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Reliance Steel & Aluminum Reports Record Results for 2007
02/22/2008 - Reliance Steel & Aluminum reports net income of $79.9 million on sales of $1.71 billion for the fourth quarter, and record net income of $408.0 million on record sales of $7.26 billion for the fiscal year ended December 31, 2007.
Reliance Steel & Aluminum Co. reported net income of $79.9 million on sales of $1.71 billion for the fourth quarter, and record net income of $408.0 million on record sales of $7.26 billion for the fiscal year ended December 31, 2007.
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Outlook—“Looking forward,” said Hannah, “carbon steel prices have risen significantly during the first quarter of 2008 and prices of the other metals that we sell are relatively steady, resulting in an overall pricing environment that is much more favorable than the last two quarters.
“Demand, however, is more difficult to predict,” said Hannah, “given the current uncertainty in many parts of the economy. We still see some strength in the main markets we serve, especially in the energy, oil and gas, and aerospace industries. Also, non-residential construction activity for us is still good, but not at 2007 levels.
“Because of the improved pricing environment, we expect some continued improvement in our gross profit margins during the 2008 first quarter compared to 2007 levels, but are somewhat uncertain about the pace of demand. As a result, we currently estimate earnings per diluted share for the 2008 first quarter in a range of $1.25 to $1.35,” said Hannah.
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Sales were $1.71 billion, a 9% increase compared with 2006 fourth quarter sales of $1.57 billion. Results include in cost of sales a pre-tax LIFO income amount of $1.2 million ($.01 per diluted share), compared with a pre-tax LIFO expense amount of $37.9 million ($.31 per diluted share) in the 2006 period.
Full Year Results—Record net income of $408.0 million (a record $5.36 per diluted share) represent a 15% increase compared with net income of $354.5 million ($4.82 per diluted share, an 11% increase) for 2006.
Record sales of $7.26 billion represent an increase of 26% compared with 2006 sales of $5.74 billion. Results include in cost of sales a pre-tax LIFO expense amount of $43.8 million ($.36 per diluted share), compared with a pre-tax LIFO expense amount of $94.1 million ($.79 per diluted share) in the 2006 period.
Five acquisitions completed during 2007—Encore Group Limited; Crest Steel Corp.; Industrial Metals and Surplus, Inc.; Clayton Metals, Inc.; and Metalweb Limited—contributed to the record results for 2007. Full-year operating results from the 2006 acquisitions of Earle M. Jorgensen Co. and Yarde Metals, Inc. also contributed to the record 2007 performance.
Management Comments—“We are very pleased to report our record results for 2007, especially in light of the volatile market conditions throughout the year,” said David H. Hannah, Reliance’s Chairman of the Board and CEO. “Gross profit management was our most difficult task and we handled it well, finishing the year down only slightly from the 2006 level. For the 2007 year, both our volume and average prices were up compared to 2006, driven mostly by our 2006 and 2007 acquisitions.
“We managed our working capital well which, when combined with our record profits, resulted in operating cash flow of $639.0 million, or $8.40 per diluted share, in 2007,” continued Hannah. “Our net debt-to-total capital was 32.4% at December 31, 2007, after funding $124 million of capital expenditures and $270 million of acquisitions, along with repurchasing $82 million of our common stock in 2007. Our current debt level provides us a considerable amount of flexibility for continued growth,” said Hannah.
In recognition of the Company’s significant growth in revenues, earnings and cash flow, all of which set records in 2007, on February 13, 2008, the Reliance Board of Directors increased the quarterly dividend rate 25%, to $.10 per share of common stock from $.08 per share. The 2008 first quarter dividend payment of $.10 per share will be paid on March 28, 2008 to shareholders of record on March 7, 2008. The Company has paid regular quarterly dividends for 48 consecutive years.
“In December of 2007, we announced that our 97%-owned subsidiary, Valex Corp., opened a facility in the People’s Republic of China. The facility is located in the Nanhui district of Shanghai and will produce ultra-high-purity tubes, fittings, and valves for the semiconductor, LCD and solar industries. This new venture will be the first Valex manufacturing plant based in China and will position Valex to improve its already significant share of the growing Asian market. Valex also has operations in Ventura, California and Pyongtaek, South Korea. This new facility will allow us to expand our market share in this fast-growing market by offering localized production and enhanced services to our customers and also increases our existing global presence,” Hannah said.
“In January of 2008, we sold the assets and business of the Encore Coils division of Encore Group Limited, a subsidiary of Reliance. We acquired the Encore Group of metals service center companies (Encore Metals, Encore Metals (USA), Inc., Encore Coils, and Team Tube in Canada) effective February 1, 2007. The Encore Metals and Team Tube divisions of the Encore Group, which we retained, specialize in the processing and distribution of alloy and carbon bar and tube, as well as stainless steel sheet, plate and bar products through 13 locations. The Encore Coils division processed and distributed carbon steel flat-rolled products through four facilities located in Western Canada. The most attractive part of the Encore Group to us was its specialty metals business, which we kept. The Encore Coils business did not fit well for us because we did not have any similar facilities nearby that could help support this relatively small business,” said Hannah.
During 2007, Reliance purchased 1,673,467 shares of its common stock at an average cost of $49.10 per share under the Stock Repurchase Plan. As of December 31, 2007, the company had repurchased a total of 12,750,017 shares of its common stock at an average cost of $12.93 per share, since the Stock Repurchase Plan was first adopted in December 1994. At December 31, 2007, there were 10,326,533 shares of the company’s common stock authorized for repurchase under the Plan. Repurchased shares are redeemed and treated as authorized but unissued shares. Additionally, in early January 2008, the company repurchased 2,443,500 shares of its common stock at an average cost of $46.97 per share.
*All share and per-share amounts have been adjusted for the two-for-one common stock split effective July 19, 2006.
Headquartered in Los Angeles, Calif., Reliance Steel & Aluminum is one of the largest metals service center companies in the United States. Through a network of more than 185 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.
