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Russel Metals 1st Quarter Earnings Exceed Expectations

April 28, 2004 — Russel Metals Inc. reported record first quarter 2004 net earnings of $25.3 million on revenues of $515.8 million for the quarter ended March 31, 2004.

Net earnings of $25.3 million ($0.53 per share) compares to net earnings of $3.5 million ($0.08 per share) for the first quarter of 2003. The fourth quarter of 2003 had net earnings of $7.7 million ($0.17 per share), which included results of Acier Leroux and thus is more comparable to the first quarter of 2004.

The first quarter of 2004 included before-tax charges of $11.3 million related to the redemption of the long-term debt and $0.8 million for restructuring costs related to the Acier Leroux acquisition. These charges impacted earnings by $0.20 per share net of tax. Without these charges, earnings per share would have been $0.73.

Revenue, $515.8 million, is up substantially from $367.0 million in the first quarter of 2003 and $417.8 million in the fourth quarter of 2003.

Comments—Bud Siegel, President and CEO stated, "The rapid integration of Acier Leroux in late 2003, the first quarter 2004 recapitalization of the Russel Metals' balance sheet, and the surcharges imposed by North American steel producers created the perfect wave for metals distribution in the first quarter. The complete integration of the Acier Leroux operations makes it difficult to do a same-store analysis but management estimates that 65% of the $148.8 million increase in revenue is attributable to the Acier Leroux acquisition and 35% is attributable to the steel surcharges and increases in demand.

The significantly higher gross margins and segment operating profits in service centers and import/export segments are mostly attributable to the surcharges which resulted in inventory holding gains. The increased profitability in the energy segment is primarily attributable to the increased drilling activity in Western Canada."

During the first quarter of 2004, the company successfully completed the issue of 5,750,000 common shares for gross proceeds of $9.00 per share and the issue of US$175.0 million of 6.375% 10-year Senior Notes. The previously outstanding long-term debt and preferred shares were all redeemed in the first quarter except for US$20.1 million, which will be redeemed June 1, 2004. The debt to equity ratio at March 31, 2004 improved to 0.8 from 1.1 at December 31, 2003.

The jump in revenue in the first quarter 2004 created a corresponding increase in working capital and a negative cash flow from operating activities of $22.9 million, despite the $32.3 million in cash generated from operating activities before working capital changes. The main use of cash was $92.4 million for increased accounts receivable and $18.3 million for higher inventory, which were offset by $48.4 million of cash generated by increased accounts payable. The inventory levels are expected to continue to rise in the second quarter due to steel price increases.

Russel Metals is one of the largest metals distribution companies in North America. It carries on business in three metals distribution segments: service center, energy sector and import/export, under various names including Russel Metals, A.J. Forsyth, Acier Dollard, Acier Leroux, Acier Loubier, Acier Richler, Armabec, Arrow Steel Processors, B&T Steel, Baldwin International, Comco Pipe and Supply, Drummond McCall, Ennisteel, Fedmet Tubulars, Leroux Steel, McCabe Steel, Megantic Metal, Metaux Russel, Milspec Industries, Poutrelles Delta, Pioneer Pipe, Russel Leroux, Russel Metals Williams Bahcall, Spartan Steel Products, Sunbelt Group, Triumph Tubular & Supply, Vantage Laser, Wirth Steel and York Steel.

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