Reliance Steel Well Poised On Acquisitions, Improved Prices

We issued an updated research report on Reliance Steel & Aluminum Co (NYSE:RS) on Feb 28.

Reliance Steel’s profits soared year over year in fourth-quarter 2017, helped by a hefty tax benefit. Adjusted earnings and sales for the quarter topped the respective Zacks Consensus Estimate.

The company, in its fourth-quarter call, said that it is seeing an improvement in overall customer sentiment and demand and expects the ongoing reduction in imports will support higher metal pricing. The company is optimistic about business activity levels in first-quarter 2018 and sees continued growth in the end markets in which it operates.

Reliance Steel is gaining from its broad and diversified product base, wide geographic footprint and continued demand strength across aerospace and automotive markets and synergies of acquisitions.

Reliance Steel continues with its aggressive acquisition strategy to tap growth opportunities. The addition of Metals USA to the company’s portfolio has complemented its existing customer base, product mix and geographic footprint.

The buyout of Tubular Steel also provides impetus to the company’s long-term growth strategy and strength by expanding its product portfolio and end-market diversification. Moreover, the acquisition of Best Manufacturing Inc. bodes well for the company's existing service center network with its specialty high margin products, value-added processing capabilities and strong focus on customer service. The acquisition of Ferguson Perforating Company also diversifies its product portfolio.

Moreover, Reliance Steel is expected to benefit from an improving metal pricing environment. Higher pricing contributed to its earnings in the most recent quarter. The company’s average prices per ton went up 8.8% year over year in the final quarter of 2017. The company noted that the higher pricing resulted from continued mill price increases in the quarter that have continued into 2018.

The company sees its average selling prices to increase 4% to 6% on a sequential comparison basis in first-quarter 2018. This should support its margins in the first quarter.

Reliance Steel also expects metal prices to increase further should the pending Section 232 decision by the U.S. government leads to a reduction in steel imports.

American steel makers including Nucor Corporation (NYSE:NUE) , United States Steel Corporation (NYSE:X) and AK Steel Holding Corporation (NYSE:AKS) are pinning their hopes on President Donald Trump enforcing new restrictions on imported steel. The U.S. Department of Commerce recently issued reports on its probe into imports of steel and aluminum products and recommended President Trump to impose tariffs or quotas on these imports. The President has until Apr 11, 2018 to make a decision on the commerce department’s steel recommendations.

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Reliance Steel & Aluminum Co. (RS): Free Stock Analysis Report

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