Oct. 30, 2013
Reliance: 'Third Quarter Demand Better than Anticipated'
Reliance Steel and Aluminum Co. reported net income of $95.1 million in the third quarter, down 3.1 percent from third-quarter 2012. Income was up 17.4 percent compared to the previous quarter.
The Los Angeles-based service center chain reported net sales of $2.44 billion during the quarter, up 18.9 percent from last year, but down 0.2 percent compared to the second quarter. Tons sold were up 31.1 percent compared to third-quarter 2012 and 2.0 percent better than the second quarter.
"Overall demand in the third quarter was a bit better than anticipated," said Chairman and CEO David H. Hannah during the company’s quarterly conference call with analysts and investors. "Although a significant portion of the increase was due to an additional two weeks of Metals USA activity in the third quarter, our same-store tons sold were up 0.4 percent."
Reliance's normal seasonal trend is for third-quarter demand to be down from the second quarter. The company’s second-quarter demand was lower than expected, however. Also, metals pricing was weaker than the company anticipated, with the average selling price per ton sold down 2.3 percent from the prior quarter, and down 9.5 percent compared to the third quarter last year.
"Despite the persistently soft pricing environment, which weighs heavily on our net sales and profitability, the strong operational execution by our managers in the field partially offset the pricing impact as demonstrated by Reliance’s increase in gross profit margin," Hannah said.
For the year to date, Reliance's net earnings totaled $259.8 million, down 21.7 percent from 2012. Net sales through three quarters increased 5.5 percent to $6.9 billion. Much of the sales gain was due to the second-quarter acquisition of Metals USA.
"We continue to profitably grow through successful M&A activity to supplement organic growth. This solid growth was driven primarily by the acquisition of Metals USA, which was completed early in the second quarter this year and has been accretive to our earnings. We are very pleased with the Metals USA integration progress and our ability to grow despite economic and cyclical challenges," Hannah said.
Reliance officials noted their desire to further grow through acquisition, whether it is a deal like the Metals USA acquisition or a more typical purchase of a smaller service center company. "We like to do the larger ones when they're available, but our industry is made up mostly of a large number of smaller companies. So more small deals has been the case for the last 20 years, and it'll probably be the case going forward," Hannah said.
Among end markets, Reliance sees continued strength in automotive, along with solid but lower operating results in aerospace, energy and manufactured goods, including agriculture and heavy equipment. These continue to offset the slow recovery in nonresidential construction.
The company expects that global economic and political uncertainty, complicated further by political issues in the U.S., will continue to present challenges to industrial growth in the fourth quarter. In addition, fewer shipping days due to the holiday season and extended holiday-related closures at many customers' facilities are expected to reduce tons sold in the fourth quarter as compared to the third quarter, a typical seasonal trend.
"Although price increases were announced for certain carbon and stainless steel products during the quarter, the pricing environment continues to be challenging. In addition to lower carbon steel pricing, we've experienced significant pressure on stainless and aluminum pricing in 2013, as well as for alloy steel. Our expectation is that, overall, we're not likely to see prices strengthen between now and year-end," Hannah said.