $1.6 million for the 2025 quarter. Sales generated from flat-roll segment inventory totaled approximately $265.1 million for the 2026 quarter compared to approximately $141.7 million for the 2025 quarter. The average per ton selling price related to these shipments increased from approximately $963 per ton in the 2025 quarter to approximately $1,430 per ton in the 2026 quarter. Sales volume for the 2026 quarter consisted of approximately 185,500 tons from inventory and another 20,000 tons of toll processing customer owned material compared to the 2025 quarter volume consisting of approximately 147,000 tons from inventory and 24,500 tons of toll processing. The increase in sales volume for the 2026 quarter was related to a combination of stronger demand among some customers, successful commercial efforts to increase capacity utilization and the acquisition of Century. Flat-roll segment operations recorded earnings from operations of approximately $40.7 million and $5.7 million for the 2026 quarter and 2025 quarter, respectively.

The Company's flat-roll segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company's business.

Tubular Segment

Tubular product segment sales for the 2026 quarter totaled approximately $20.2 million compared to approximately $9.0 million for the 2025 quarter. Sales increased due to a combination of sales volume growth and an increase in the average selling price per ton. Tons sold increased from approximately 7,500 tons in the 2025 quarter to approximately 14,000 tons in the 2026 quarter. The average per ton selling price increased from approximately $1,185 per ton for the 2025 quarter to approximately $1,454 per ton for the 2026 quarter. The tubular segment recorded earnings from operations of approximately $2.3 million and $0.9 million for the 2026 quarter and 2025 quarter, respectively.

The tubular segment purchases its inventory from a limited number of suppliers. Loss of any of these suppliers could have a material adverse effect on the Company's business.

Income Taxes

Income taxes increased from a provision for the 2025 quarter of approximately $0.7 million to a provision for the 2026 quarter of approximately $5.0 million. This increase was primarily related to increased earnings before taxes for the 2026 quarter. The income tax provision as a percentage of earnings before tax was approximately 24.3% and 24.8% for the 2026 quarter and 2025 quarter, respectively. For both quarters, the effective tax rate differed from the federal statutory rate due primarily to the inclusion of state tax expenses in the provision.

Non-GAAP Information

The non-GAAP measure adjusted gross profit is used in this Management's Discussion and Analysis. Adjusted gross profit is calculated as sales minus cost of materials sold. Cost of materials sold is a discrete line on our statements of operations and represents the cost associated with purchased metals, inbound freight, transfer freight and certain external processing costs. To provide financial statement users with a better understanding of the Company's expenses, cost of sales is disaggregated on our statements of operations into the line items cost of materials sold, processing and warehousing expense, delivery expense and depreciation and amortization. The Company believes adjusted gross profit is a meaningful measure because our cost structure and operating results are significantly impacted by the fluctuating costs associated with purchased metals.

The following table reconciles the GAAP measure for gross profit to the non-GAAP measure adjusted gross profit (in thousands):

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THREE MONTHS ENDED

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​

SIX MONTHS ENDED

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​

​

SEPTEMBER 30,

​

​

SEPTEMBER 30,

​

​

​

2026

​

​

2025

​

​

2026

​

​

2025

​

Gross profit (GAAP measure)

​

$

48,114

​

​

$

9,166

​

​

$

79,985

​

​

$

21,664

​

Processing and warehousing expense

​

​

14,231

​

​

​

9,064

​

​

​

27,658

​

​

​

18,392

​

Delivery expense

​

​

11,581

​

​

​

7,134

​

​

​

20,966

​

​

​

13,534

​

Depreciation and amortization

​

​

1,057

​

​

​

937

​

​

​

2,126

​

​

​

1,784

​

Adjusted gross profit (non-GAAP measure presented)

​

$

74,983

​

​

$

26,301

​

​

$

130,735

​

​

$

55,374

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FINANCIAL POSITION, LIQUIDITY AND CAPITAL RESOURCES

The Company's current ratio was 2.7 at September 30, 2026 and 3.4 at March 31, 2026. Working capital was approximately $213.5 million at September 30, 2026 and $180.9 million at March 31, 2026.

During the six months ended September 30, 2026, the Company maintained assets and liabilities at levels it believed were commensurate with operations. Changes in balance sheet amounts occurred in the ordinary course of business. Accounts receivable, inventories and accounts payable increased primarily due to a combination of sales volume growth and higher metals prices. Cash and restricted cash increased due to cash provided by operating and financing activities, partially offset by cash used in investing activities, primarily for capital expenditures. The Company expects to continue to monitor, evaluate and manage balance sheet components depending on changes in market conditions and the Company's operations.

