Service Centers on the Rebound
Compiled by the Staff of Metal Center News
Sales, Income Climb in Second Quarter
Metals USA Holdings Corp. reported large increases in net sales and net income during its second quarter. The Fort Lauderdale, Fla.-based service center company reported net sales of $505.6 million, up 51 percent from the $335.0 million in the same quarter a year ago. Additionally, net sales were up 17 percent from the $432.3 million during the first quarter.
Net income during the quarter totaled $21.5 million, well ahead of the $2.5 million earned in the second quarter of 2010 and also up from the $12.4 million reported in the previous quarter.
“Metals USA’s results continue to benefit from an improving demand for our products and services as the total market size increases with the uneven recovery of the U.S. economy and as we continue to grow Metals USA’s market share. Our Flat-Rolled and Non-Ferrous Group experienced an increase in gross margins during the second quarter, as higher prices were realized in our multi-month indexed pricing contracts,” said Lourenço Gonçalves, the company’s chairman, president and CEO. “Conversely, our Plates and Shapes Group experienced slightly compressed gross margins due to the more transactional nature of its business, but the effect was more than offset by overall stronger prices during the quarter.”
Metal shipments totaled 360,000 tons for the second quarter, up 33 percent from shipments of 270,000 tons in second-quarter 2010. Metal shipments for the first six months of 2011 hit 728,000 tons, up 40 percent compared to shipments of 519,000 tons for the first six months of last year. Toll processed tonnage totaled 42,000 tons during the second quarter, a nearly fourfold increase from the 11,000 tons for the second quarter of 2010. Likewise, Metals USA toll processed 87,000 tons during the first half of this year, compared to 21,000 tons for the first six months of 2010.
Gonçalves said his company’s first-half performance was driven by four trends, most notably a strong inventory position, which stands in stark contrast to much of the industry. “We continue to maintain healthy and appropriate inventory levels where others in the market have been hesitant [to stock up]. As a result, we have benefited from repetitive stockouts experienced by our competition,” he said. “In a similar fashion, steel end-users have also been too aggressive with low inventory, forcing them to be less price sensitive when they buy metal.”
Other factors in Metals USA’s success, he continued, include a shift to serve healthier end markets—such as automotive, appliance, and oil and gas—and away from the weak nonresidential construction market; operating with a profit mentality and staying away from low-margin sales; and the company’s ability to extract maximum benefits from its recent acquisitions.
“Each company successfully integrated into Metals USA’s IT and commercial platform,” he said. “As planned, we are cross-selling to different customer bases, expanding market reach and streamlining operations of acquired companies. Each acquired company has met or exceeded original targets for synergies.”
Though metals pricing has been moving downward in recent months, Gonçalves said the current fundamentals support a rising price in the third quarter. Most raw material costs are moving upward, which should help the mills stabilize prices at higher levels. Once the price begins to trend upward, a necessary restocking can begin, he said.
“We believe, through restocking, we can add approximately eight to 10 million tons of steel consumption in the U.S. during a 12-month period. Such extra demand coming from restocking would also help fix the current lead times from mills—which is the only reason several fly-by-night, desk-in-the-basement traders continue to survive and further aggravate the competitive landscape without adding a single ton of real demand,” he added.
Reliance Steel & Aluminum
Reliance Income Up 80% in First Half
Reliance Steel & Aluminum Co., Los Angeles, reported net income of $98.7 million in the second quarter, continuing its strong performance from the first quarter. Income for the nation’s largest service center company was up 60 percent from the same period of 2010, and an increase of 7 percent from the $92.3 million in the first quarter.
Sales for the second quarter totaled $2.05 billion, up 26 percent from the same quarter in 2010, and up 7 percent from first quarter sales of $1.91 billion.
“We are pleased with our 2011 second-quarter results, which were slightly better than we originally expected given our somewhat higher LIFO charge in the quarter. Sales volume and average pricing held up reasonably well given that mill prices for most of the metals we sell declined as the quarter progressed, which also caused our gross profit margins to contract a bit,” said David H. Hannah, chairman and CEO of Reliance.
For the six months ended June 30, net income amounted to $191.0 million, up 80 percent compared with net income of $106.2 million for the 2010 six-month period. Sales for the 2011 six months totaled $3.96 billion, up 29 percent from 2010 six-month sales of $3.07 billion.
Reliance’s tons sold for the second quarter were up 10 percent from the same period last year and up 1 percent from the previous quarter. Average prices per ton sold in the second quarter were up 16 percent compared to the second quarter of 2010 and up 6 percent compared to the 2011 first quarter.
