Reliance Steel & Aluminum Company ( RS)

Q4 2011 Earnings Call

February 16, 2012 11:00 AM ET


David Hannah – Chairman and CEO

Gregg Mollins – President and COO

Karla Lewis – EVP and CFO


Timna Tanners – Bank of America Merrill Lynch

Sal Tharani – Goldman Sachs

Michelle Applebaum – Steel Market Intelligence

Richard Garchitorena – Credit Suisse

Luke Folta – Jefferies

Tony Rizzuto – Dahlman Rose

John Tumazos

Chris Olin – Cleveland Research

Mark Parr – KeyBanc Capital Markets

David Lipschitz – CLSA



Good morning ladies and gentlemen and welcome to the 2011 Fourth Quarter and Year-End Conference Call. At this time, all participants have been placed on a listen-only mode and we will open up the floor for your questions and comments after the presentation.

It is now pleasure to turn the floor over to your host David Hannah. Sir, the floor is yours.

David Hannah

Thank you. Good morning everyone. As you can probably tell I’ve got a bit of bug here, so I’m going to try to get through this without sniffing and snorting too much. Thanks again for joining our conference call for the fourth quarter and our year-ended December 31, 2011. Gregg Mollins, our President and Chief Operating Officer; and Karla Lewis, our Executive VP and CFO, are also here with me today.

After the completion of this conference call a printed transcript including Regulation G reconciliations will be posted on our website at in the Investor Information section. And this conference call may contain forward-looking statements relating to future financial results.

Our actual results may differ materially as a result of factors over which Reliance has no control. These risk factors and additional information are included in the company’s annual report on Form 10-K for the year-ended December 31, 2010 and other reports on file with the Securities and Exchange Commission.

For the 2011 fourth quarter Reliance reported net income of $67.9 million, up 72% from 2010 fourth quarter net income of $39.5 million and down 20% from $84.9 million in the 2011 third quarter. Earnings per diluted share were $0.91 in the 2011 fourth quarter, that was up 72% from the 2010 fourth quarter earnings per diluted share of $0.53 and down 19% from $1.13 in the 2011 third quarter. Sales for the 2011 fourth quarter $2.03 billion, that was up 28% from 2010 fourth quarter sales of $1.58 million and down 5% from 2011 third quarter sales of $2.14 billion.

For the 2011 year net income amounted to $343.8 million, that was up 77% compared with net income of $194.4 million for the 2010 year. Earnings per diluted share were $4.58 for the year ended December 31, 2011, up 75% compared with earnings of $2.61 per diluted share for the year ended December 31, 2010. Sales for 2011 year were $8.13 billion, and that was up 29% compared with the 2010 year of $6.31 billion.

We sold $1.06 million tons in the 2011 fourth quarter, up 17% from the 2010 fourth quarter and down 2.6% from the 2011 third quarter. Average prices per ton sold in the 2011 fourth quarter were up 10% compared to the 2010 fourth quarter, but down 2.3% compared to the 2011 third quarter. For the 2011 year we sold 4.21 million tons of metal.

That was up 13% from 2010 with an average selling price of $1,930 per ton, which was up 15% from last year. Our carbon steel sales were 53% of our net sales, aluminum was 15%, stainless steel was 15%, alloy was 10%, toll processing was 2% and the remaining 5% was miscellaneous.

By commodity for the 2011 year, we sold 3.4 million tons of carbon steel products, that was up 12% from 2010 with an average selling price up 18%.

Our aluminum tons sold of 228,000 were up 5% with the average selling price up 7%. Stainless steel tons sold were 207,000, that was up 12% with the average price also up 12%, and alloy tons sold of 269,000 were up 45% with the average price up 13%. Now the large increase in alloy tons sold was due primarily to our August 1st acquisition of Continental Alloys. However, even on a same-store basis our alloy ton sold were up 21%, really reflecting the strength in our energy related sales.

Turning to the fourth quarter for a moment, it started out a bit slower than we expected, as tons sold per day in October were not up as much over September as they normally would be. However, the slowdown in the following two months was also not as steep as usual, so the quarter ended up pretty much as we expected.

The carbon steel mill price increase announcements certainly had a positive impact in December by helping our gross profit margins reverse their downward trend over the first two months of the quarter and by providing some momentum entering 2012.

Overall, we were pleased with our performance in 2011 given the still fragile condition of our economy, still too high levels of unemployment and a lingering unhealthy level of uncertainty caused by our own political leaders as well as unrest in other parts of the world.

The industries that grew the most for us in 2011 were energy, oil and gas, and agricultural, and mining and equipment. Our aerospace, semiconductor and electronics, and toll processing businesses remain solid for us coming of a strong 2010. Even non-residential construction improved some over 2010, but significantly lagged compared to our other markets.

Our balance sheet provides a strong foundation for our operations and our growth strategies with net debt to total capital at only 28.4% at December 31, 2011. Additionally, we had $645 million outstanding on our new $1.5 billion credit facility as of December 31, 2011, which provides ample room for continued organic growth as well as for additional acquisitions.

Currently the prices of most of the metals we sell have increased over their fourth quarter levels and we expect pricing overall to remain relatively strong through the 2012 first quarter. We also expect prices to remain volatile through 2012 with scrap, other raw material input costs and imports playing a major role in pricing trends.

We also believe demand will continue to improve slowly, but steadily except for the energy aerospace, heavy equipment and auto industries where we look for higher than average growth. Given these expectations 2012 earnings should have been higher than 2011 and at this time we currently estimate earnings per diluted share in the range of $1.15 to $1.25 for the 2012 first quarter.

On February 14, 2012 the Board of Directors declared a regular quarterly cash dividend of $0.15 per share of common stock, that represents an increase of 25% in our regular dividend rate. The dividend is payable on March 23, 2012 to shareholders of record March 2. The company has increased its dividend 17 times since our IPO in 1994 and we paid regular quarterly dividends for 52 consecutive years.

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