Steel Mills

Reliance Pleased With Gross Profit Margin

July 26, 2017

Reliance Steel & Aluminum Co. is expecting flat up to a 3 percent increase in pricing in third quarter after experiencing pricing pressure in second quarter. Recent price increases in June and July have held, and Reliance expects demand to carry prices higher, whether or not Section 232 action is taken.

“The absence of meaningful price increases and our receipt of higher cost metal during the second quarter of 2017, along with the added elements of a competitive landscape due to continued uncertainty around possible Section 232 action and increased imports in the marketplace, collectively pressured our gross profit margin more than we had anticipated,” said President and CEO Gregg Mollins. Despite pressures, gross profit margin of 28.4 percent drove the second highest quarterly dollar profits ($702.1 million) in the company’s history.

Sales for the service center giant rose 2.3 percent from first quarter to $2.48 billion. Total tons shipped of 1.5 million were flat compared to first quarter. Average selling price per ton sold increased 2.4 percent quarter-over-quarter to $1,600. Net income was down 7.8 percent from first quarter to $103.0 million, but up 2.1 percent from a year ago.

Carbon steel sales increased 0.2 percent to 1.2 million tons, while aluminum sales edged up 0.5 percent to 93,200 tons. Total shipment volume is expected to decline by 3-5 percent in Q3 due to normal seasonal patterns.

Executives on the earnings call reported steady demand, but noticed reticence by customers to build inventory due to uncertainty surrounding the Section 232 decision.

June was the highest month for imports since early 2015, but Reliance expects a gradual decline in July and further reduction in August and September. Even with the Section 232 delay, any import orders placed now would not land for 90 days, said Mollins, and current offers and spreads are not impressive. Fewer imports should also give further support to pricing increases in Q3.

Demand in most sectors continues to improve. Automotive demand is strong for Reliance due to the increased use of aluminum by the industry. Last quarter, Reliance expanded its Kentucky facility, and its Monterrey, Mexico, plant is performing well.

Second-quarter demand was steady for heavy equipment, although still at low levels. Some positive growth was seen for light agricultural equipment. The oil and gas market is improving as evidenced by rising rig counts and drilling activity. Reliance continues to see improved quoting and overall activity in the market.

Nonresidential construction is growing at an even pace and would further benefit from the passage of an infrastructure spending bill. Reliance has made investments in equipment and facilities in anticipation of growth in the sector.