Reliance Steel & Aluminum Reports 2012 Results, 2013 Outlook
02/21/2013 - Reliance Steel & Aluminum says its fourth quarter results reflect the impact of continued global economic uncertainty coupled with normal seasonal trends and expects global economic and political uncertainty to continue negatively impacting the metals industry in the 2013 first quarter.
Reliance Steel & Aluminum Co. reported its financial results for the fourth quarter and full year ended 31 December 2012.
Fourth Quarter 2012 Financial Highlights
· Sales were US$1.89 billion, down 7.1% from $2.03 billion in the fourth quarter of 2011 and down 8.1% from $2.06 billion in the third quarter of 2012. Tons sold were down 3.9% from the fourth quarter of 2011 and down 8.3% from the third quarter of 2012.
· Net income was $80.4 million, up 18.4% from $67.9 million in the fourth quarter of 2011 and down 18.0% from $98.1 million in the third quarter of 2012.
· Cash flow from operations was $333.1 million in the 2012 fourth quarter, up from $217.5 million in the 2011 fourth quarter.
Full Year 2012 Financial Highlights
· Sales were $8.44 billion, up 3.8% from $8.13 billion in 2011. Tons sold increased 5.4% from the prior year.
· Net income was $403.5 million, up 17.4% from $343.8 million in 2011.
· Cash flow from operations was $601.9 million in 2012, up from $234.8 million in 2011.
Management Commentary
“Our fourth quarter results reflect the impact of continued global economic uncertainty on our industry coupled with normal seasonal trends including fewer shipping days as a result of the holiday season and extended holiday-related closures by various customers. However, our average price per ton sold held steady on a sequential quarter basis in our fourth quarter, allowing us to improve our gross profit margin. Our LIFO credit in the 2012 fourth quarter boosted our margins, but more importantly, our local managers were able to improve our FIFO gross profit margins as demand declined,” said David H. Hannah, Chairman and CEO of Reliance.
Mr. Hannah continued, “In February 2013, we announced our agreement to acquire Metals USA for approximately $1.2 billion in an all cash transaction. Metals USA will be our largest acquisition to date and nicely complements Reliance’s existing customer base, product mix and geographic footprint. We expect to close the transaction in the 2013 second quarter and it is expected to be immediately accretive upon closing. Metals USA has demonstrated consistent performance with solid returns and we believe that the combined company will be well positioned to continue to outperform the broader metals service center industry.”
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.
· Aerospace continued to be a strong end market for the company during 2012, with strength in both demand and pricing. The company expects the aerospace market to continue at strong levels and improve as the company progresses into 2013.
· Energy (oil and gas) continues to be among the company’s strongest end markets, even though current demand levels are below those of a year ago. Demand and pricing for the products we sell are expected to remain solid in 2013.
· Heavy industry was a relatively strong end market for us in 2012, albeit with some slowing beginning in mid-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 continued strong demand in 2012 and achieved a company record for tons processed for the full year. Reliance anticipates continued strength in auto in 2013.
· Non-residential construction continued to show modest signs of a recovery, although still at significantly reduced demand levels from its peak in 2006. In 2012, North American industrial construction related to manufacturing and energy continued to exhibit the most improvement.
Balance Sheet & Liquidity
As of December 31, 2012, total debt outstanding at quarter end was $1.21 billion, or a net debt-to-total capital ratio of 23.8%. The company currently has about $1 billion available on its $1.5 billion credit facility. The company is pleased with its overall financial position and strong cash flow in 2012 and believes it has sufficient liquidity and financial flexibility. To fund the announced acquisition of Metals USA, including the refinancing of Metals USA’s existing debt, Reliance intends to access the bank credit market and debt capital market for additional capital. Pro forma for the Metals USA acquisition, net debt-to-total capital is expected to be approximately 42%, in line with the company’s targeted financial profile. During the fourth quarter, the company generated $333.1 million in cash flow from operating activities. For the full year, the company generated $601.9 million in cash flow from operating activities.
Corporate Developments
On 6 February 2013, Reliance announced a definitive merger agreement whereby Reliance will acquire all outstanding shares of Metals USA Holdings Corp. for $20.65 per share in cash, which, along with the assumption of Metals USA’s debt represents an enterprise value of approximately $1.2 billion. The transaction is expected to close in the second quarter of 2013, subject to certain regulatory approvals. Metals USA’s unaudited assets and sales as of 31 December 2012 and for the year then ended were approximately $1.0 billion and $2.0 billion, respectively.
On 19 February 2013, the Board of Directors declared a regular quarterly cash dividend of $0.30 per share of common stock, an increase of 20%. The dividend is payable on March 22, 2013 to shareholders of record 1 March 2013. The company has increased its dividend 19 times since its initial public offering in 1994 and has paid regular quarterly dividends for 53 consecutive years.
Business Outlook
The company expects that global economic and political uncertainty will continue to negatively impact the industry in the 2013 first quarter, pressuring both demand and pricing. However, the company’s January tons sold improved modestly from the 2012 fourth quarter and pricing has been generally stable so far. As a result, for the first quarter ending 31 March 2013, management currently expects earnings per diluted share to be in the range of $1.05 to $1.15.
Reliance Steel & Aluminum Co., headquartered in Los Angeles, Calif., is the largest metals service center company in North America. Through a network of more than 240 locations in 38 states and Australia, Belgium, Canada, China, Malaysia, Mexico, Singapore, South Korea, the U.A.E. and the United Kingdom, the Company provides value-added metals processing services and distributes a full line of over 100,000 metal products to more than 125,000 customers in a broad range of industries.
