We have reaffirmed our Neutral recommendation on
Reliance Steel & Aluminum Co.
) following its mixed fourth-quarter 2012 results. Softness in
the non-residential construction market and the weak pricing
environment lead us to tread with caution.
Earnings for the fourth quarter, reported on Feb 21, outstripped
the Zacks Consensus Estimate while sales missed. Revenues fell
roughly 7% year over year due to lower shipping days and pricing.
Strength across energy, aerospace and automotive markets was
somewhat masked by weakness in the non-residential construction
market. The company expects the economic challenges to sustain in
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 offer
incremental returns to its shareholders. The company recently
boosted its quarterly dividend by 20% to 30 cents a share.
Reliance Steel continues its aggressive acquisition strategy to
incite growth. The company recently entered into an agreement to
acquire all outstanding shares of
Metals USA Holdings Corp.
). Metals USA is a strategic fit with Reliance Steel's portfolio
and complements its existing customer base, product mix and
However, Reliance Steel contends with weak steel and metals
pricing environment. Average selling price fell in the fourth
quarter, hurting revenues in the process.
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.
Reliance Steel currently carries a short-term (1 to 3 months)
Zacks Rank #3 (Hold).
Other Stocks to Consider
Other companies in the metals industry having a favorable Zacks
Worthington Industries Inc.
Gibraltar Industries Inc. (
). Both the companies hold a Zacks Rank #2 (Buy).
METALS USA HLDG (MUSA): Free Stock Analysis
GIBRALTAR INDUS (ROCK): Free Stock Analysis
RELIANCE STEEL (RS): Free Stock Analysis
WORTHINGTON IND (WOR): Free Stock Analysis
To read this article on Zacks.com click here.