Reliance Steel & Aluminum Co. (RS), the largest metals service company in US, reported net income of $41.8 million, or 57 cents per diluted share for the third quarter of 2009. This was considerably better than the Zacks Consensus Estimate of 45 cents and a sequential loss of 8 cents. However, earnings were down 72% from $152.5 million or $2.07 reported in the same quarter of the previous year on lower sales.
Earlier this month, Reliance Steel had updated its guidance for the quarter. The company was hoping for profits of 40 cents to 45 cents on improving gross margins. Gross margin for the quarter improved to 28.7% from 24.3% in the year-ago quarter. Profitability continued to improve materially as Reliance purged higher cost inventory. As this higher priced inventory is worked down, pricing improves and demand picks up, we anticipate a strong rebound in Reliance Steel’s profitability.
Sales for the quarter were $1.24 billion, down from 2008 third quarter sales of $2.57 billion and flat with 2009 second quarter sales of $1.24 billion. A 26% decline in volumes coupled with a 34% drop in average metal price per ton led to the decline in total revenues. Carbon steel sales formed 54% of total revenues, aluminum sales were 19%, stainless steel sales were 14%, alloy sales were 7%, other sales were 4% and toll processing sales were 2%.
During the first nine months of 2009, Reliance Steel generated record cash flow from operations of $807.2 million. The company repaid about $192 million of debt during the quarter. At Sep 30, 2009, the company had cash on hand of $88 million. Net debt-to-total capital ratio was 28% as of Sep 30 2009.
Reliance Steel & Aluminum Co., which processes and sells products to aerospace, energy and construction markets, remains uncertain about its business in the fourth quarter. The company expects pricing to remain low. However, it has not provided any financial guidance for the fourth quarter.
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