Reliance Steel Gives 2014 Outlook, Reports 2013 Results
02/21/2014 - Reliance Steel & Aluminum Co. reported its financial results for the fourth quarter and full year ended 31 December 2013.
Fourth Quarter 2013 Financial Highlights
“During the fourth quarter we experienced a normal seasonal slowdown in demand,” said David H. Hannah, chairman and CEO of Reliance. “However, the fall-off from the prior quarter was less than typical, supporting a continuation of the general trends we experienced during the second half of the year with overall demand steadily improving. Unfortunately, pricing for our products declined 10.0% in 2013 over 2012 levels, including an unexpected 2.0% drop in the fourth quarter as compared to the prior quarter, significantly reducing our overall profitability in both the fourth quarter and the year. Despite the soft pricing environment, strong performance by our managers in the field resulted in FIFO gross profit margins holding steady and helped to somewhat mitigate the impact on our profitability.”
“Our Non-GAAP earnings per diluted share of US$0.92 were in line with our expectations, although at the low end, due mainly to the fourth quarter softness in pricing. This amount excludes charges for an intangible write-off and restructuring charges related to our acquisition and integration of Metals USA. We acquiredMetals USA, our largest acquisition to-date, in April 2013. Due to complementary products and customer end markets, we were able to close certain Metals USA and existing Reliance facilities in specific geographic markets in order to service our customers more effectively and in a more efficient manner,” stated Mr. Hannah.
Mr. Hannah continued, “While market conditions created challenges for our industry throughout 2013, Reliance generated full year net sales growth of 9.3% and tons sold were up 21.4% driven primarily by M&A activity. During 2013, we completed two acquisitions, highlighted by the Metals USA transaction that closed in the second quarter. We believe we are the acquirer of choice in our industry as evidenced by our proven, well-executed acquisition strategy that continues to enhance the overall performance of our acquired companies. Our strong cash flow from operations in 2013 of US$633.3 million allowed us to reduce our debt from the levels reached after funding our US$1.25 billion acquisition of Metals USA, resulting in ample liquidity for continued growth. Going forward, we expect to continue to selectively pursue acquisition opportunities that fit within our strategy for profitable growth.”
Fourth Quarter 2013 Business Metrics
Fourth Quarter 2013 Major Commodity Metrics
Full Year 2013 Business Metrics
Full Year 2013 Major Commodity Metrics
End-market Commentary
While the company does not see any single end-market delivering outsized growth in 2014, 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, are expected. The company also anticipates a mild recovery in non-residential construction in 2014.
Effective 1 November 2013, the company acquired all of the capital stock of Haskins Steel Co., Inc., located in Spokane, Wash. Founded in 1955, Haskins processes and distributes primarily carbon steel and aluminum products of various shapes and sizes to a diverse customer base in the Pacific Northwest. Their in-house processing capabilities include shearing, sawing, burning and forming. Net sales for Haskins were approximately US$31.5 million in the twelve months ended 31 December 2012.
Business Outlook
As the U.S. economy continues its slow but steady recovery into 2014, metals pricing and demand are expected to demonstrate a measured improvement throughout the first quarter. As a result, for the first quarter ending 31 March 2014, management currently expects earnings per diluted share to be in the range of US$1.20 to US$1.30.
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.
- Sales were US$2.31 billion, up 22.1% from US$1.89 billion in the fourth quarter of 2012 and down 5.6% fromUS$2.44 billion in the third quarter of 2013.
- Tons sold were up 38.7% from the fourth quarter of 2012 and down 3.1% from the third quarter of 2013, with the average selling price per ton sold down 11.4% from the fourth quarter of 2012 and down 2.0% from the third quarter of 2013.
- Net income attributable to Reliance was US$61.8 million, down 23.1% from US$80.4 million in the fourth quarter of 2012 and down 35.0% from US$95.1 million in the third quarter of 2013.
- Earnings per diluted share were US$0.79, down 25.5% from US$1.06 in the fourth quarter of 2012 and down 35.2% from US$1.22 in the third quarter of 2013.
- Non-GAAP earnings per diluted share were US$0.92, down 14.8% from US$1.08 in the fourth quarter of 2012 and down 24.6% from US$1.22 in the third quarter of 2013.
- A pre-tax LIFO credit, or income, of US$12.7 million, is included in cost of sales compared to a pre-tax LIFO credit of US$37.1 million in the fourth quarter of 2012 and a credit of US$27.5 million for the third quarter of 2013.
