Reliance Steel (RS) to Post Q3 Earnings: What's in Store?

Reliance Steel & Aluminum Co.RS is set to release its third-quarter 2017 results before the opening bell on Oct 26.

In the second quarter, the company delivered a positive earnings surprise of 1.5%. Reliance Steel posted a profit of $103 million or $1.40 per share in the second quarter, up around 2.1% from $100.9 million or $1.38 recorded a year ago. Earnings per share topped the Zacks Consensus Estimate of $1.38.

Revenues rose around 12% year over year to $2,475.2 million in the quarter, beating the Zacks Consensus Estimate of $2,416.1 million.

Reliance Steel beat earnings estimates in three of the trailing four quarters while missing in one, with an average beat of 4%.

The company witnessed strong demand across automotive and aerospace markets along with higher pricing levels in the second quarter, which contributed to its results. These factors are expected to continue to drive the company's results in the third quarter.

Reliance Steel's shares have gained 9% over a year, outperforming the industry 's decline of 14.7%.

Let's see how things are shaping up for this announcement.

Factors to Consider

Reliance Steel, in July, said that it remains carefully optimistic regarding activity levels of business in third-quarter 2017 due to normal seasonal patterns. The company anticipates demand to remain steady except for decline in shipping volume owing to customer vacation and shutdowns schedules in the third quarter. There is also one less shipping day in the third quarter vis-à-vis the second, the company noted.

As a result, the company expects tons sold will be down 3% to 5% in third-quarter 2017, compared with the previous quarter. The Zacks Consensus Estimate for shipments for the third quarter are pegged at 1,485,000 tons. This reflects an expected decline of around 3.6% on a sequential comparison basis.

Reliance Steel also expects average selling price for the third quarter to be flat to up 3% from the second quarter. Currently, the Zacks Consensus Estimate for average selling price per ton sold for the third quarter stands at $1,616, reflecting an expected increase of 1% from $1,600 recorded in the second quarter.

The company benefited from higher metals pricing in the second quarter and expects positive momentum in pricing in the third quarter given increases in carbon steel pricing and potential for lower imports.

Reliance Steel should also continue to gain from synergies of acquisitions and solid momentum across automotive and aerospace markets in the to-be-reported quarter. Demand in the aerospace market has been supported by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by the company's toll processing businesses in the United States and Mexico as well as increased use of aluminum in the industry.

Reliance Steel & Aluminum Co. Price and Consensus

Reliance Steel & Aluminum Co. Price and Consensus | Reliance Steel & Aluminum Co. Quote

Earnings Whispers

Our proven model does not conclusively show that Reliance Steel is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for Reliance Steel is currently -0.67%. This is because the Most Accurate estimate is at $1.19 per share while the Zacks Consensus Estimate is pegged at $1.20 per share. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Although Reliance Steel's Zacks Rank #3 increases the predictive power of ESP, its negative ESP makes surprise prediction difficult.

Note that Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are some other companies in the basic materials space you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Westlake Chemical Corporation WLK has an Earnings ESP of +5.14% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

FMC Corporation FMC has an Earnings ESP of +0.88% and a Zacks Rank #1.

Ingevity Corporation NGVT has an Earnings ESP of +2.94% and sports a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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