Metals service centers operator Reliance Steel and Aluminum Co. (RS) on Tuesday provided earnings forecast for the third quarter, above analysts' expectations. While reporting second quarter financial results back in July, the company noted that it was not comfortable providing earnings guidance for the 2009 third quarter, citing continued uncertainty in business conditions. The Los Angeles, California-based company also announced an amendment to its existing $1.1 billion revolving credit facility.
Reliance Steel & Aluminum is one of the largest metals service center companies in the U.S., with a network of more than 200 locations in 38 states, Belgium, Canada, China, Mexico, Singapore, South Korea and the U.K. The company provides metals processing services and distributes a full line of more than 100,000 metal products.
The company now sees third quarter earnings to be in a range of $0.40 to $0.45 per share, above the consensus estimate. In July, the company had declined to provide specific guidance, but said it expects to be profitable in the third quarter.
On average, eight analysts polled by Thomson Reuters expect the company to report earnings of $0.31 per share for the third-quarter, with estimates ranging from $0.17 to $0.52 per share. Analysts' estimates typically exclude special items.
In late August, the company had said its July 2009 FIFO gross profit margins increased from the historically low margins that it experienced in the 2009 second quarter. However, the higher FIFO gross profit margins have continued into September, due to inventory reflecting more current costs and due to mill price increases for many of its products. This is reflected in the company's third quarter earnings forecast.
Meanwhile, the company added that it has not seen any meaningful improvement in demand, although average shipping volumes per day have improved slightly from the low in July.
While reporting second quarter financial results back in July, chairman and chief executive officer, David Hannah said, "We do believe that the worst is behind us, but overall we don't anticipate any meaningful improvement in demand for the balance of the year. There is some good news, however, on the pricing side where it appears that we have bounced off the bottom as pricing on most all our products is increasing some."
"That, coupled with a better inventory position, should lead us to better gross profit margins in the second half of the year. Due to the continued uncertainty regarding economic conditions, we are not comfortable providing earnings guidance for the 2009 third quarter, except to state that we do expect to be profitable. We will, as the quarter progresses, communicate any meaningful information regarding our operations as it becomes available," Hannah told at that time.
Reliance Steel & Aluminum is scheduled to announce financial results for the third quarter and nine months ended September 30, 2009 on Thursday, October 22, 2009.
For the second quarter, Reliance Steel & Aluminum reported a loss compared to a profit in the prior-year quarter. Net loss was $5.79 million or $0.08 per share, compared to net income of $156.60 million or $2.12 per share in the year-ago quarter. Quarterly net sales declined to $1.24 billion from $2.10 billion a year ago.
In addition, the company today amended its existing $1.1 billion revolving credit facility, related to adjustments in certain financial covenant ratios and limiting certain uses of cash through June 30, 2010. Apart from the pricing adjustments, the company also adjusted the term for $1.02 billion of the current $1.1 billion revolving credit facility, extending it for an additional year up to November 2012 from November 2011.
Additionally, the company used $194 million of cash on hand and $250 million of borrowings on the credit facility to pay off and terminate its term loan that had an outstanding balance of $444 million. The credit facility amendment and extension was led by Bank of America Merrill Lynch.
Last week, KeyBanc Capital upgraded Reliance Steel & Aluminum shares to 'Buy' from 'Hold' with a price target of $54. The brokerage increased its 2009 EPS estimate to $1.35 from $0.85, and its 2010 estimate to $2.85 from $2.60.
In Tuesday's regular trading session, RS is currently trading at $43.60, up $1.34 or 3.17% on a volume of 0.88 million shares. In the past 52-week period, the stock has been trading in a range of $12.58 to $44.76.
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