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Reliance Steel (RS) Q3 Earnings: Will It Surprise Again?


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Reliance Steel & Aluminum Co. (RS - Analyst Report) is set to release its third-quarter 2016 results before the opening bell on Oct 20.

In the last quarter, the company had delivered a positive earnings surprise of 3.82%. The company gained from efficient inventory management and better mill prices in the quarter. However, lower overall pricing weighed on its revenues.

Reliance Steel has beaten earnings estimates in the trailing four quarters with an average beat of 9.90%.

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

RELIANCE STEEL Price and EPS Surprise



Factors to Consider

Reliance Steel, in its second-quarter 2016 call, said that it expects overall sales volumes to be down between 1% and 3% sequentially in the third quarter due to seasonality. The company also expects the average selling price to be up in the range of 1% to 3% sequentially in the third quarter. The company sees adjusted earnings for the third quarter in the band of $1.25−$1.35 per share.

Reliance Steel should continue to benefit from its strategic acquisitions and strength across aerospace and automotive markets in the September quarter. Demand in the aerospace market is being supported by higher commercial aerospace build rates. The automotive market is witnessing strong demand, 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 expects sustained momentum across these markets in the balance of 2016.

Synergies from acquisitions should also support Reliance Steel’s results in the third quarter. Reliance Steel continues with its aggressive acquisition strategy to drive growth.

However, the company’s business in the energy markets is expected to remain under pressure due to depressed oil prices. Reduced drilling activities are hurting demand for the company’s products in the energy space.

Moreover, the company still remains exposed to pricing pressure. Despite an improvement in metals prices of late, overall pricing remains below peaks levels as well as the levels seen last year.

Earnings Whispers

Our proven model does not conclusively show that Reliance Steel is likely to beat the Zacks Consensus Estimate in the third quarter. That 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. That is not the case here, as you will see below.

Zacks ESP: ESP for Reliance Steel is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at $1.31.

Zacks Rank: Reliance Steel currently carries a Zacks Rank #4 (Sell). We caution against stocks with Zacks Ranks #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Stocks Warranting a Look

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

Teck Resources Limited (TCK - Snapshot Report) has Earnings ESP of +10% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pan American Silver Corp. (PAAS - Snapshot Report) has Earnings ESP of +46.15% and a Zacks Rank #2.

Schnitzer Steel Industries, Inc. (SCHN - Snapshot Report) has Earnings ESP of +16.28% and a Zacks Rank #2.

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