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Reliance Steel (RS) Q3 Earnings Miss, Revenues Top Estimates

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Reliance Steel & Aluminum Co. (RS - Free Report) posted third-quarter 2023 profits of $295 million or $4.99 per share, down from $393.5 million or $6.45 per share in the year-ago quarter.

Barring one-time items, the company recorded earnings of $5.00 per share. It missed the Zacks Consensus Estimate of $5.02.

The company recorded net sales of $3,623 million, down around 14.7% year over year. The top line beat the Zacks Consensus Estimate of $3,594.7 million.

Reliance Steel & Aluminum Co. Price, Consensus and EPS Surprise

 

Reliance Steel & Aluminum Co. Price, Consensus and EPS Surprise

Reliance Steel & Aluminum Co. price-consensus-eps-surprise-chart | Reliance Steel & Aluminum Co. Quote

 

Volumes and Pricing

The company's shipments (thousand tons sold) rose 1.1% year over year to 1,420.8 due to the non-residential construction and aerospace end industries' strength in the quarter. It was below our estimate of 1,447.3. The average selling price per ton sold declined 16% year over year to $2,552. It fell short of our estimate of $2,564.

Non-residential construction demand, Reliance Steel's largest end market, increased in the third quarter of 2023. Based on the current sentiment of customers and existing backlogs, the company maintains an optimistic outlook for the fourth quarter of 2023, anticipating that non-residential construction activity in the sectors it operates in will remain healthy, with consideration for the usual seasonal variations.

Commercial aerospace demand remained strong in the third quarter of 2023. Reliance expects commercial aerospace demand to stay healthy in the fourth quarter of 2023 as build rates grow from current levels. Demand in Reliance Steel's aerospace business's military, defense and space segments remained robust, with substantial backlogs.

The demand for Reliance's toll processing services in the automotive market remained steady when compared to the second quarter of 2023 and has shown an increase year over year. Reliance's niche position in providing toll processing services to the automotive market, particularly with the ongoing rise in aluminum usage, instills optimism for long-term demand in this sector. However, the company maintains a cautious outlook for the fourth quarter of 2023, primarily due to the ongoing UAW strike.

In contrast, demand in the broader manufacturing sectors that Reliance serves, which includes industrial machinery, consumer products, and heavy equipment, has declined year over year. This is attributed, in part, to decreased carbon steel flat-rolled ton sales and lower demand in specific equipment and machinery markets. Reliance expects a further decline in demand for its products across the broader manufacturing sector in the fourth quarter of 2023, mainly due to seasonal factors.

Demand in the semiconductor market has also seen a decline compared with the second quarter of 2023 and the third quarter of 2022. The downside was caused by persistent softness in certain segments of the market, primarily due to an excess of inventory in the supply chain. Despite this, Reliance maintains a positive long-term outlook for the semiconductor market, supported by its investments in additional capacity to cater to the significant expansion efforts in semiconductor fabrication currently underway in the United States.

Financial Position

At the third-quarter end, Reliance Steel had $976.9 million in cash and cash equivalents and $1.15 billion in total debt outstanding, with no outstanding borrowings under its $1.5-billion revolving credit facility. RS generated $466 million in cash flow from operations in the quarter, owing to its strong profitability and good working capital management.

Outlook

For the fourth quarter of 2023, Reliance Steel expects underlying demand to remain healthy in its end markets. The company anticipates a growth in tons sold, ranging from 3.5% to 5.5% when compared to the fourth quarter of 2022. In line with typical seasonal patterns, there is an expected sequential decline of 4-6%. While Reliance foresees that pricing for many products may reach or approach the lowest point in the current business cycle during some part of the fourth quarter of 2023, with certain products stabilizing or experiencing modest increases, the company expects its average selling price per ton sold in the fourth quarter of 2023 to decrease by 4% to 6% compared to the third quarter of 2023. The company foresees a temporary and modest reduction in its gross profit margin in the fourth quarter due to these declining price trends.

The company projects adjusted earnings per share in the range of $3.70-$3.90for the fourth quarter.

Price Performance

Shares of Reliance Steel have surged 23.3% in the past year compared with a 1.1% rise of the industry.

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank & Key Picks

Reliance Steel currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Basic Materials space are The Andersons Inc. (ANDE - Free Report) , sporting a Zacks Rank #1 (Strong Buy) and WestRock Company (WRK - Free Report) and Koppers Holdings Inc. (KOP - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 3.3% upward in the past 90 days. Andersons beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4% on average. ANDE shares have rallied around 39.8% in a year.

In the past 60 days, the Zacks Consensus Estimate for WestRock’s current fiscal year has been revised upward by 5.2%. WRK beat the Zacks Consensus Estimate in three of the last four quarters while missing in one quarter, with the average earnings surprise being 30.7%. The company’s shares have rallied 3.3% in the past year.

The consensus estimate for Koppers’ current fiscal year earnings is pegged at $4.45, indicating year-over-year growth of 7.5%. KOP beat the Zacks Consensus Estimate in all of the last four quarters, with the average earnings surprise being 21.7%. The company’s shares have surged 46.8% in the past year.

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