Reliance Steel Beats Estimates

Reliance Steel & Aluminum Co. ( RS - Analyst Report ) reported net income of $67.9 million or 91 cents per share in the fourth quarter of 2011 compared with $39.5 million or 53 cents per share in the prior-year quarter. Results exceeded the Zacks Consensus Estimate of 78 cents per share. For full-year 2011, Reliance Steel posted net income of $343.8 million or $4.58 per share compared with $194.4 million or $2.61 per share in 2010.

Revenue

Quarterly sales were $2.03 billion, up 28% from $1.58 billion in the prior-year quarter. The number of metal tons sold started off slow in the quarter and gradually picked up leading to a solid demand environment.

For full-year 2011, sales increased 29% to $8.13 billion. In the year, the company experienced slow but steady improvement in demand. Energy, agriculture and mining, aerospace, semiconductor and electronics, and toll processing businesses, experienced significant improvements over 2010. The non-residential construction showed marginal improvement, but significantly lagged compared to other markets.

Financial Position

Cash and cash equivalents were $84.6 million as of December 31, 2011 compared with $72.9 as of December 31, 2010. Net debt-to-total capital ratio was 28.4% as of December 31, 2011 compared with 23.5% as of December 31, 2010. The company has excess capital to expand its existing operations as well as acquisition opportunities. Reliance Steel had $645 million outstanding on its $1.5 billion credit facility as of December 31, 2011.

Dividend

On February 14, 2012, the company’s board of directors declared a regular quarterly cash dividend of 15 cents per share of common stock, representing an increase of 25% in the company’s regular dividend rate. The dividend is payable on March 23, 2012 to shareholders of record as of March 2, 2012.

Acquisitions

Continental Alloys & Services, Inc., acquired in August 2011, contributed $205 million sales for the five months ended December 31, 2011. Further, Reliance Steel acquired McKey Perforating Co., Inc., and its subsidiary McKey Perforated Products Co. Inc., whose net sales were approximately $18 million, in February 2012.

Outlook

The prices of most of the metals that the company sells increased during the fourth quarter and the company expects overall pricing to remain relatively strong throughout the first quarter of 2012. Further, Reliance Steel expects prices to remain volatile through 2012 with scrap, other raw material input costs and imports playing a major role in pricing trends.

The company believes that demand will continue to improve slowly, but steadily except for the energy aerospace, heavy equipment and auto industries, where it anticipates higher than average growth. Based on these expectations, earnings per share in 2012 are expected to be higher than 2011. Further, the company estimates earnings per share in the range of $1.15 to $1.25 for the first quarter of 2012.

Reliance Steel has tremendous earnings capacity with its broad and diversified product base, along with wide geographic footprint that position it well in the industry. The company continues to evaluate and execute additional growth projects, given the economic conditions and outlook.

Reliance Steel retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) “Hold” rating. We have recommended the shares of the company as “Outperform” for the long term (more than 6 months). Reliance Steel faces stiff competition from Metals USA Holdings Corp. ( ) and Worthington Industries Inc. ( WOR - Snapshot Report ) .