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Reliance Steel to Buy Vonore Plant

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Reliance Steel & Aluminum Co. (RS - Free Report) announced that it will acquire all the assets of Worthington Steel Vonore, Tennessee plant, a processing facility owned by Worthington Industries Inc. The Vonore plant will operate as a unit of Reliance Steel’s wholly-owned subsidiary, Precision Strip Inc. The terms of the deal, which is expected to close in a month, were not disclosed.

The Vonore plant will process and deliver metals, including carbon steel, aluminum and stainless steel on a toll basis, for a fee without any ownership of the metal. The acquisition will expand Reliance’s presence in the South eastern regions of the U.S. and will also complement the company’s existing pohnnrtfolio.

Reliance Steel released its fourth-quarter 2011 earnings in February 2012. The company reported net income of $67.9 million or 91 cents per share in the fourth quarter compared with $39.5 million or 53 cents per share in the prior-year quarter. The results exceeded the Zacks Consensus Estimate of 78 cents. 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.

Sales for the fourth quarter 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% year over year to $8.13 billion. The company experienced slow but steady improvement in demand during the year.

The prices of most of the metals that the company sells increased during the fourth quarter and it 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 positions it well in the industry. The company continues to evaluate and execute additional growth projects, given the economic conditions and outlook.

Reliance Steel competes with Metals USA Holdings Corp. (MUSA - Free Report) and Worthington Industries Inc. (WOR - Free Report) . We have recommended the shares of the company as Outperform for the long term (more than 6 months). The stock currently retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.

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