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Reliance Steel (RS) to Report Q1 Earnings: A Beat in Store?

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Reliance Steel (RS - Free Report) is set to release its first-quarter 2017 results before the opening bell on Apr 27.

In the last quarter, the company delivered a positive earnings surprise of 12%. Reliance Steel posted a profit of $61.7 million or 84 cents per share in the quarter, down around 10% from $68.6 million or 94 cents per share a year ago. Earnings per share, however, topped the Zacks Consensus Estimate of 75 cents. Revenues rose around 1.7% year over year to $2.06 billion in the reported quarter, beating the Zacks Consensus Estimate of $2.03 billion. The company continued to witness strength across automotive and aerospace markets in the quarter.

Reliance Steel beat earnings estimates in three of the trailing four quarters with an average beat of 7.07%.

Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model shows that Reliance Steel has the right combination of two key ingredients to beat earnings. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen.

Zacks ESP: The Earnings ESP for Reliance Steel is +3.55%. This is because the Most Accurate Estimate is pegged at $1.46, while the Zacks Consensus Estimate is $1.41. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Reliance Steel’s Zacks Rank #3 increases the predictive power of its ESP.

Note that Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Reliance Steel & Aluminum Co. Price and EPS Surprise

 

Factors to Consider

Reliance Steel is optimistic about business activity levels and metal pricing. The company anticipates tons sold to be up 8% to 10% on a sequential comparison basis in first-quarter 2017, partly due to normal seasonal factors. Moreover, Reliance Steel expects its average selling price to be up 2% to 4% in the first quarter from fourth-quarter 2016. The company expects earnings in the range of $1.25 to $1.35 per share for first-quarter 2017.

The company saw a significant improvement in pricing for carbon steel products in the fourth quarter of 2016 and expects improved demand levels and reduced imports to support metal pricing in the first quarter.

Reliance Steel should gain from its aggressive acquisition strategies.  The acquisition of Metals USA is a strategic fit to Reliance Steel’s portfolio and complements its existing customer base, product mix and geographic footprint. With the acquisition, the company expects synergies of $15 million to $20 million a year.

Moreover, the acquisition of Aluminium Services UK Limited will enable the company to expand its presence in the aerospace market. Also, the buyout of Tubular Steel has enhanced the company’s long-term growth strategy and strength by expanding its product portfolio. The acquisition of Best Manufacturing Inc. also highly complements the company's existing service center network with its specialty high margin products, value-added processing capabilities and strong focus on customer service.

Reliance Steel is also witnessing strong demand for its products across the aerospace and automotive markets supported by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by the company’s toll processing businesses in the U.S. and Mexico as well as increased use of aluminum in the industry.

Reliance Steel's shares rallied 12.2% in the past six months, outperforming the Zacks categorized Metal-Products Distributor industry’s decline of 30.8%.



However, the company’s business in the energy markets is expected to remain under pressure due to still depressed oil prices. While there has been some recovery of late in the non-residential construction market, demand still remains significantly below the peak levels achieved in 2006. This key end-use market remains on a slow road to recovery.

Stocks to Consider

Here are some companies in the industrial products space that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Caterpillar, Inc. (CAT - Free Report) has an earnings ESP of +4.48% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Parker-Hannifin Corporation (PH - Free Report) has an earnings ESP of +0.54% and flaunts a Zacks Rank #1.

Deere & Company (DE - Free Report) has an earnings ESP of +2.5% and sports a Zacks Rank #2.

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