- Cash flow from operations was US$120.3 million and net debt-to-total capital was 34.3% at 31 December 2013.
- Increased quarterly cash dividend by 6% to US$0.35 per share.
- Sales were US$9.22 billion, up 9.3% from US$8.44 billion in 2012.
- Tons sold were up 21.4% from 2012 and the average selling price per ton sold was down 10.0%.
- Net income attributable to Reliance was US$321.6 million, down 20.3% from US$403.5 million in 2012.
- Earnings per diluted share were US$4.14, down 22.3% from US$5.33 in 2012.
- Non-GAAP earnings per diluted share were US$4.40, down 17.8% from US$5.35 in 2012.
- A pre-tax LIFO credit, or income, of US$50.2 million, is included in cost of sales compared to a pre-tax LIFO credit of US$64.1 million in 2012.
- Cash flow from operations was US$633.3 million, up 5.2% from US$601.9 million in 2012.
“During the fourth quarter we experienced a normal seasonal slowdown in demand,” said David H. Hannah, chairman and CEO of Reliance. “However, the fall-off from the prior quarter was less than typical, supporting a continuation of the general trends we experienced during the second half of the year with overall demand steadily improving. Unfortunately, pricing for our products declined 10.0% in 2013 over 2012 levels, including an unexpected 2.0% drop in the fourth quarter as compared to the prior quarter, significantly reducing our overall profitability in both the fourth quarter and the year. Despite the soft pricing environment, strong performance by our managers in the field resulted in FIFO gross profit margins holding steady and helped to somewhat mitigate the impact on our profitability.”
“Our Non-GAAP earnings per diluted share of US$0.92 were in line with our expectations, although at the low end, due mainly to the fourth quarter softness in pricing. This amount excludes charges for an intangible write-off and restructuring charges related to our acquisition and integration of Metals USA. We acquiredMetals USA, our largest acquisition to-date, in April 2013. Due to complementary products and customer end markets, we were able to close certain Metals USA and existing Reliance facilities in specific geographic markets in order to service our customers more effectively and in a more efficient manner,” stated Mr. Hannah.
Mr. Hannah continued, “While market conditions created challenges for our industry throughout 2013, Reliance generated full year net sales growth of 9.3% and tons sold were up 21.4% driven primarily by M&A activity. During 2013, we completed two acquisitions, highlighted by the Metals USA transaction that closed in the second quarter. We believe we are the acquirer of choice in our industry as evidenced by our proven, well-executed acquisition strategy that continues to enhance the overall performance of our acquired companies. Our strong cash flow from operations in 2013 of US$633.3 million allowed us to reduce our debt from the levels reached after funding our US$1.25 billion acquisition of Metals USA, resulting in ample liquidity for continued growth. Going forward, we expect to continue to selectively pursue acquisition opportunities that fit within our strategy for profitable growth.”
Fourth Quarter 2013 Business Metrics
| (tons in thousands) | |||||||||||||||||||||||||
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Q4 2013 |
Q3 2013 |
Sequential Quarter Change |
Q4 2012 |
Year-Over-Year Change |
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| Tons sold | 1,406.9 | 1,452.5 | (3.1 | %) | 1,014.5 | 38.7 | % | ||||||||||||||||||
| Tons sold (same store) | 1,096.5 | 1,137.2 | (3.6 | %) | 1,001.1 | 9.5 | % | ||||||||||||||||||
| Avg. price per ton sold | US$ | 1,645 | US$ | 1,679 | (2.0 | %) | US$ | 1,857 | (11.4 | %) | |||||||||||||||
| Tons Sold (tons in thousands; percent change) |
Average Selling Price per Ton Sold (percent change) |
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|
Q4 2013 Tons Sold |
Q3 2013 Tons Sold |
Sequential Quarter Change |
Q4 2012 Tons Sold |
Year-Over-Year Change |
Sequential Quarter Change |
Year-Over-Year Change |
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| Carbon steel | 1,164.0 | 1,195.3 | (2.6 | %) | 800.1 | 45.5 | % | (0.7 | %) | (6.2 | %) | |||||||||||||||||
