Reliance Steel & Aluminum Co. Reports Operating Results

 

 

Reliance Steel has a market cap of $4.19 billion; its shares were traded at around $54.71 with a P/E ratio of 12.2 and P/S ratio of 0.7. The dividend yield of Reliance Steel stocks is 0.9%. Reliance Steel had an annual average earning growth of 20.9% over the past 10 years.

 

 

Highlight of Business Operations:

 

 

Overall, we were pleased with our performance in 2011. Demand continued to improve slowly and steadily in many markets where we sell our products from the lows reached in 2009. Our sales into the energy (oil & gas) and agricultural and mining equipment industries grew the most for us in 2011 over 2010. Sales into the aerospace, semiconductor & electronics, and toll processing businesses (mainly selling into the auto industry) also remained solid for us in 2011. Even non-residential construction improved some over 2010 but significantly lagged compared to our sales into other markets, and this happens to be our most significant end market representing about 30% of our sales. Overall however, demand is still well below pre-recessionary levels. Our same-store tons sold increased 9.8% in 2011 over 2010, and increased 5.6% in 2010 over 2009, but this was after a 31.9% decline in 2009 from 2008 levels.

 

 

Pricing followed a very similar pattern in 2011 as in 2010 with several price increases implemented by the mills for most products that we sell in the first four months of each of those years, followed by declining prices for the balance of the year. In the 2010 fourth quarter significant price increases were announced, especially for carbon steel products, that maintained pricing in the 2010 fourth quarter and had strong momentum into the 2011 first quarter. In the 2011 fourth quarter mills again announced price increases for certain products to be effective in the 2012 first quarter, however, there was less support for these pricing levels and the amounts were not as significant. Further, aluminum and stainless steel pricing was also weaker in the 2011 second half than in the 2010 second half. This pricing volatility, along with mediocre demand created a competitive market and pressured our gross profit margins, with our 2011 gross profit margin at 24.4% compared to 25.1% in the 2010 year. However, we continued to focus on cost control, resulting in net income of $343.8 million, up 76.9% from 2010, on a 28.9% increase in sales.

 

 

Most of the products we sell had higher average selling prices in 2010 compared to 2009 levels as a result of increased mill prices over the 2009 period. Our major commodity selling prices increased in 2010 from 2009 levels as follows: carbon steel up 6.6%; aluminum up 2.3%; stainless steel up 18.8%; and alloy up 0.6%. Contributing to the increase in our overall average selling price of 11.8% was also a shift in our product mix, with our carbon steel sales as a percent of total sales dollars declining to 52% of total sales dollars in 2010 from 56% in 2009 and stainless steel sales increasing to 16% from 13%. As stainless steel products generally have higher prices than carbon steel products, this shift in our product mix increased our average price per ton sold.

 

 

Net cash provided by operating activities was $234.8 million in 2011 compared to $214.1 million in 2010. Our working capital, primarily accounts receivable and inventories, increased as a result of increased demand levels and higher mill prices from December 31, 2010. We were able to fund these increases with our profitable business activities and borrowings on our credit facility. Our receivables and FIFO inventories increased by $145.9 million and $316.3 million, respectively, from December 31, 2010 levels, offset with increases in our accounts payable and accrued expenses of approximately $107.6 million.

 

 

(1)Interest is estimated using applicable rates as of December 31, 2011 for our outstanding fixed and variable rate debt based on their respective scheduled maturities. Also, the entire outstanding balance on the revolving credit facility of $645 million is assumed to remain unchanged until its maturity date in July 2016. (2)The majority of our inventory purchases are completed within 30 to 120 days and therefore are not included in this table except for certain purchases where we have significant lead times or corresponding long-term sales commitments, typically for aerospace-related materials. (3)Includes the estimated benefit payments for the next ten years for various long-term retirement plans. For qualified defined benefit plans we have only included the estimated employer contribution amounts for 2012 as funding projections beyond 2012 are not practical to estimate. We have excluded deferred income taxes of $439.8 million, long-term tax contingencies of $16.1 million and other long-term liabilities of $14.0 million from the amounts presented, as the amounts that will be settled in cash are not known and the timing of any payments is uncertain.