Distributors of steel and aluminum reported respectable gains in the third quarter as a result of stabilizing steel prices, timely acquisitions, the boom in aerospace and prudent cost controls. Following is a synopsis of third-quarter conference calls by major service center companies.

By the Staff of Metal Center News

Sidebars and Tables:

• Ryerson Tull: Gains from Integris Deal
• Reliance Steel & Aluminum: Rides Aerospace Boom
• Russel: Gains Ground from 2nd Quarter
• Olympic: Navigates "Touch Six Months"
• EMJ: Income Up, But Margins Down
• Metals USA: Nets Lower Price Per Ton

RYERSON TULL
Gains from Integris Deal
The integration of Integris Metals into Ryerson Tull, the country’s largest distributor and processor of metals, led to a solid third-quarter for the company.

Chicago-based Ryerson reported net income of $33.9 million for the third quarter, compared to $17.4 million for the same period in 2004. Additionally, the company reported sales of $1.4 billion from the 2005 third quarter, an increase of 57 percent from the third quarter of 2004, though down 6.8 percent from the second quarter of 2005.

“We posted a solid third quarter, even when compared with the year-ago quarter’s peak historic pricing for carbon flat-rolled. Pricing and demand trends across our product lines were mixed. And the third quarter is seasonally slower than the first half of the year,” said Neil S. Novich, chairman, president and CEO of Ryerson Tull.

Much of the increase in net income and sales is a product of the acquisition of Integris Metals in January 2004. “The third quarter included a number of items that benefited the period and these are primarily focused around the integration of Integris. These items, including the pension curtailment gain and the gain on sale of property are primarily the result of doing specifically what we said we were going to do: sell redundant assets and extract hard-cost savings from the Integris acquisition,” Novich said.

The total cost-savings as a result of the acquisition will be even greater than Ryerson Tull anticipated.

“We now believe we can generate annualized cost-savings in excess of $50 million from the merger of the two companies, compared with our original estimate of $30 million,” he said.

The company has pledged to reduce its work force by 400 employees and consolidate approximately 20 facilities. By the end of the third quarter, Ryerson had already reduced employee head count by 100 and had closed several facilities.

Reducing inventory has also been a focus at the company. The reduction of $140 million in inventory has already begun, though Ryerson remains committed to further reductions.

“We believe we can achieve inventory turns well in excess of the 3.7 turns we are at now,” Novich said. “We have set a goal of running at a rate of about five turns by the end of 2006.”

Looking forward, Novich sees a healthy climate in the fourth quarter and early part of next year. “The fourth quarter is our seasonally slowest of the year, driven by customers’ year-end shutdowns and fewer ship days—60 compared to 64 in the third quarter of 2005,” Novich said. “However, we expect the economy and the overall metals market to remain healthy through the fourth quarter and into 2006.”

In January 2006, Ryerson Tull will change its name to Ryerson Inc. and its ticker symbol to RYI to reflect the integration of Integris Metals.

RELIANCE STEEL & ALUMINUM
Rides Aerospace Boom
The strong performance of the aerospace market and acquisition of Chapel Steel pushed Los Angeles-based Reliance Steel & Aluminum to record sales figures in the third quarter.

Reliance reported third-quarter sales of $870 million, an improvement of 11 percent from the same quarter in 2004. Net income was $49.4 million, up 12 percent from the third quarter in 2004. For the year to date, net income totaled $144.8 million, a 14 percent increase over last year and a record for the nine-month period.

“Our products sold into the aerospace industry continued to show strength during the quarter,” said David H. Hannah, Reliance CEO. The aerospace volume was up 50 percent and the prices were up 41 percent from the same quarter in 2004.

“Aerospace continues to be our hottest market and we expect this to continue going forward,” said Reliance President and COO Gregg Mollins.
Reliance reported a late-quarter surge in nonresidential construction demand. The increase was across the board, not limited to southern areas affected by the September storms.

Additionally, Reliance reaped the benefits of its Chapel acquisition, completed July 1. Chapel had sales near $60 million for the quarter.

“They performed considerably better than we had valued them at, which we accepted because the market is very favorable at this time, particularly with plate products and contract-plate products, which is clearly an area where they excel,” Hannah said.

In other markets, Hannah said the company was encouraged by a small improvement in volume and pricing for its carbon steel products in late August and September. Customer demand and pricing for other markets remained steady throughout all end-markets.

“We do not expect any significant changes in either pricing or demand for the fourth quarter, other than the typical seasonal slowdown,” he said.
Reliance reported a significant drop in its inventory levels, moving from 4.9 turns to 5.4 turns. Hannah said there was room for reduction, though he didn’t think another half turn was possible.

Reliance is also expanding outside of North America. In October, the company announced an agreement with New Wave Technologies Ltd., a Singapore public company, and its associate, Manufacturing Network Pte. Ltd., to form a joint venture company, Reliance Pan Pacific, Pte. Ltd. Reliance Pan Pacific will be 70 percent owned by Reliance Steel and 30 percent by MNPL. Following the sale, Reliance Pan Pacific was expected to purchase MNPL’s 100 percent interest in Everest Metals, a Chinese metals service center company. Everest, formed in 2001, handles processing and distributing primarily aluminum products to the electronics industry. Its 2004 revenues totaled approximately $2.5 million.