| Aluminum | 71.3 | 75.0 | (4.9 | %) | 57.1 | 24.9 | % | (0.8 | %) | (9.6 | %) | |||||||||||||||||
| Stainless steel | 71.6 | 74.4 | (3.8 | %) | 55.8 | 28.3 | % | (2.7 | %) | (12.3 | %) | |||||||||||||||||
| Alloy | 67.4 | 74.6 | (9.7 | %) | 71.6 | (5.9 | %) | (1.0 | %) | (7.5 | %) | |||||||||||||||||
| Sales (US$’s in millions; percent change) | |||||||||||||||||||||||||
| Q4 2013 Sales | Q3 2013 Sales |
Sequential Quarter Change |
Q4 2012 Sales |
Year-Over-Year Change |
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| Carbon steel | US$ | 1,294.4 | US$ | 1,338.3 | (3.3 | %) | US$ | 948.0 | 36.5 | % | |||||||||||||||
| Aluminum | US$ | 356.2 | US$ | 378.0 | (5.8 | %) | US$ | 315.8 | 12.8 | % | |||||||||||||||
| Stainless steel | US$ | 326.5 | US$ | 348.9 | (6.4 | %) | US$ | 290.5 | 12.4 | % | |||||||||||||||
| Alloy | US$ | 196.5 | US$ | 219.9 | (10.6 | %) | US$ | 225.6 | (12.9 | %) | |||||||||||||||
| (tons in thousands) | |||||||||||||||
| 2013 | 2012 |
Year-Over-Year Change |
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| Tons sold | 5,388.8 | 4,440.3 | 21.4 | % | |||||||||||
| Tons sold (same store) | 4,458.8 | 4,420.0 | 0.9 | % | |||||||||||
| Avg. price per ton sold | US$ | 1,712 | US$ | 1,903 | (10.0 | %) | |||||||||
| Tons Sold (tons in thousands; percent change) |
Average Selling Price per Ton Sold (percent change) |
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|
2013 Tons Sold |
2012 Tons Sold |
Year-Over-Year Change |
Year-Over-Year Change |
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| Carbon steel | 4,398.5 | 3,545.7 | 24.1 | % | (8.7 | %) | |||||||||||||
| Aluminum | 285.1 | 241.5 | 18.1 | % | (7.1 | %) | |||||||||||||
| Stainless steel | 280.3 | 235.6 | 19.0 | % | (12.9 | %) | |||||||||||||
| Alloy | 295.6 | 310.2 | (4.7 | %) | (6.9 | %) | |||||||||||||
| Sales (US$’s in millions; percent change) | |||||||||||||||
| 2013 Sales | 2012 Sales |
Year-Over-Year Change |
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| Carbon steel | US$ | 4,970.5 | US$ | 4,390.7 | 13.2 | % | |||||||||
| Aluminum | US$ | 1,469.4 | US$ | 1,340.6 | 9.6 | % | |||||||||
| Stainless steel | US$ | 1,346.0 | US$ | 1,298.0 | 3.7 | % | |||||||||
| Alloy | US$ | 876.7 | US$ | 988.1 | (11.3 | %) | |||||||||
While the company does not see any single end-market delivering outsized growth in 2014, 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, are expected. 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, was the one area of our business that grew in 2013 as compared to 2012. Reliance continues to anticipate solid automotive end-market performance in 2014.
- Energy (oil and gas) demand for the products Reliance sells is expected to improve in 2014, along with slightly better pricing, despite lower demand and pricing levels in 2013 compared to the prior year.
- Heavy industry continues to perform reasonably well. Reliance expects a modest improvement in 2014 in both demand and pricing.
- Non-residential construction continues to show signs of a slow but steady recovery, albeit at significantly reduced demand levels from its peak. Reliance is cautiously optimistic that this important end-market will improve modestly in 2014.
Effective 1 November 2013, the company acquired all of the capital stock of Haskins Steel Co., Inc., located in Spokane, Wash. Founded in 1955, Haskins processes and distributes primarily carbon steel and aluminum products of various shapes and sizes to a diverse customer base in the Pacific Northwest. Their in-house processing capabilities include shearing, sawing, burning and forming. Net sales for Haskins were approximately US$31.5 million in the twelve months ended 31 December 2012.
Business Outlook
As the U.S. economy continues its slow but steady recovery into 2014, metals pricing and demand are expected to demonstrate a measured improvement throughout the first quarter. As a result, for the first quarter ending 31 March 2014, management currently expects earnings per diluted share to be in the range of US$1.20 to US$1.30.
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.