The Company has a $200 million asset-based lending facility ("ABL Facility") led by JPMorgan Chase Bank, N.A. with Wells Fargo Bank, N.A. as a 40% syndicated participant. The ABL Facility matures on August 29, 2030 and is secured by substantially all of the assets of the Company. The Company can elect borrowings on a floating rate basis or a term basis. Floating rate borrowings accrue interest at a rate equal to the prime rate minus 1.45% per annum. Term rate borrowings accrue interest at a rate equal to the SOFR rate applicable to the selected term plus 1.65% per annum. Availability of funds under the ABL Facility is subject to a borrowing base calculation determined as the sum of (a) 90% of eligible accounts receivable, plus (b) the product of 85% multiplied by the net orderly liquidating value percentage identified in the most recent inventory appraisal multiplied by eligible inventory. The ABL Facility contains a springing financial covenant whereby the financial covenant is only tested when availability falls below the greater of 10% of the revolving commitment or $20 million. The financial covenant restricts the Company from allowing its fixed charge coverage ratio to be, as of the end of any calendar month, less than 1.00 to 1.00 for the trailing twelve-month period then ending. The fixed charge coverage ratio is calculated as the ratio of (a) EBITDA, as defined in the ABL Facility, minus unfinanced capital expenditures to (b) cash interest expense plus scheduled principal payments on indebtedness plus taxes paid in cash plus restricted payments paid in cash plus capital lease obligation payments plus cash contributions to any employee pension benefit plans. The ABL Facility contains other representations and warranties and affirmative and negative covenants that are usual and customary. If certain conditions precedent are satisfied, the ABL Facility may be increased up to an aggregate of $75 million, in minimum increments of $5 million. At September 30, 2026, the Company had a balance of approximately $101.7 million under the ABL Facility with an applicable interest rate of 5.55% and the Company's borrowing base supported full access to the ABL Facility.

The Company believes that its current cash position along with cash flows from operations and borrowing capability due to its financial position are adequate to fund its expected cash requirements for the next 12 months.

HEDGING ACTIVITIES

The Company utilizes hot-rolled coil futures, options and swaps to manage price risk on unsold inventory and longer-term fixed price sales agreements. The Company has elected hedge accounting for some of its hedging activities previously but most recently the Company has classified its hedging activities as economic hedges of risk with mark-to-market ("MTM") accounting treatment. Hedging decisions are intended to protect the value of the Company's inventory and produce more consistent financial results over price cycles. The Company recognized a hedging related charge of approximately $17.4 million during the six months ended September 30, 2026 which includes approximately $10.5 million of unrealized mark-to-market charges associated with open derivative positions intended to manage future metals price exposure. In comparison, the Company recognized a gain of approximately $1.1 million during the six months ended September 30, 2025 related to hedging activities. For the three months ended September 30, 2026, the Company recognized a hedging related charge of approximately $14.6 million, including approximately $9.8 million of unrealized mark-to-market charges. In comparison, the Company recognized a hedging-related gain of approximately $0.9 million for the three months ended September 30, 2025. Because changes in the fair value of these derivative positions are recognized in current earnings, hedging-related gains and charges may be recognized in different reporting periods than the corresponding effects of metals price movements on the Company's physical margins. See Note 9 for additional information related to the Company's hedging activities.

CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. generally accepted accounting principles may require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The determination of fair values related to the Century Metals & Supplies business combination accounting involves significant estimates and judgments in the valuation process. Actual results could differ from any estimates.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

From time to time, the Company may make certain statements that contain forward-looking information (as defined in the Private Securities Litigation Reform Act of 1996, as amended) and that involve risk and uncertainty. Such statements may include those risks disclosed in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this report, including the adequacy of cash and expectations as to future sales, prices and margins. These forward-looking statements may include, but are not limited to, future changes in the Company's financial condition or results of operations, future production capacity, product quality and proposed expansion plans. Forward-looking statements may be made by management orally or in writing including, but not limited to, this Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of the Company's filings with the U.S. Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including the Company's Annual Report on Form 10-K and its other Quarterly Reports on Form 10-Q. Forward-looking statements include those preceded by, followed by or including the words "will," "expect," "intended," "anticipated," "believe," "project," "forecast," "propose," "plan," "estimate," "enable," and similar expressions, including, for example, statements about our business strategy, our industry, our future profitability, growth in the industry sectors we serve, our expectations, beliefs, plans, strategies, objectives, prospects and assumptions, and estimates and projections of future activity. These forward-looking statements are not guarantees of future performance. These statements are based on management's expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Although forward-looking statements reflect our current beliefs, reliance should not be placed on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward-looking statements. Actual results and trends in the future may differ materially depending on a variety of factors including, but not limited to, changes in the demand for and prices of the Company's products, changes in government policy regarding steel, changes in the demand for steel and steel products in general and the Company's success in executing its internal operating plans, changes in and availability of raw materials, unplanned shutdowns of our production facilities due to equipment failures or other issues, increased competition from alternative materials and risks concerning innovation, new technologies, products and increasing customer requirements. Accordingly, undue reliance should not be placed on our forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, changed circumstances or otherwise, except to the extent law requires.