We are upgrading our recommendation on
Reliance Steel & Aluminum Co.
) to Outperform following its solid first-quarter 2012 results.
Earnings of $1.54 per share topped the Zacks Consensus Estimate of
$1.50. The company saw healthy double-digit growth in sales (up 20%
year over year to $2,288.3 million), which beat the Zacks Consensus
Estimate of $2,139 million.
Reliance Steel said that its results were boosted by strength
across a slew of industries including energy, aerospace, farm and
heavy equipment, and semiconductor. Higher sales volume and pricing
also supported growth.
Moving ahead, the company expects higher growth across the
energy and aerospace industries. However, it expects the pricing
environment to remain uncertain for certain metals it sells.
Reliance Steel has tremendous earnings capacity with its broad
and diversified product base, along with a wide geographic
footprint that positions it well in the industry. The company
continues to evaluate and execute additional growth projects and is
well placed to leverage the strong momentum across a number of end
The company's expansion initiatives and strategic acquisitions
should drive growth in 2012. The acquisitions of McKey and National
Specialty Alloys ("NSA") have enabled Reliance Steel to improve its
product offerings and expand into newer markets.
Reliance Steel recently wrapped up the acquisition of all the
assets of the Worthington Steel Vonore plant from
Worthington Industries Inc.
). The acquisition, which complements the company's existing
portfolio, will expand its presence in the Southeastern regions of
The company is also focused on growing its business organically.
Integral to this plan, it has closed down a few small operations,
opened new facilities and expanded the existing ones. The majority
of the company's stipulated capital expenditure for this year will
be focused on expanding its facilities and improving its geographic
footprint. This is in sync with Reliance Steel's growth strategy
and is expected to bear fruit in the long run.
That said, we are cautious about the non-residential
construction market, which continues to be the weakest link. Our
recommendation on the stock is backed by a short-term Zacks #1 Rank
RELIANCE STEEL (RS): Free Stock Analysis Report
WORTHINGTON IND (WOR): Free Stock Analysis
To read this article on Zacks.com click here.