Reliance Steel Reports Record Quarterly Sales in Q2
07/29/2014 - While the company was somewhat disappointed with demand growth in the second quarter, Reliance does expect the economy to continue to improve with the potential for continued volume improvement in the second half of 2014.
Reliance Steel & Aluminum Co. reported its financial results for the second quarter ended 30 June 2014.
Second Quarter 2014 Financial Highlights
"The overall pricing environment continued to improve during the second quarter as evidenced by a 1.8% increase in our average selling price per ton sold compared to the prior quarter, driven by strength in most major commodity types, most notably stainless steel products. Carbon steel pricing, except for plate products, lost a little momentum late in the quarter but still remained higher than in the previous quarter. While overall pricing has increased sequentially for two quarters in a row for the first time since 2011, our average selling price per ton sold for the first six months of 2014 is still 4.5% lower than in the same period of last year," said David H. Hannah, chairman and CEO of Reliance.
"The improved pricing environment during the quarter allowed us to improve our gross profit margins somewhat. However, the volume improvement in the quarter was less than we had anticipated, up only 0.5% from first quarter 2014 levels. For the six month period, our 2014 same store volume is up 6.5% from 2013 due to the slow but steady industrial market growth that began in the second half of 2013. Our consolidated sales for the 2014 six month period increased 15.6% over the same period of 2013, driven by a 21.5% increase in tons sold that benefitted from our M&A activity, including our April 2013 acquisition of Metals USA. Although we experienced substantial improvement in our operating income and pretax income returns from a year ago, our GAAP earnings per diluted share of US$1.22 for the second quarter were below our guidance range. On a Non-GAAP basis, however, our earnings per diluted share were US$1.30, with the difference attributable mainly to the tax impact of our sale of MetalsUSA's non-core roofing business during the quarter. We were at the lower end of our guidance range because of the lower than anticipated volume improvement in the second quarter as compared to the first quarter of 2014," Mr. Hannah concluded.
Second Quarter 2014 Business Metrics
Second Quarter 2014 Major Commodity Metrics
Year-to-Date (6 months) 2014 Business Metrics
Year-to-Date (6 months) 2014 Major Commodity Metrics
End-market Commentary
While the company was somewhat disappointed with demand growth in the second quarter, Reliance does expect the economy to continue to improve with the potential for continued volume improvement in the second half of 2014.
As of 30 June 2014, total debt outstanding was US$2.13 billion, for a net debt-to-total capital ratio of 33.3%, down from 33.8% at March 31, 2014. At 30 June 2014, the company hadUS$520.0 million outstanding on its US$1.5 billion revolving credit facility. The company generated US$109.5 million in cash flow from operating activities in the six months ended June 30, 2014, compared to US$283.9 million during the same period in 2013. Reliance remains pleased with its overall financial position.
Corporate Developments
On 22 July 2014, the Board of Directors declared a regular quarterly cash dividend of US$0.35per share of common stock. The dividend is payable on 12 September 2014 to shareholders of record as of August 15, 2014. The Company has paid regular quarterly dividends for 55 consecutive years.
In May 2014, Reliance sold the assets of the Metals USA's non-core roofing business. This divestiture resulted in a gain for income tax purposes that increased the company's effective tax rate in the 2014 second quarter.
During the second quarter of 2014, AMI Metals Inc., a subsidiary of Reliance Steel & Aluminum Co., began operating out of its new location in Turkey. This operation further expands AMI Metals geographic footprint in the growing global aerospace market.
Business Outlook
As the U.S. economy maintains its slow but steady recovery, Reliance expects demand to continue to improve in the 2014 third quarter at a slightly higher rate than was experienced in the 2014 second quarter, and pricing to remain relatively stable with current levels. As a result, management anticipates earnings per diluted share to be in the range of US$1.25 to US$1.35 for the quarter ending 30 September 2014.
Second Quarter 2014 Financial Highlights
- Sales were a record US$2.62 billion, up 6.9% from US$2.45 billion in the second quarter of 2013 and up 2.5% from US$2.55 billion in the first quarter of 2014.
- Tons sold were up 8.2% from the second quarter of 2013 and up 0.5% from the first quarter of 2014, with the average selling price per ton sold down 0.9% from the second quarter of 2013 and up 1.8% from the first quarter of 2014.
- Net income attributable to Reliance was US$96.5 million, up 19.1% from US$81.0 million in the second quarter of 2013 and up 10.7% from US$87.2 million in the first quarter of 2014.
