Reliance Steel Reports Third Quarter 2013 Financial Results
10/25/2013 - As it reported its third quarter results, Reliance Steel & Aluminum said it expects that global economic and political uncertainty, complicated further by political issues in the U.S., will continue to present challenges to industrial growth in the fourth quarter of 2013.
Reliance Steel & Aluminum Co. reported its financial results for the third quarter ended 30 September 2013.
Third Quarter 2013 Financial Highlights
Sales were US$2.44 billion, up 18.9% from US$2.06 billion in the third quarter of 2012 and down 0.2% from US$2.45 billion in the second quarter of 2013. Tons sold were up 31.3% from the third quarter of 2012 and up 2.0% from the second quarter of 2013.
Net income attributable to Reliance was US$95.1 million, down 3.1% from US$98.1 million in the third quarter of 2012 and up 17.4% from US$81.0 million in the second quarter of 2013. Earnings per diluted share were US$1.22, down 6.2% from US$1.30 in the third quarter of 2012 and up 16.2% from US$1.05 in the second quarter of 2013.
A pre-tax LIFO credit, or income, of US$27.5 million, is included in cost of sales compared to a pre-tax LIFO credit of US$27.0 million in the third quarter of 2012 and a credit of US$5.0 million for the second quarter of 2013. Cash flow from operations was US$229.1 million and net debt-to-total capital was 34.9% at 30 September 2013. Increased quarterly cash dividend to US$0.33 per share in July 2013.
Management Commentary
“Overall demand in the third quarter was a bit better than anticipated with third quarter tons sold up 2.0% compared to the prior quarter,” said David H. Hannah, chairman and CEO of Reliance. “Although a significant portion of the increase was due to an additional two weeks of Metals USA activity in the third quarter, our same-store tons sold were up 0.4%. The normal seasonal trend is for third quarter demand to be down from second quarter; however, our 2013 second quarter demand was lower than expected. Metals pricing, on the other hand, was weaker than we had expected, with our average selling price per ton sold down 2.3% from the prior quarter, and down 9.5% compared to the third quarter last year. Despite the persistently soft pricing environment, which weighs heavily on our net sales and profitability, the strong operational execution by our managers in the field partially offset the pricing impact as demonstrated by Reliance’s increase in gross profit margin.”
Mr. Hannah continued, “We continue to profitably grow through successful M&A activity to supplement organic growth. Including acquisitions that were completed in 2012 and 2013, third quarter consolidated net sales were up 18.9% and tons sold were up 31.3% compared to the same period last year. This solid growth was driven primarily by the acquisition of Metals USA, which was completed early in the second quarter this year and has been accretive to our earnings. We are very pleased with the Metals USA integration progress and our ability to grow despite economic and cyclical challenges.”
End-market Commentary
Continued strength in automotive (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 slow recovery in non-residential construction.
Aerospace remains relatively strong although both pricing and overall volumes declined compared to the third quarter of 2012 and the second quarter of 2013. Reliance expects that demand in the aerospace market will improve in 2014 and beyond, although pricing will be under some pressure due to excess mill capacity.
Automotive, supported by the company’s toll processing operations in the U.S. and Mexico, was strong during the quarter. Reliance continues to anticipate a solid automotive end-market for the remainder of 2013 and into 2014.
Energy (oil and gas) continues to perform well, despite lower demand levels than 2012 with some normal seasonal improvement during the 2013 third quarter compared to the second quarter of 2013. Demand for the products Reliance sells is expected to improve, with continued pressure on pricing due to excess industry capacity.
Heavy industry continues to perform reasonably well. The company expects a seasonal decline in demand in the 2013 fourth quarter.
Non-residential construction continues to show signs of a slow but steady recovery, albeit at significantly reduced demand levels from its peak. During the third quarter, North American industrial construction related to manufacturing and energy exhibited the most improvement. Reliance is cautiously optimistic that this important end-market will improve modestly in 2014.
Balance Sheet & Liquidity
As of 30 September 2013, total debt outstanding was US$2.15 billion, for a net debt-to-total capital ratio of 34.9%, down from 37.6% at June 30, 2013. US$183.1 million of debt was paid down in the 2013 third quarter, with only US$500 million outstanding on the US$1.5 billion credit facility at 30 September 2013. Year-to-date, the company generated US$513.0 million in cash flow from operating activities, compared to cash flow from operating activities of US$268.8 million during the first nine months of 2012. Reliance remains pleased with its overall financial position and strong cash flow.
Corporate Developments
On 22 October 2013, the Board of Directors declared a regular quarterly cash dividend of US$0.33 per share of common stock. The dividend is payable on December 19, 2013 to shareholders of record as of November 21, 2013. The company has paid regular quarterly dividends for 54 consecutive years and most recently increased the quarterly dividend rate by 10% in July 2013.
Business Outlook
The company expects that global economic and political uncertainty, complicated further by political issues in the U.S., will continue to present challenges to industrial growth in the fourth quarter of 2013. In addition, fewer shipping days due to the holiday season and extended holiday-related closures at many of our customers’ facilities are expected to reduce tons sold in the fourth quarter as compared to the 2013 third quarter, a typical seasonal trend. Overall pricing is expected to remain near the current low levels for the remainder of the year. As a result, for the fourth quarter ending 31 December 2013, management currently expects GAAP earnings per diluted share to be in the range of US$.90 to US$1.00.
