Reliance Steel & Aluminum's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Reliance Steel & Aluminum (RS)

Q1 2012 Earnings Call

April 26, 2012 11:00 am ET

Executives

David H. Hannah - Chairman and Chief Executive Officer

Gregg J. Mollins - President, Chief Operating Officer and Director

Karla R. Lewis - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Assistant Secretary

Analysts

Sohail Tharani - Goldman Sachs Group Inc., Research Division

Timna Tanners - BofA Merrill Lynch, Research Division

Anthony B. Rizzuto - Dahlman Rose & Company, LLC, Research Division

Richard Garchitorena - Crédit Suisse AG, Research Division

Michelle Applebaum - Steel Market Intelligence Inc

Michelle Applebaum - Michelle Applebaum Research Inc.

Arun S. Viswanathan - Longbow Research LLC

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Reliance Steel & Aluminum Sponsored 2012 First Quarter Conference Call and Webcast. [Operator Instructions] Now I would like to turn the floor over to your host, Mr. David Hannah. Sir, the floor is yours.

David H. Hannah

Thank you. Good morning, and thanks to all of you for joining our conference call for the first quarter ended March 31, 2012. Gregg Mollins, our President and COO; and Karla Lewis, our Executive Vice President and CFO, are also here with me today. After completion of this conference call, a printed transcript, including Regulation G reconciliations, will be posted on our website at www.rsac.com in the Investor Information section.

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, 2011, and other reports on file with the Securities and Exchange Commission.

For the 2012 first quarter, our net income was $116.2 million. That's up 26% from the 2011 first quarter net income of $92.3 million, and up 71% from $67.9 million in the 2011 fourth quarter. Earnings per diluted share were $1.54 in the 2012 first quarter. That's up 25% from the 2011 first quarter earnings per diluted share of $1.23 and up 69% from $0.91 for the 2011 fourth quarter.

Our sales for the 2012 first quarter were $2.29 billion, up 20% from 2011 first quarter sales of $1.91 billion, and up 13% from 2011 fourth quarter sales of $2.03 billion.

We sold 1.17 million tons of metal in the 2012 first quarter. That's up 14% from the 2011 first quarter and up 11% from the 2011 fourth quarter. Average prices per ton sold in the 2012 first quarter were up 5% compared to the 2011 first quarter, and up 1% compared to the 2011 fourth quarter.

For the 2012 first quarter, our carbon steel sales were 52% of our net sales, aluminum was 15%, stainless steel was 15%, alloy was 12%, toll processing sales were 2%, and our other sales were 4%.

By commodity, our carbon steel sales of 937,000 tons in the 2012 first quarter were up 11% from the 2011 fourth quarter with average selling prices up 1%. Aluminum tons sold were 63,000, and they were up 14% with average selling prices flat. Stainless steel tons sold were 60,000, up 15% with average selling prices down 2%. And alloy tons sold of 88,000 were up 12% with the average selling prices up 1%.

Compared to the first quarter of 2011, our first quarter 2012 tonnage increases for carbon steel, aluminum, stainless steel and alloy products were 11%, 9%, 17% and 58%, respectively. Now the large increase in the alloy tons sold was due primarily to our August 1, 2011 acquisition of Continental Alloys.

Once again, the industries that continue to provide the most growth for us where energy, oil and gas, aerospace, heavy equipment and auto through our toll processing businesses.

Semiconductor and electronics and general manufacturing were also strong. We've seen improvements in our non-res construction-related businesses, but it still lags the growth we've seen in the other areas.

As we indicated in our guidance update last week, the quarter overall was better than we originally anticipated. Demand was stronger, especially in January and February, aided in part by a more favorable pricing environment for most of our products. Sales dollars per day in March were down slightly from February due to a drop in tons sold per day as the direction of carbon steel pricing became a little uncertain and stainless steel surcharges decreased.

Our balance sheet is in an excellent shape and provides a solid foundation for our operations and our growth strategies. Net debt-to-total capital was 29.4% at March 31, 2012.

There's still some uncertainty regarding the direction of prices for some of the metals we sell, but price is currently moving in different directions for different of our products, but all within manageable levels. We expect volatility to continue through the second quarter, but again to stay within reasonable ranges. We're very fortunate that Reliance has such a broad range of products and substantial customer diversification. Those attributes have helped our operating results to be less volatile than if we had a more narrow range of products sold into fewer industries.

We believe real demand should continue to improve slowly from existing levels for most of our products. And we expect larger improvements in the aerospace and energy-related industries. Also our first quarter 2012 earnings included about $0.06 per share related to miscellaneous income, including foreign currency gains that we aren't anticipating in the second quarter. Given those expectations, we currently estimate earnings per diluted share of $1.40 to $1.50 for the 2012 second quarter.

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