Steel Mills

Reliance Q3 Earnings Beat Expectations

October 22, 2015

Reliance Steel & Aluminum Co. posted net income of $54.4 million in third quarter despite falling prices, decreased sales, and a restructuring charge of $55.5 million related to businesses serving the energy industry.

End market demand was relatively steady in third quarter, except in the energy market where shipments dropped approximately 40 percent year over year. The automotive and aerospace industries remained strong sectors for Reliance, boosting aluminum sales for the company. Agriculture equipment weakened and nonresidential construction, while improving, remained well below peak levels.

Reliance sales for the quarter were $2.29 billion, down 5.7 percent sequentially and down 15.5 percent year over year. Total tons sold decreased 1.5 percent from second quarter to 1.486 million tons with average selling price down 4.4 percent to $1,519 per ton.

Reliance sold 1.216 million tons of carbon steel in third quarter, down from 1.231 million tons in second quarter. Average selling price for steel dropped 4.5 percent sequentially and 14.6 percent year over year.

In its outlook comments, Reliance expects weakening conditions in fourth quarter. A slow growing economy, seasonal patterns and uncertainty in the market is likely to result in a 4-5 percent decrease in tons sold as compared to third quarter. Metals pricing is expected to remain under pressure throughout the remainder of 2015. Average selling price is expected to drop 1-2 percent from Q3. Reliance expects the energy industry to remain under pressure throughout 2015 and into 2016.

During the earnings call, CEO Gregg Mollins said that reduced sales were due to low prices. “Demand is not the issue, the issue was pricing.” He commented that at the annual managers meeting “there wasn’t a lot of sniveling about demand, other than the guys in the energy business.”

CFO Karla Lewis noted that, “If it weren’t for imports, pricing would be higher. Demand is high enough to support pricing, absent the imports we’ve seen.”

Mollins said he is expecting more plant closures in the industry during this year’s fourth quarter. “Hopefully we are wrong,” he said, “but you know how we are: prepare for the worse and pray for the best.”