It has been about a month since the last earnings report for Reliance Steel (RS). Shares have added about 6.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Reliance Steel due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Reliance Steel’s Q3 Earnings Beat, Sales Miss Estimates
Reliance Steel 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.
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.
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.
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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -12.94% due to these changes.
At this time, Reliance Steel has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Reliance Steel has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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