We are retaining our Neutral recommendation on
Reliance Steel & Aluminum Co.
) following its mixed third quarter results. Earnings of $1.30
per share outstripped the Zacks Consensus Estimate by a dime.
Revenues, however, fell roughly 4% year over year to $2,055.3
million on lower pricing and missed the Zacks Consensus Estimate
of $2,099 million.
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 quarter.
Moving ahead, the company envisions economic challenges to
sustain in the fourth quarter and expects fewer shipping days due
to the holidays to result in a sequential decline in sales
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
In addition, Reliance Steel remains committed to offering
incremental returns to its shareholders. Its expansion
initiatives and strategic acquisitions should drive growth this
year and beyond.
However, Reliance Steel contends with falling steel and metals
prices. The company is seeing a declining pricing trend for most
of the metals it sells. Prices for alloy aluminum, stainless
steel and carbon steel products fell in the third quarter. While
stainless and aluminum prices have been forecast to rise modestly
in the fourth quarter, carbon steel pricing is expected to remain
We also remain concerned about the non-residential construction
market (the company's largest end market), which continues to be
the weakest link. In addition, raw material prices are expected
to remain volatile. All these factors lead us to tread with
Reliance Steel, which competes with
Metals USA Holdings Corp.
Worthington Industries Inc.
), retains a short-term Zacks #3 Rank (Hold).
METALS USA HLDG (MUSA): Free Stock Analysis
RELIANCE STEEL (RS): Free Stock Analysis
WORTHINGTON IND (WOR): Free Stock Analysis
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