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11-24-2010 News
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Russel Continues Rebound 

Russel Metals Inc., Mississauga, Ont., reported third-quarter earnings of $17 million, up nearly 30 percent from last year’s third quarter, continuing its yearlong rebound. Russel posted year-to-date earnings of $52 million, compared to a loss of $66.2 million during the first three quarters of 2009.

Consolidated revenues for third-quarter 2010 totaled $582 million, up 15 percent from the previous quarter. For the year, net sales totaled $1.6 billion, 4.8 percent ahead of the first nine months of 2009.

While volumes were up, margins were down to 18.2 percent vs. 20.8 percent in the second quarter. “We believe that the short- and medium-term economic outlook is for modest growth in the markets that we serve,” said Brian R. Hedges, president and CEO in his recent conference call with analysts and investors. “Our decision to resize, move and combine our structural steel operations in Ontario with our long product operations was a proactive step to reflect the reduced activity of the Ontario manufacturing base."

During the quarter, the company announced plans to close its Port Robinson facility and to combine its Ontario structural steel and other long products operations at its Cambridge facility. 

Tons shipped by the company’s metals service center division increased 16 percent from the comparable quarter in 2009 and 1 percent from the second quarter of 2010, resulting in revenues for the quarter of $316 million. Because of a higher- cost inventory, gross margin dollars declined, however. The segment saw an operating profit of $13 million in the third quarter, well off the $20 million recorded in the second quarter.

Energy tubular product revenues totaled $187 million in the third quarter, an increase from the second quarter due to improved seasonal activity. Operating profits hit $15 million, up from $11 million in the previous quarter.

“In the first three quarters of 2010, we have been encouraged by the strength of the drilling activity in Canada and the U.S. as the shale drilling has increased and conventional drilling for oil has also been strong,” Hedges said. “For our energy operations, the next two quarters should be stronger than last year despite weakness in oil country tubular product pricing due to low flat rolled steel pricing."

Revenues for the company’s steel distributor operations increased to $76 million, the highest level for any quarter in the past year. Operating profits for the third quarter totaled $5 million, down from $7 million in the second quarter, as gross margins decreased by about 6 percent to 12.6 percent in the third quarter.

Looking forward, Hedges said there’s very little clarity in the market. “Looking on the service center side and industrial side of the economy, we don’t have any visibility. Anybody who says they do, it’s wishful thinking.”

One area that doesn’t concern Hedges is the availability of steel, despite mills’ recent attempts to curtail production. “If we wanted to buy more, they’d find a way to deliver it to us. Lead times aren’t far out. The industry should be running at 90 percent capacity and it’s running at 67 percent. If you’ve got a production order, they’ll definitely talk to you.”

Russel has remained largely quiet on the merger and acquisition front throughout 2010, though not by choice. "We are starting to see some opportunities. We have engaged in some discussions, but to date the acquisition prices have exceeded our comfort levels. We will continue to be patient and evaluate each opportunity as it is presented," Hedges said.

  
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