Russel Metals’ Earnings Continue to Improve
Russel Metals Inc. continued its rebound with earnings of $19 million during the second quarter. Year-to-date earnings for the Mississauga, Ont.-based service center company totaled $35 million, a dramatic improvement from the $79.6 million in losses for the first six months of 2009.
Russel’s revenues for the second quarter totaled $506 million, up 9 percent from the second quarter of 2009, primarily due to stronger gross margins on higher average selling prices.
"Our second quarter continued to improve from the first quarter. Improved volumes, margins and higher selling prices all contributed to stronger results,” said Brian R. Hedges, president and CEO during the company’s quarterly conference call with analysts and investors. “We will be challenged to maintain this momentum, particularly in our service center operations in the summer months, but anticipate an improvement in the fall. We continue to look at potential acquisitions, greenfields and operational savings."
Metals service center second-quarter volumes increased 14 percent from the comparable quarter in 2009 and 4 percent from the first quarter, resulting in revenues for the quarter of $312 million. Improved gross margins due to higher selling prices resulted in an operating profit of $19 million for the second quarter, up from $2 million in the second quarter of 2009 and $15 million in the first quarter of 2010. Margins averaged 22.5 percent, consistent with the first quarter but up from 2009.
Though steel prices rose in the second quarter, the price has declined since then. “Hot-rolled coil is currently at $580 per ton, and we believe that is leveling out. We may see some uptick in the fall,” said Marion Britton, vice president and chief financial officer.
Energy tubular products revenues were $129 million in the second quarter of 2010, a decline from the previous quarter due to seasonality but consistent with the second quarter of 2009. Operating profits of $11 million for the second quarter were consistent with the first quarter due to improved selling prices offsetting lower volumes.
Revenues for the company’s steel distributor operations increased to $61 million, the highest level in the past year. Demand from customers and rising selling prices contributed to the increased revenue and operating profit. Operating profits for the second quarter were $7 million, up from $4 million in the first quarter of 2010.
Even with the improving environment, Russel has been keeping a fairly tight hold on inventories. The company estimated it is holding $100 million less in inventory than the same period last year, up only slightly since the end of the year.
Similarly, Russel has been conservative with its capital spending, with a pace below the projected $20 million for the full year. “We’re basically only replacing equipment right now,” Hedges said. “The demand levels are such we don’t need new equipment because we’re not running anything at full capacity. What you’re seeing right now is replacement cap ex, and not significant greenfield-type cap ex.”
Russel will spend some money if it sees any acquisition targets, though the opportunities the company is looking for have yet to materialize. “My guess is you’ll see in the sector, not just us, a lot of small ones get done between now and Christmas,” he said.