Reliance Steel Misses, Profit Slips - Analyst Blog
April 29 2013 - 3:40AM
Zacks
Reliance Steel & Aluminum Co.’s (RS)
first-quarter 2013 earnings per share of $1.09 lagged the Zacks
Consensus Estimate of $1.15 and was below the year-ago earnings of
$1.54 per share.
Profit slid 28% year over year to
$83.7 million, hurt by a double-digits fall in sales. Lower pricing
also weighed on the results. Reliance Steel recorded an inventory
adjustment related credit of $5 million (included in cost of sales)
in the reported quarter.
Revenues, Volume and
Pricing
Revenues dipped 11.5% year over
year to $2,025.3 million in the reported quarter, just missing the
Zacks Consensus Estimate of $2,013 million. Weak demand stemming
from economic uncertainty and a year over year decline in average
selling price dented the top line. Strength across automotive,
energy and heavy equipment was partly masked by lingering weakness
in the non-residential construction market.
Sales volume dipped 5.8% year
over year but were up 9% sequentially. Average prices per ton were
down 6.5% year over year and 1.3% sequentially.
Financial
Health
Reliance Steel exited the quarter
with cash and cash equivalents of $100.1 million, up 43% year over
year. Total debt was $1.15 billion at the end of the quarter, down
20% from a year ago. Net debt-to-capital ratio was 22.4% as of Mar
31, 2013, down from 29% as of Mar 31, 2012.
Recent
Acquisitions
Reliance Steel continues its
aggressive acquisition strategy to incite growth. It recently
wrapped up its acquisition of Metals USA Holdings Corp, following
the approval of the transaction by Metals USA’s shareholders.
Metals USA, which makes steel and aluminum components, is a
strategic fit with Reliance Steel’s portfolio and complements its
existing customer base, product mix and geographic footprint.
Reliance Steel financed the
buyout with the proceeds from the recently amended $1.5 billion
unsecured revolving credit facility, a new term loan worth $500
million and the recent $500 million senior notes offering.
Outlook
Moving ahead, Reliance Steel
expects the uncertain economic environment to continue to affect
the steel industry in second-quarter 2013. The company envisions a
modest recovery in demand while sees weak pricing environment to
continue. Factoring in the contributions of Metals USA acquisition,
Reliance Steel expects to earn $1.10 to $1.20 per share in the
second quarter.
Our View
Reliance Steel has a broad and
diversified product base along with a wide geographic footprint
that positions it well in the industry. The company continues to
evaluate and execute additional growth projects and is well placed
to leverage the strong momentum across a number of end
markets.
However, Reliance Steel contends
with weak steel and metals pricing environment. Moreover, the
non-residential construction market (the company’s largest end
market) continues to be the weakest link.
Reliance Steel currently retains
a Zacks Rank #2 (Buy).
Other companies in the metals
industry having favorable a Zacks Rank are NSK
Ltd. (NPSKY), Worthington Industries Inc.
(WOR) and Precision Castparts Corp. (PCP). While
NSK holds a Zacks Rank #1 (Strong Buy), both Worthington and
Precision Castparts retain a Zacks Rank #2 (Buy).
NSK LTD -UN ADR (NPSKY): Get Free Report
PRECISION CASTP (PCP): Free Stock Analysis Report
RELIANCE STEEL (RS): Free Stock Analysis Report
WORTHINGTON IND (WOR): Free Stock Analysis Report
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