Third Quarter 2013 Financial Highlights
Sales were US$2.44 billion, up 18.9% from US$2.06 billion in the third quarter of 2012 and down 0.2% from US$2.45 billion in the second quarter of 2013. Tons sold were up 31.3% from the third quarter of 2012 and up 2.0% from the second quarter of 2013.
Net income attributable to Reliance was US$95.1 million, down 3.1% from US$98.1 million in the third quarter of 2012 and up 17.4% from US$81.0 million in the second quarter of 2013. Earnings per diluted share were US$1.22, down 6.2% from US$1.30 in the third quarter of 2012 and up 16.2% from US$1.05 in the second quarter of 2013.
A pre-tax LIFO credit, or income, of US$27.5 million, is included in cost of sales compared to a pre-tax LIFO credit of US$27.0 million in the third quarter of 2012 and a credit of US$5.0 million for the second quarter of 2013. Cash flow from operations was US$229.1 million and net debt-to-total capital was 34.9% at 30 September 2013. Increased quarterly cash dividend to US$0.33 per share in July 2013.
Management Commentary
“Overall demand in the third quarter was a bit better than anticipated with third quarter tons sold up 2.0% compared to the prior quarter,” said David H. Hannah, chairman and CEO of Reliance. “Although a significant portion of the increase was due to an additional two weeks of Metals USA activity in the third quarter, our same-store tons sold were up 0.4%. The normal seasonal trend is for third quarter demand to be down from second quarter; however, our 2013 second quarter demand was lower than expected. Metals pricing, on the other hand, was weaker than we had expected, with our average selling price per ton sold down 2.3% from the prior quarter, and down 9.5% compared to the third quarter last year. Despite the persistently soft pricing environment, which weighs heavily on our net sales and profitability, the strong operational execution by our managers in the field partially offset the pricing impact as demonstrated by Reliance’s increase in gross profit margin.”
Mr. Hannah continued, “We continue to profitably grow through successful M&A activity to supplement organic growth. Including acquisitions that were completed in 2012 and 2013, third quarter consolidated net sales were up 18.9% and tons sold were up 31.3% compared to the same period last year. This solid growth was driven primarily by the acquisition of Metals USA, which was completed early in the second quarter this year and has been accretive to our earnings. We are very pleased with the Metals USA integration progress and our ability to grow despite economic and cyclical challenges.”
End-market Commentary
Continued strength in automotive (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 slow recovery in non-residential construction.
Aerospace remains relatively strong although both pricing and overall volumes declined compared to the third quarter of 2012 and the second quarter of 2013. Reliance expects that demand in the aerospace market will improve in 2014 and beyond, although pricing will be under some pressure due to excess mill capacity.
Automotive, supported by the company’s toll processing operations in the U.S. and Mexico, was strong during the quarter. Reliance continues to anticipate a solid automotive end-market for the remainder of 2013 and into 2014.
Energy (oil and gas) continues to perform well, despite lower demand levels than 2012 with some normal seasonal improvement during the 2013 third quarter compared to the second quarter of 2013. Demand for the products Reliance sells is expected to improve, with continued pressure on pricing due to excess industry capacity.
Heavy industry continues to perform reasonably well. The company expects a seasonal decline in demand in the 2013 fourth quarter.
Non-residential construction continues to show signs of a slow but steady recovery, albeit at significantly reduced demand levels from its peak. During the third quarter, North American industrial construction related to manufacturing and energy exhibited the most improvement. Reliance is cautiously optimistic that this important end-market will improve modestly in 2014.
Balance Sheet & Liquidity
As of 30 September 2013, total debt outstanding was US$2.15 billion, for a net debt-to-total capital ratio of 34.9%, down from 37.6% at June 30, 2013. US$183.1 million of debt was paid down in the 2013 third quarter, with only US$500 million outstanding on the US$1.5 billion credit facility at 30 September 2013. Year-to-date, the company generated US$513.0 million in cash flow from operating activities, compared to cash flow from operating activities of US$268.8 million during the first nine months of 2012. Reliance remains pleased with its overall financial position and strong cash flow.
Corporate Developments
On 22 October 2013, the Board of Directors declared a regular quarterly cash dividend of US$0.33 per share of common stock. The dividend is payable on December 19, 2013 to shareholders of record as of November 21, 2013. The company has paid regular quarterly dividends for 54 consecutive years and most recently increased the quarterly dividend rate by 10% in July 2013.
Business Outlook
The company expects that global economic and political uncertainty, complicated further by political issues in the U.S., will continue to present challenges to industrial growth in the fourth quarter of 2013. In addition, fewer shipping days due to the holiday season and extended holiday-related closures at many of our customers’ facilities are expected to reduce tons sold in the fourth quarter as compared to the 2013 third quarter, a typical seasonal trend. Overall pricing is expected to remain near the current low levels for the remainder of the year. As a result, for the fourth quarter ending 31 December 2013, management currently expects GAAP earnings per diluted share to be in the range of US$.90 to US$1.00.
