Service Centers

Russel Metals Reports Progress in Challenging Third Quarter

November 5, 2020

Russel Metals’ third-quarter results showed steady gains from rising steel prices and improved demand as the market comes to grip with the coronavirus. Russel also rationalized some assets during the quarter and is taking steps to reduce its exposure to the volatile energy sector.

“Although business conditions remain challenging, they are improving,” said Russel President and CEO John G. Reid in a conference call with analysts and investors this week. “Late in the 2020 third quarter and early in the 2020 fourth quarter, our metals service centers and steel distributors experienced a modest increase in demand and a rapid increase in coil and plate pricing. In our energy products segment, we have seen rig counts improve slightly and energy prices remain range bound. Results in the line pipe/OCTG component of this segment reflect the depressed rig counts.”

In the energy products segment, Russel reduced its line pipe/OCTG inventory by $31 million, part of its goal to cut the capital invested in energy inventories by $100 million over 12-18 months. The company also closed three of its Elite Supply Partners locations and accelerated the closure of two of its Pioneer Pipe third-party yards.

Other rationalizations included the sale of real estate related to Russel’s Kelowna and Kitimat service centers in British Columbia for $10 million. Closure of the branches will reduce operating costs in the region, but still allow Russel to service customers through other locations.

The company said it continued to increase its value-added processing capability in the third quarter with the commissioning of a tube laser and bar storage facility in Trenton, Ga.

Russel executives noted that market conditions are much better than there were three months ago and the company is well positioned to take advantage of growth next year. Commenting on specific end-use markets, Reid noted that construction is holding up well. Manufacturing is gradually improving, in line with GDP. Sales related to wind towers and solar panels are picking up; even heavy equipment is showing signs of life. “Generally, manufacturing is getting back to work. We think that will continue, barring any other [virus] shutdowns.”

Despite the weakness in the energy sector and disruptions from the coronavirus, Russel Metals reported net income of $18 million on revenues of $615 million Canadian ($13.8 million and $471.0 million U.S.) in the third quarter. Third-quarter income was the same as last year’s and more than triple the earnings in this year’s second quarter.

For the first nine months of 2020, Russel’s earnings declined by 60 percent, to $33 million ($25.4 million U.S.) from $83 million ($63.6 million U.S.) in the same period in 2019. Revenues declined by 29 percent to $2.02 billion ($1.55 billion U.S.) from $2.84 billion ($2.18 billion U.S.).

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