Reliance Steel's Outlook Disappoints

Reliance Steel & Aluminum reports a first quarter that falls shy of targets, and offers guidance for the second quarter that disappoints Wall Street.
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LOS ANGELES (TheStreet) -- Investors sold off shares of Reliance Steel & Aluminum (RS) - Get Report Thursday after the company offered guidance for 2010 that fell short of analysts' expectations.

The big metals distributor also missed Wall Street's profit targets for the just-ended first quarter.

The two pieces of news allowed investors to drop the stock, which had undergone a heady run-up since February, surging by some 31% on enthusiasm for a developing economic recovery. Midday Thursday, Reliance shares were trading at $50.37, down $3.20, or 6%, on volume of 2.4 million shares, nearly triple the daily average turnover in the name.

Before the opening bell Thursday, Reliance told investors to expect second-quarter earnings of 70 cents to 80 cents a share. It was the first time the company provided quantitative guidance for the period, an indication that its managers had grown more confident in the visibility of the business, said Mark Parr, a steel sector analyst at KeyBanc Capital Markets, in a note to clients Thursday morning.

But the company's numbers represented a less optimistic outlook than the Wall Street conventional wisdom had been calling for. According to a

Thomson Reuters

survey of the sell side, analysts had been expecting a profit of 92 cents a share for the second quarter. Parr was above consensus at 95 cents a share.

As for the first period, Reliance reported earnings of 60 cents a share and sales of $1.45 billion. Both numbers fell shy of the consensus target, which called for 64 cents a share on the bottom line and $1.49 billion on the top.

Of further concern to investors: Though Reliance suggested that metals prices in the second quarter would improve sequentially compared with the just-ended period, it also said that the second half of the year could see prices weaken from that level.

The company said demand for steel might not yet have gathered enough steam to absorb the boost in manufacturing capacity that steelmakers have recently put in place.

In the words of Reliance CEO David Hannah, from his prepared statement in the earnings release: "One of the important catalysts for pricing in the second half will be the amount of real demand improvement, especially in light of some additional domestic carbon steel capacity entering the market at the producer level."

Also Thursday, steelmaker

Nucor

(NUE) - Get Report

reported results that surpassed expectations and

said that the second-quarter would improve compared with the first

. Its shares were trading nearly flat, up 6 cents to $45.17 after earlier trading in the red.

It's been a

mixed earnings season for the steel business

so far. Earlier this week,

AK Steel

(AKS) - Get Report

disappointed Wall Street with

word that rising iron ore costs might pinch its profits

this year.

Steel Dynamics

(STLD) - Get Report

, meanwhile, made some

bullish if tepid statements

about its prospects for the coming year.

Bellwether

U.S. Steel

(X) - Get Report

is scheduled to report its first quarter on April 27.

-- Written by Scott Eden in New York

RELATED STORIES:

>>Nucor Outlook Improves

>>AK Steel: Iron Ore Costs May Hurt Results

>>Steel Dynamics Sees Brighter 2010

>>Steel Rebound: Four Stocks to Watch

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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.