Reliance Steel & Aluminum Reports Record 2nd Quarter, YTD Results
07/18/2008 - Reliance Steel & Aluminum reports record net income of $156.6 million on record sales of $2.1 billion for the second quarter, and record net income of $264.0 million on record sales of $4.0 billion for the six months ended June 30, 2008.
Reliance Steel & Aluminum Co. reported record net income of $156.6 million on record sales of $2.1 billion for the second quarter, and record net income of $264.0 million on record sales of $4.0 billion for the six months ended June 30, 2008.
Second Quarter Results—The $156.6 million record net income reflects a 27.5% increase compared with net income of $122.8 million for the second quarter of 2007, and a 45.8% increase from $107.4 million for the first quarter of 2008. Earnings per diluted share were $2.12, up 33% from $1.59 for the yea r-ago second quarter and up 45% from $1.46 in the first quarter of 2008. Sales, a record $2.1 billion, reflect a 10.5% increase compared with year-ago second quarter sales of $1.9 billion.
Results include in cost of sales a $40.0-million ($0.34 per diluted share) pre-tax LIFO expense compared with a $13.75 million ($0.11 per diluted share) pre-tax LIFO expense in the year-ago second quarter.
Six-Month Results—The $264.0 million record net income reflects a 12.6% increase compared with net income of $234.5 million for the same period in 2007. Earnings per diluted share were a record $3.58, compared with earnings of $3.06 per diluted share for the six months ended June 30, 2007. Sales, a record $4.0 billion, reflect a 7.1% increase compared with 2007’s first-six-month sales of $3.74 billion.
Results include in cost of sales a $57.5 million ($0.49 per diluted share) pre-tax LIFO expense amount of compared with a $32.5-million ($0.26 per diluted share) pre-tax LIFO expense in the 2007 year-to-date period.
Management Comments—“The 2008 second quarter turned out to be quite a bit better than we had originally anticipated,” said David H. Hannah, Chairman and CEO of Reliance. “The main reason for the increased earnings was higher carbon steel prices, which resulted in higher gross profit margins as we quickly passed through the increases to our customers. While we expected carbon steel pricing to continue upwards during the second quarter, the increases were larger than we had anticipated.”
Company Developments—On June 16, 2008, Reliance entered into an agreement to acquire the outstanding capital stock of PNA Group Holding Corp., a leading steel service center group. The transaction is valued at approximately $1.1 billion, comprising approximately $315 million for PNA’s equity plus up to $750 million of debt. PNA’s subsidiaries include the operating entities Delta Steel, LP, Feralloy Corp., Infra-Metals Co., Metals Supply Co., Ltd., Precision Flamecutting and Steel, LP, and Sugar Steel Corp. Through its subsidiaries, PNA processes and distributes primarily carbon steel plate, bar, structural and flat-rolled products. Full-year 2007 and first-quarter 2008 revenues for PNA were about $1.6 billion and $474 million, respectively. PNA has 23 steel service centers throughout the United States, as well as five joint ventures that operate a total of seven service centers in the United States and Mexico.
The PNA acquisition is expected to be completed in early August, subject to the satisfaction of certain conditions, including obtaining required regulatory approvals. Reliance expects to finance the acquisition and the repayment or refinancing of PNA’s existing debt, through a combination of borrowings under Reliance’s existing credit facility and by raising approximately $750 million through the new bank debt and a newly announced financing.
Outlook—“Looking at the third quarter, we expect pricing to be slightly above second quarter levels,” said Hannah. “While we do not expect any unusual changes in demand, we do expect the normal seasonal softness compared to the 2008 second quarter, and we recognize there is still a good deal of uncertainty surrounding overall economic activity. We, therefore, are anticipating our volume to decrease slightly and our gross profit margins to be a bit lower because the rate of carbon steel price increases will be below that of the second quarter.
“We currently estimate earnings per diluted share for the 2008 third quarter to be in a range of $1.80 to $1.90,” said Hannah. “This guidance does not include the impact of the acquisition of PNA or any of the related financing activities discussed below. We expect to complete the acquisition and the related financing activities in early August.”
Headquartered in Los Angeles, Calif., Reliance Steel & Aluminum Co. is the largest metals service center company in the U.S. and Canada. Through a network of more than 180 locations in 37 states and Belgium, Canada, China, South Korea 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 various industries.
