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Reliance Steel & Aluminum Reports Quarterly Results and Outlook

07/31/2013 - Reliance Steel & Aluminum expects global economic uncertainty will continue to present challenges to industrial growth in the third quarter of 2013 and expects only slight improvements in demand with pricing remaining relatively unchanged from second quarter levels.

Second Quarter 2013 Financial Highlights
  • Sales were US$2.45 billion, up 10.8% from US$2.21 billion in the second quarter of 2012 and up 20.9% from US$2.03 billion in the first quarter of 2013.
  • Tons sold were up 24.2% from the second quarter of 2012 and up 28.7% from the first quarter of 2013.
  • Completed acquisition of Metals USA on 12 April 2013.
  • Net income attributable to Reliance was US$81.0 million, down 25.6% from US$108.8 million in the second quarter of 2012 and down 3.2% from US$83.7 million in the first quarter of 2013.
  • Earnings per diluted share were US$1.05, down 27.1% from US$1.44 in the second quarter of 2012 and down 3.7% from US$1.09 in the first quarter of 2013.
  • Non-GAAP net income, excluding one-time charges, was US$88.3 million, or US$1.14 per diluted share, down 20.8% from the second quarter of 2012 and up 1.8% from the first quarter of 2013.
  • A pre-tax LIFO credit, or income, of US$5.0 million is included in cost of sales compared to a pre-tax LIFO credit of US$7.5 million in the second quarter of 2012 and a credit of US$5.0 million for the first quarter of 2013.
  • Cash flow from operations was US$211.7 million and net debt-to-total capital was 37.6% at 30 June 2013.
  • Increased quarterly cash dividend by 10% to US$0.33 per share.
Management Commentary
“Second quarter same store tons sold increased 3.7% compared to the prior quarter, due in part to an extra shipping day in the second quarter along with slight improvement in overall demand levels. However, the weak pricing environment continued, leading to a 2.7% reduction in our same store average price per ton sold, relative to the first quarter,” said David H. Hannah, chairman and CEO of Reliance. “In general for the 2013 second quarter, both demand and pricing were a bit weaker than we anticipated at the end of the previous quarter. We remain highly focused on managing all aspects of the business that are within our control, which continues to mitigate much of the impact from these challenging market conditions. Inventory turns improved somewhat compared to the prior quarter and gross margins declined slightly but were solid in light of the weak pricing we experienced—each indicative of the strong operational performance of our managers in the field.”
Mr. Hannah continued, “While macro-economic factors have hampered organic growth in recent quarters, Reliance continues to extend its track-record of successful M&A activity. Most recently, the acquisition of Metals USA, our largest to date, was completed early in the second quarter and has helped the company generate profitable growth in a challenging environment. Including acquisitions that were completed in 2012 and 2013, second quarter consolidated net sales were up 10.8% and tons sold were up 24.2% compared to the same period last year. We expect to continue to selectively acquire companies that are well-managed, complement our product offerings, grow our presence in targeted end-markets and fit our strategy for profitable growth. We believe Reliance is the acquirer of choice in our industry and our proven, well-executed acquisition strategy has consistently enhanced the performance of our acquired companies.”
End-market Commentary
Continued strong performance in auto (through the company’s toll processing operations) along with solid but lower operating results in aerospace, energy (oil and gas) and manufactured goods including agriculture and heavy equipment continue to offset the slow recovery in non-residential construction.
  • Aerospace was mixed during the second quarter as pricing and overall volumes declined slightly compared to the second quarter of 2012. Reliance expects that demand in the aerospace market will improve as the Company progresses through 2013.
  • Automotive, supported by the Company’s toll processing operations in the U.S. and Mexico, exhibited continued strong and steady demand during the quarter. Reliance continues to anticipate strength in automotive throughout 2013.
  • Energy (oil and gas) continues to perform well, despite lower demand levels as compared to the second quarter of 2012. Demand for the products Reliance sells is expected to increase modestly in 2013, with continued pressure on pricing due to excess industry capacity.
  • Heavy industry continues to perform reasonably well. The Company also expects modest growth in this end-market throughout 2013.
  • Non-residential construction continued to show signs of a slow but steady recovery; although, still at significantly reduced demand levels from its peak. During the second quarter, North American industrial construction related to manufacturing and energy continued to exhibit the most improvement. Reliance is cautiously optimistic that this important end-market will improve modestly as 2013 progresses.
Corporate Developments
On 12 April 2013, Reliance completed the acquisition of Metals USA for US$786 million paid in cash at closing to the holders of Metals USA stock, options and restricted stock, and the assumption of US$466 million of net debt. This represented a Metals USA enterprise value of approximately US$1.25 billion. Reliance funded the transaction and refinanced Metals USA indebtedness with a combination of proceeds from its amended US$1.5 billion credit facility and new US$500 million term loan in addition to proceeds from its US$500 million senior notes offering.
Business Outlook
The company expects global economic uncertainty will continue to present challenges to industrial growth in the third quarter of 2013 and expects only slight improvements in demand with pricing remaining relatively unchanged from second quarter levels. Additionally, third quarter business activity is typically negatively impacted by some seasonal slowness as compared to the second quarter. As a result, for the third quarter ending 30 September 2013, management currently expects GAAP earnings per diluted share to be in the range of US$1.15 to US$1.25.
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 290 locations in 39 states and ten countries outside of the United States, 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.