Reliance Steel & Aluminum Co.
) saw its profit slide in the second quarter of 2013 as weak
demand stemming from economic uncertainty and lower pricing
dented its bottom line. The California-based metals processor's
profit tumbled roughly 26% year over year to $81 million or $1.05
per share in the quarter.
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In addition to weak demand and pricing, Reliance Steel also saw
its costs rise 14% year over year in the quarter, contributing to
the slump in profit.
Excluding one-time charges, earnings per share were $1.14,
missing the Zacks Consensus Estimate of $1.18 and falling below
the year-ago earnings of $1.44 per share. Reliance Steel recorded
an inventory adjustment related credit of $5 million (included in
cost of sales) in the reported quarter.
Revenues, Volume and Pricing
Revenues rose 11% year over year to $2,448.3 million in the
reported quarter, but trailed the Zacks Consensus Estimate of
$2,463 million. Strength across automotive, energy and heavy
equipment was partly ebbed by sluggishness in the non-residential
Sales volume jumped 24.2% year over year and 28.7% sequentially
in the quarter. Average prices per ton slipped 10.9% year over
year and 6.2% sequentially. Price decline was witnessed across
all products with carbon and stainless steel price falling 10.5%
and 14%, respectively.
Reliance Steel ended the quarter with cash and cash equivalents
of $100.8 million, up 8% year over year. Total debt increased
roughly 52% year over year to roughly $2.3 billion at the end of
the quarter, down 20% from a year ago. Net debt-to-capital ratio
was 37.6% as of Jun 30, 2013, up from 30% as of Jun 30, 2012.
During the reported quarter, Reliance Steel amended $1.5 billion
unsecured revolving credit facility and obtained a new term loan
worth $500 million. It also sold $500 million of its 4.5% senior
Reliance Steel's Board, on July 23, approved a 10% rise in its
quarterly dividend to 33 cents per share. The revised dividend is
payable on Sep 13, 2013, to shareholders of record as of Aug 16,
Reliance Steel continues its aggressive acquisition strategy to
incite growth. It wrapped up its acquisition of Metals USA
Holdings Corp in Apr 2013 following the approval of the
transaction by Metals USA's shareholders. Metals USA, which makes
steel and aluminum components, is a strategic fit with Reliance
Steel's portfolio and complements its existing customer base,
product mix and geographic footprint.
Looking ahead, Reliance Steel expects the uncertain economic
environment to continue to affect the steel industry in the third
quarter. The company envisions a modest recovery in demand while
sees pricing environment to be similar as witnessed in the second
Reliance Steel expects to earn $1.15 to $1.25 per share in the
third quarter, which is below the current Zacks Consensus
Estimate of $1.30. It expects seasonal slowness to impact
business activity in the quarter.
Reliance Steel, a Zacks Rank #4 (Sell) stock, remains challenged
by weak steel industry fundamentals and contends with soft steel
and metals pricing environment. In addition, raw material prices
are expected to remain volatile.
The steel industry remains affected by overcapacity that
continues to outpace demand. There is not enough demand for steel
products due to weakness in construction end markets, resulting
in excess supply. Contributing toward this inventory glut are
production ramp ups by domestic steel producers and rapid growth
in Chinese production.
We also remain concerned about a still weak non-residential
construction market, Reliance Steel's largest end market.
Other companies in the metals industry having a favorable Zacks
Horsehead Holding Corp.
Precision Castparts Corp.
). While NSK holds a Zacks Rank #1 (Strong Buy), both Horsehead
Holding and Precision Castparts retain a Zacks Rank #2 (Buy).