“Prices for most of our metal products have softened from the recent highs early in the 2011 second quarter and may decrease a little more during the 2011 third quarter, but not to the extent that we are overly concerned. Also, we do not expect any significant changes in demand other than some normal seasonal third-quarter slowing,” Hannah said.
For the 2011 second quarter, carbon steel sales were 54 percent of Reliance’s net sales; aluminum sales were 16 percent; stainless steel sales were 15 percent; alloy sales were 9 percent; toll processing sales were 2 percent; and other sales were 4 percent.
“Consistent with the first quarter of 2011, our strongest markets were in energy, oil and gas, farm and heavy equipment, mining, general manufacturing, aerospace, semiconductor and electronics,” Hannah said. “Nonresidential construction was still weak, but showed some signs of life with spotty improvements. Our auto-related toll processing volumes were negatively impacted by the crisis in Japan, but are now recovering nicely.”
Among its products, Reliance is most enthused about its aluminum business. “If you had to take one product right now and basically wish that your whole company was in it, it would be aluminum,” President and Chief Operating Officer Gregg Mollins said. “The heat treat side on plate and sheet is going extremely strong. All indications are that market is going to continue to improve, and it’s got legs. This could last for years.”
Reliance has led the industry’s move toward smaller inventories and greater focus on turns. Thus, Hannah expressed doubt about recent comments that the current trend in the industry toward low inventories is causing some service centers to lose business. “Certainly we are not losing business. And I’m not aware of a lot of other service centers out there that are running out of inventory and losing business, either,” Hannah said. “When people get really tight on inventory, you see what we call in the industry ‘buyout activity’ increase significantly. And I’m not aware that there’s a lot of increased volume of buyouts among industry participants.
“You have to work a little harder when you’re trying to turn your inventories more. But that’s kind of the way we grew up around here at Reliance, so we think it has worked for us.”
Mollins said Reliance has seen additional carbon inventories flowing into the United States, much of it ordered back in the spring when prices first started spiking. “The information we look at indicates there’s not going to be a drop off in that supply coming into the country, either. So, there’s a lot of material out there, whether it be in plate, in beams, hot-rolled coil, etc. Imports are higher than what we would like them to be.”
Earns $115 Million for Fiscal Year
Worthington Industries Inc., Columbus, Ohio, reported net earnings of $51.9 million for its fiscal fourth quarter, contributing heavily toward a profitable year. Sales for the quarter totaled $675.7 million.
Both net earnings and net sales were up from the same period in 2010. Net earnings jumped 57 percent from a year ago, while net sales were up 7.8 percent.
For the year, Worthington reported net earnings of $115 million, more than double the $45 million the company earned in its previous fiscal year. Net sales for the 12 months were up 25.7 percent to $2.4 billion.
The sales increases were attributed to volume improvements in both the company’s Steel Processing and Pressure Cylinder segments. A 24 percent increase in the average market price of steel also contributed to the performance.
“I am very pleased with the performance of our company in the fourth quarter and throughout our 2011 fiscal year,” Chairman and CEO John McConnell said. “Both of our main businesses, Steel Processing and Pressure Cylinders, had excellent fourth-quarter results.
The company closed on two significant transactions during the fourth quarter. These transactions resulted in the contribution of the majority of the net assets and all the operations of the Metal Framing and Automotive Body Panels segments into two separate joint ventures.
Steel Processing’s net sales of $431.7 million were up 23 percent, or $82.1 million, over the prior-year quarter. Higher average selling prices increased sales by $47.2 million and higher volumes increased sales by $34.9 million.
Sales volumes grew 20 percent over the prior-year quarter and 31 percent vs. the previous quarter due to the acquisition of the MISA Metals steel processing assets. The mix of direct vs. toll tons processed was 53 percent to 47 percent this quarter, compared with 58 percent to 42 percent a year ago.
Pressure Cylinders’ net sales of $183.7 million were up 27 percent from the year ago quarter. Metal Framing’s net sales of $6.6 million were down 92 percent, or $80.5 million, as a result of the contribution of its operations into the new ClarkDietrich Building Systems joint venture effective. Worthington retained a 25 percent interest in this unconsolidated joint venture.
“We believe we will continue to see a slowly improving yet uneven economy for the rest of this calendar year and on into 2012,” McConnell said. “We intend to continue to capitalize on opportunities to grow and deliver sustainable earnings. We have made significant improvements in our businesses over the past years in how we respond, deliver and perform. While we stay focused on those areas, we also plan to integrate new businesses into our platform for growth.”