- Earnings per diluted share were US$1.22, up 16.2% from US$1.05 in the second quarter of 2013 and up 9.9% from US$1.11 in the first quarter of 2014.
- Non-GAAP earnings per diluted share were US$1.30, up 14.0% from US$1.14 in the second quarter of 2013 and up 9.2% from US$1.19 in the first quarter of 2014.
- 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 second quarter of 2013 and an expense of US$5.0 million for the first quarter of 2014.
- The effective tax rate was 36.6%, compared to 33.3% in the second quarter of 2013 and 34.5% in the first quarter of 2014.
- Cash flow from operations was US$40.7 million for the second quarter of 2014 and net debt-to-total capital was 33.3% at June 30, 2014, down from 33.8% at March 31, 2014.
- A quarterly cash dividend of US$0.35 per share was declared on July 22, 2014 for shareholders of record as of August 15, 2014 and will be payable on September 12, 2014.
"The overall pricing environment continued to improve during the second quarter as evidenced by a 1.8% increase in our average selling price per ton sold compared to the prior quarter, driven by strength in most major commodity types, most notably stainless steel products. Carbon steel pricing, except for plate products, lost a little momentum late in the quarter but still remained higher than in the previous quarter. While overall pricing has increased sequentially for two quarters in a row for the first time since 2011, our average selling price per ton sold for the first six months of 2014 is still 4.5% lower than in the same period of last year," said David H. Hannah, chairman and CEO of Reliance.
"The improved pricing environment during the quarter allowed us to improve our gross profit margins somewhat. However, the volume improvement in the quarter was less than we had anticipated, up only 0.5% from first quarter 2014 levels. For the six month period, our 2014 same store volume is up 6.5% from 2013 due to the slow but steady industrial market growth that began in the second half of 2013. Our consolidated sales for the 2014 six month period increased 15.6% over the same period of 2013, driven by a 21.5% increase in tons sold that benefitted from our M&A activity, including our April 2013 acquisition of Metals USA. Although we experienced substantial improvement in our operating income and pretax income returns from a year ago, our GAAP earnings per diluted share of US$1.22 for the second quarter were below our guidance range. On a Non-GAAP basis, however, our earnings per diluted share were US$1.30, with the difference attributable mainly to the tax impact of our sale of MetalsUSA's non-core roofing business during the quarter. We were at the lower end of our guidance range because of the lower than anticipated volume improvement in the second quarter as compared to the first quarter of 2014," Mr. Hannah concluded.
Second Quarter 2014 Business Metrics
| (tons in thousands) | |||||
|
Q2 2014 |
Q1 2014 |
Sequential Quarter Change |
Q2 2013 |
Year-Over- Year Change |
|
| Tons sold | 1,539.8 | 1,532.4 | 0.5% | 1,423.5 | 8.2% |
| Tons sold (same store) | 1,200.1 | 1,199.0 | 0.1% | 1,147.7 | 4.6% |
| Avg. price per ton sold | US$1,703 | US$1,673 | 1.8% | US$1,718 | (0.9%) |
Second Quarter 2014 Major Commodity Metrics
| Tons Sold (tons in thousands; percent change) |
Average Selling Price per Ton Sold (percent change) |
||||||
|
Q2 2014 Tons Sold |
Q1 2014 Tons Sold |
Sequential Quarter Change |
Q2 2013 Tons Sold |
Year-Over- Year Change |
Sequential Quarter Change |
Year-Over-Year Change |
|
| Carbon steel | 1,265.5 | 1,260.4 | 0.4% | 1,170.6 | 8.1% | 1.4% | 2.3% |
| Aluminum | 78.7 | 76.7 | 2.6% | 76.2 | 3.3% | (1.0%) | (3.7%) |
| Stainless steel | 81.2 | 77.3 | 5.0% | 72.4 | 12.2% | 4.8% | (2.2%) |
| Alloy | 76.6 | 83.8 | (8.6%) | 70.9 | 8.0% | 4.7% | (2.3%) |
| Sales (US$ in millions; percent change) | |||||
| Q2 2014 Sales | Q1 2014 Sales |
Sequential Quarter Change |
Q2 2013 Sales |
Year-Over-Year Change |
|
| Carbon steel | US$1,465.5 | US$1,438.9 | 1.8% | US$1,325.6 | 10.6% |
| Aluminum | US$392.8 | US$386.6 | 1.6% | US$395.5 | (0.7%) |
| Stainless steel | US$388.0 | US$352.3 | 10.1% | US$353.9 | 9.6% |
