Zacks_Analysts' Blog : Reliance Steel Beats Estimates - Analyst Blog

Reliance Steel & Aluminum Co (RS) reported net income of $84.9 million or $1.13 per share in the third quarter of 2011 compared with $48.7 million or 65 cents per share in the prior-year quarter. Results exceeded the Zacks Consensus Estimate of $1.11 per share.

Revenue

Quarterly sales were $2.14 billion, up 29% year over year.

In the third quarter of 2011, the company sold 1.08 million tons of metal, up 13% year over year and the average price per ton sold was up 16% compared with the prior-year quarter. In the quarter, carbon steel sales were 53% of net sales; aluminum sales were 15%; stainless steel sales were 15%; alloy sales were 11%; toll processing sales were 2%; and other sales were 4%.

Financial Position

Cash and cash equivalents were $91.1 million at the end of September 30, 2011 versus $72.9 at the end of December 31, 2010. Net debt-to-total capital ratio was 31.0% as of September 30, 2011. The company has plenty of capital to grow its existing operations as well as acquisition opportunities.

During the quarter, Reliance Steel completed the acquisition of Continental Alloys & Services, Inc., for a transaction value of $415 million.

Continental, headquartered in Houston, Texas, and its affiliates, comprise a leading global materials management company focused on high-end steel and alloy pipe, tube and bar products, and precision manufacturing of various tools designed for well completion programs of global energy service companies. Continental has 12 locations in 7 countries including the U.S., Canada, the U.K., Singapore, Malaysia, UAE and Mexico.

Effective July 26, 2011, Reliance Steel renewed its credit facility for a five-year term and increased the size to $1.5 billion from $1.1 billion, providing even more capital to fund the growth of the existing operations as well as anticipated acquisition opportunities.

Reliance Steel spent $112.7 million for capital expenditures by the end of September 30, 2011, which included a buyout of certain facilities that were previously leased as well as purchase of  land and construction of new facilities.

Dividend

On October 26, 2011, the Board of Directors declared a regular quarterly cash dividend of 12 cents per share of common stock. The quarter dividend is payable on December 20, 2011 to shareholders of record as of November 29, 2011. The company has increased its dividend 16 times since the IPO in 1994 and has paid regular quarterly dividends for 52 consecutive years.

Outlook

Reliance Steel expects the prices for its various metals to remain volatile through the fourth quarter, with a downward bias, resulting in slightly lower prices for its products.

The company also expects lower tons sold during the 2011 fourth quarter because of fewer shipping days, which is the normal seasonal pattern. Given these expectations, the company forecasts earnings per diluted share in a range of 70 cents-80 cents for the 2011 fourth quarter.

Reliance Steel faces stiff competition from Metals USA Holdings Corp. (MUSA) and Worthington Industries Inc. (WOR).

We maintain our Neutral recommendation on Reliance Steel. Currently, it holds a Zacks #3 Rank (Hold).