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Reliance Steel & Aluminum Co.’s (RS - Analyst Report) second-quarter 2012 earnings per share of $1.44 beat the Zacks Consensus Estimate of $1.41 and surpassed the year-ago level of $1.31. Profits went up 10% to $108.8 million from $98.7 million a year ago on the heels of healthy growth in its top line.

Revenue

Revenues cruised 8% to $2.21 billion, but missed the Zacks Consensus Estimate of $2.24 billion. The increase in revenues was driven by strength across a host of industries including energy, aerospace, farm and heavy equipment, and automobile.

Sales volume increased 10% but plunged 2% sequentially in the quarter. Average prices per ton sold went down 2%, both year over year and sequentially. Carbon steel, aluminum, stainless steel, alloy, toll processing  and other sales represented 52%, 15%, 15%, 11%, 2% and 5% of total revenue, respectively. 

Financial Position

Cash and cash equivalents stood at $93.6 million as of June 30, 2012, compared with $84.6 million as of December 31, 2011. Net debt stood at $1,425.4 million as of June 30, 2012 compared with $1,234.4 million as of December 31, 2012.

Net debt-to-capital ratio was 29.9% as of June 30, 2012 compared with 28.4% as of December 31, 2011. At the end of the quarter, the company had adequate liquidity to expand its existing operations organically and through acquisitions.

Dividend

Reliance Steel boosted its quarterly dividend by 67% to 25 cents a share from 15 cents a share. The dividend is payable on September 14, 2012 to shareholders of record as of August 17, 2012.

Acquisitions

Reliance Steel expanded its presence in the energy market through a number of acquisitions. The company acquired National Specialty Alloys, LLC – a Houston, Texas-based processor and distributor of premium stainless steel and nickel alloy bars and shapes. The company’s subsidiary Precision Strip Inc. also bought the assets of the Vonore, Tennessee Worthington Steel plant, which expanded its toll processing network into that area.

Reliance, through its newly-formed subsidiary Bralco Metals (Australia) Pty Ltd, also acquired most of the assets of Airport Metals (Australia) Pty Ltd, a subsidiary of Samuel Son & Co. Limited. Based in Melbourne, Airport Metals (Australia) functions as a stocking distributor of aircraft materials and supplies.

Outlook and Recommendation

Looking ahead, Reliance Steel expects the economic challenges to prevail in the third quarter of the year but does not foresee any major pricing changes. The company also expects that there will be one less shipping day in the upcoming quarter. Based on these assumptions, the company expects to earn $1.15 to $1.25 per share for the third quarter.

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

However, the non-residential construction market, which is the company’s largest end-market, continues to be the weakest link. In addition, raw material prices are expected to remain volatile.

Reliance Steel competes with Metals USA Holdings Corp. (MUSA - Snapshot Report) and Worthington Industries Inc. (WOR - Snapshot Report). The company retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

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