Open / Close Advertisement

Reliance Steel Reports First Quarter Results; Provides End-Market Outlook

04/29/2013 - As it reported its first quarter earnings results, Reliance Steel & Aluminum Co. says market conditions currently present headwinds to organic growth, but its strong balance sheet provides significant financial flexibility to take advantage of compelling M&A opportunities.

Reliance Steel & Aluminum Co. reported its financial results for the first quarter ended 31 March 2013.
First Quarter 2013 Financial Highlights
  • Sales were US$2.03 billion, down 11.5% from US$2.29 billion in the first quarter of 2012 and up 7.2% from US$1.89 billion in the fourth quarter of 2012.
  • Tons sold were down 5.8% from the first quarter of 2012 and up 9.0% from the fourth quarter of 2012.
  • Net income attributable to Reliance was US$83.7 million, down 28.0% from US$116.2 million in the first quarter of 2012 and up 4.1% from US$80.4 million in the fourth quarter of 2012.
  • Earnings per diluted share were US$1.09, down 29.2% from US$1.54 in the first quarter of 2012 and up 2.8% from US$1.06 in the fourth quarter of 2012.
  • A pre-tax LIFO credit, or income, of US$5.0 million, is included in cost of sales compared to a pre-tax LIFO charge, or expense, of US$7.5 million in the first quarter of 2012 and a credit of US$37.1 million for the fourth quarter of 2012.
  • Cash flow from operations was US$72.2 million and net debt-to-total capital was 22.4% at March 31, 2013.
Management Commentary
“During the first quarter, we experienced some seasonal improvement in demand compared to the prior quarter with tons sold up 9%, although pricing weakened 1.3% from prior quarter levels,” said David H. Hannah, chairman and CEO of Reliance. “Compared to the 2012 first quarter, however, demand was weaker due to increased economic uncertainty resulting in a year-over-year decrease of 6.9% in total tons sold coupled with a 7.7% reduction in our average price per ton sold. These challenges were partially offset by strong operational execution by our managers in the field as demonstrated by Reliance’s solid year-over-year increase in gross profit margin—even at the lower level of demand and with weaker pricing.”
Mr. Hannah continued, “It is important to note that while market conditions currently present headwinds to organic growth, Reliance’s strong balance sheet provides significant financial flexibility to take advantage of compelling M&A opportunities, such as our US$1.2 billion acquisition of Metals USA, our largest acquisition to-date, completed in the 2013 second quarter. Metals USA includes 48 service center locations that complement Reliance’s existing customer base, product mix and geographic footprint. Metals USA’s assets at 31 December 2012 and sales for the year then ended were approximately US$1.0 billion and US$2.0 billion, respectively, increasing Reliance’s assets and sales on a pro forma basis to over US$6.5 billion and US$10.0 billion, respectively. The transaction is expected to be accretive immediately upon closing (excluding transaction-related costs). Also on a pro forma basis, giving effect to this transaction and the associated financing, Reliance’s net debt-to-total capital ratio at March 31, 2013 would have been approximately 39%, which is in-line with our targeted leverage ratio.”
End-market Commentary
Strong performance in auto (through the company’s toll processing operations) along with solid but lower operating results in aerospace, energy (oil and gas) and manufactured goods including agriculture and heavy equipment continue to offset the tepid recovery in non-residential construction.
  • Aerospace was mixed during the first quarter as pricing held steady while overall demand declined slightly compared to the first quarter last year. Reliance expects that demand in the aerospace market will improve as the company progresses through 2013.
  • Energy (oil and gas) continues to be among the company’s best end-markets, despite lower demand levels as compared to the first quarter of last year. Demand for the products Reliance sells is expected to increase modestly in 2013, with continued pressure on pricing due to excess industry capacity.
  • Heavy industry continues to perform reasonably well, primarily driven by the strength of manufactured products. The company also expects modest growth in this end-market.
  • Automotive, supported by the company’s toll processing operations in the U.S. and Mexico, exhibited continued strong and steady demand during the quarter. Reliance anticipates continued strength in automotive throughout 2013.
  • Non-residential construction continued to show signs of a slow but steady recovery; although, still at significantly reduced demand levels from its peak. During the first quarter, North American industrial construction related to manufacturing and energy continued to exhibit the most improvement. Reliance is cautiously optimistic that this important end market will continue to improve during 2013.
Business Outlook
The company expects global economic and political uncertainty will continue to present challenges to industrial growth in the second quarter of 2013 and expects only slight improvements in demand with a weak pricing environment persisting. As a result, for the second quarter ending 30 June 30 2013, management currently expects earnings per diluted share to be in the range of US$1.10 to US$1.20, which includes the incremental earnings from Metals USA beginning 12 April 2013 and excludes any one-time deal related costs.
Reliance Steel & Aluminum Co., headquartered in Los Angeles, Calif., is the largest metals service center company in North America (U.S. and Canada). Through a network of approximately 290 locations in 39 states and 10 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.