Reliance Steel (RS) Q2 Earnings and Sales Miss Estimates
Reliance Steel & Aluminum Co. RS posted second-quarter 2023 profits of $385.1 million or $6.49 per share, down from $572.8 million or $9.15 per share in the year-ago quarter. Earnings per share missed the Zacks Consensus Estimate of $6.52.
The company recorded net sales of $3,880.3 million, down around 17.1% year over year. The top line missed the Zacks Consensus Estimate of $3,960.2 million.
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
The company's shipments (thousand tons sold) rose 1.9% year over year to 1,484.1 due to the non-residential construction and aerospace end industries' strength in the quarter. It was below our estimate of 1,491.5. Average selling price per ton sold declined 19% year over year to $2,626. It fell short of our estimate of $2,658.
Non-residential construction demand, Reliance Steel's largest end market, increased in the second quarter of 2023. It continues to support new initiatives in a variety of industries, including public infrastructure, manufacturing and renewable energy. Based on the current customer state and backlogs, RS remains cautiously optimistic that non-residential construction activity in the sectors in which it participates will continue to be healthy in the third quarter of 2023.
Commercial aerospace demand remained substantial in the second quarter of 2023. Reliance expects commercial aerospace demand to improve further in the third quarter of 2023 as build rates grow from 2022 levels. Demand in Reliance Steel's aerospace business's military, defense and space segments remained robust, with substantial backlogs. The trend is projected to continue in the third quarter of 2023.
Demand for Reliance Steel 's toll processing services for the automobile market rose in the second quarters. Its position in the automotive sector, together with recent advances in car production and the ongoing trend to increased aluminum content, gives the company confidence that demand for its toll processing services will remain strong in the third quarter.
Demand in the semiconductor market fell in the reported quarter due to market softness in certain regions. Nonetheless, Reliance Steel 's long-term semiconductor market forecast remains positive, strengthened by its investments in extra capacity to support the massive semiconductor production expansion activities underway in the United States.
Financial Position
At the second-quarter end, Reliance Steel had $816.3 million in cash and cash equivalents and $1.15 billion in total debt outstanding, with no outstanding borrowings under its $1.5 billion revolving credit facility. RS generated $295.1 million in cash flow from operations in the quarter, owing to its strong profitability and good working capital management.
Outlook
For the third quarter of 2023, Reliance Steel expects underlying demand to remain healthy across the bulk of its end markets. However, the company anticipates that shipment levels will be influenced by usual seasonal patterns, such as a drop in shipping volumes owing to planned customer shutdowns, vacation schedules and one less shipping day. As a result, the company expects a 2% to 4% decrease in tons sold in the third quarter from the second quarter but an increase of 1.5% to 3.5% year over year.
Reliance Steel also expects its average selling price per ton sold to be down 2% to 4% sequentially in the third quarter of 2023.
The company projects adjusted earnings per share in the range of $4.90-$5.10 for the quarter.
Price Performance
Shares of Reliance Steel have surged 53.2% in the past year compared with a 15% rise of the industry.
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Zacks Rank & Key Picks
Reliance Steel currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks worth considering in the basic materials space include PPG Industries Inc. PPG, ATI Inc. ATI and Carpenter Technology Corporation CRS.
PPG, currently carrying a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 20.8% for the current fiscal year. The Zacks Consensus Estimate for PPG's earnings for the current fiscal year has been revised 1.6% upward in the past 60 days. It delivered an earnings surprise of 7.3% each of the trailing four quarters, on average. PPG has gained around 11.2% over a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
ATI, currently carrying a Zacks Rank #2 (Buy), has a projected earnings growth rate of 13.1% for the current year. Its earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 13%, on average. ATI shares are up around 90.2% in a year.
CRS, currently carrying a Zacks Rank #1, has a projected earnings growth rate of 198.11% for the current year. Its earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 30.9%, on average. CRS shares are up around 81.3% in a year.
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