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Year Ends with a Thud Weakness in the fourth quarter led to a disappointing finish to 2012 for the industry’s leading publicly held service centers. Metals USA 'Too Much Steel Chasing Too Few Orders' Metals USA reported net income of $52.7 million in 2012 during what is expected to be the company’s final year as an independent business. The Fort Lauderdale, Fla.-based service center was acquired by service center giant Reliance Steel & Aluminum Co. last month. In its quarterly conference call with analysts and investors, Metals USA reported that its 2012 income was down 18.4 percent from the previous year. Net sales for the full year totaled $1.98 billion, a 5.1 percent improvement. The company shipped 1.6 million tons in 2012, an 11 percent increase from the previous year. "During the fourth quarter the market continued to be impacted by too much steel chasing too few orders. A prevailing weak business environment, compounded with typical seasonality around the holidays, forced us to choose between preserving margin or sales volumes, and we chose to maintain margin. As a consequence, our Q4 gross margin of 23.2 percent was consistent with margins achieved throughout 2012," said Lourenço Gonçalves, the company's chairman, president and CEO. In the fourth quarter, Metals USA’s net sales totaled $437.5 million, down 3.9 percent from the same period in 2011. Net income fell from $14.0 million to $3.7 million, representing most of the company’s year-over-year decline. Fourth-quarter shipments of 353,000 tons were 8 percent higher than 2011. “We believe the demand weakness experienced in late 2012 is now behind us and we have begun 2013 with well-positioned inventory and our usual attitude to profitably win market share through execution and customer service," said Gonçalves, who is expected to retire once the deal with Reliance is completed. Olympic Earnings Disappoint Despite Record Sales Olympic Steel, Inc., Cleveland, reported record sales of $1.4 billion in 2012. Net income for the year was a disappointing $2.3 million, however, down from $25.0 million in 2011. Fourth-quarter sales totaled $291.7 million, an 8.8 percent decrease from the comparable period last year. Including a $6.6 million goodwill impairment charge, Olympic reported a fourth-quarter net loss of $10.1 million, compared with net income of $600,000 in fourth-quarter 2011. “During 2012, we made significant progress on a variety of growth and development initiatives. We successfully ramped up several new facilities and completed major capital projects to enhance future profitability. However, the year ended with a disappointing quarter as steel demand and pricing declined in tandem with mounting political and fiscal uncertainty, masking much of our operational headway,” said Michael D. Siegal, Olympic chairman and CEO, during his quarterly conference call. “Entering 2013, we are encouraged by recovering demand for steel products. Now, the vast majority of cash outlays associated with the multi-year capital expansion projects are behind us and our focus is on harnessing their potential to increase earnings and cash flow,” he added. Reliance Market Leader Reports Strong Year, Despite Weakness in Fourth Quarter Reliance Steel & Aluminum Co., Los Angeles, reported net income of $80.4 million in fourth-quarter 2012 on sales of $1.89 billion. That’s an 18.4 percent improvement in income even though quarterly sales were down 7.1 percent, compared to the same period in 2011. Compared to the prior quarter, the company’s sales dipped by over 8 percent, while income declined 18 percent. For the full year, Reliance’s sales totaled $8.44 billion, up 3.8 percent from 2011. Tons sold increased 5.4 percent. Net income for 2012 hit $403.5 million, up 17.4 percent from the prior year. “Our fourth-quarter results reflect the impact of continued global economic uncertainty on our industry, coupled with normal seasonal trends including fewer shipping days and extended holiday-related closures by various customers. However, our average price per ton sold held steady on a sequential basis in the fourth quarter, allowing us to improve our gross profit margin,” said David H. Hannah, Reliance chairman and CEO, in his quarterly report last month. Commenting on various markets, the Reliance management team pointed to relative strength in aerospace, oil and gas, farm, heavy equipment and automotive, which continue to offset weakness in non-residential construction. Global economic and political uncertainty will continue to negatively impact the industry, they said, pressuring both demand and pricing. Last month, Reliance announced its agreement to acquire rival Metals USA, the No. 8 service center company, widening the gap between Reliance and the rest of the field. Reliance will pay $20.65 per share in cash, and assume Metals USA debt, for a transaction value of $1.2 billion. The transaction is expected to close in the second quarter. “Metals USA will be our largest acquisition to date and nicely complements Reliance’s existing customer base, product mix and geographic footprint,” Hannah said. “Metals USA has demonstrated consistent performance with solid returns, and we believe that the combined company will be well positioned to continue to outperform the broader metals service center industry.” Russel Metals Russel’s Earnings Dip 16 Percent Russel Metals Inc., Mississauga, Ont., reported earnings of $20 million on revenues of $766 million in fourth-quarter 2012. This compares to earnings of $29 million on revenues of $712 million in fourth-quarter 2011. For the year, Russel’s earnings of $99 million on revenues of $3.0 billion were down 16 percent from the $118 million earned in 2011 on revenues of $2.7 billion. Brian Hedges, Russel president and CEO, called 2012 an exciting year, highlighted by the purchase of Apex Distribution and two other companies. “Through these acquisitions, we believe we have strengthened the company's ability to generate earnings over the cycle, and we are well positioned to reap the benefits in 2013 and beyond.” Russel experienced weak demand in all its product segments in the fourth quarter, although its service centers outperformed the industry shipment volumes reported by the Metals Service Center Institute. “The stabilization of gross margins in the fourth quarter and the recent upward price movement by the mills should lead to higher margins in 2013,” Hedges added. “We look forward to the expected materialization of a full year's benefits relating to the acquisitions we made in 2012." Russel’s fourth-quarter earnings included $6 million in operating income from the Nov. 8 acquisition of Apex Distribution. This positive contribution to the company’s energy-related earnings was muted by price declines in pipe products, however. Operating earnings for the energy segment improved to $18 million in the quarter, versus $17 million in fourth-quarter 2011. Fourth-quarter operating profits for Russel’s service centers totaled $17 million, down from $21 million in the prior-year quarter. Results were affected by an industry-wide drop in volumes in November and December beyond normal seasonality. Gross margins improved slightly as steel mills attempted to raise prices, company officials said. In September 2012, unionized employees at Russel’s Boucherville, Quebec, operation took strike action. The work stoppage, which was resolved on Feb. 7, 2013, reduced the company’s operating income by approximately $2 million in the last quarter. Fourth-quarter 2012 operating profits in Russel’s Steel Distributor segment decreased to $7 million from $11 million in fourth-quarter 2011 due to soft demand and tightening margins. Gross margins improved slightly to 13.2 percent, consistent with the metals service center operations.