| Alloy | US$228.9 | US$238.9 | (4.2%) | US$216.8 | 5.6% |
| (tons in thousands) | ||||
| 2014 | 2013 |
Year-Over- Year change |
||
| Tons sold | 3,072.2 | 2,529.4 | 21.5% | |
| Tons sold (same store) | 2,399.1 | 2,253.6 | 6.5% | |
| Avg. price per ton sold | US$1,688 | US$1,768 | (4.5%) | |
Year-to-Date (6 months) 2014 Major Commodity Metrics
|
Tons Sold (tons in thousands; percent change) |
Average Selling Price per Ton Sold (percent change) |
||||
| 2014 Tons Sold | 2013 Tons Sold |
Year-Over- Year Change |
Year-Over- Year Change |
||
| Carbon steel | 2,526.0 | 2,039.2 | 23.9% | 0.3% | |
| Aluminum | 155.3 | 138.8 | 11.9% | (5.3%) | |
| Stainless steel | 158.4 | 134.2 | 18.0% | (6.5%) | |
| Alloy | 160.4 | 153.6 | 4.4% | (2.6%) | |
| Sales (US$ in millions; percent change) | ||||
| 2014 Sales | 2013 Sales |
Year-Over- Year Change |
||
| Carbon steel | US$2,904.4 | US$2,337.8 | 24.2% | |
| Aluminum | US$779.4 | US$735.2 | 6.0% | |
| Stainless steel | US$740.3 | US$670.6 | 10.4% | |
| Alloy | US$467.8 | US$460.2 | 1.7% | |
End-market Commentary
While the company was somewhat disappointed with demand growth in the second quarter, Reliance does expect the economy to continue to improve with the potential for continued volume improvement in the second half of 2014.
- Aerospace demand remains strong in 2014 and is expected to further improve during the second half of the year and in 2015. Pricing has been under some pressure due to excess mill capacity and higher industry-wide aluminum plate inventory levels that Reliance expects to subside in early 2015.
- Automotive, supported mainly by the Company's toll processing operations in the U.S. and Mexico, is expected to continue at its current, strong production rates in the second half of 2014 and into 2015. The increase in aluminum usage in the automotive industry is a growth area for Reliance.
- Energy (oil and gas) demand for the products Reliance sells improved during the first half of 2014, and the Company expects further improvement in the second half of the year and in 2015.
- Heavy industry continues to perform reasonably well. Reliance expects modest improvement in both demand and pricing throughout 2014.
- Non-residential construction has improved modestly but remains at significantly reduced demand levels from its peak. Reliance is cautiously optimistic that this important end-market will show further improvement in the second half of 2014 and into 2015.
As of 30 June 2014, total debt outstanding was US$2.13 billion, for a net debt-to-total capital ratio of 33.3%, down from 33.8% at March 31, 2014. At 30 June 2014, the company hadUS$520.0 million outstanding on its US$1.5 billion revolving credit facility. The company generated US$109.5 million in cash flow from operating activities in the six months ended June 30, 2014, compared to US$283.9 million during the same period in 2013. Reliance remains pleased with its overall financial position.
Corporate Developments
On 22 July 2014, the Board of Directors declared a regular quarterly cash dividend of US$0.35per share of common stock. The dividend is payable on 12 September 2014 to shareholders of record as of August 15, 2014. The Company has paid regular quarterly dividends for 55 consecutive years.
In May 2014, Reliance sold the assets of the Metals USA's non-core roofing business. This divestiture resulted in a gain for income tax purposes that increased the company's effective tax rate in the 2014 second quarter.
During the second quarter of 2014, AMI Metals Inc., a subsidiary of Reliance Steel & Aluminum Co., began operating out of its new location in Turkey. This operation further expands AMI Metals geographic footprint in the growing global aerospace market.
Business Outlook
As the U.S. economy maintains its slow but steady recovery, Reliance expects demand to continue to improve in the 2014 third quarter at a slightly higher rate than was experienced in the 2014 second quarter, and pricing to remain relatively stable with current levels. As a result, management anticipates earnings per diluted share to be in the range of US$1.25 to US$1.35 for the quarter ending 30 September 2014.
