Reliance Steel & Aluminum Co.‘s(RS) first-quarter 2012 earnings of $1.54 a share beat the Zacks Consensus Estimate of $1.50 and surpassed the year-ago earnings of $1.23. Profit (attributable to the company) shot up 26% year over year to $116.2 million on the heels of a healthy double-digit growth in the top line.
Revenue
Revenues cruised 20% year over year to $2,288.3 million, also exceeding the Zacks Consensus Estimate of $2,139 million. The company noted that its results were boosted by strength across a host of industries including energy, aerospace, farm and heavy equipment, and semiconductor. It saw higher sales volume and prices in the quarter, which supported revenue growth.
With respect to volumes, tons sold jumped 13.8% year over year and 11.2% sequentially in the quarter. Average prices per ton sold went up 5.3% year over year and 1.3% sequentially. Carbon steel, aluminum, stainless steel, alloy, toll processing and other sales represented 52%, 15%, 15%, 12%, 2% and 4% of total revenues, respectively.
Financial Position
Reliance Steel exited the quarter with cash and cash equivalents of $70 million, down 9% year over year. Net debt-to-total capital ratio was 29% as of March 31, 2012, compared with 25.7% as of March 31, 2011. The company has adequate liquidity to expand its existing operations organically and through acquisitions.
Outlook and Recommendation
Looking ahead, Reliance Steel believes that demand will continue to improve steadily except for the energy and aerospace industries, where it anticipates higher growth. Further, the company noted that the pricing environment still remains uncertain for certain metals it sells. Based on these expectations, Reliance Steel forecast earnings per share in the range of $1.40 to $1.50 for second-quarter 2012. The current corresponding Zacks Consensus Estimate is $1.52.
Reliance Steel has tremendous earnings capacity with its broad and diversified product base, along with wide geographic footprint that positions it well in the industry. The company continues to evaluate and execute additional growth projects, given the prevailing economic conditions.
However, the non-residential construction market, which is the company’s largest end-market, continues to be the weakest link. In addition, raw material prices are expected to remain volatile.
We currently have a Neutral recommendation on Reliance Steel. The company, which competes with Metals USA Holdings Corp. (MUSA) and Worthington Industries Inc. (WOR), retains a Zacks #2 Rank, which translates into a short-term (1 to 3 months) “Buy” rating.
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