RUSSEL
Gains Ground from 2nd Quarter
Russel Metals, Mississauga, Ontario, reported 2005 third-quarter net earnings of $25.9 million—stronger than the second quarter of 2005 and the second-best third quarter in the company’s history.

While margins and profits improved in the third quarter vs. the second quarter of this year, declining steel prices reduced Russel’s gains when compared with the exceptional third quarter of 2004.

“The third quarter’s strong earnings in a tough price environment are very encouraging and reflect the changes we made to the company through our successful acquisitions since 2001, and the recapitalization of the balance sheet in 2004,” said Bud Siegel, Russel president and CEO.

Russel reported $84.6 million in positive cash flow from operating activities in this year’s third quarter, further strengthening its balance sheet. Siegel is hopeful steel prices will gain ground in 2006. “If the summer months prove to have been the bottom of the current pricing cycle, then the industry will have demonstrated the pricing discipline needed to prevent the free fall in pricing created by the producers.”

Russel’s revenue for the nine months ended Sept. 30, 2005, increased 10 percent to $1.968 billion. Net earnings for the period declined, however, to $82.9 million vs. $134.3 million in 2004.

OLYMPIC
Navigates “Tough Six Months”
Though its net sales and income declined in the third quarter, Olympic Steel, Bedford Heights, Ohio, continued to reduce its debt levels, attaining its strongest balance sheet and capital position since its initial public offering in 1994, said Michael D. Siegal, chairman and CEO.

“The big news is Olympic Steel’s debt reduction. Our diligent focus on inventory and accounts receivable, and our profitability and expense control over the past two years, have resulted in the elimination of $70 million of debt during the past three months, and $83 million from the beginning of the year,” Siegal said. The company reduced its inventory by $40 million, or 28 percent, during the third quarter.

Olympic’s third quarter net sales of $208.4 million were off 14.7 percent from the same period of 2004. Net income for the third quarter totaled $2.2 million, down from $18.6 million in the third quarter of 2004.

For the year-to-date, net sales were up 12.3 percent to $734.4 million, though net income was at $14.8 million, a decline of 69 percent from the $47.9 million for the first nine months of 2004. Tons sold decreased 6.5 percent to 984,000.

“From the end of January through July on flat-rolled alone, you probably saw a degradation of close to $200 [per ton]. As that gets more normalized, our earnings will be more normalized,” Siegal said. “We managed to navigate a very tough six months.”

Siegal does not anticipate the price instability to continue going forward. “We are encouraged by MSCI’s September reported low service center inventories, low import numbers as reported by the government and the controlled output and delivery we see from the domestic steel producers. Under these conditions, announced carbon steel prices appear to be sustainable for the remainder of the year.”

EMJ
Income Up, But Margins Down
Earle M. Jorgensen Co., Lynwood, Calif., reported pretax income for its fiscal 2006 second quarter of $27.3 million, a 17.9 percent increase over the second quarter of fiscal 2005.

During its second quarter, Jorgensen elected to pursue additional capital investment opportunities, including the acquisition of the company’s leased Hayward, Calif., facility for $6.5 million, which will be completed in the company’s third fiscal quarter of 2006. It also opted to build a larger Portland, Ore., facility for approximately $5.1 million. The company recently began shipping from its Hartford, Conn., facility and broke ground on its Lafayette, La., and Quebec City, Quebec, facilities.

“In each case these facilities will increase the service levels to our customers and those markets in which they serve,” said Maurice S. Nelson, Jr., EMJ president and CEO.

For the three months ended Sept. 28, 2005, EMJ’s revenues increased 6.1 percent to $412.9 million, compared to $389.3 million for the three months ended Sept. 29, 2004. Sales volume for the second quarter of fiscal 2006 was 190,000 tons, compared to 192,000 tons shipped in the second quarter of fiscal 2005. Net income for the second quarter of fiscal 2006 was $18.9 million, compared to net income of $21.9 million for the same period in fiscal 2005.

“Although revenues for the second quarter exceeded our projection, as expected, we have seen continued pressure on our gross margins, which at 25.2 percent for the second quarter of fiscal 2006 is slightly below our first quarter margins of 26 percent and lower than our second quarter margins in fiscal 2005 of 28.4 percent,” Nelson said. “The gross margin decline is the result of continued competitive pressures and an increase in the availability of various products when compared to the same period last fiscal year.”

METALS USA
Nets Lower Price Per Ton
Metals USA Inc. reported third-quarter net income of $11.2 million—significantly less, as expected, than the record-setting third quarter of 2004 when the company saw net income of $31.8 million.

Average realized sales prices per ton and shipment volumes by the Flat Rolled and Plates and Shapes Groups were down 2 percent and 3 percent, respectively, compared to the same quarter last year.

Demand in the third quarter was generally good, with prices increasing during the quarter. Net sales revenue was $396.1 million, vs. $412.6 million sold during third-quarter 2004.

“While Metals USA is not dependent upon the automotive industry, the mid-year slowdown of that industry affected the steel business as a whole in July and part of August,” said C. Lourenco Goncalves, president and CEO.

“Metals USA continued to reduce inventories, and paid down an additional $75.4 million of our debt during the third quarter. As soon as scrap prices increased and the market realized that inventories were low across the board, the leading steel mills successfully increased steel prices, benefiting all members of the supply chain, particularly service center companies like Metals USA.”

He added: “We expect a strong and profitable fourth quarter, and are extremely excited with the prospects ahead of us.”