Item 1A. Risk Factors
Item 1A. Risk Factors
Except as discussed below, there have not been any material changes to the risk factors disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. These risks are not exclusive and additional risks to which we are subject include the factors mentioned under “Forward-Looking Statements” and the risks described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Quarterly Report on Form 10-Q.
A period of sustained inflation in operating costs and declining metals pricing could negatively impact our profitability and cash flows.
We have experienced higher variable costs in 2022 resulting from inflationary impacts to wages, fuel, freight and packaging costs, among others. To date, these increased costs have been offset by significantly larger increases in our gross profit mainly as a result of elevated metals prices. We expect that a period of sustained, elevated and/or worsening inflation during periods of declining metals prices could result in decreased earnings. As we primarily purchase and sell our inventories in the spot market, our selling prices are mainly influenced by changes in replacement costs for the metal products we carry in our inventory and to a lesser extent changes in our SG&A expense to fulfill our customers’ orders. During periods exhibiting significantly declining metal replacement costs and sustained inflation across our significant operations, we may be unable to pass along our increased SG&A expense to our customers through higher pricing for the products we sell, which would decrease our earnings. In addition, significant inflation throughout the economy could impact our customers’ access to capital, leading to a decrease in their ordering volume and frequency. If we are unable to increase our product pricing or take other actions to increase our gross profit at the same rate as our higher SG&A costs,
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or if our tons sold or tons toll processed decline as a result of inflationary pressures on our customers, our profitability and financial position would decline.
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