Reliance Steel & Aluminum Co. reported its financial results for the third quarter and nine months ended 30 September 2012.

Third Quarter 2012 Financial Highlights

• Sales were $2.06 billion, down 3.9% from $2.14 billion in the third quarter of 2011 and down 7.0% from $2.21 billion in the second quarter of 2012. Tons sold were up 2.0% from the third quarter of 2011 and down 3.5% from the second quarter of 2012.
• Net income was $98.1 million, up 15.5% from $84.9 million in the third quarter of 2011 and down 9.8% from $108.8 million in the second quarter of 2012.
• The 2012 third quarter financial results include in cost of sales a pre-tax LIFO credit, or income, of $27.0 million, compared with a pre-tax LIFO charge, or expense, of $22.5 million for the third quarter of 2011 and a credit of $7.5 million for the second quarter of 2012.
• Cash flow from operations was $247.6 million in the 2012 third quarter.

Management Commentary
"Overall demand in the third quarter was in-line with expectations after taking into account normal seasonal fluctuations and one less shipping day compared to the prior quarter and same period last year," said David H. Hannah, Chairman and CEO of Reliance.

"Driven mostly by increased sales of our stainless steel and aluminum products, as well as contributions from our 2011 and 2012 acquisitions, total tons sold increased 2.0% over last year’s third quarter. Additionally, our sales related to the auto industry through our toll processing operations were up significantly compared to last year. However, our net sales reflect downward pressure on pricing, as our average price per ton sold fell 3.8% sequentially and 6.3% year-over-year. While we expected economic uncertainty to continue as we entered the third quarter, price decreases in the quarter were greater than expected for all of our products. Similar to last quarter, pricing trends for our products were supply—not demand—driven, as underlying cost inputs at the producer level continued to decrease, imports remained at high levels and domestic overcapacity persisted. As such, sales momentum continued to decelerate in the quarter relative to the second quarter of 2012. On a year-to-date basis, our tons sold are up 8.5%, operating income is up 13.7%, net income of $323.1 million is up 17.1%."

Mr. Hannah continued, "Looking at our balance sheet, Reliance continues to operate from a position of financial strength. At 30 September 2012, our net debt-to-total capital ratio improved to 26.4% with $788 million available on our $1.5 billion credit facility. Moreover, our cash flow from operations was $247.6 million during the 2012 third quarter. The liquidity available on our credit facility provides ample room to re-invest in our business and create long-term shareholder value. In addition to completing the recent acquisitions of GH Metal Solutions, Inc. and Sunbelt Steel Texas, LLC, during the third quarter, we maintained our recently increased quarterly cash dividend of $0.25 per share."

End-market Commentary
Relative strength in aerospace, energy (oil and gas), farm and heavy equipment, and auto (through the Company’s toll processing business), continue to offset weakness in non-residential construction.

• Commercial aerospace, consistent with the first half of 2012, continues to perform well, led by strength in both demand and pricing.
• Energy (oil and gas) continues to be among the Company’s strongest end-markets. Demand, while still solid, has softened compared to the first half of the year. Pricing has also weakened.
• Heavy industry performed well in the third quarter of 2012, albeit at a slower pace than the first half of 2012, due partly to increasingly conservative inventory management among industry OEM’s, as well as a general slowing in the industrial economy.
• Automotive, supported by the company’s toll processing businesses in the U.S. and Mexico, exhibited robust demand in the third quarter.
• Non-residential construction continued to show signs of a recovery, although at significantly reduced demand levels from its peak in 2006. Consistent with the first half of 2012, North American industrial construction related to manufacturing and energy continued to exhibit the most improvement.

Corporate Developments
Effective 1 October 2012, Reliance completed the acquisition of all the outstanding capital stock of GH Metal Solutions, Inc. (formerly known as Gas House, Inc.), a value added processor and fabricator of carbon steel products located in Fort Payne, Ala. For the year 2011, GH’s sales were approximately $44 million.

Effective 1 October 2012, Reliance acquired all the outstanding limited liability company interests of Sunbelt Steel Texas, LLC, a value added distributor of special alloy steel bar and heavy-wall tubing products to the oil and gas industry. Sunbelt was founded in 1986 and is now headquartered in Houston, Texas, with an additional location in Lafayette, La. Net sales of Sunbelt for the year 2011 were approximately $48 million.

Business Outlook
The company expects that global economic uncertainty will continue to impact the industry in the fourth quarter. In addition, fewer shipping days because of the holidays and extended holiday-related closures at various of our customers will lower our tons sold in the fourth quarter as compared to the 2012 third quarter, which is a normal seasonal trend. Carbon steel prices are still fragile, while stainless and aluminum prices are anticipated to increase slightly.