Service Centers

Russel Metals Ekes Out Profit Despite Plunging Sales

August 9, 2020

Canada’s Russel Metals, a North American metals distribution company, generated net income of $5 million on revenues of $588 million in the second quarter of 2020. Total tons shipped fell 14 percent from the first quarter. Results from U.S. operations represented 33 percent of total revenues.

“During the second quarter, the pandemic along with low energy prices created intense business conditions,” said President and CEO John Reid. “Demand at our service center and distribution operations appeared to bottom out in April followed by a modest, yet steady, increase throughout the balance of the quarter.

“Our Canadian energy operations were affected by the particularly lengthy spring breakup due to abnormally wet conditions,” continued Reid. “Our U.S. energy operations were adversely affected by the continued rig count decline. To date in the third quarter, the Canadian energy sector is experiencing some increases in rig counts.” Energy product revenue plummeted 50 percent to $149 million in the quarter.

“Right now we just don’t see a lot of pickup for energy for the balance of the year,” said Reid. “I think inventories, hopefully, will start to come in line from the distributor side and people’s inventories will start to come down to reasonable levels.”

The company’s metal service centers saw revenue drop 30 percent and average selling price slip 14 percent, compared to a year ago. Most regions where Russel Metals operates were subject to closures of non-essential businesses, which included customer plants. Tons shipped in the second quarter fell 19 percent from Q2 2019.

Russel Metals’ steel distributor revenue plunged 36 percent to $64 million due to lower steel demand and prices.

Merger and acquisition activity has picked up due to economic stress associated with the pandemic. “We are actually seeing a fair amount of deals coming across,” said Reid. “Some of those deals are obviously more liquidation-type deals where people are looking to get out. So, we think there are some opportunities in M&A for us in this market that we will explore and we’ll just see where they go.”

“We anticipate business volumes to move in concert with the economic recovery from the pandemic in the 2020 third quarter as the reopening of North America will likely be uneven with some variations across the regions where we operate,” said the company in its earnings outlook remarks.