Reliance Steel’s Profit Surges on Higher Prices
Reliance Steel & Aluminum Co., a Los Angeles-based metals distributor, said Thursday that fourth-quarter profit more than quadrupled because of soaring product prices.
Reliance, which supplies processed metal parts to construction companies and equipment manufacturers, reported net income of $43 million, or $1.31 a share, for the quarter ended Dec. 31, compared with $9.7 million, or 30 cents, a year earlier. That beat Wall Street analysts’ average estimate of $1 a share, according to a survey by Thomson First Call.
Fourth-quarter sales rose 53% to $742.8 million.
“Unprecedented high prices for some of our metal products coupled with improved demand from our customers contributed to our exceptional results,” Chief Executive David H. Hannah said in a statement.
Reliance’s stock jumped nearly 12%, or $4.61, to $43.40 on the New York Stock Exchange.
For the year, Reliance earned $169.7 million, or $5.19 a share, up 399% from the $34 million, or $1.07 a share, earned in 2003. Sales hit $2.9 billion, a 56% increase.
The company increased its annual gross profit margin to 28.3% from 27.1% for 2003 by controlling expenses and raising product prices in anticipation of higher raw material costs, Reliance spokeswoman Kim Feazle said. Tight supplies of iron ore and scrap metal drove up prices for steel worldwide in 2004.
Though he doesn’t expect metal prices to grow as steeply as they did last year, Hannah predicted that 2005 “will be another outstanding year when compared with all years other than 2004.” Reliance estimated a first-quarter earnings range of $1.05 to $1.15 a share, which exceeds Wall Street’s estimate of 98 cents.
“It’s the best earnings year for the industry in decades,” said Mark L. Parr, an analyst at Keybanc Capital Markets. “What the market is looking for in ’05 is some sort of stabilization at a higher pricing level.”
Keybanc is a division of McDonald Investments Inc., which has an investment banking relationship with Reliance.
One of the biggest companies in the metals services industry, which has been consolidating rapidly, Reliance went on a buying binge after going public in 1994, said Bob Weidner, president of the Metals Service Center Institute.
Since then, Reliance has acquired 32 smaller companies. Its last acquisition was in 2003.
“Companies have cleaned up their balance sheets, they have cash and they’re ready to make acquisitions,” Weidner said.
Reliance paid down $64.4 million in debt in 2004 and has about $300 million available in credit, which has given the company additional “wiggle room” for acquisitions, Feazle said.
