Reliance Steel & Aluminum Co.
) third-quarter 2012 earnings per share of $1.30 outperformed the
Zacks Consensus Estimate of $1.20 and surpassed the year-ago
earnings of $1.13. Profits improved 15.5% year over year to $98.1
million despite a decline in sales. The bottom line was supported
by an inventory adjustment related credit of $27 million
(included in cost of sales).
Revenues fell 3.9% year over year to $2,055.3 million, missing
the Zacks Consensus Estimate of $2,099 million. The decline was
mostly due to lower pricing in the quarter. Healthy performance
across energy, aerospace, farm and heavy equipment, and
automotive was somewhat masked by sustained weakness in the
non-residential construction market. The company witnessed solid
demand across the energy and automotive markets in the
Sales volume increased 2% year over year but fell 3.5%
sequentially in the quarter. Average prices per ton sold went
down 6.3% year over year and declined 3.8%
The company exited the third quarter with cash and cash
equivalents of $120.6 million, up 32% year over year. Total debt
stood at $1.37 billion at the end of the quarter, down 7% from
the prior-year quarter. Net debt-to-capital ratio was 26.4% as of
September 30, 2012, compared with 31% as of September 30,
Reliance Steel remains committed to boosting shareholder
returns leveraging its healthy liquidity position. The company,
in July 2012, boosted its quarterly dividend by 67% to 25 cents a
share from the earlier payout of 15 cents.
Reliance Steel continues its acquisition spree to incite
growth. Earlier this month, the company wrapped up the
acquisition of all of the outstanding shares of Alabama-based
steel processor, GH Metal Solutions, Inc. The entity, which has
annual sales of roughly $44 million, will now operate as a
fully-owned unit of Reliance Steel's subsidiary Feralloy
The company has also purchased Texas-based privately-held
Sunbelt Steel Texas, LLC to expand its foothold in the energy
space. The acquisition has allowed Reliance Steel to serve
customers across a number of oil and gas well drilling categories
including vertical, horizontal, directional and deepwater
drilling applications. The company hopes to leverage Sunbelt's
growing presence in specialty markets.
Outlook and Recommendation
Looking ahead, Reliance Steel envisions the economic
challenges to prevail in the fourth quarter. The company also
expects that fewer shipping days in the fourth quarter due to the
holidays will result in a sequential decline in sales volume.
Moreover, stainless and aluminum prices have been forecast to
rise modestly in the quarter while carbon steel pricing is
expected to remain weak. Based on these assumptions, the company
expects to earn 90 cents to $1.00 per share in the fourth
Reliance Steel continues to evaluate and execute additional
growth projects and is well placed to leverage the strong
momentum across a number of end markets. However, we are
concerned about the non-residential construction market (the
company's largest end market), which continues to be the weakest
Reliance Steel, which competes with
Metals USA Holdings Corp.
Worthington Industries Inc.
), retains a short-term Zacks #4 Rank (Sell). We have a long-term
Neutral recommendation on the stock.
METALS USA HLDG (MUSA): Free Stock Analysis
RELIANCE STEEL (RS): Free Stock Analysis
WORTHINGTON IND (WOR): Free Stock Analysis
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