Olympic Steel Inc. saw its most profitable quarter ever in the second quarter of 2021.

The Bedford Heights-based metals service center saw net income for the quarter of $29.6 million. Adjusted EBITDA was $51.7 million, and sales were $556 million.

The metals industry has been seeing record-high prices, but Olympic Steel CEO Richard T. Marabito thinks there's more to the story.

"Sure, the steel business is really strong, but we're doing a lot of good blocking and tackling and disciplines inside the company, and then the strategy and the investments that we're doing on top of that, I think we're really starting to harness a lot of the power of Olympic Steel. And sticking to the strategy and disciplines is paying dividends," Marabito said.

Marabito has been at Olympic Steel since 1994, taking on the CEO role at the start of 2019.

About 10 years ago, almost all — about 95% to 97% — of Olympic Steel's business was in carbon flat, Marabito said. The company decided it wanted to focus on growth, adding more products like stainless and more processing services.

The company acquired Chicago Tube and Iron, entering the pipe and tube business in 2011. That also offered expansion into specialty metals, as the company had stainless and carbon in its portfolio.

Today, Olympic Steel has three segments: carbon flat, pipe and tube, and specialty metals, which is made of flat rolled aluminum and stainless steel. Carbon flat, the company's original core business, makes up about 50% of its business now, Marabito said. While Olympic Steel has continued to invest in its carbon business, its other segments have grown comparatively.

And as the company began offering more processing services, it made sense to add an end product to its portfolio. In early 2019, Olympic Steel acquired McCullough Industries Inc., a maker of industrial hoppers. Later that year, it also acquired assets from a company called EZ-Dumper, which makes hydraulic dump inserts for pick-up trucks.

Most recently, Olympic Steel acquired the assets of Georgia-based Shaw Stainless & Alloy Inc. The acquisition in early October is the company's fifth in four years, and it aligns almost perfectly with its growth strategy. Marabito said the company expands Olympic Steel's stainless business, adds a lot of "high-end fabricating" to its offerings and brings another end product on board. Shaw makes bollards, which are used in streetscaping or roadway design.

"We love it. We think it's going to be a great growth platform for us," Marabito said. "We think we add a lot of synergies from the Olympic Steel base to be able to grow that business."

Olympic Steel also recently sold its Detroit assets, opting to liquidate that business and investing the funds back into areas like the Shaw acquisition. That acquisition, of which terms were not disclosed, only used a portion of the funds from the Detroit sale, but Marabito said he expects it will fill the "profitability hole" left by the divestiture.

Ultimately, Olympic Steel's M&A strategy is focused on companies that can offer an "immediate accretive return" and where the value is well above the cost of capital, Marabito said.

"What we're investing in are, I believe, the needle-movers for us going forward, in terms of our return portfolio," he said.

In addition to acquisitive growth, the company has also been working on organic growth. Olympic Steel has about 40 locations, and the goal is that all grow by adding new markets and customers and investing in new equipment. Marabito noted that there's a particular focus on adding automation solutions for reasons of safety and efficiency. And, as the labor market remains tight, he said he thinks adding more automation will allow the company to continue its growth.

Traditionally, Olympic Steel's margins have been thin as it's a buy-sell business, said Phil Gibbs, director and equity research analyst at KeyBanc Capital Markets Inc. But its investments in end-products in recent years could add higher returns.

Gibbs has been covering steel since 2006 and said he's never seen a pricing cycle with the "pace and magnitude" of inflation as the current one. The price of hot rolled coil has been about $650 a ton on average the past 10 years, he said. Last summer, that dropped to about $450 a ton before increasing to about $1,900 a ton over the past 52 to 60 weeks. And that was a particularly long cycle of growth, as these cycles usually last about 15 to 20 weeks with far less change, Gibbs said.

All this means steel has been extremely strong. Gibbs said he thinks that pricing cycle ended about four to eight weeks ago, having plateaued and begun to decrease as supply started to better meet demand. And he said he's expecting prices to come down "sharply" once supply is available.

Gains on inventory have been strong for steel service centers like Olympic Steel, Gibbs said, but costs have been high, too. As prices go down, centers are expected to see profits decline, but to "wring out" more cash, he said.

Marabito isn't concerned about the coming market. In the short-term, Marabito said he believes there's a lot of "pent-up demand" in the market. The supply chain won't get fixed overnight, but as the challenges are alleviated over time, he thinks U.S. manufacturing will be strong.

"The dynamic out there that we see is that our customers have demand that they just can't produce to because of all the supply chain disruptions," Marabito said.

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