Service Centers

Russel Pleased with Second-Quarter Performance

August 13, 2018

Russel Metals reported its best quarterly results since 2008 for the second quarter ending June 30. “All of our businesses performed extremely well in the second quarter by adapting to the changing business environment. The continued uncertainty around steel tariffs and trade disruptions has resulted in the realignment of North American supply channels, which our team has navigated exceptionally well,” said John G. Reid, Russel president and CEO.

The Canadian distributor and service center reported net income of $66 million on revenues of $978 million (or $50.2 million and $743.8 million U.S.). Robust economic activity led to increased volumes, while significant increases in selling prices at all Russel operations resulted in improved margins, said Russell executives during the company’s quarterly conference call last week.

Revenues in Russel’s metals service centers operations increased by 35 percent, while its energy products segment was up by 8 percent and its steel distributors segment gained 9 percent. The average selling price improved 17 percent over second-quarter 2017 reflecting mill price increases and continued growth in value-added processing, the company said.

Russel execs forecast relatively flat steel prices for the next quarter, with some softening in the back half of the year. Marion Britton, executive vice president and CFO, said Russel was able to capture good profits on rising steel prices in the first half, but expects lower margins in the second half as inventory replacement costs rise. “We think that steel prices have peaked and will fluctuate a bit in the second half of the year. Demand continues to be stable as we see it at this point,” she added.

Asked if he is concerned about pressure on steel prices in Canada from imports that normally would head for the United States, Reid said he sees a change from the historical pricing pattern. Normally, the Canadian steel price is just the U.S. price adjusted for the currency difference. But today, plate demand is very strong in Canada, and currency-adjusted plate prices are actually higher in Canada than in the U.S. Coil and HSS prices, currency adjusted, are actually lower in Canada than in the U.S. “So, we’ve seen a disconnect to some degree,” Reid said, “and I think we’ll continue to see that as the world market brings more steel into Canada and that becomes a different play than it has been historically.”

Despite steel prices that have risen 30-40 percent, Russel has still managed to pass them along for the most part. “We’re not seeing a whole lot of resistance against pricing right now because it’s become a worldwide phenomenon,” Reid said.

Companies throughout the supply chain continue to reposition themselves as a result of the tariffs by the U.S. and retaliatory tariffs by other nations. “It’s definitely going to continue to evolve over the next six months minimum,” Reid added.

For the six months ended June 30, Russel’s revenues totaled $1.9 billion ($1.44 billion U.S.), up 18 percent from $1.6 billion ($1.22 billion U.S.) in first-half 2017. Year to date, the company reported earnings of $105 million ($79.9 million U.S.), up from $62 million ($47.2 million U.S.) for the same period last year.

The company has grown organically and by acquisition, including its purchase of DuBose Steel in the second quarter. The tariffs have not affected Russel’s approach to M&A, Reid said. “We’re seeing a lot of activity, both on the service center side, predominantly in the U.S., and on the energy side with field stores in the U.S. and in Canada. It’s something we’re very actively looking at right now, trying to find the right fits for Russel.”

Toronto-based Russel Metals is among the top 10 metals distribution companies in North America. It carries on business in three metals distribution segments: metals service centers, energy products and steel distributors.