Reliance Steel & Aluminum Co. reported its financial results for the first quarter ended 31 March 2014.
 
First Quarter 2014 Financial Highlights

• Sales were US$2.55 billion, up 26.1% from US$2.03 billion in the first quarter of 2013 and up 10.7% from US$2.31 billion in the fourth quarter of 2013.
• Tons sold were up 38.6% from the first quarter of 2013 and up 8.9% from the fourth quarter of 2013, with the average selling price per ton sold down 8.7% from the first quarter of 2013 and up 1.7% from the fourth quarter of 2013.
• Net income attributable to Reliance was US$87.2 million, up 4.2% from US$83.7 million in the first quarter of 2013 and up 41.1% from US$61.8 million in the fourth quarter of 2013.
• Earnings per diluted share were US$1.11, up 1.8% from US$1.09 in the first quarter of 2013 and up 40.5% from US$0.79 in the fourth quarter of 2013.
• Non-GAAP earnings per diluted share were US$1.19, up 5.3% from US$1.13 in the first quarter of 2013 and up 29.3% from US$0.92 in the fourth quarter of 2013.
• A pre-tax LIFO charge, or expense, of US$5.0 million, is included in cost of sales compared to a pre-tax LIFO credit, or income, of US$5.0 million in the first quarter of 2013 and a credit of US$12.7 million for the fourth quarter of 2013.
• The effective tax rate was 34.5%, compared to 29.5% in the first quarter of 2013 and 33.0% in the fourth quarter of 2013.
• Cash flow from operations was US$68.8 million for the first quarter of 2014 and net debt-to-total capital was 33.8% at 31 March 2014.
• Quarterly cash dividend increased to US$0.35 per share during the quarter.

 
Management Commentary
“During the first quarter, the overall improvement in demand that we experienced in the second half of 2013 continued, in addition to the normal seasonal pick-up compared to the fourth quarter, with tons sold up 8.9%. Our average selling price per ton sold increased 1.7% compared to the prior quarter,” said David H. Hannah, chairman and CEO of Reliance. “Both demand and pricing increased sequentially for three months in a row during the first quarter, a trend we have not experienced since early 2012.”
 
“However, notwithstanding the positive trends during the quarter, pricing remains lower on a year-over-year basis which resulted in a 4.4% reduction in our average price per ton sold (same store) and somewhat offsets the 8.4% year-over-year improvement in total tons sold (same store). Our consolidated sales increased 26.1% over the year ago quarter due to our acquisition activity, including Metals USA that we closed in April 2013. Our Non-GAAP earnings per diluted share of US$1.19 for the first quarter were slightly below our guidance range due to more volatile metals pricing than we had anticipated. Our GAAP earnings per share included US$0.08 of charges related to a previously disclosed litigation matter. Also impacting our earnings as compared to the first and fourth quarters were LIFO charges and a higher effective tax rate which, together, reduced earnings per diluted share by approximately US$0.16 compared to each of those periods. We continue to be pleased with the operational execution of our managers in the field as demonstrated by Reliance’s relatively consistent FIFO gross profit margin that helps to mitigate the impact of the lower pricing on our profitability.”
 
Mr. Hannah concluded, “Reliance continues to operate from a position of financial strength as evidenced by our strong balance sheet and cash flow generation. As of the end of the first quarter, our net debt-to-total capital ratio improved to 33.8% with over US$900 million available on our US$1.5 billion revolving credit facility. Our financial position and liquidity provides a strong foundation for re-investment in our business—both organically and through strategic acquisitions—to create long-term shareholder value.”

First Quarter 2014 Business Metrics
(tons in thousands)
														Sequential
				Q1					Q4					Quarter					Q1					Year-Over-Year
				2014					2013					Change					2013					Change
Tons sold					1,532.4					1,406.9				8.9	%					1,105.9				38.6	%
Tons sold (same store)					1,199.0					1,109.2				8.1	%					1,105.9				8.4	%
Avg. price per ton sold				US$	1,673				US$	1,645				1.7	%				US$	1,832				(8.7	%)

 

First Quarter 2014 Major Commodity Metrics
																										Average Selling Price per Ton
				Tons Sold (tons in thousands;% change)																						Sold (percent change)
												Sequential									Year-Over-
				Q1 2014				Q4 2013				Quarter					Q1 2013				Year					Sequential					Year-Over-Year
				Tons Sold				Tons Sold				Change					Tons Sold				Change					Quarter Change					Change
Carbon steel				1,260.4				1,164.0				8.3	%				868.6				45.1	%				2.7	%				(2.0	%)
Aluminum				76.7				71.3				7.6	%				62.5				22.7	%				0.9	%				(7.2	%)
Stainless steel				77.3				71.6				8.0	%				61.8				25.1	%				0.0	%				(11.0	%)
Alloy				83.8				67.4				24.3	%				82.7				1.3	%				(2.2	%)				(3.1	%)

 

				Sales (US$ in millions;% change)
														Sequential										Year-Over-Year
				Q1 2014 Sales					Q4 2013 Sales					Quarter Change					Q1 2013 Sales					Change
Carbon steel				US$	1,438.9				US$	1,294.4				11.2	%				US$	1,012.3				42.1	%
Aluminum				US$	386.6				US$	356.2				8.5	%				US$	339.6				13.8	%
Stainless steel				US$	352.3				US$	326.5				7.9	%				US$	316.7				11.2	%
Alloy				US$	238.9				US$	196.5				21.6	%				US$	243.4				(1.8	%)

End-market Commentary
As noted above, same-store tons sold increased 8.4% compared to the first quarter of 2013. The increase was spread across all of the company’s product groups and related end markets.
 
While the company does not expect any single end-market to deliver outsized growth in 2014, Reliance does expect ongoing strength in automotive (through the company’s toll processing operations) along with solid operating results in aerospace, energy (oil and gas), semiconductor/electronics and manufactured goods. The company also anticipates a mild recovery in non-residential construction in 2014.

• Aerospace demand is expected to improve in 2014, although Reliance expects pricing will remain under some pressure due to excess mill capacity and higher industry-wide aluminum plate inventory levels.
• Automotive, supported mainly by the company’s toll processing operations in the U.S. and Mexico, is expected to generate solid performance again in 2014.
• Energy (oil and gas) demand for the products Reliance sells is expected to modestly improve in 2014, along with slightly better pricing.
• Heavy industry continues to perform reasonably well. Reliance expects modest improvement in both demand and pricing in 2014.
• Non-residential construction is showing the beginning signs of a possible recovery, albeit at significantly reduced demand levels from its peak. Reliance is cautiously optimistic that this important end-market will show further improvement throughout 2014.

 
Balance Sheet & Liquidity
As of 31 March 2014, total debt outstanding was US$2.13 billion, for a net debt-to-total capital ratio of 33.8%, down from 34.3% at December 31, 2013. The company had US$505.0 million outstanding on the US$1.5 billion revolving credit facility at 31 March 2014. The company generated US$68.8 million in cash flow from operating activities in the first quarter of 2014, compared to cash flow from operating activities of US$72.2 million during the same period in the prior year. Reliance remains pleased with its overall financial position and strong cash flow.
 
Business Outlook
As the U.S. economy maintains its slow but steady recovery, Reliance expects metals pricing and demand to continue to improve throughout the second quarter. As a result, assuming increased tons sold and average pricing up modestly, for the second quarter ending June 30, 2014, management currently expects earnings per diluted share to be in the range of US$1.30 to US$1.40.

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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 eleven 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.