Reliance Steel & Aluminum Reports Results for 2008
02/20/2009 - Reliance Steel & Aluminum reports net income of $66.3 million on sales of $2.1 billion for the fourth quarter, and record net income of $482.8 million on record sales of $8.7 billion for the fiscal year ended December 31, 2008.
Reliance Steel & Aluminum Co. reported net income of $66.3 million on sales of $2.1 billion for the fourth quarter, and record net income of $482.8 million on record sales of $8.7 billion for the fiscal year ended December 31, 2008.
Fourth Quarter Results—The $66.3 million net income reflects a 17% decrease compared with net income of $79.9 million for the fourth quarter of 2007. Earnings per diluted share were $.90, down 15% from $1.06 for the year-ago fourth quarter.
Sales of $2.1 billion reflect a 26% increase compared with 2007 fourth quarter sales of $1.7 billion. Financial results include in cost of sales (on a FIFO basis) an $18.5 million pre-tax charge ($.17 per diluted share) related to final purchase price allocation adjustments regarding beginning inventory values related to the August 1, 2008 acquisition of PNA Group Holding Corp. Cost of sales also includes a $27.3 million pre-tax LIFO income amount ($.25 per diluted share), which compares with a pre-tax LIFO income amount of $1.2 million ($.01 per diluted share) in the 2007 fourth quarter.
Reliance repaid $505 million of debt in the fourth quarter, bringing its net debt-to-total capital ratio to 41% at December 31, 2008. The company repaid an additional $213 million of debt during the period from January 1 through February 15, 2009, leaving only $250 million outstanding on its revolving credit facility, with $850 million of availability.
Full Year Results—Record net income of $482.8 million reflects an 18% increase compared with net income of $408.0 million for the previous year. Record-setting $6.56 earnings per diluted share reflect a 22% increase compared with earnings of $5.36 per diluted share for the previous year.
Sales were also a record at $8.7 billion, reflecting a 20% increase compared with 2007 sales of $7.3 billion. Financial results include in cost of sales a $109.2 million pre-tax LIFO expense ($.94 per diluted share), which compares with a pre-tax LIFO expense amount of $43.8 million ($.36 per diluted share) for the previous year.
Management Comments—“We are proud to report another record year for Reliance,” said David H. Hannah, Chairman and CEO of Reliance. “Our managers and each of their teams did an outstanding job managing through a challenging and volatile business environment.”
Hannah noted that the company’s tons sold for 2008 were up 12% compared to 2007, due principally to the PNA acquisition. He said that average pricing per ton sold was up 8% compared to 2007. On a 'same-store' basis—excluding PNA and the company’s other 2007 and 2008 acquisitions—tons sold were down only 5% and average pricing was up 14%.
“We had our plans ready by mid-year in anticipation of the expected change in business conditions,” said Hannah. “We did not, however, anticipate the magnitude and speed of the changes. Starting primarily in November and December, we experienced sudden declines in demand and accelerated mill pricing reductions that resulted in significant competitive pressures and deteriorating profit margins as metals service centers, including Reliance, focused on inventory destocking.
“As a result, the fourth quarter was very difficult,” noted Hannah. “However, we managed through the quarter well as we have done in similar situations in the past, with significant reductions in working capital, leading to increased cash flow, which was used primarily to pay down debt.”
Hannah said cash flow from operations was $665 million (a record $9.03 per diluted share) during 2008, $549 million of which was generated in the fourth quarter. In addition to the reductions in working capital, he noted that the company also reduced its workforce by about 7% during the fourth quarter in response to decreased shipping volumes. He said that tons sold during the fourth quarter were up 25% compared to the year-ago fourth quarter, attributing the increase to the PNA acquisition, however, tons sold were down 7% compared to the 2008 third quarter. He also said that average pricing per ton sold was up 2% compared to the 2007 fourth quarter and down 10% compared to the 2008 third quarter.
“We have not seen any meaningful change in business activity levels so far in 2009,” continued Hannah. “Pricing for most all of our products does seem to be at or near the bottom but there is still intense competitive pressure in the marketplace as metals service centers continue to adjust inventory levels downward to better align them with demand.
“As a result of continued uncertainty regarding economic conditions and the operating environment, we are not comfortable providing 2009 first quarter earnings per share guidance at this time. We will, during the course of the quarter, communicate any meaningful information regarding our operations as it becomes available,” Hannah stated.
Company Milestones—“On August 1, 2008, we acquired PNA Group Holding Corporation for approximately $1.1 billion, our largest acquisition to date based on transaction value,” noted Hannah. “We financed this acquisition with borrowings on our revolving credit facility and a new $500-million term loan. The transaction value of approximately $1.1 billion included about $725 million of PNA’s debt that was repaid or refinanced, including the settlement of our cash tender offers for 100% of PNA’s outstanding notes. PNA’s subsidiaries include the operating entities Delta Steel, Inc., Feralloy Corp., Infra-Metals Co., Metals Supply Co., Ltd., Precision Flamecutting and Steel, L.P. and Sugar Steel Corp. Through its subsidiaries, PNA processes and distributes primarily carbon steel plate, bar, structural and flat-rolled products. PNA had revenues for the five months ended December 31, 2008 of about $888 million and was accretive to our 2008 earnings,” added Hannah.
“In September of 2008 we acquired the assets, including the inventory, machinery, and equipment, of the Singapore operation of HLN Metal Centre Pte. Ltd. (HLN Metal),” continued Hannah. “The business operates as Reliance Metalcenter Asia Pacific Pte. Ltd. (RMAP). In April of 2008 we acquired Dynamic Metals International, LLC, based in Bristol, Conn., a specialty metal distributor. Dynamic operates as a division of Service Steel Aerospace Corp.,” Hannah added.
Headquartered in Los Angeles, Calif., Reliance Steel & Aluminum is the largest metals service center company in North America. Through a network of more than 200 locations in 38 states and Belgium, Canada, China, Mexico, Singapore, 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 a broad range of industries.
