Reliance Steel (RS) Q3 Earnings Miss, Sales Beat Estimates

Reliance Steel & Aluminum Co. RS posted profit of $148.3 million or $2.03 per share in the third quarter of 2018, up from $97.3 million or $1.32 in the year-ago quarter.

Barring one-time items, adjusted earnings were $2.42 per share, which improved 86.2% from $1.30 in the prior-year quarter. However, the figure missed the Zacks Consensus Estimate of $2.70.

Per the company, third-quarter results benefited from favorable pricing conditions and consistent healthy demand environment.   

Reliance Steel recorded net sales of $2.97 billion, up 21.4% year over year. It beat the Zacks Consensus Estimate of $2.95 billion.

Reliance Steel & Aluminum Co. Price, Consensus and EPS Surprise

 

Reliance Steel & Aluminum Co. Price, Consensus and EPS Surprise | Reliance Steel & Aluminum Co. Quote

 

Volumes and Pricing

Overall sales volume went down 1.2% year over year to around 1.5 million tons. Average prices per ton sold rose 23% to $1,972 from the prior-year quarter’s tally.

Financials

As of Sep 30, 2018, Reliance Steel had cash and cash equivalents of $112.1 million, down roughly 34.1% year over year. Long-term debt was recorded at $1,981.1 million. Cash flow from operations was $233.3 million for the first nine months of 2018.

The company repurchased shares worth $80.7 million in the third quarter at average cost of $87.83 per share. As of Sep 30, 2018, it had roughly 6.6 million shares available for repurchase under its share repurchase program.

On Oct 23, 2018, Reliance's board of directors extended the existing share repurchase plan through Dec 31, 2021 and increased the total authorized number of shares available to be repurchased by 5 million shares, to a total of 10.7 million shares. Going forward, the company expects to continue repurchasing shares opportunistically.

Outlook

Reliance Steel is optimistic about business conditions for the fourth quarter. It expects demand to be healthy, excluding the impact of normal seasonal patterns, which includes fewer shipping days and a decline in shipping volumes due to holiday-related shutdowns. As a result, it projects tons sold to decline 5-7% in the fourth quarter, sequentially.

The company expects pricing fundamentals will remain steady-to-slightly up based on current demand levels, ongoing trade actions and raw material costs. Accordingly, it expects average selling price per ton for the fourth quarter to be flat-to-up 1% compared with third-quarter tally. Additionally, the company expects earnings per share in the band of $1.75-$1.85 for the fourth quarter.

Price Performance

Reliance Steel’s shares lost 15.5% in the past three months compared with the industry’s 17.9% decline.

 

Zacks Rank & Stocks to Consider

Reliance Steel currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the basic materials space are Methanex Corporation MEOH, KMG Chemicals, Inc. KMG and CF Industries Holdings, Inc. CF, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Methanex has expected long-term earnings growth rate of 15%. Its shares have rallied 35.2% in the past year.

KMG Chemicals has expected long-term earnings growth rate of 28.5%. Its shares have rallied 35.6% in the past year.

CF Industries has expected long-term earnings growth rate of 6%. Its shares have gained 16.9% in a year.

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