Reliance Steel & Aluminum Co. Reports Third Quarter 2015 Financial Results
Third Quarter 2015 Financial Highlights
- Sales were $2.29 billion, down 15.5% from $2.71 billion in the third quarter of 2014 and down 5.7% from $2.42 billion in the second quarter of 2015.
- Tons sold were down 3.9% from the third quarter of 2014 and down 1.5% from the second quarter of 2015, with the average selling price per ton sold down 12.7% from the third quarter of 2014 and down 4.4% from the second quarter of 2015.
- Net income attributable to Reliance was $51.4 million, compared to $95.5 million in the third quarter of 2014 and $90.2 million in the second quarter of 2015. Net income attributable to Reliance included a pre-tax impairment and restructuring charge of $55.5 million, or $0.47 per diluted share, in the third quarter of 2015, which was primarily related to businesses serving the energy industry.
- Earnings per diluted share were $0.69, compared to $1.21 in the third quarter of 2014 and $1.20 in the second quarter of 2015.
- Non-GAAP earnings per diluted share were $1.16, down 12.8% from $1.33 in the third quarter of 2014, and down 4.1% from $1.21 in the second quarter of 2015.
- A pre-tax LIFO inventory valuation credit adjustment, or income, of $35.0 million, is included in cost of sales compared to a pre-tax LIFO charge, or expense, of $20.0 million in the third quarter of 2014 and a credit of $32.5 million in the second quarter of 2015.
- The effective tax rate was 32.1%, compared to 25.7% in the third quarter of 2014 and 32.6% in the second quarter of 2015.
- Cash flow from operations was $252.4 million in the third quarter of 2015 and $716.3 million in the nine months ended September 30, 2015, up from $162.8 million in the first nine months of 2014. Net debt-to-total capital was 33.8% at September 30, 2015.
- Reliance repurchased $142.3 million of its common stock, or 2.5 million shares, at an average price of $56.60 per share, during the third quarter of 2015, and has repurchased 5.95 million shares at an average price of $57.50 per share during the nine months ended September 30, 2015. Reliance amended its existing share repurchase program to increase the number of shares authorized to be repurchased by 7.5 million shares and extended the program through December 2018.
- A quarterly cash dividend of $0.40 per share was declared on October 20, 2015 for shareholders of record as of November 20, 2015 and will be payable on December 18, 2015.
"Once again, our operational performance was outstanding despite significant industry-wide challenges that continued to put pressure on metals pricing," said Gregg Mollins, President and Chief Executive Officer of Reliance. "In particular, I am very pleased that we were able to increase our FIFO gross profit margin to 26.4% in the third quarter of 2015, up 70 basis points from the prior quarter. Our ability to increase our gross profit margin sequentially in each quarter of 2015 in an environment with metals pricing falling each month, reflects exceptional execution by our managers in the field. Our business model of focusing on smaller orders that require quick turnaround along with high levels of value-added processing, coupled with our disciplined operational execution, resulted in non-GAAP earnings of $1.16 per diluted share."
Mr. Mollins continued, "Overall customer demand remained relatively strong, with our tons sold per day increasing sequentially each month of the quarter. While the typical seasonal trend is for third quarter volume to decline 3% to 5% from the second quarter, our third quarter tons sold were down only 1.5%, versus the MSCI industry average of down 2.9%. While we sense some hesitation in the market at this time, we believe customer demand across our businesses is relatively healthy outside of the energy industry and we continue to increase our overall market share. Although we had expected pricing to be flat to up 1% in the third quarter, pricing for all commodity types continued its sequential monthly decline, primarily due to the continued historically high levels of imports in the marketplace. This resulted in a 4.4% decline in our average selling price per ton sold compared to the prior quarter, which was much less than mill price declines. We believe our strong gross profit margin management was supported in the quarter by our continued focus on inventory management, which allowed us to concentrate on profitable orders."
"We continuously evaluate each of our 300 plus operations to determine if they meet our profitability standards. Given our current outlook that oil prices will remain depressed for longer than we had previously anticipated, we recorded a pre-tax impairment and restructuring charge of $55.5 million in the third quarter of 2015 primarily related to certain of our operations servicing the energy end-market. This includes the planned closure of a few of our locations, which we believe is necessary to enhance our overall operating efficiencies and long-term profitability," Mr. Mollins further stated.
Mr. Mollins concluded, "We continue to focus on the controllable aspects of our business, which offsets much of the impact from the difficult market conditions that we cannot control. Our enhanced gross profit margins, diligent expense control and effective working capital management, including an inventory reduction of $120.5 million in the third quarter of 2015, contributed to our strong cash flow in the quarter. To strengthen our balance sheet and earnings per share, we used our available cash to reduce debt and repurchase our shares."