Reliance Steel (RS) Tops Earnings and Sales Estimates in Q3
Reliance Steel & Aluminum Co. RS posted profits of $393.5 million or $6.45 per share in the third quarter of 2022 compared with $395.7 million or $6.15 per share in the year-ago quarter.
Barring one-time items, adjusted earnings were $6.48 per share. It topped the Zacks Consensus Estimate of $6.20.
The company recorded net sales of $4,247.2 million, up around 10% year over year. The top line surpassed the Zacks Consensus Estimate of $4,163.4 million. Sales were driven by healthy demand in many of the company’s end markets and strong operational execution. It benefited from the recovery in aerospace and energy and continued strong performance in the semiconductor market.
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 increased 3.5% year over year in the reported quarter. Shipments fell 3.4% on a sequential comparison basis.
Demand in non-residential construction, the company’s biggest market, remained healthy in the reported quarter. The company is cautiously optimistic that demand for non-residential construction activity in the key areas in which it operates will remain at healthy levels into the fourth quarter.
Reliance Steel also witnessed strength in the semiconductors market and expects this trend to continue in the fourth quarter. Demand across the broader manufacturing sectors that it serves were in-line with the expected third-quarter seasonal sequential decline and the company sees a seasonal slowdown in the fourth quarter. Demand in energy (oil and natural gas) witnessed normal seasonality sequentially and the company is cautiously optimistic that demand will continue to modestly improve in the fourth quarter.
The company also witnessed sequentially higher demand for the toll processing services that it provides to the automotive market due to increased production rates by certain automotive OEMs despite the impact of supply-chain challenges. Additionally, demand in commercial aerospace recovered during the reported quarter and the company is cautiously optimistic that demand will continue to improve in the fourth quarter.
Average prices per ton sold in the third quarter went up 3.8% year over year to $2,972. However, it fell 5.9% sequentially.
Financials
Reliance Steel ended the quarter with cash and cash equivalents of $643.7 million, a roughly 0.8% year-over-year rise. Long-term debt was $1,138.8 million, down around 31% year over year.
The company generated cash flow from operations of $635.7 million in the third quarter.
Reliance Steel repurchased around 1.9 million shares of its common stock for $336.7 million in the quarter.
Outlook
Reliance Steel envisions healthy demand trends to continue into the fourth quarter notwithstanding the current macroeconomic uncertainty, inflation, ongoing supply-chain disruptions and geopolitical factors. It expects shipment levels in the fourth quarter to be impacted by normal seasonal factors, including sequentially lower shipping days and the additional impact from customer holiday-related extended shutdowns and vacation schedules.
Reliance Steel estimates its tons sold to be down 6.5-8.5% in the fourth quarter compared with the prior quarter. The company anticipates its average selling price per ton sold to be down 6-8% sequentially in the fourth quarter led by declines in pricing for many of its products, particularly for carbon, stainless and aluminum flat-rolled products. This is expected to be partly offset by stable pricing for higher value products sold into the aerospace, energy and semiconductor end markets.
The company expects adjusted earnings per share in the band of $4.30-$4.50 for the fourth quarter.
Price Performance
Reliance Steel’s shares have gained 24% in a year compared with the industry’s 9.4% decline.
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Zacks Rank & Other Key Picks
Reliance Steel currently carries a Zacks Rank #2 (Buy).
Other top-ranked stocks worth considering in the basic materials space include Sociedad Quimica y Minera de Chile S.A. SQM, Albemarle Corporation ALB and Commercial Metals Company CMC.
Sociedad has a projected earnings growth rate of 530.7% for the current year. The Zacks Consensus Estimate for SQM’s current-year earnings has been revised 2.1% upward in the past 60 days.
Sociedad has a trailing four-quarter earnings surprise of roughly 27.2%. SQM has rallied roughly 43% in a year. The company currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Albemarle, currently sporting a Zacks Rank #1, has a projected earnings growth rate of 430.7% for the current year. The Zacks Consensus Estimate for ALB's current-year earnings has been revised 5.8% upward in the past 60 days.
Albemarle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 24.2%, on average. ALB has gained around 2% in a year.
Commercial Metals currently carries a Zacks Rank #2. The Zacks Consensus Estimate for CMC's current-year earnings has been revised 3.8% upward in the past 60 days.
Commercial Metals’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 19.7%, on average. CMC has gained around 34% in a year.
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