Reliance Steel (RS) Q3 Earnings Beat, Stock Down on Sales Miss

Reliance Steel & Aluminum Co.’s RS shares fell after the company came up with its third-quarter 2020 results, wherein earnings beat the Zacks Consensus Estimate while revenues lagged the same and tumbled by double digits on a year-over-year basis. The company’s shares slipped 1.1% last Thursday and are also down roughly 2.6% since then. The downside can be attributed to mixed third-quarter results and the downbeat volume outlook for the fourth quarter.

Reliance Steel’s shares are down 9.9% year to date against the industry’s 41.9% decline.

 

 

Earnings and Revenues Discussion

The company posted profits of $97.6 million or $1.51 per share in the third quarter, down 40% from $162.7 million or $2.40 per share in the year-ago quarter.

Barring one-time items, adjusted earnings per share were $1.87, beating the Zacks Consensus Estimate of $1.53.

Reliance Steel recorded net sales of $2,085.6 million, down around 22% year over year. The figure missed the Zacks Consensus Estimate of $2,103.5 million.

Reliance Steel Aluminum Co. Price, Consensus and EPS Surprise

 

Reliance Steel Aluminum Co. Price, Consensus and EPS Surprise

Reliance Steel Aluminum Co. price-consensus-eps-surprise-chart | Reliance Steel Aluminum Co. Quote

 

Volumes and Pricing

Shipments rose roughly 6% sequentially in the third quarter, owing to improved demand in many of the company’s end markets as the economy gradually reopened following customer shutdowns and project delays related to the pandemic. However, shipments were down around 13% on a year-over-year basis.

Demand in non-residential construction, the company’s biggest market, slowly increased during the reported quarter on healthy bidding activity for new projects and the restart of projects that were earlier put on hold. Moreover, the company witnessed a significant rebound in demand for the toll processing services that it provides to the automotive market as automotive original equipment manufacturers and steel and aluminum mills ramped up production following shutdowns in the second quarter.

Average prices per ton sold in the third quarter fell roughly 11% year over year to $1,609. Prices also declined roughly 4% on a sequential comparison basis.

Financials

Reliance Steel ended the quarter with cash and cash equivalents of $591.6 million, a more than three-fold year-over-year increase. Long-term debt was $1,638.3 million, up around 4% year over year.

The company generated cash flow from operations of $296.3 million in the quarter, down around 40% year over year.

Reliance Steel also repurchased shares worth $0.2 million during the third quarter.

Outlook

Moving ahead, Reliance Steel sees overall demand to continue to slowly improve in the fourth quarter. However, it expects shipping volumes to decline due to normal seasonal factors including customer holiday-related shutdowns and fewer shipping days in the fourth quarter vis-à-vis the third quarter. However, the company expects the impact of seasonal factors to be less than the prior years.

Reliance Steel expects tons sold to be down 4-6% in the fourth quarter compared to the prior quarter. Moreover, it envisions metals pricing, mainly for carbon steel products, to improve in the fourth quarter due to mill price increases, partly offset by the company’s diverse product mix and falling sales in certain markets such as aerospace. Reliance Steel expects its average selling price per ton sold for the fourth quarter to be flat to up 2% on a sequential comparison basis.

Factoring in these expectations, the company expects adjusted earnings per share in the band of $1.30-$1.40 for the fourth quarter.

Zacks Rank & Key Picks

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

Better-ranked stocks worth considering in the basic materials space include Agnico Eagle Mines Limited AEM, Barrick Gold Corporation GOLD and Equinox Gold Corp. EQX.

Agnico Eagle has a projected earnings growth rate of 107.2% for the current year. The company’s shares have rallied around 36% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Barrick Gold has an expected earnings growth rate of 100% for the current year. The company’s shares have surged around 59% in the past year. It currently carries a Zacks Rank #1.

Equinox Gold has a projected earnings growth rate of 155.2% for the current year. The company’s shares have shot up roughly 85% in a year. It currently carries a Zacks Rank #2 (Buy).

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