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Reliance Steel EPS Trump, Revs Lag

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Reliance Steel & Aluminum Co.’s (RS - Free Report) fourth-quarter 2012 earnings per share of $1.06 trounced the Zacks Consensus Estimate of 97 cents as well as the year-ago earnings of 91 cents.. Profits shot up 18.4% year over year to $80.4 million despite lower sales. The bottom line was boosted by an inventory adjustment related credit of $37.1 million (included in cost of sales).

For full-year 2012, earnings of $5.33 per share also topped the Zacks Consensus Estimate of $5.26 and surpassed earnings of $4.58 per share posted in 2011. Profit jumped 17.4% year over year to $403.5 million in 2012.

Revenues, Volume and Pricing

Revenues slipped 7.1% year over year to $1,889 million in the reported quarter, missing the Zacks Consensus Estimate of $1,942 million. The results were impacted by economic uncertainty and lower shipping days due to holiday season. A year over year decline in average selling price also dented the top line.

Continued strength across energy, aerospace, farm and heavy equipment, and automotive was partly marred by sustained weakness in the non-residential construction market. The company saw solid demand across the aerospace, energy and automotive markets in 2012.

Sales volume dipped 3.9% year over year and 8.3% sequentially in the quarter. Average prices per ton were down 4.2% year over year while remaining stable sequentially.

For the full year, sales rose 3.8% year over year to $8,442.3 million, yet shy of the Zacks Consensus Estimate of $8,496 million.

Financial Position

The company exited 2012 with cash and cash equivalents of $97.6 million, up 15% year over year. Total debt was $1.21 billion at the end of the year, down 9% from a year ago. Net debt-to-capital ratio was 23.8% as of Dec 31, 2012, compared with 28.4% as of Dec 31, 2011. Operating cash flows jumped more than two-and-a-half-fold year over year to $601.9 million in 2012.


Reliance Steel remains committed to boosting shareholder returns leveraging its healthy liquidity position. The company has boosted its quarterly dividend by 20% to 30 cents a share from the earlier payout of 25 cents.

Recent Acquisitions

Reliance Steel continues its aggressive acquisition strategy to incite growth. During the fourth quarter, it bought privately-held Sunbelt Steel Texas, LLC. The acquisition will allow Reliance Steel to serve customers across a number of oil and gas well drilling categories. The company hopes to leverage Sunbelt’s growing presence in specialty markets.

Moreover, the company recently entered into an agreement to acquire all outstanding shares of Metals USA Holdings Corp. (MUSA - Free Report) . Metals USA is a strategic fit with Reliance Steel’s portfolio and complements its existing customer base, product mix and geographic footprint.


Moving ahead, Reliance Steel expects the uncertain economic environment to continue to affect the steel industry and hurt demand and pricing in first-quarter 2013. The company, however, witnessed modest rise in sales volume in Jan 2013 along with stable pricing. It expects to earn $1.05 to $1.15 per share in the first quarter.

Our View

Reliance Steel has tremendous earnings capacity with its broad and diversified product base, along with a wide geographic footprint that positions it well in the industry. It continues to evaluate and execute additional growth projects and is well placed to leverage the strong momentum across a number of end markets.

However, we are concerned about the non-residential construction market (the company’s largest end market), which continues to be the weakest link. Moreover, Reliance Steel remains exposed to pricing pressure.

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

Other companies in the metals industry having a favorable Zacks Rank are Worthington Industries Inc. (WOR - Free Report) and Gibraltar Industries Inc. (ROCK - Free Report) . Both the companies hold a Zacks Rank #2 (Buy).

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