Oct. 28, 2015

Reliance Profits Decline in Third Quarter

Reliance Steel & Aluminum Co., Los Angeles, reported net income of $51.4 million in the third quarter, a decline of nearly 50 percent from both the prior quarter and the same quarter in 2014. Through nine months, Reliance’s net income totaled $242.9 million, down 13.0 percent from the previous year. Third-quarter sales totaled $2.29 billion, a 15.5 percent decline from third-quarter 2014 and down 5.7 percent from the prior quarter. Year-to-date net sales declined 7.0 percent to $7.32 billion.

The company’s tons sold declined 3.9 percent compared with the same quarter last year and 1.5 percent from the prior quarter. The average selling price per ton sold was down 12.7 percent from third-quarter 2014 and 4.4 percent from second-quarter 2015.

"Once again, our operational performance was outstanding despite significant industry-wide challenges that continued to put pressure on metals pricing," President and CEO Gregg Mollins told investors and analysts during the company’s quarterly conference call. “Our ability to increase our gross profit margin sequentially in each quarter of 2015 in an environment with metals pricing falling each month reflects exceptional execution by our managers in the field.”

During the third quarter, Reliance experienced relatively steady customer demand across most of its end-markets, with the exception of energy. The company expects that underlying demand may decline slightly from current levels due to the pricing uncertainty in the marketplace, as well as fewer shipping days during the holidays.

Reliance had expected pricing to increase slightly in the third quarter, but pricing for all commodity types continued its sequential monthly decline, primarily due to the historically high levels of imports in the marketplace. This resulted in a 4.4 percent decline in the company’s average selling price per ton, compared with the prior quarter, which was much less than mill price declines, noted Reliance executives.

Automotive demand, supported mainly by the company's toll processing operations in the U.S. and Mexico, remains strong and is expected to continue at current production rates through 2015. Reliance has increased its toll processing volume due to increased usage of aluminum by the automotive industry and believes this is an area that represents future growth opportunities.

Because of the dramatic decline in oil and gas prices, Reliance plans to close certain facilities serving the energy market. "We continuously evaluate each of our 300-plus operations to determine if they meet our profitability standards. Given our current outlook that oil prices will remain depressed for longer than we had previously anticipated, we recorded a pre-tax impairment and restructuring charge of $55.5 million in the third quarter. This includes the planned closure of a few of our locations, which we believe is necessary to enhance our overall operating efficiencies and long-term profitability," Mollins said.

Reliance management forecasts a decrease in tons sold of approximately 4-5 percent in the fourth quarter, compared to the more typical seasonal downtrend of 5-10 percent. The company expects metals pricing for most products to remain under pressure for the rest of the year.


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Tuesday, December 12, 2017