Oct. 26, 2016
 
Reliance Reports Challenging Quarter

Third-quarter results for Reliance Steel & Aluminum Co., Los Angeles, reflect the challenging market conditions for service centers. The market leader reported sales of $2.19 billion in the quarter, down 4.4 percent from third-quarter 2015 and down 0.8 percent from the second quarter. Net income of $49.5 million was down from both $51.4 million in third-quarter 2015 and $100.9 million in second-quarter 2016.

Reliance sold 2.7 percent fewer tons compared with last year’s third quarter. Tons sold also declined by 4.9 percent from the previous quarter. The average selling price per ton sold was down 1.8 percent compared with third-quarter 2015, but up 4.4 percent compared with this year’s second quarter.

“I continue to be very pleased with our operational performance,” said Gregg Mollins, Reliance president and CEO. “Our managers in the field continued to execute our business model effectively, despite both metals demand and pricing softening more than we originally expected.”

The company’s gross profit margin was better than anticipated because of mill price increases in the second quarter, but the positive momentum in metals pricing slowed in the third quarter, Mollins said. “The trade cases filed by U.S. producers, coupled with their production capacity discipline, continue to be supportive of domestic pricing. However, softer demand and the normal seasonal factors heading into the fourth quarter have contributed to current pricing pressure.”

Demand for the products Reliance sells to the oil and gas sector is particularly lackluster. “Given our updated long-term outlook for the energy market, we recorded a pre-tax impairment and restructuring charge of $67.3 million in the third quarter primarily related to certain of our operations servicing the energy end market. The charge 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. The company declined to offer specifics on which facilities will be affected.

Demand from the aerospace and automotive sectors remains strong, said Reliance executives, commenting on other end markets. Heavy industry demand declined further, though the company remains optimistic that the five-year highway bill, passed in December 2015, should help improve future demand in the construction equipment markets. Nonresidential construction demand remains relatively steady, and Reliance expects gradual growth in the coming quarters.

In September, Reliance entered into a new five-year, $2.1 billion credit facility that gives the company ample liquidity for capital investments and acquisitions. Its August acquisition of Alaska Steel Co., a full-line distributor based in Anchorage, gives it a foothold in the significant Alaskan market and furthers the company’s geographic, customer and product diversification. Alaska Steel reported net sales of about $33 million in 2015.

Reliance management believes the U.S. economy is generally healthy and anticipates a continued slow recovery. However, given the increased uncertainty in the market, along with normal seasonal patterns and fewer shipping days, the company expects lower business activity levels and metals pricing in the fourth quarter.


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Tuesday, October 24, 2017