It has been about a month since the last earnings report for Reliance Steel (RS). Shares have lost about 32% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Reliance Steel due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Reliance Steel's Q4 Earnings Top Estimates, Sales Lag
Reliance Steel posted profits of $165.6 million or $2.44 per share in the fourth quarter of 2019, up around 94% from $85.6 million or $1.22 in the year-ago quarter. Earnings per share topped the Zacks Consensus Estimate of $1.71.
Reliance Steel recorded net sales of $2,447.8 million, down around 13% year over year, impacted by lower volumes and pricing. The figure missed the Zacks Consensus Estimate of $2,471.9 million.
The company witnessed continued strong demand for its products and services in aerospace and automotive markets during the fourth quarter. Demand in non-residential construction, the company’s biggest end-market, was also strong in the quarter.
While demand in heavy industry was steady, Reliance Steel saw low demand in the energy market in the fourth quarter. Demand in semiconductor improved during the reported quarter after weakness in the first three quarters of 2019.
Volumes and Pricing
Overall sales volume went down around 4% year over year to roughly 1.38 million tons in the reported quarter. Volumes also declined around 7% on a sequential-comparison basis. Shipments fell sequentially due to normal seasonal slowdown resulting from customer holiday-related shutdowns and fewer shipping days.
Average prices per ton sold for the quarter fell roughly 10% year over year to $1,763. Prices also declined around 2% on a sequential-comparison basis.
Earnings for 2019 were $10.34 per share, down from $8.75 per share a year ago.
Revenues were $10,973.8 million for the full year, down around 5% year over year.
Reliance Steel ended 2019 with cash and cash equivalents of $174.3 million, up roughly 36% year over year. Long-term debt was $1,523.6 million, down around 29% year over year.
For 2019, cash flow from operations was $1,301.5 million, up roughly 96% from $664.6 million a year ago.
The company is optimistic about business conditions in the first quarter of 2020. It expects demand to stay relatively healthy in the quarter.
Reliance Steel projects total tons sold to be sequentially up 6 in the first quarter. Overall metals pricing is expected to remain near current levels, which is likely to result in its average selling price per ton sold rising 1 sequentially.
On the basis of these expectations, the company currently projects adjusted earnings in the range of $2.00-$2.10 per share for the first quarter.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -10.93% due to these changes.
Currently, Reliance Steel has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Reliance Steel has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.