Reliance Steel (RS) Earnings Top, Sales Lag Estimates In Q2

Reliance Steel & Aluminum Co. (NYSE:RS) posted profit of $183.1 million or $2.69 per share in the second quarter of 2019, down roughly 21% from $230.8 million or $3.16 in the year-ago quarter.

Adjusted earnings per share for the quarter were $2.71, above the Zacks Consensus Estimate of $2.60.

Reliance Steel recorded net sales of $2,883.5 million, down around 4% year over year. It also missed the Zacks Consensus Estimate of $2,908 million. The company witnessed a steady demand environment during the reported quarter. It also saw weaker-than-expected metal pricing in the quarter.

Volumes and Pricing

Overall sales volume went down around 5% year over year to roughly 1.5 million tons in the reported quarter. Volumes inched up 0.4% on a sequential comparison basis.

Average prices per ton sold for the quarter edged up 0.7% year over year to $1,904. However, prices fell around 3% on a sequential comparison basis. The company saw multiple mill price declines on several of its carbon steel products.

Financials

Reliance Steel ended the quarter with cash and cash equivalents of $141.5 million, up roughly 14% year over year. Long-term debt was $1,944.9 million, up around 0.6% year over year. Cash flow from operations was $346 million for the second quarter, a significant increase from $83.7 million a year ago.

The company repurchased shares worth $50 million during the second quarter. It also paid $36.9 million in dividends in the quarter.

Outlook

Moving ahead, Reliance Steel is optimistic about business conditions for the third quarter of 2019. It expects steady end-market demand in the quarter.

Reliance Steel projects tons sold to be down 4-6% sequentially in the third quarter factoring in normal seasonal patterns that include lower shipping volumes due to customer shutdowns and vacation schedules.

The company also expects metals pricing to remain consistent with current levels. However, as metal prices (particularly for carbon steel) declined through the second quarter, Reliance Steel expects average selling price per ton for the third quarter to be down 1.5-2.5% compared with second-quarter tally. Considering these factors, the company expects adjusted earnings per share in the band of $1.90-$2.00 for the third quarter.

Price Performance

Reliance Steel’s shares have gained 42% year to date, outperforming the industry’s 13.5% rise.

Zacks Rank & Key Picks

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

Better-ranked stocks worth considering in the basic materials space include Israel Chemicals Ltd. (NYSE:ICL) , Flexible Solutions International Inc (NYSE:FSI) and Air Products and Chemicals, Inc. (NYSE:APD) .

Israel Chemicals has an expected earnings growth rate of 13.5% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares are up roughly 8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flexible Solutions has an expected earnings growth rate of 342.9% for the current fiscal year and carries a Zacks Rank #2 (Buy). Its shares have surged around 109% in the past year.

Air Products has an expected earnings growth rate of 10.3% for the current fiscal year and carries a Zacks Rank #2. The company’s shares have gained around 41% over the past year.

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