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Reliance Steel (RS) Buys Rotax to Augment Its Product Portfolio

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Reliance Steel & Aluminum Co. (RS - Free Report) recently took over Rotax Metals, Inc., a metals service center specializing in copper, bronze and brass alloys.

Per the deal, Rotax will be operating through the Reliance Steel subsidiary, Yarde Metals, a metals service center spread across sixteen locations in the Northeast United States. The company is expected to leverage Yarde’s relationship with mill suppliers and its back-office services to streamline operations and promote continued growth. Notably, for the twelve months ended Jul 31, 2021, annual net sales for Rotax stood at roughly $14 million. The terms of the transaction are yet to be disclosed.

Reliance Steel noted that Rotax’s specialty products and renowned customer service are in sync with its business model and its principle of acquiring companies that have an instantaneous accretive value. The Rotax buyout also adds to RS’ product diversification by widening its portfolio of specialty bronze, brass and copper products.

Rotax, set up in 1947 and located in Brooklyn, NY, caters to a diverse customer base that consists of distributors, manufacturers, and the commercial and residential construction markets. It focuses on local customer relationships and next-day delivery.

Reliance Steel has been following an aggressive acquisition strategy as part of its core business policy in order to pump up operating results. Its latest acquisition of Merfish United provides it an exposure into copper and plastic products, and positions it in the broader industrial arena, which will act as a springboard for further growth, both organically and through other lucrative acquisitions. Past acquisitions, namely of Metals USA, added about 48 strategically located service centers, and that of Tubular Steel boosts the company’s long-term growth strategy and strength by expanding its product portfolio and end-market diversification.

The acquisition of Best Manufacturing 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. The Ferguson acquisition also diversifies its product portfolio. The buyout of All Metals further strengthens the company’s toll processing and logistics services businesses. The buyout of Fry Steel Company supports its customer and product diversification strategy. RS has made 59 acquisitions since its 1994 Initial public offering (IPO).

RS’ shares have gained 34% over the past year, underperforming the industry’s 60% rise. The company’s estimated earnings growth rate for the current year is pegged at 166%.

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On its third-quarter earnings call, Reliance Steel stated that it remains optimistic about its business environment and expects robust or recovering demand in the majority of its end markets. However, factors such as bottlenecks in metal supply, labor shortages and supply-chain disruptions impacting shipments, as witnessed in the third quarter, are expected to persist in the fourth quarter as well. The company expects demand to be sequentially affected by normal seasonal factors, including customer holiday-related shutdowns and fewer shipping days in the fourth quarter.

Reliance Steel estimates its tons sold to be down 5-8% sequentially for the fourth quarter. Moreover, metal prices at the beginning of the fourth quarter are higher than the average for the third quarter. Due to this upside, the company anticipates its average selling price per ton sold for the fourth quarter to go up in the range of 5-7%.

Considering the above-mentioned factors, the company expects adjusted earnings per share in a band of $5.05 to $5.15 for the fourth quarter.

Zacks Rank & Other Key Picks

Reliance Steel currently carries a Zacks Rank #2 (Buy).

Other top-ranked stocks from the industrial products space include Greif, Inc. (GEF - Free Report) and A. O. Smith Corporation (AOS - Free Report) , each sporting a Zacks Rank #1 (Strong Buy), and Donaldson Company, Inc. (DCI - Free Report) , carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Greif has an expected earnings growth rate of 11.4% for the current year. The Zacks Consensus Estimate for the current year has been revised 5.6% upward over the past 60 days.

Greif's earnings beat the Zacks Consensus Estimate in all the four trailing quarters, with the surprise being 16.76%, on average. GEF’s shares have also risen 21.5% over a year.

A.O. Smith has an expected earnings growth rate of 35.2% for the current year. The Zacks Consensus Estimate for the current year has been revised 7% upward over the past 60 days.

A.O. Smith's earnings beat the Zacks Consensus Estimate in all the four trailing quarters, with the surprise being 16.82%, on average. Shares of AOS have rallied around 48.8% over a year.

Donaldson has an expected earnings growth rate of 15.5% for the current year. The Zacks Consensus Estimate for the current year has been revised 2% upward over the past 60 days.

Donaldson's earnings beat the Zacks Consensus Estimate in all the four trailing quarters, with the surprise being 6.67%, on average. DCI’s shares have risen around 2% over a year.